September 27, 2021

Volume XI, Number 270

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September 24, 2021

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How Defend Trade Secrets Act Of 2016 Opens Door To Disclosure Of Trade Secrets

François-Marie Arouet, better known as Voltaire, once famously wrote “Ce corps qui s’appelait et qui s’appelle encore le saint empire romain n’était en aucune manière ni saint, ni romain, ni empire (This body, which was, and is, titled the Holy Roman Empire was in no way holy, Roman, or an empire)”.  Essai Sur Les Moeurs, Ch. LXX.  A similar observation could by made about the Defend Trade Secrets Act of 2016 (S. 1890), which President Obama signed into law earlier this month.

My concern is with Section 7 of the Act that amends 18 U.S.C. § 1833 to provide immunity for confidential disclosure of a “trade secret” (defined in § 1839) to the government or in a court filing.  Newly added subsection (b)(1) provides:

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.

Here are just a few lacunae in the statute:

  • Congress has failed to define what it means to disclose a trade secret in “confidence”.  Does this mean the disclosing party makes the disclosure only to the government official or attorney?  Does it require some assurance that the government official or attorney will maintain the confidentiality of the disclosure?  Federal and state governments are subject to public disclosure statutes.  In general, government officials can’t exempt information from these laws simply by declaring the information to be confidential.  For example, California Labor Code 1102.7 requires that the California Attorney General or other appropriate governmental official “hold in confidence” information disclosed through the whistleblower hotline maintained by the Attorney General.  However, this obligation only applies during “the initial review of a call”.

  • The statute is not limited to suspected violations of criminal law.  Investigations of suspected violations of civil laws may be less likely to be exempt from applicable freedom of information laws.

  • Given the thousands of federal, state and local laws on the books, the requirement that the disclosure be solely for the purpose of reporting or investigating a suspected violation of law is essentially meaningless as it imposes no practical limitation on disclosure of trade secrets.

  • The statute does not require that the holder of the trade secret be the subject of the suspected violation.  Thus, any investigation of anyone could be the pretext for trade secret disclosures.

Finally, it is worth noting that the law expressly immunizes individuals from criminal or civil liability under federal and state trade secret laws. Thus, the statute does not appear to override other laws, such as an attorney’s duty to preserve client confidences under Business & Professions Code Section 6068(e).

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume VI, Number 144
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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