Time for a Trade Secret Check-Up

Jan. 21, 2019

Most employee-employer agreements (e.g., employment, non-compete, intellectual property rights, change-in-control and severance) include a provision that restricts an employee from disclosing trade secrets and other confidential or proprietary information owned by the employer, except in specific, narrow circumstances. A frequently overlooked compliance requirement in these agreements is a DTSA immunity provision. 


The DTSA (Defend Trade Secrets Act of 2016) was enacted nearly three years ago as an amendment to the Economic Espionage Act of 1996.  That amendment created a federal cause of action for businesses for trade secret misappropriation and included powerful trade secret enforcement remedies not always available at the state level. (Before 2016, the misappropriation of trade secrets generally was regulated only on a state-by-state basis.) These remedies included the right of a business to an ex parte order for seizure of property as necessary to prevent the propagation or dissemination of a stolen trade secret, payment of royalties, and attorney’s fees when the misappropriation is in bad faith.


Congress also added (at the last minute) certain protections for individuals against whom trade secret violations often are asserted – employees and ex-employees.  Among those protections is immunity from criminal prosecution or civil liability under any trade secret law (not just the DTSA), provided that the individual makes the disclosure of the trade secret:

  1.  in confidence to a federal, state, or local government official, either directly or indirectly, or to a private attorney, solely for the purpose of reporting or investigating a suspected violation of law; or
  2. in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; or
  3. in connection with a whistleblower retaliation lawsuit either to his or her own attorney or in a civil complaint or other court document, provided that the trade secret information may be used in the court proceeding only if necessary and if any document containing the trade secret is filed under seal.


Notably, the DTSA requires that these immunity provisions be directly included or cross-referenced “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  This requirement is applicable to all such contracts that were entered into after May 2016.  The immunity notice requirement applies only prospectively to new agreements or amendments to established agreements.


Takeaway

All businesses should update all of their standard NDAs, non-compete, employment and severance agreements to ensure that they are DTSA-compliant.              

Written By:
Bill Egan

Bill Egan is a Seasoned Employment Law Attorney backed by over 33 years of proven, veteran experience. He specializes in navigating businesses through conflict resolution in the workplace.

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