Employee Notice Requirement of Defend Trade Secrets Act
Nicholas Fortuna, June 17, 2016
On May 11, 2016 President Obama signed into law the Defend Trade Secrets Act (DTSA), which is an expansion of the Economic Espionage Act. The law provides for the first time a federal cause of action for misappropriation of trade secrets. Previously, state law governed all claims regarding trade secrets.
Trade secrets typically include formulas, patterns, compilations, programs, devices, plans, methods, techniques or processes. To be protected, certain common elements must exist: the information is not publically known, reasonable measures have been taken to protect the information, and there is economic value in keeping such information secret. Examples of trade secrets include marketing and business plans, designs, proprietary computer programs, and manufacturing information.
DTSA provides robust trade secret protection, such as seizure of property “to prevent the propagation or dissemination of the trade secret. In addition to seizures, courts may grant an injunction, award monetary damages, punitive damages, and attorneys’ fees. It also gives immunity protection for whistle-blowers. The immunity provisions allow employees to avoid criminal and civil liability for the disclosure of a trade secret to a governmental official or to an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or for use in an anti-retaliation suit.
There is a notice requirement in the DTSA. If an employer fails to give notice of the immunity provisions to an individual in the manner prescribed, the employer cannot recover punitive damages or attorneys’ fees in a DTSA action.
The notice applies to all “contracts and agreements that are entered into or updated after the date of enactment of this subsection.” An employer will not be penalized because existing agreements do not contain a notice of immunity provision. Only new and updated agreements that govern the use of trade secrets or confidential information must comply with DTSA’s notice requirements. To comply, an employer must either incorporate the immunity terms in the contract itself, or include in such contract a cross-reference to the employer’s whistle-blower policy containing the requisite provisions. The notice must be given to contractors, consultants, and employees, and pertains to any agreement governing the use of a trade secret or other confidential information. If an employer fails to give notice of the availability of immunity to an individual in the manner prescribed by the DTSA, the employer cannot recover punitive damages or attorneys’ fees in a DTSA action.
An example of immunity language that should be included in agreements governed by the DTSA would be the following:
An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a Federal, State, or local governmental official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in a court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.
Employers should review and update their agreements and incorporate the provisions of the DTSA to ensure maximum protection against misappropriation of trade secrets and confidential information.