On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law. The DTSA is an expansion of the Economic Espionage Act of 1996 and generally authorizes a civil action in federal court for the misappropriation of a trade secret that is “related to a product or service used in, or intended for use in, interstate or foreign commerce.”
Prior to enactment of the DTSA, the law only authorized criminal actions at the federal level for trade secret misappropriation, which have to be brought by a federal prosecutor. Civil actions, on the other hand, could only previously be brought under state law. With the enactment of the DTSA, a federal civil action for trade secret misappropriation is now available to trade secret owners, without preempting any other state or federal law.
There are a number of key aspects to the new law. Generally, in addition to authorizing a private civil action in federal court for theft of trade secrets, the DTSA provides for the ex parte seizure of a defendant’s property, as well as a number of other remedies, some of which differ from those available in state civil actions. However, the aspect requiring the most immediate attention for employers is the notice requirement regarding whistleblower immunity.
The DTSA provides immunity to individuals for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and is made solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document filed under seal in a lawsuit or other proceeding. This immunity applies to both criminal and civil actions under either federal or state trade secret law.
The DTSA also states that an individual can use trade secret information in a lawsuit against an employer for retaliation for reporting a suspected violation of law. However, the permitted disclosure in anti-retaliation lawsuits is only to the individual’s attorney, or for use in court documents filed under seal, as long as the individual has not otherwise disclosed the trade secret without a court order.
EMPLOYER NOTICE REQUIREMENT
In order for an employer to ensure its ability to pursue exemplary damages or attorney fees in a federal civil action for trade secret misappropriation against an employee, the employer must provide notice of these immunities to their employees. An “employee,” as defined by the statute, includes any individual performing work as a contractor or consultant for the employer.
The notice must be provided in any contract or agreement with such an employee that governs the use of a trade secret or other confidential information. Accordingly, such agreements will typically include employment agreements and non-disclosure agreements, but could include any agreement with employees having confidentiality provisions.
As an alternative to providing the specific notice in all such contracts and agreements, employers may instead include a cross-reference in the contract or agreement to a policy document provided to the employee that sets forth the employer’s policy for reporting a suspected violation of law.
This notice requirement applies to contracts and agreements that are entered into or updated after the date of enactment of the DTSA (i.e., after May 11, 2016). Failure to comply with the notice requirement will prevent an employer from recovering exemplary damages and attorney fees in a DTSA action against the employee.
While it is important to be aware of the new cause of action and remedies available under the DTSA, particularly when evaluating an incident of trade secret misappropriation, it is of immediate importance to include the above notice or cross-reference in all relevant contracts and agreements with employees, as well as update relevant policies should employers wish to use the cross-reference notice option. Failure to take this action now could result in potential loss of available remedies in the future.
Regardless of whether the cross-reference notice option is utilized, updating relevant company policies is recommended as a best practice. Moreover, as trade secret protection has become more important, now is an opportune time to revisit your company’s confidential information and trade secret policy and procedures as well.