FH2 Alert – New Federal Trade Secret Law Requires Changes to Your Form Agreements

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (the “DTSA”) into law.  The DTSA—which went into effect immediately after being signed—creates a new right for trade secret owners to sue under federal law when their trade secrets are misappropriated, and also provides the trade secret owner with significant remedies for misappropriation (including seizure, injunctive relief, damages, and, in certain cases, double damages and attorneys’ fees).  But the DTSA also provides individuals with immunity for certain permitted disclosures of a trade secret—and requires an employer to notify its employees (including contractors and consultants) of these immunities in any contract or agreement with the employee that governs the use of trade secrets or other confidential information.

We will provide more in-depth guidance on the DTSA soon.  However, you need to know now that compliance with the DTSA necessitates immediate changes to certain of your form agreements with employees and individual independent contractors and consultants to incorporate the notices mandated by the DTSA.

Specifically, starting May 12, 2016, the DTSA requires all employers to include a new notice “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information” if that contract or agreement is either entered into or updated after May 11, 2016.  This required notice must inform the employee about certain immunities from liability under federal or state trade secret law for disclosing a trade secret in connection with “whistleblower” activities or in legal documents filed under seal.

Some important points on this new notice requirement:

  • Applies to More than Just Your “W-2 employees”:  Under the DTSA, an “employee” for whom you must include the required notice includes not only your W-2 employees, but also any individual performing work for your business as a contractor or consultant.
  • Applies to “Any Contract or Agreement that Governs the Use of a Trade Secret or Other Confidential Information”:  Depending on your business, this could implicate revising multiple forms of contract documents that your business currently uses with its employees, contractors and consultants, such as employment agreements, invention assignment or “work made for hire agreements”, independent contractor agreements and confidentiality/non-disclosure agreements.
  • Noncompliance Also Limits Remedies under the DTSA:  Failure to include this notice when required also means that the employer cannot recover double damages or attorneys’ fees under the DTSA when bringing a claim for trade secret misappropriation against that employee.
  • Be Mindful of Existing Agreements:  The notice requirement applies to “contracts and agreements that are entered into or updated after” May 11, 2016. So, while the DTSA does not require you to amend agreements you executed before May 12, 2016 solely to add the new notice, it does require you to add the notices to those agreements if you amend or update them for other reasons after May 11, 2016.

Note—The DTSA provides that the mandatory notice requirement may also be satisfied by including in your agreement a reference to a “policy document” (for example, a handbook) that is provided to the employee and sets forth your reporting policy for a suspected violation of law. However, even then, your agreements may still need to be updated to include such a reference, and the associated “policy document” should be reviewed to ensure it complies with the DTSA.

If you would like assistance with revising your agreements to comply with the new requirements under the DTSA, or if you have questions about the DTSA or protecting your trade secrets generally, contact Mike Stewart at Friend, Hudak & Harris, LLP.

Michael Stewart
About the author:
Mike Stewart, Partner, Technology & Intellectual Property Practice Leader
Mike provides leadership, expertise and experience in technology, business contract and intellectual property (IP) law. Working with companies that provide or rely on technology-related products and services, Mike assists his clients in protecting the innovations that give them their competitive advantage—and he helps them grow their businesses by negotiating deals with partners and customers. For more information about Mike, Click Here.

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