On May 11, 2016, the federal Defend Trade Secrets Act (DTSA) became law.  The DTSA provides trade-secret protections on the federal level that are similar to those available through the Uniform Trade Secrets Act (UTSA) adopted (with variations) in 48 States.  The DTSA will have at least three effects upon private funds, particularly those with public investors.

First, the DTSA has a broader definition of “trade secret” than the UTSA, which means that more fund materials (e.g., formation and governing documents) may now qualify for protection from disclosure under State open-records and open-meetings laws.  For example, where a State law provides that “other law” can exempt certain information from disclosure, the DTSA may now qualify as that separate basis to protect fund documents possessed by public investors.

Second, the DTSA independently may provide further protections for fund documents as “trade secrets” under its broader definition.  The DTSA (through the Economic Espionage Act of 1996) defines a “trade secret” to include “all forms and types of financial, business, scientific, technical, economic, or engineering information,” which is broader than the “information” without elaboration protected under the UTSA.

Further, while the UTSA only specifically includes “formula, pattern, compilation, program, device, method, technique, or process” as examples of protected “information,” the DTSA also lists plans, compilations, procedures, and codes, regardless of how they are memorialized and whether they are tangible or intangible.  These broader categories of specifically protected information may assist private funds not only in protecting information from disclosure under open-records laws, but may provide additional protection and enforcement options for unauthorized disclosure of fund documents or information.

Third, the DTSA may affect a private fund’s disclosure strategy and litigation options when unauthorized disclosure occurs.  The DTSA provides for ex parte civil seizure of trade-secret information in extraordinary circumstances, a remedy not previously available under the UTSA.  The DTSA, however, also grants civil and criminal immunity to whistleblowers who disclose trade secrets to the government in confidence, and requires employers to notify employees of whistleblower immunity.  Private funds should therefore consider reviewing employment manuals and contracts to account for these new whistleblower protections.

With the passage of the DTSA, private funds should be cognizant of their obligations regarding whistleblower immunity, and of potential new grounds to assert trade-secret protection and seek additional enforcement options where misappropriation occurs.

 

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Photo of William D. Dalsen William D. Dalsen

Will Dalsen is a senior counsel in the Litigation Department. His practice focuses on complex commercial litigation and high-stakes trials, with a particular emphasis on private credit, private equity, venture capital and hedge funds. Will is highly regarded for his deep knowledge of…

Will Dalsen is a senior counsel in the Litigation Department. His practice focuses on complex commercial litigation and high-stakes trials, with a particular emphasis on private credit, private equity, venture capital and hedge funds. Will is highly regarded for his deep knowledge of the private credit and private investment fund industries, and his ability to resolve disputes for both sponsors and portfolio companies.

Will provides counseling regarding creditor rights, lender liability, sponsor liability, operating company disputes, control rights, regulatory compliance, and investigations. He advises funds, fund sponsors, investment advisers, and institutional and individual investors. In addition, he has represented public and private corporations in contractual disputes, business tort cases, and government investigations.

Will leads all phases of the litigation process, including pre-suit investigations, negotiating discovery disputes and arguing discovery motions, deposing fact and expert witnesses, managing expert discovery, preparing and arguing dispositive motions, preparing witnesses for trial, and examining and cross-examining witnesses at hearings and at trial.

Prior to joining Proskauer, Will served for two years as a law clerk to Judge Susan Phillips Read of the New York State Court of Appeals, drafting bench memoranda and assisting with opinions in a variety of civil and criminal matters. In law school, Will was Editor in Chief of the Wisconsin Law Review and served as a judicial intern to the Honorable Shirley S. Abrahamson, Chief Justice of the Wisconsin Supreme Court.