On May 11, 2016, the Defend Trade Secrets Act of 2016 (“DTSA”), was signed into law. In addition to making significant changes regarding trade secrets protection, the DTSA imposes significant new notice requirements on employers related to employees’ (and consultants’ and contractors’) whistle-blowing rights.
Immunity and Notice
Section 7 of the DTSA grants both criminal and civil immunity to individuals who disclose trade secrets or other confidential information when reporting a suspected violation of the law to a governmental entity. Section 7 further authorizes an individual to disclose the trade secret information to his/her attorney. The statute also provides immunity for disclosure of the trade secret to a court if a lawsuit is filed under seal alleging retaliation for reporting a suspected violation of law to a government entity. Finally, the DTSA requires that employers give notice to employees, contractors, and consultants of these two protections in any contracts or agreements that govern the use of trade secrets or confidential information. This notice requirement is prospective. Thus, only covered contracts and agreements signed by employees, contractors, and consultants after the enactment of the law must include the notice. Nonetheless, we recommend that all such contracts and handbooks addressing trade secrets or confidential information be revised to provide this notice.
Failure to Provide Notice
Failure to provide the required notice results in preclusion of otherwise available remedies in a lawsuit seeking to enforce rights under the DTSA. Specifically, if a company successfully files a lawsuit under the DTSA against an employee, consultant, or independent contractor for disclosure of a trade secret protected by a written agreement that does not contain the required notice provision, the company cannot recover exemplary damages (double damages) or attorneys’ fees under the DTSA.
Changes to Make Now
We recommend employers take the following steps now to comply with the DTSA notice requirement and preserve all remedies available under the DTSA:
Identify all documents governing the use of trade secrets or confidential information by employees, contractors, and/or consultants. Examples that may fall into this category include, but are not limited to employee handbooks, proprietary information agreements, nondisclosure agreements, employment agreements, noncompete agreements, offer letters, consulting agreements, and severance agreements.
After all the relevant documents have been identified, include language in them to provide employees, consultants, and contractors with notice of the following:
- Nothing in this document is intended to interfere with or discourage a good faith disclosure to any governmental entity related to a suspected violation of law.
- The individual cannot and will not be held criminally or civilly liable under any federal or state trade secret law for disclosing otherwise protected trade secrets and/or confidential or proprietary information provided the disclosure is made in (i) confidence to a federal, state, or local government official, directly or indirectly, or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) a complaint or other document filed in a lawsuit or other proceeding, provided such filing is made under seal.
- The company will not retaliate against the individual for disclosure made in accordance with the law.
- In the event a disclosure is made, and the individual files a lawsuit against the company alleging retaliation as a result of the disclosure, the individual may disclose the relevant trade secret or confidential information to his or her attorney and may use the same in the court proceeding only if (i) the individual ensures that any court filing that includes the trade secret or confidential information at issue is made under seal; and (ii) he or she does not otherwise disclose the trade secret or confidential information except as required by court order.
The notice language used in any particular document may vary depending on the company and the particular trade secret at issue. Passage of the Defend Trade Secrets Act of 2016 marks a significant step in trade secret litigation. Faulkner Law Offices, PLLC can help you to implement these changes.