Defend Trade Secrets Act of 2016: Does It Impact You?
June 17, 2016
The US Congress has created a new federal law, the Defend Trade Secrets Act of 2016 (“DTSA”), that allows parties to use the federal courts to protect their trade secrets where trade secret(s) have been misappropriated if the trade secret is related to a product or service used in or intended for use in, interstate or foreign commerce. Before this new law, most plaintiffs had to rely on a state’s version of the Uniform Trade Secrets Act (“UTSA”) or contract provisions, if any, they may have used to protect such information.
In fact, the DTSA is similar to the UTSA in many respects although under DTSA, there is a longer statute of limitations and it provides an ex-parte seizure process that is only available in extraordinary circumstances. One key action point for employers under DTSA is a new notice of immunity requirement to employees and contractors in contracts that govern the use of a trade secret or other confidential information. The DTSA provides immunity under state and federal law for employees and individual contractors or consultants of an employer who disclosure trade secrets (i) in confidence to a Federal, State, or local government officials, or directly or indirectly or to an attorney solely for the purpose of reporting or investigating a suspected violation of trade secret law; or (ii) made in a complaint or other document filed in a lawsuit or other proceeding if the filing is made under seal and not disclosed except by court order. Such an individual that files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to their attorney and use the trade secret information in the court proceeding if it is filed under seal and not disclosed except by court order.
Employers are required to provide notice of this immunity to their “employees” which for purposes of the DTSA is broadly defined to include “any individual performing work as a contractor or consultant for an employer”. Employers may satisfy this requirement by cross-referencing another policy document that has been provided to the employee. This requirement applies to contracts and agreements entered into or updated after the date of enactment which was May 11, 2016. Regardless of how the employer chooses to comply, employers will be required to update their applicable agreements and policies to comply with the DTSA. Failure to provide the notice prevents recovery of exemplary damages and attorney’s fees under the DTSA in an action against an employee that did not receive the notice.
The DTSA provides a new and effective tool for the protection of trade secrets. Parties are advised to review their consulting, non-disclosure, confidentiality, and non-compete agreements to determine whether they should be revised in light of the DTSA. Feel free to contact us concerning drafting such agreements, protecting trade secrets, and the DTSA.