As our sister blog, Technology Law Source has reported, on May 11, 2016, President Obama signed into law the Defending Trade Secrets Act (DTSA), which creates a federal trade secret misappropriation cause of action. As noted, businesses have a lot to consider in deciding whether to pursue this new cause of action in federal court when the security of their trade secrets are threatened. Because the DTSA does not pre-empt state laws protecting trade secrets, however, if a federal forum is otherwise appealing, there really is no reason not to pursue a DTSA cause of action.

Employers will be particularly interested in knowing that the DTSA includes an immunity from criminal and civil liability for employees who disclose their employers’ trade secrets if:

  • the disclosure is made in confidence to a federal, state, or local government official, directly or indirectly, or to an attorney solely for the purpose of reporting a violation of law;
  • it is made in a complaint or other document filed under seal in a lawsuit or other proceeding.

The DTSA also permits an individual who files a lawsuit against his or her employer alleging retaliation for reporting a suspected violation of law to disclose the employer’s trade secret to an attorney and use it in a court proceeding if the document containing the trade secret is filed under seal and in response to a court order.

Finally, the DTSA requires employers to include a notice of this immunity in any contract with an employee that governs the use of trade secret or confidential information.  If the employer fails to include this notice, it may not obtain the exemplary damages or attorney’s fees provided for in the Act. As a result, the employer would be foregoing one of the major advantages of filing under the DTSA in that these remedies typically are not available in state law in the absence of a showing of bad faith.

This notice of immunity provision only applies to agreements that are either entered into or updated after the effective date of the DTSA. Employers will not want to make the decision whether to include the notice of immunity lightly because knowledge of the immunity might embolden an employee who anticipates being terminated to use it to extort a severance or settlement from the employer. Once trade secret information has been filed in court (even under seal), many judges concerned about courts remain open to the public often have concerns about ensuring the secrecy of that information in public hearings and trials. In addition, in this age of data breaches, employers will not want to be cavalier about losing control over its trade secret information even if the disclosure is as limited as the immunity contemplates.

Employers wanting to take full advantage of the DTSA should consider including the required immunity notice in all new and updated confidentiality agreements. Doing so will enable the employer to take advantage of all of the Act’s available remedies. On the other hand, the potential risk of even such a limited disclosure that the immunity permits should not be taken lightly. Porter Wright’s technology practice group will be discussing this and the other aspects of the DTSA at its lunchtime seminar on “The Latest in Trade Secret Law” on July 13, 2016. For more information, contact us.