The Defend Trade Secrets Act of 2016 became effective when President Obama signed it into law on 11 May, 2016. The DTSA is intended to amend the 1996 Economic Espionage Act on how the federal government deals with trade-secret misappropriation in private companies. The new act only deals with misappropriations that have occurred since the law became effective.
The DTSA supplements existing state law remedies without pre-empting or eliminating them. Significantly, it gives employers the right to access federal court irrespective of how controversial a case may be. Although laws vary from one state to another, the act applies uniformly across the states. These make it different than the Uniform Trade Secrets Act that most states have already adopted in some form.
There are similarities between DTSA and UTSA, however. They both allow employers to obtain:
• Punitive damages
• Actual damages
• Equitable remedies
• Reasonable attorneys’ fees
In some extreme situations, the DTSA also includes the ex parte seizure order remedy.
The act includes anti-retaliatory and immunity provisions that protect persons who may have to disclose the secrets. It protects people who may need to disclose such secrets under any state or federal law if the disclosure is:
• In confidence to a local, state or federal government or an attorney, either directly or indirectly, solely for investigating or reporting a suspected violation
• In a document filed in a proceeding such as a lawsuit if the filing has been made under seal
In addition, if employees sue their employers for retaliating when they report suspected violation of law, the employees may be allowed to disclose the secrets to their attorneys. They may also use the information from the secrets in court proceedings if they make the disclosures following court orders and do so under seal.
The agreements that employers make with their employees, independent contractors and consultants after May 11, 2016 should give notice of the retaliation and immunity provisions. This requirement concerns:
• Employment agreements
• Consulting agreements
• Independent contractor agreements
• Severance agreements
• Separation & release of claims agreements
• Confidentiality & proprietary rights agreements
• Non-compete & non-solicitation agreements
• Similar agreements in different employee handbooks
Employers who do not provide the notice cannot recover attorneys’ fees or punitive damages. Although the law does not provide specific penalty against such employers, they may face adverse consequences in government audits or from the contractual perspective. Below is a sample notice of immunity from liability for certain disclosures that may be similar to what you should include in agreements:
No individual will be held criminally or civilly liable under any federal or state trade secret law for a disclosure of a trade secret, as long as the disclosure is made:
• in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely to report or investigate a suspected violation of law; or
• in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
This Section is intended to comply with the immunity provided by the United States Code from liability resulting from disclosures of trade secrets under the conditions described in this Section. Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b). If there is a conflict between this Section and any other Section, this Section will control.
Employers should consult legal counsels to help them create or revise employment-related documents that deal with confidential information and reporting policies that comply with the Defend Trade Secrets Act of 2016. They must also ensure that the staffs in their human resource departments are conversant with the notice requirements and incorporate them in relevant documents.
Please contact the Law Office of David A. Ison today for additional questions about how this could affect you or your business.