Business & Corporate Articles

The Defend Trade Secrets Act
Providing Immunity Notice to Employees — A Critical Question

The Uniform Trade Secrets Act (“UTSA”) has been in existence for over thirty years and nearly all states, including California, have adopted some version of the UTSA. For years, Congress has been grappling with the lack of uniformity in the application of the UTSA, and struggling with how to address the increasing problem of international theft of trade secrets. On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) which is heralded by some as the largest expansion of federal intellectual property law in decades. The DTSA applies to products and services in interstate commerce. It may be a more effective tool than the UTSA for enforcing trade secret theft because of, among other things, the availability of TRO seizure actions and the nationwide reach of its remedies.  The DTSA does not eliminate or preempt state laws, and it provides employers federal court access with no amount in controversy requirement, along with  uniformity in the application of the UTSA.

The DTSA also contains provisions with no UTSA equivalent regarding employee and contractor immunity and anti-retaliation. These provisions are intended to provide protection to whistleblowers who may need to disclose trade secret information as part of their claims. 

Specifically, the DTSA states in 18 U.S.C. § 1833(b)(1) that:

“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 . . . is made . . . [1] in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” and “solely for the purpose of reporting or investigating a suspected violation of law”; or [2] “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

Further, 18 U.S.C. § 1833(b)(3)-(4), provides that “[a]n employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee [or contractor or consultant] that governs the use of a trade secret or other confidential information.”

The DTSA allows for recovery of an award of exemplary damages (not to exceed two times actual damages) and for recovery of attorney’s fees in cases of “willful” and “malicious” misappropriation. 18 U.S.C. § 1836(b)(3)(C)-(D). However, under 18 U.S.C. § 1833(b)(3)(C), the foregoing recovery is not available if the employer has not provided the immunity notice required by 18 U.S.C. § 1833(b)(3)-(4).

But there are potential issues facing employers who automatically comply with the immunity notice requirement without further thought and analysis. Here is where business and employment attorneys can provide needed useful guidance to their clients. Employers should carefully consider whether advising their employees about the immunity exception could create a protective smokescreen whereby an employee who is misappropriating trade secrets may manufacture a false whistleblower issue to shield his or her actions. Notwithstanding Congress’ good intentions, the immunity provision is filled with potential manipulation by existing employees and unscrupulous future employers.

Employers with the help of legal counsel should carefully consider whether the remedies afforded by the DTSA when complying with the notice requirement are rendered inconsequential in practice. If the employer decides to forego these additional remedies, they might still be able to recover exemplary damages and attorney’s fees under the UTSA because Congress chose not to preempt existing state trade secret laws allowing for the ability to assert state based claims along with claims under the DTSA. Since the UTSA permits recovery of exemplary damages and attorney’s  fees in cases of willful and malicious misappropriation, arguably such remedies should still be available even if they are not available under the DTSA for failing to provide the immunity notice.

Interpretation of the DTSA is in its nascent stages and time will tell whether courts will interpret the non-compliance provision of the act to preclude state law remedies not specifically included in the statute. There is also discussion brewing whether failure to comply with the immunity disclosure will be actionable under state labor laws or be allowed as a defense to alleged wrongdoing or result in other consequences not contained in the DTSA.

The ramifications of failing to provide the immunity notice may not seem important at first blush, but without critically considering all of the potential ramifications, and automatically complying with the immunity notice requirement, an employer may be creating an environment for significant unintended consequences.  

-- Madeline Cahill and Charlie Hoge

This article is for information purposes and does not contain or convey legal advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.