New Federal Trade Secrets Law Enacted

The newly-enacted Defend Trade Secrets Act of 2016 (“DTSA”) provides businesses with a federal cause of action for trade secret misappropriation and a variety of available remedies, including injunctive relief for both actual and threatened misappropriation, compensatory damages, punitive damages (no greater than two times compensatory damages awarded), and attorneys’ fees. In extreme circumstances, courts may even issue orders directing federal officials to seize property containing a misappropriated trade secret.

Signed into law on May 11, 2016, the DTSA acts as a supplement to state laws which, in turn, preserves plaintiffs’ options in regards to filing claims in either state or federal court. Most states, including Pennsylvania, have adopted some version of the Uniform Trade Secrets Act (“UTSA”), which generally affords a cause of action for trade secret misappropriation under state law.  The DTSA’s enactment provides uniformity across the patchwork of state laws while also creating pathways to injunctive relief and monetary damages to preserve evidence, prevent disclosure, and account for economic harm to businesses.

One widely-overlooked aspect of the DTSA is the obligation it imposes on employers to notify employees, consultants, and independent contractors of certain whistleblower immunity provisions contained in the statute. Failure to do so renders employers ineligible to recover punitive damages and attorneys’ fees, thereby offsetting a sizeable portion of the remedial benefits afforded under the DTSA.  Thus, it is critically important for employers to ensure that their standard employment and confidentiality agreements are up-to-date and compliant with the DTSA’s notification requirement.

The DTSA states, “An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” In essence, employers are required to provide employees with notice that they are entitled to immunity if they disclose a trade secret to a government official or in the course of a lawsuit for the purpose of reporting a suspected violation of the law.

While the statute itself offers little guidance as to the manner and degree of notice required, the safest course of action is to notify employees of the full extent of the immunity. This can be accomplished in one (1) of the following two (2) ways:

  1. Incorporate specific language set forth in the DTSA into all employment-related documents governing the use of trades secrets and confidential information; or
  2. Insert into all employment-related documents a cross-reference to a policy document provided to the employee that sets forth the employer’s policy and procedures for reporting a suspected violation of law.

Whether incorporated into the body of the employment-related document or cross-referenced, the policy language used by employers should mirror that of the DTSA, and may appear as follows:

Pursuant to the Defend Trade Secrets Act of 2016, I understand that:

An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for disclosure of a trade secret that: (a) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Furthermore, I understand that 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 the court proceeding, if the individual: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.

By taking the above steps to ensure compliance with the DTSA, employers can rest assured that they have availed themselves of the full extent of monetary relief available under a federal cause of action for misappropriation of trade secrets. Contact Brian Walsh at bww@mbm-law.net or John Prorok at jhp@mbm-law.net for additional information relating to this article.

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