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The Defend Trade Secrets Act Has Employers Updating Policies and Non-Disclosure Agreements

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Unlike many forms of intellectual property, trade secrets have traditionally been protected only by state, rather than federal, law.  That changed on May 11, 2016, when President Obama signed into law the Defend Trade Secrets Act (DTSA).  The Act permits trade secret owners to file suit directly in federal court, but it has a few quirks of its own.  Here’s what employers and trade secret owners should know.

Employers:  Many employers require employees to sign Non-Disclosure Agreements protecting the confidentiality of the company’s proprietary information.  Confidentiality provisions may also be incorporated into contracts with consultants or independent contractors.  For all agreements entered after May 11, 2016, employers should include notice of a “whistleblower” immunity created by the DTSA.  The immunity protects individuals from liability for disclosing a trade secret to a government official or an attorney for the purpose of reporting or investigating a suspected violation of law.  Immunity is also given for any disclosure of trade secrets in court documents, providing that the documents are filed under court seal.

Employers may provide the required notice directly in the confidentiality agreement or by reference to a company policy.  Failing to give the notice will prevent the employer from collecting attorneys’ fees or punitive damages from the employee, contractor, or consultant in a successful action for willful misappropriation of trade secrets.

In order to ensure compliance, employers should update their form Non-Disclosure Agreement so that all future agreements include the notice or a reference to a similar provision in an employee handbook.  Any existing agreements that will be renewed or updated in the future should be amended to include notice of the immunity.

Trade Secret Owners:  For most provisions, the DTSA closely follows the Uniform Trade Secrets Act adopted by many states nationwide.  Perhaps the most controversial aspect of the DTSA is a new civil seizure provision, which permits the early seizure of property used to misappropriate trade secrets.  Seizure is permitted only in extraordinary circumstances, when an injunction against misappropriation is insufficient to protect the trade secret owner.

The DTSA does not preempt state law and owners may have the option to bring suit under state or federal law.  If you are thinking about bringing a claim for the misappropriation of a trade secret, you should consult with your attorney to determine the best option for your case.

Managing Trade Secrets:  Intangible assets form the core value of many modern businesses.  Unlike copyrights, trademarks, and patents, however, there is no registration system for trade secrets.  With the adoption of a federal trade secrets law, businesses are reminded to take active steps to identify and manage their trade secrets so that they can be quickly identified and protected in a misappropriation case.