New Federal Trade Secret Law Requires Employer Action To Reap Full Benefits

October 19, 2016

Congress recently passed a new, comprehensive trade secret law called the Defend Trade Secrets Act (DTSA) (18 USC sec. 1832 et seq) that many employers will want to take full advantage of in the event they are the victim of employee misappropriation of proprietary information. However, to do so, employers must include special provisions in their typical employment documents as mandated by the new law.

There are a number of advantages for employers in the DTSA: a) automatic federal court jurisdiction for cases involving misappropriation of trade secrets; b) a provision authorizing early seizure (without notice) of trade secret information from the misappropriator; c) punitive damages (up to 2x actual losses); and d) attorneys’ fees. The new law does not displace state law remedies, but may afford employers an edge not always available under state law (e.g., punitive damages).

Here is the catch. To get all of these bells and whistles (punitive damages and attorneys’ fees, in particular) the employer must have included certain notifications for the benefit of employees in its confidentiality agreements or employment policies. The notifications all relate to an employee’s right to use or reveal trade secrets in certain socially desirable circumstances (as determined by Congress), which broadly fall under the heading of “whistleblowing.” In particular, the employee must be informed that he/she is protected from trade secret misappropriation liability:

  • if the disclosure of the trade secret is made in confidence to a federal, state, or local government official or an attorney for the sole purpose of reporting a suspected legal violation;
  • if the disclosure is made in a complaint or other document filed in a lawsuit, provided the filing is made under seal; or
  • if the trade secret is disclosed in connection with a retaliation lawsuit filed by the employee against the employer for reporting a violation of the law.

Companies are required to notify workers of these “immunities” in any new agreement (i.e., an agreement entered or updated after the effective date of the DTSA, May 11, 2016) governing the use of trade secrets or confidential information. Alternatively, an “employer shall be considered to be in compliance with the notice requirement . . . if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.”

Previously, to get into federal court on a trade secret theft case often required shoe-horning the case into statutory models (like the Computer Fraud and Abuse Act) that were not always a good fit. Now, the DTSA opens up the federal courts to virtually all trade secret theft cases, and adds powerful tools not always available under state law.

In order to be in a position to take full advantage of the DTSA, employers will want to update their typical employment documents (Non-Disclosure Agreements, Confidentiality Agreements, Non-Competition Agreements etc.) to include the mandated notifications or to address the issues in a new or updated written employment policy.

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