On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law, which takes effect immediately. Apart from adding fresh arrows into the quivers of companies that seek to prevent trade secret theft, it also creates new obligations for employers and opens the door for workers to disclose trade secrets under certain circumstances.
First, the new law provides immunity to persons from civil and criminal liability under both federal and state trade secret law for the disclosure of a trade secret that is (1) made in confidence to a federal, state, or local government official or to an attorney for the sole purpose of reporting or investigating a suspected violation of law; or (2) made in a filing under seal in “a lawsuit or other proceeding.” The statute also includes a provision that further specifies that an individual “who files a lawsuit for retaliation by an employer for reporting a suspected violation of law” may disclose the trade secret to his attorney and use the trade secret information in the court proceeding, if the individual files the documents containing the trade secret under seal, and does not disclose the trade secret except by court order.
The DTSA requires that employers provide notice to their employees, consultants, and contractors of the immunity available
Second, the DTSA requires that employers provide notice to their employees, consultants, and contractors of the immunity available in the circumstances described above. Employers must provide such notice “in any contract or agreement with an employee [consultant, or contractor] that governs the use of a trade secret or other confidential information.” An employer will be considered to satisfy this notice requirement “if the employer provides a cross-reference to a policy document provided to the employee [consultant, or contractor] that sets forth the employer’s reporting policy for a suspected violation of law.” This notice requirement appears to apply only prospectively, as the statute specifies that the requirement “shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.” Accordingly, preexisting agreements likely need not be updated to conform to the new law.
An employer’s failure to comply with this notice requirement will result in a significant reduction in the employer’s remedies for a violation of the DTSA. Specifically, an employer that fails to provide such notice but later sues an employee, consultant, or independent contractor for trade secret misappropriation under the DTSA will not be able to recover punitive damages or attorney fees under the DTSA, even if it wins. In light of the new notice requirements, employers should review agreements and policy documents likely to include trade secret, confidentiality, or similar provisions to ensure prospective adherence to the requirements of the DTSA.