Confidentiality Provisions and the Defend Trade Secrets Act of 2016

By: Steven J. Olsen, J.D.

Do your employment, contractor, and consultant agreements include the necessary provisions to allow maximum recovery of damages for trade secret appropriation? Understanding the Defend Trade Secrets Act of 2016 ("DTSA") and its requirements are essential in this pursuit.

On May 11, 2016, the DTSA became Public Law No.:114-153. The DTSA provides new federal protection to owners of trade secrets related to products or services used in, or intended for use in, interstate commerce. Previously, the Economic Espionage Act of 1996, as amended in 2012, provided only criminal sanctions for the misappropriation of trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce. Although not entirely uniform, each state provides certain protection for the misappropriation of trade secrets.

DTSA expands the state protection by creating an opportunity for federal private civil actions to be filed in the federal courts for recovery and protection in cases of trade secret misappropriation. Remedies under the DTSA include (1) injunctive relief; (2) recovery of actual damages and damages for any unjust enrichment or recovery of a reasonable royalty associated with the unauthorized disclosure of the trade secret; (3) exemplary damages in willful or malicious appropriation cases up to two times the amount in awarded for (2) above; (4) reasonable attorney fees to the prevailing party in cases of willful or malicious appropriation or bad faith claims; and, in extraordinary circumstances, (5) the seizure of property necessary to prevent the propagation or dissemination of the trade secret.

In order to seek recovery for all available remedies, any contract entered into or updated after May 11, 2016, must include notice of the federal immunity established by the DTSA. The notice should include the following:

(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 document containing the trade secret under seal; and

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

This notice can either be included directly in the contract or can be be included by cross-referencing a policy document that includes the notice. If the notice is contained in a policy document, then it is important to have a record showing the policy document having been received by the party.

If you have any questions about this Article, contact Steven J. Olsen or another attorney at Yoder Ainlay Ulmer & Buckingham, LLP at (574)-533-1171.

Disclaimer: These materials are for informational purposes only and should not be construed as legal advice on any specific facts or circumstances. We recommend you consult a lawyer if you want professional assurance your interpretation of these materials is appropriate to your particular situation.

©  Yoder Ainlay Ulmer & Buckingham, LLP [June 2016]