The enactment of the Defend Trade Secrets Act of 2016 expanded the available courses of action for aggrieved parties to protect their trade secrets. Signed into law on May 11, 2016, the Act gives federal courts jurisdiction over trade secret cases and allows individuals to bring a private cause of action in federal court.
Our first installment of this three-part series introduced the basic ideas behind trade secret law. The second entry examined key provisions of the new Act. This third and final post continues discussion of the Act and includes drafting considerations to ensure that new business documents contain the language required.
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The Defend Trade Secrets Act of 2016 (cont.)
Protection of Trade Secrets During Litigation:
The Act leaves in place the prior authorization of a federal court to “enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets.” The Act also preserves the right to appeal a decision or order of a district court authorizing or directing the disclosure of any trade secret.
The Act also introduces new protections for trade secrets. It prevents a court from authorizing or directing “the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.” This helps ensure that a trade secret owner’s disclosure as part of the litigation does not inadvertently waive protection of the trade secret.
Remedies for Misappropriation of Trade Secrets:
The Act provides three potential remedies for misappropriation of trade secrets:
- The Act allows a court to issue an injunction to prevent any actual or threatened misappropriation on such terms as the court deems reasonable.
- The Act authorizes damages for actual loss caused by the misappropriation of the trade secret and for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss.
- If the trade secret is “willfully and maliciously misappropriated,” the court may award exemplary damages in an amount that does not exceed two times the amount of damages for actual loss and unjust enrichment.
Finally, if a claim of the misappropriation is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, the court may award reasonable attorney’s fees to the prevailing party.
Required Whistleblower Protection Provisions:
The Act provides immunity from civil and criminal liability for disclosure of a trade secret that is made in confidence to a government official, either directly or indirectly, or to an attorney, as long as the disclosure is made solely to report or investigate a suspected violation of law. It also provides immunity if disclosure is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
The Act requires employers to provide notice of immunity in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”
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Drafting Considerations
The requirement that employers provide notice of immunity did not exist under prior law. Most employment agreements and other contracts with employees or consultants do not include this notice. Because employers that fail to meet the notice requirements lose the ability to claim exemplary damages or attorneys’ fees, it is important that all employment agreements and related contracts include the required notice.
Although the content of the notice may differ slightly depending on the context in which it appears, the notice should meet the requirements of 18 U.S.C. § 1833(b)(1).
The following is an example form of notice for employment agreements:
Notice of Immunity from Liability for Certain Disclosures:
Employee will not be held criminally or civilly liable under any federal or state trade secret law for a disclosure of a trade secret, as long as the disclosure is made: in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely to report or investigate a suspected violation of law; or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
This Section is intended to comply with the immunity provided by the United States Code from liability resulting from disclosures of trade secrets under the conditions described in this Section. Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b). If there is a conflict between this Section and any other Section of this Employment Agreement, this Section will control.
The business planning documents in the Business Docx® and Wealth Docx® drafting software include the required notice in key agreements that affect or could affect the employment relationship.
