Congress recently enacted a new law designed to give additional protection to trade secrets and other confidential information maintained by businesses. The “Defend Trade Secrets Act of 2016” (DTSA) creates a federal cause of action for trade secret misappropriation and provides additional remedies for employers.
Historically, trade secret law has been enforced in state courts, which has led to a patchwork of inconsistent decisions throughout the country. Most states have now adopted a version of the Uniform Trade Secrets Act, which has lessened the inconsistencies. Under the DTSA, however, the federal system will develop its own body of law, allowing an employer to strategically decide whether to sue in state court or federal court.
Of immediate interest to employers is a notice that must be provided to employees and independent contractors operating under agreements that govern the use of trade secrets and other confidential information (jointly referred to as “trade secrets”). These include employment agreements, confidentiality agreements, and certain handbook policies. The DTSA provides “whistleblower” immunity to individuals who disclose trade secrets to an attorney or government official for the purpose of investigating or reporting violations of law.
The DTSA requires the employer to provide this whistleblower immunity notice in any contract or agreement with an employee that addresses trade secrets. Failure to provide the notice will prevent the employer from possibly recovering exemplary (double) damages and attorney fees in a federal lawsuit against the employee who wrongfully disclosed the trade secrets.
We recommend employers update existing employment agreements, confidentiality agreements, and handbook policies that address confidentiality to include the whistleblower immunity notice. Going forward, new agreements and policies should include the required notice. Agreements and policies that specify governing law and jurisdictions for bringing suit should include federal law and federal court as an alternative.
If you are an employer considering trade secret litigation, you should consult with experienced litigation counsel regarding whether state or federal court may put you in a better strategic position. In addition, this is a good opportunity for you to take stock of your company’s trade secrets and adopt appropriate measures to keep those trade secrets secure.