Time for a Trade Secret Check-Up

Time for a Trade Secret Check-Up

 

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

 

 

The DTSA (Defend Trade Secrets Act of 2016) was enacted three and one-half 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 dissemination or use of a stolen trade secret, the right to payment of royalties from the misappropriating party or recipient of the stole trade secrets 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,  to the employee’s own attorney, or in a civil complaint or other court document, provided that the trade secret information be limited to use in the court proceeding only if necessary and provided every 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, so this requirement applies only prospectively to new agreements or amendments to established agreements.

    The consequence of failing to include an immunity clause is not clear. Congress did not include a penalty for failing to comply. However, any failure of compliance under the DTSA puts at risk a company’s right to seek relief under the DTSA.

    Takeaway

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

 

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Bill Egan

Bill Egan

I have 30+ years of experience representing executives, business owners, private enterprises and small-to-midsize public companies as an advisor, counselor and advocate on matters relating to the employment relationship. Informed by years of experience with both routine and unusual employment relationships and workplace situations, I bring a pragmatic, realistic and results-oriented perspective to issues arising in the workplace. Read Bill's Bio.

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