The Defend Trade Secrets Act of 2016 (“DTSA”) federalizes trade secret protection, as well as preserves state law trade secret protections. The Act provides a uniform definition of trade secrets, a uniform standard for misappropriation, extends federal civil protection to trade secrets and allows companies and individuals to file private lawsuits to remedy a wrongful taking of their trade secret information.
This article focuses on the DTSA’s notice requirement and explains the steps employers should take immediately to preserve the full range of remedies available for trade secret misappropriation.
DTSA’s Notice Requirement for Employers
The DTSA requires employers to include a notice provision of whistleblower immunity in any contracts with employees, contractors or consultants that include provisions restricting the use or disclosure of trade secret or other confidential information. This requirement applies to all contracts and agreements entered into or updated after the date of enactment, May 11, 2016. The notice must state that no individual may be held civilly or criminally liable for the disclosure of a trade secret in confidence to a federal, state or local government official, or to an attorney, when such disclosure is made to investigate or report 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. Additionally, the notice should advise that an individual suing an employer for retaliation based on the reporting of a suspected violation of law may disclose a trade secret to his or her attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal and the individual does not disclose the trade secret except pursuant to court order.
Employers can also satisfy the requirement by cross-referencing to a policy document that details the employer’s reporting policies for suspected violations of law.
At present, there is no statutory penalty for not providing the required notice. However, if an employer fails to provide the required notice, the employer cannot recover punitive damages or attorneys’ fees under the DTSA from an employee to whom the required notice was not provided.
What Employers Should Do Now
The DTSA and its notice requirements do not apply retroactively. Therefore, employers should draft a standardized notification clause for inclusion in all newly drafted employment contracts and any other document that imposes confidentiality obligations upon an employee, independent contractor or consultant or otherwise incorporates such provisions by reference. The DTSA does not specify the exact notification clause needed. It is unclear whether citing to the immunity provisions will suffice or whether an employer must reproduce the immunity provisions in their entirety. In addition, the DTSA does not specify whether the protections during anti-retaliatory lawsuits need to be included. Thus, employers are advised to include the entirety of the immunity provisions and the anti-retaliatory lawsuit protections in their notices. Doing so ensures that any challenge by an employee claiming he or she did not receive adequate notice will fail, and employers will be able to utilize all remedies in the DTSA.
Additionally, employers should consider adopting an internal policy setting forth the company’s reporting policy for a suspected violation of law, which includes the notice provision and can be cross-referenced in employee, contractor and consultant agreements in addition to or in lieu of the notice provision.
About the Author
Matthew C. Miller is a corporate and business litigation partner at Weston Hurd LLP. Matt represents small and middle-market companies and regularly advises clients on matters concerning trade secret issues. Since 2015, he has been named an Ohio Rising Star in Business Litigation by Thomson Reuters. Matt can be reached at 216.687.3236 or firstname.lastname@example.org.
This article originally appeared in FOCUS (2Q2017), the quarterly newsletter of the Association of Corporate Counsel-Northeast Ohio.