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Federal Court & Trade Secrets: What Employers Need to Know

—Erin E. O’Brien

Unanimously passed in the Senate and ratified by the House of Representatives by a vote of 410-2, the Defend Trade Secrets Act of 2016 (the “DTSA”) now allows an employer to file claims of misappropriation of trade secrets in federal court.  Prior to the passage of the DTSA on May 11, 2016, an employer could enforce misappropriation of trade secret claims through state law claims under the Uniform Trade Secrets Act (“UTSA”) adopted by nearly all states.

It is important to note that the DTSA does not eliminate or preempt the UTSA, but rather supplements the UTSA by allowing claims in federal court. Similar to the UTSA, the DTSA allows employers to obtain (a) equitable remedies, (b) actual damages, (c) punitive damages, and (d) reasonable attorneys’ fees in connection with claims of misappropriation of trade secrets.  In contrast to the UTSA, the DTSA allows an employer to apply for a court order that allows the government to seize misappropriated trade secrets without notice where the person against whom the seizure is ordered “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person”.

In order for such employer to take advantage of the remedies that can be obtained under the DTSA, an employer must update or amend all confidentiality, non-disclosure, employment, consultant, independent contractor, non-competition, non-solicitation and separation agreements to include a whistleblower immunity notice in any agreement with a person who performs work for such employer that involves the use of trade secrets or other confidential information. The immunity notice must provide that any person who discloses a trade secret to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law is granted immunity from being held civilly or criminally liable under any federal or state trade secret law. Additionally, the immunity notice must advise that any person 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 such person does not disclose the trade secret except pursuant to court order.

If an employer fails to provide the required immunity notice, the employer cannot recover punitive damages or attorneys’ fees under the DTSA from an employee, consultant or independent contractor to whom the required immunity notice was not provided.

It is recommended that all employers (a) amend all executed confidentiality, employment, consultant, and independent contractor agreements to provide the immunity notice and (b) update any templates used with such employees, independent contractors or consultants to include this immunity notice.

Consult one of the attorneys of Roberts McGivney Zagotta LLC to make sure you can obtain all the remedies afforded by the DTSA and to make sure your employment handbooks and policies are up to date.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.