Breaking Down the DTSA From a Compliance Perspective

August 26, 2016 Zuman

For most businesses, the loss or theft of trade secrets can have irrevocable damages to the organization's internal operational structures. While these trade secrets aren't always at the forefront of the everyday business, their compromise can prevent a company from operating effectively.

It's with that sense of value in mind that on May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act of 2016. Effective immediately, the DTSA gave private companies legal recourse in case of trade secret misappropriation.

For business leaders, including those in HR departments, it's crucial to understand the scope of the law and how to remain in compliance. Doing so is essential to businesses safeguarding precious information and preventing obstructions to daily business.

Building on the past
The DTSA's primary objective is to defend the Economic Espionage Act of 1996. The EEA laid the essential framework for more effectively safeguarding trade secrets, empowering law enforcement agencies to prosecute in the case trade secrets were willfully stolen or otherwise misappropriation.

According to the official language of the DTSA, "An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce."

Under this clause, businesses can claim misappropriation on several fronts, whether the trade secret is intended for internal purposes or a product meant for interstate commerce is still in development.

The majority of U.S. states - save for Massachusetts and New York - have some level of protection at the state level thanks to the Uniform Trade Secrets Act. However, the DTSA only expands this coverage, offering companies access to federal courts.

Specific protective layers
The DTSA is an update to trade secret legislation like the EEA, which was tweaked slightly back in 2012. Because of its scope and impact on federal court jurisdiction, the DTSA has a number of important modifications, including:

•    More damages covered: Through the DTSA, employers can receive several forms of damage, including punitive and equitable remedies, plus attorneys' fees.
•    Set statute of limitations: Civil actions may occur up to three years after the original incident.
•    Broader access: Trade secret owners now have the right to enter into criminal court and explain their situation and the value of legal protection.
•    The immunity provision: Employees are protected from liability if they disclosed trade secrets in confidence, either to an attorney or government official.
•    Greater scope: The DTSA covers trade secrets across a number of documents and platforms, including employment agreements, severance reports, noncompete clauses and more.

Maintaining proper compliance

As with most other forms of legislation, the DTSA does require efforts from businesses to remain compliant. For those companies who want to stay avail of the law, there are several key steps to take:

Perform a through review
The most important step is for the company's lawyers to go over the documents and to ensure company policies are in line. This means ensuring the documents provided to employees reflect the changes, as with non-disclosure agreements and other performance policies. Not having the proper language within these documents, especially as it pertains to disclosure and immunity, can prevent businesses from filing suits under DTSA.

Develop a proper inventory
Just like with the review stage, it's essential businesses first understand the kind of informational content they have within the company. That is, are there any vital trade secrets that need to be safeguarded, and if so, who has access to these and where is this information located? Companies must once again rely on their internal counsel to help perform an audit to catalog secrets and take the necessary steps to protect them.

Do your due diligence
Ultimately, companies want to avoid potential issues with the DTSA as much as possible. One of the most effective ways to do just that is to make sure employees know how to maintain compliance, and that begins with proper on-boarding. Employees must be aware of how and why they should maintain confidentiality from day one and then receive regular training on all things related to trade secret information.

Take it to the cloud
Routine employee training is essential and will fall to a company's HR department to maintain. For these offices to have the ability to properly engage employees, they need to manage themselves as efficiently as possible. Cloud-based HR solutions can help HR manage their schedules and work to aid employees in everything as it relates to DTSA and other vital workplace functions.


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Zuman is the premium solution for HR, payroll, benefits administration delivering superior control, lower risk, and enhanced employee engagement for growing companies.

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