President Obama signed the Defend Trade Secrets Act of 2016 (the “DTSA”) on May 11, 2016. With his signature, your company’s standard employee intellectual property agreements, third party non-disclosure agreements and other form contracts that relate to the use of trade secrets likely became out-of-date, if not obsolete. In order to take advantage of some of the DTSA’s new remedies, your company’s standard agreements related to trade secrets will need to meet new requirements when they are signed by new employees and contractors or revised and updated companywide.
As Bryan Cave has previously explained, the DTSA created a new federal cause of action for the misappropriation of trade secrets. This new cause of action includes the chance to obtain up to twice the amount of damages awarded as additional, exemplary damages and attorneys’ fees if the trade secrets were “willfully and maliciously misappropriated.”
But in order to get exemplary damages and attorneys’ fees in the new federal cause of action, your company’s agreements that have been entered into or updated since the signing of the DTSA need to comply with the DTSA’s notice of immunity requirement.
The DTSA includes a provision that provides immunity to employees (including contractors and consultants) that disclose trade secrets to federal, state, or local government officials, or to an attorney, “solely for the purpose of reporting or investigating a suspected violation of law” or if the trade secret is disclosed “in a complaint or other document filed in a lawsuit or other proceeding if such filing is made under seal.” The DTSA also allows an employee to use trade secrets in retaliation suits if certain precautions are taken.
Going forward, new agreements related to the use of trade secrets need to either (1) include a notice regarding the DTSA’s immunity provision, or (2) “provide 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.” Without the DTSA notice or the appropriate cross reference, an employer cannot obtain exemplary damages or attorneys’ fees under the DTSA.
Agreements that had already been signed prior to the enactment of the DTSA are unaffected so long as they are not updated post-DTSA enactment. But if a form company agreement is signed by a new employee hired post-DTSA, or the company has all employees sign a new version of a standard agreement, it must comply with the notice requirement.
As a best practice, your company should review its standard agreements that relate to the use of trade secret information by employees, consultants and contractors and update them with the necessary language to take full advantage of the remedies provided by the DTSA.