Federal Defend Trade Secrets Act Imposes New Notice Obligations on Employers
On April 27, 2016, Congress passed the Defend Trade Secrets Act of 2016 ("DTSA"), which was signed into law by President Obama on May 11. In addition to making important changes regarding trade secrets protection, the DTSA imposes a significant new notice requirement 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 in the course of 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 and the court under seal, in the event that the individual files a lawsuit for retaliation by an employer allegedly as the result of reporting a suspected violation of law to a government entity. In addition, the DTSA requires that employers give notice to their 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.
Impact of Failing to Provide Notice
If a company does not provide the required notice, the remedies available to the company in a lawsuit to enforce its rights under the DTSA will be limited. Specifically, if a company 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 or attorneys' fees under the DTSA.
Steps to Consider
In view of the enactment of the DTSA, human resources and legal departments should consider taking the following steps to comply with the DTSA notice requirement and preserve all remedies available under the DTSA:
Identify all documents that govern the use of trade secrets or confidential information by employees, contractors, and/or consultants. Examples of documents 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.
Once all the relevant documents have been identified, include language in them that provides the employees, consultants, and contractors with notice of the following:
- Nothing in the document is intended to interfere with or discourage a good faith disclosure to any governmental entity related to a suspected violation of the 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 as long as 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, as long as such filing is made under seal.
- The company will not retaliate against the individual in any way for a disclosure made in accordance with the law.
- In the event a disclosure is made, and the individual files a lawsuit against the company alleging that the company retaliated against the individual because of his or her 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 language used in any particular document will vary depending on the company and its particular trade secret protection program. Employers should contact a legal professional to discuss how revisions should be made to form documents moving forward. For more information on the DTSA and its impact on trade secret protection, please see the Jones Day Alert: "New Federal Trade Secret Act Expands Trade Secret Rights."
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.
Michael J. Gray
Brian M. Jorgensen
M. Carter DeLorme
Terri L. Chase
Brent D. Knight
Steven M. Zadravecz
Irvine / Los Angeles
+1.949.553.7508 / +188.8.131.525
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