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May 6, 2016Client Alert

Defend Trade Secrets Act: Notice Requirement

On April 27, 2016, Congress passed the bill known as the Defend Trade Secrets Act. President Obama is expected to sign this bill into law shortly. An alert explaining the new law, which we recently published, can be found here. The new law creates a federal cause of action for misappropriation of trade secrets. Substantively, the law does not materially change the trade secret protections provided by most state laws.

The new law, however, also requires employers to provide a notice of immunity to potential whistleblowers, which must be included in new agreements executed after the effective date of the Act. Failure to comply with the new notice requirement may prevent an employer from recovering exemplary damages or attorney fees in federal actions brought against an employee to whom notice was not provided. The notice must explain that if an employee reports something in confidence to the government or an attorney “solely for the purpose of reporting or investigating a suspected violation of law,” the employee is immune from trade secret civil or criminal liability if some of what the employee reports constitutes a trade secret. The notice must also explain that employees may disclose trade secrets “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Similarly, if an employee files a lawsuit alleging retaliation for whistleblowing, the employee is immune from trade secret liability for disclosing trade secrets in the course of that lawsuit, provided the employee files the documents containing trade secrets in court under seal.

It is not clear that plaintiffs will use the new federal law often. In many cases, plaintiffs will continue to use state law, which provides roughly the same protection in most cases. If plaintiffs use the new federal law, however, they will lose some remedy rights if they do not provide required notice language.

There is strategic thinking involved in deciding whether to use the required language. Moreover, the new federal law permits employers to reference a whistleblower policy which contains the required notice, instead of including the language directly in agreements.

Employers should consider adding the following language, which comes directly from the statute, to any new contract or agreement that you have with your employees that governs the use of a trade secret or other confidential information.

Immunity from liability for confidential disclosure of a trade secret to the government or in a court filing

(1) Immunity: An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that – 
        (A) is made – 
            (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and 
            (ii) solely for the purpose of reporting or investigating a suspected violation of law; or 
        (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

(2) Use of Trade Secret Information in Anti-Retaliation Lawsuit: An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual – 
    (A) files any document containing the trade secret under seal; and 
    (B) does not disclose the trade secret, except pursuant to court order.

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