Last week, the Defense of Trade Secrets Act (“DTSA”) was signed into law. The DTSA creates a federal legal scheme for the protection of trade secrets. Previously, protection of this form of intellectual property was solely a matter of state law, unlike patent, trademark and copyright, which have always been matters of federal law. The DTSA has a number of unique provisions, one of which immediately impacts employers who use confidentiality agreements with their employees. My colleague Mark Nieds and I offer the following summary of this new law.
Due to concerns over the impact that confidentiality agreements might have on employees who might otherwise report their employer’s wrongdoing to the government, an amendment was tacked on to the DTSA to provide civil and criminal immunity to whistleblowers under state and federal law for disclosing confidential or trade secret information to the government as part of whistleblowing activity.
In addition to providing this immunity to the whistleblower, the DTSA requires employers to provide notice of this whistleblower immunity to any employee or independent contractor in any employment contract or other agreement that governs the use of a trade secrets or other confidential information. This 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 suspected violations of the law. The following paragraph, which tracks the DTSA, is an example of language that could be incorporated to satisfy this new notice requirement:
An individual shall not be held criminally or civilly liable under a federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. Likewise, an individual shall not be held criminally or civilly liable under a federal or state trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order.”
What Employers Should Do Now
Importantly, this requirement is effective immediately, and applies to any confidentiality agreement entered into on or after May 12, 2016. Because this provision applies only after May 12, 2016, existing agreements are not impacted and do not have to be amended. If an employer fails to provide employees with notice of this whistleblower immunity, and the employer later has to litigate against an employee for misappropriation of trade secrets under the DTSA, the employer cannot recover any attorneys’ fees or exemplary damages which it might otherwise be entitled to for such misappropriation.
Because this provision goes into effect immediately, employers should review their confidentiality and employment agreements as soon as practical to ensure they contain the appropriate notice language to comply with the DTSA going forward. Similarly, any policy documents, such as employee handbooks, should be reviewed and updated to reflect this new twist in the law.