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Defend Trade Secrets Act: Notice Requirement

On April 27, 2016, Congress passed the bill known as the Defend Trade Secrets Act. President Obama is expected to sign this bill into law shortly. An alert explaining the new law, which we recently published, can be found here. The new law creates a federal cause of action for misappropriation of trade secrets. Substantively, the law does not materially change the trade secret protections provided by most state laws.

The new law, however, also requires employers to provide a notice of immunity to potential whistleblowers, which must be included in new agreements executed after the effective date of the Act. Failure to comply with the new notice requirement may prevent an employer from recovering exemplary damages or attorney fees in federal actions brought against an employee to whom notice was not provided. The notice must explain that if an employee reports something in confidence to the government or an attorney “solely for the purpose of reporting or investigating a suspected violation of law,” the employee is immune from trade secret civil or criminal liability if some of what the employee reports constitutes a trade secret. The notice must also explain that employees may disclose trade secrets “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Similarly, if an employee files a lawsuit alleging retaliation for whistleblowing, the employee is immune from trade secret liability for disclosing trade secrets in the course of that lawsuit, provided the employee files the documents containing trade secrets in court under seal.

It is not clear that plaintiffs will use the new federal law often. In many cases, plaintiffs will continue to use state law, which provides roughly the same protection in most cases. If plaintiffs use the new federal law, however, they will lose some remedy rights if they do not provide required notice language.

There is strategic thinking involved in deciding whether to use the required language. Moreover, the new federal law permits employers to reference a whistleblower policy which contains the required notice, instead of including the language directly in agreements.

Employers should consider adding the following language, which comes directly from the statute, to any new contract or agreement that you have with your employees that governs the use of a trade secret or other confidential information.

Immunity from liability for confidential disclosure of a trade secret to the government or in a court filing

(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.

©2022 MICHAEL BEST & FRIEDRICH LLPNational Law Review, Volume VI, Number 127

About this Author

Eric Rumbaugh, Michael Best Law Firm, Labor and Employment Attorney

Eric advises clients in all areas of labor and employment law. With a practice that is national in scope, he is particularly active in litigating matters involving trade secrets, non-competition agreements and related disputes.

Eric has a nationally recognized practice in the area of contingent labor and regularly prepares and reviews policies, procedures and contracts and litigates contested matters for users and providers of temporary employees, consultants, independent contractors and other contingent talent.  Eric also counsels public...

Amy O. Bruchs, Labor Attorney, Michael Best Law Firm, employment litigator
Managing Partner, Madison Office

Amy’s outstanding track record is built on successful outcomes in the full spectrum of labor, employment and business-related issues, in both litigation and non-litigation settings.

As a problem solver, Amy applies common sense and creativity to develop targeted employment-related solutions for her clients. She has substantial experience in delivering positive outcomes posed by issues involving:

  • Discrimination claims
  • Drafting and Enforcing Employment and related contracts
  • Breach of fiduciary duty claims
  • Restrictive covenants, including non-...
Derek Stettner, Michael Best Law Firm, Intellectual Property Attorney

Derek brings more than 20 years of experience to his work in patent prosecution, portfolio management, intellectual property due diligence, and technology transfer and licensing matters. His strong track record of successful outcomes, coupled with his technical training as an electrical engineer, give Derek a unique perspective on the challenges facing in-house legal departments and technological innovators in a broad range of industries.

Clients turn to Derek for tactical guidance in the following areas:

  • ...