Recently Enacted Federal Law On Trade Secrets Requires Revisions To Agreements Governing Trade Secrets

By Jeffrey Weingart

The federal Defend Trade Secrets Act of 2016 (DTSA), Pub. L. No. 114-153 (May 11, 2016), was signed into law by President Obama on May 11, 2016. The DTSA, which amends the Economic Espionage Act of 1996, 18 U.S.C. §§ 1831-1839, provides a federal cause of action for misappropriation of trade secrets. Available remedies include injunctive relief, monetary damages, "exemplary damages", and recovery by the prevailing party of its attorneys' fees. The DTSA provides owners of trade secrets with greater access to federal courts in order to defend and preserve their trade secret rights.

However, in order to be eligible to recover exemplary damages (up to double damages) and attorneys' fees under the DTSA from employees, contractors and consultants who misappropriate trade secrets, owners of trade secrets must provide, in their agreements with such individuals, notice of the immunity provisions contained in the statute. Under those provisions, an individual shall not be held criminally or civilly liable under any federal or trade secret law for the disclosure of a trade secret that (i) is made in confidence to a governmental official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) is made in a complaint or other document in a lawsuit or other proceeding, if such filing is made under seal. The DTSA's immunity provisions further provide that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret information in a court proceeding if the individual files any document containing the trade secret under seal and does not disclose the trade secret except pursuant to a court order.

In order to comply with the DTSA's immunity notice requirement, trade secret owners must include the language below, which tracks the statute, in any new or amended agreements entered into after May 11, 2016. In the case of an employee, the statute provides that the notice requirement may be satisfied by a cross-reference in the agreement to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law.

The following language should satisfy the required immunity notice language under the DTSA. While the model provision below is framed in the content of an employment agreement, the statute specifically provides that the term "employee" includes any individual performing work as a contractor or consultant for an employer. As such, the language included in any contractor or consultant agreement would need to be modified appropriately to reference such contractor or consultant.

Here is the model language: "Employee shall 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 or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. Employee shall 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 a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. If Employee files a lawsuit for retaliation by Employer for reporting a suspected violation of law, Employee may disclose the trade secret to the Employee's attorney and use the trade secret information in the court proceeding, provided that Employee files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order."

For further information regarding DTSA and what it means to trade secret owners, please contact: Jeff Weingart, Meister Seelig & Fein LLP, jpw@msf-law.com, (212) 655-3516.

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