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The Defend Trade Secrets Act of 2016: Good News for Franchisors and other Companies with Trade Secrets

In May of this year, President Obama signed into law the Defend Trade Secrets Act of 2016 ("DTSA"), which creates a federal cause of action for trade secret misappropriation. Before the passage of this Act, the only cause of action for trade secret misappropriation was in state court. Most states have adopted a version of the Uniform Trade Secrets Act ("UTSA"), which provides a state cause of action for trade secret theft.

For franchisors and other companies with trade secrets, a federal cause of action is good news. Owners of trade secrets still have the option to bring a trade secrets misappropriation suit in state court. However, pursuing any cause of action in federal court is quicker than in state court, as federal Judges have much lighter caseloads. Speed is key in particular for trade secret cases because the longer an adversary uses a trade secret, the more damage will be caused and the lower the chance of protecting the trade secret.

Before the DTSA, trade secret case law was only available on the state level and could be unpredictable, with a mix of different decisions from various state courts. Federal trade secret case law should create more predictability and continuity in decisions for trade secret misappropriation cases. This will help franchisors and other companies create a clearer picture of exactly what their trade secret protection programs need to entail so that they have a solid case in the event that an individual or company acquires their trade secret by improper means.

The DTSA provides that a successful plaintiff may recover punitive damages and attorney's fees from a defendant who is found to have wrongfully taken and/or used trade secrets.

Section 6 of the DTSA requires that employers give employees notice of the immunity and anti-retaliation provisions in the Act. The consequence of not giving notice is that employers would not be able to collect punitive damages or attorney's fees if they bring a trade secret misappropriation suit against the employee to whom notice was not given. Thus, employers should contact their attorney to have this notice added to employment agreements, non-competition agreements, non-solicitation agreements, non-disclosure agreements, and other agreements relating to employees. 

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