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NYC Litigation Blog

Tuesday, August 9, 2016

Effects of the Defend Trade Secrets Act (DTSA) on Employers

What steps should employers take to facilitate the protection of their DTSA rights?

When President Obama signed the DTSA into law this past May, he provided employers with a method for dealing with trade secret misappropriation claims. The recognition that trade secrets "make up an increasingly important part of American companies’ intellectual property portfolios," pushed Congress to enact the Act to create a protection for trade secrets paralleling that already in place for other intellectual property, such as patents, copyrights, and trademarks. It is precisely because of legal changes like these that it is essential for employers to have skilled, knowledgeable employment and copyright attorneysbehind them as they struggle to keep pace with future developments in the world of business.

Those who back the DTSA assert that, in addition to giving plaintiffs access to judiciary expertise on a federal level as they navigate intellectual property (IP) disputes, the DTSA will make trade secret law more consistent and predictable, helping employers to protect their rights during disputes, even disputes that cross state lines. It is hoped that the DTSA will provide employers with a formidable means of protecting their valuable, confidential data.

What Employers Must Do to Protect Themselves

Employers, however, should not make the mistake of thinking that DTSA ensures their rights without their active participation. It is necessary for employers to be proactive to ensure that they can take necessary action when, and if, the need arises. In order to avoid obstacles and to preserve their rights under the DTSA, employers have to provide a notice of immunity in "any contract or agreement with an employee that governs the use of a trade secret or other confidential information." In the absence of such a notice, their employees may still fear that they will be civilly or criminally liable if they disclose trade secrets during their reportage, or filing of a lawsuit, regarding a suspected violation.

As a matter of fact, the notice of immunity employers must provide their employees with has to include the following message verbatim:

Employee is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Employee will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. If Employee files a lawsuit for retaliation against the Company for reporting a suspected violation of law, Employee may disclose the Company's trade secrets to the Employee’s attorney and use the trade secret information in the court proceeding if the Employee files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.6

As a practical matter, a notice of immunity must be provided in any document that imposes confidentiality obligations upon an employee, independent contractor, or consultant or otherwise incorporates such provisions by reference. Thus, a notice of immunity must be included in a wide range of employment documents including but not limited to employee handbooks, severance agreements, employment contracts, non-disclosure/confidentiality agreements, consulting agreements, and invention assignment agreements. Employers who fail to provide the requisite notice of immunity cannot recover punitive damages or attorneys’ fees otherwise available under the DTSA.

It should be noted that this notice of immunity is only necessary in agreements entered into after May 11, 2016 and does not have to be applied retroactively unless previous contracts are being amended for other reasons. Because it is crucial that small business owners keep apprised of every recent development in business law, particularly those involving IP, it is important that they have a trustworthy attorney who specializes in trade secretsat their side as they navigate their business operations.


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