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Employers Should Give Immediate Attention to New Federal Trade Secrets Act

Less than five weeks after federal trade secret legislation cleared the Senate, the Defend Trade Secrets Act (DTSA) has been signed into law by President Obama, effective today.

The new law will have immediate effects on employers’ day-to-day operations. Because many businesses treat highly sensitive business information as trade secrets, the enactment of the DTSA will cause HR departments to give new attention to employment agreements and confidentiality clauses in contracts.

For example, the DTSA includes a new whistleblower provision that immunizes certain disclosures by employees that employers might consider to be improper disclosures of trade secrets. If the employee’s disclosure of highly sensitive company information 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 the law" or as part of a legal proceeding, then that disclosure cannot form the basis for a misappropriation claim against the employee. This safe harbor extends immunity to both state and federal trade secret claims.

More significantly, employers now have an affirmative duty to notify employees (potentially including employees of contractors or consultants whose services involve highly sensitive company information) of this new whistleblower immunity in "any contract or agreement with employee that governs the use of a trade secret or other confidential information." Failure to comply with the notice requirement may preclude employer claims under the statute seeking exemplary damages or attorney fees in DTSA lawsuits against employees to whom no notice was provided. To get the maximum benefits of this new law, employers will want to incorporate the immunity notice into relevant employment agreements and policies as soon as practicable.

The DTSA also provides for injunctive relief such as placing conditions on the conduct of new employees when there is a "threat" of misappropriation alleged against them. Although the DTSA expressly defers to "applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business," such as noncompete agreements, the DTSA gives little guidance on how federal courts should balance the interests of businesses in protecting their trade secrets against the interests of individuals in seeking employment.

The DTSA gives HR professionals a new opportunity to update employment agreements and confidential information policies and procedures to ensure the protection of company trade secrets, along with compliance with the new whistleblower protections. Failure to act promptly could lead to significant restrictions on companies seeking to take action against current or former employees who are suspected of stealing trade secrets.

© Copyright 2020 Armstrong Teasdale LLP. All rights reserved National Law Review, Volume VI, Number 133
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About this Author

Nicholas B. Clifford, Intellectual Property Attorney, Armstrong Teasdale, law
Partner

An experienced litigator and trial lawyer, Nick Clifford serves individuals and private and public companies in a wide variety of industries in cases involving diverse technologies and subject matters. As co-leader of the Intellectual Property Litigation practice group, much of his practice focuses on counseling clients in matters involving intellectual property disputes. 

314-259-4711
Jessica M. Mendez, Intellectual Property Attorney, Armstrong Teasdale, law firm
Associate

Jessica Mendez is an associate attorney in the firm’s Intellectual Property Litigation group.  She represents clients in disputes involving infringement of patents, copyrights, trademarks and trade secrets pending in state, federal and appellate courts throughout the United States.

To ensure that her client’s interests are protected, Jessica works diligently through all aspects of litigation, seeing cases through from start to finish, whether resolved through favorable settlement or trial. She has taken numerous witness depositions, including expert depositions, handled dispositive...

314-342-4188
William Corrigan, Business Litigation Attorney, Armstrong Teasdale, Law firm
Partner

An experienced business litigator, Bill serves as outside general counsel to national companies and to many small and large privately-held businesses that are headquartered in St. Louis. A former president of the Missouri Bar, his litigation skills and legal acumen have gained him national recognition. Bill is named in the 2011 edition of The Best Lawyers in America and the Super Lawyers 2011 list of top Missouri and Kansas attorneys. In 2011, he was voted by his peers as one of St. Louis' "Top 50" lawyers. In the role of outside general counsel, Bill examines the legal health of a company...

314-342-4105
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