Notice Requirements For Federal Trade Secret Protection

March 2017

Under the Defend Trade Secrets Act (DTSA) of 2016, federal trade secret protection is now available.  The DTSA, and its notice requirement discussed below, are applicable to any contract or agreement with an employee (including a contractor or consultant) that governs the use of trade secret or other confidential information.

The DTSA provides a private cause of action for trade secret misappropriation and offers many benefits to companies including federal question jurisdiction for trade secret disputes, ex parte seizures orders, compensatory damages, punitive damages and attorney’s fees.  The DTSA does not preempt or replace state trade secret law, but rather provides an additional litigation option by allowing companies to bring lawsuits in federal court and seek federal remedies if they choose to do so. 

The DTSA balances trade secret protection for companies with the public’s interest in having illegal activities reported and investigated.  For this reason, the DTSA provides immunity to individuals who disclose trade secrets in certain situations.  In order to be entitled to the full remedies available under the DTSA, employers must revise their confidentiality and trade secret agreements to provide a notice of immunity to potential whistleblowers. 

Failure to comply with the 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.

While the DTSA does not state how detailed the notice requirement must be, companies should consider adding the following language, which comes verbatim from the statute, to any new contract or agreement that you have with your employees that governs the use of trade secrets or other confidential information.  If you would like us to revise your current agreements or to send you a new agreement to use going forward, please let us know.

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 documents containing the trade secret under seal; and

(B) does not disclose the trade secret, except pursuant to court order.

Overview

March 2017

Under the Defend Trade Secrets Act (DTSA) of 2016, federal trade secret protection is now available.  The DTSA, and its notice requirement discussed below, are applicable to any contract or agreement with an employee (including a contractor or consultant) that governs the use of trade secret or other confidential information.

The DTSA provides a private cause of action for trade secret misappropriation and offers many benefits to companies including federal question jurisdiction for trade secret disputes, ex parte seizures orders, compensatory damages, punitive damages and attorney’s fees.  The DTSA does not preempt or replace state trade secret law, but rather provides an additional litigation option by allowing companies to bring lawsuits in federal court and seek federal remedies if they choose to do so. 

The DTSA balances trade secret protection for companies with the public’s interest in having illegal activities reported and investigated.  For this reason, the DTSA provides immunity to individuals who disclose trade secrets in certain situations.  In order to be entitled to the full remedies available under the DTSA, employers must revise their confidentiality and trade secret agreements to provide a notice of immunity to potential whistleblowers. 

Failure to comply with the 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.

While the DTSA does not state how detailed the notice requirement must be, companies should consider adding the following language, which comes verbatim from the statute, to any new contract or agreement that you have with your employees that governs the use of trade secrets or other confidential information.  If you would like us to revise your current agreements or to send you a new agreement to use going forward, please let us know.

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 documents containing the trade secret under seal; and

(B) does not disclose the trade secret, except pursuant to court order.

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