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New Federal Defense of Trade Secrets Act Requires Employers to Re-Examine Employee Confidentiality Agreements
This week, President Obama signed the Defense of Trade Secrets Act (“DTSA”) into law, providing owners of trade secrets new federal protections against trade secret misappropriation. The new law has several features which will be discussed (and inevitably litigated) over the months and years to come, including a provision allowing courts to issue ex parte seizure orders of property containing misappropriated trade secrets, a definition of trade secrets broader than the definition in the Uniform Trade Secrets Act (UTSA), and a definition of misappropriation narrower than the one in the UTSA. For employers, however, a provision of the act may require that longstanding confidentiality agreements be re-examined.
Apparently concerned about the chilling effect that confidentiality agreements may have upon whistleblowers who otherwise may report employer wrongdoing to the government, the DTSA amends existing federal law to provide immunity to whistleblowers who disclose confidential information to the state or federal government solely for the purpose of reporting or investigating a suspected violation of the law. See 18 U.S.C. 1832. That immunity extends to both civil and criminal liability, and to any potential liability under state or federal law for disclosing confidential or trade secret information to the government as part of whistleblowing activity.
The DTSA goes further than providing immunity, however. It goes on to require that an employer is required to provide notice of whistleblower immunity to any employee or independent contractor in any contract or agreement that governs the use of a trade secret or other confidential information. That notice requirement can be satisfied by including notice in the agreement itself, or by explicit cross-reference to a policy document that describes the employer’s reporting policy for a suspected violation of the law. See 18 U.S.C. 1833(b). This requirement is effective immediately, and applies to any confidentiality agreement entered into on or after May 12, 2016.
Employers who fail to comply with this new requirement of the DTSA subject themselves to a relatively minor sanction. Specifically, should the employer at some point in the future sue an employee for misappropriation of trade secrets under the DTSA who was not given the required notice, that employer cannot recover either attorneys’ fees or exemplary treble damages to which it otherwise would be entitled.
This change requires a review of any current confidentiality agreements entered into going forward to ensure that they comply with this new requirement. While existing contracts are not affected, new agreements should be revised to ensure that they comply with these new legal requirements.