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Legal Update

Employers Should Review Employment/Contractor/Consultant Agreements in View of New US Trade Secrets Law

15 June 2016
Mayer Brown Legal Update

On May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”).1 This law, for the first time, provides a federal private cause of action and certain statutory remedies and attorneys’ fees for trade secret misappropriation. However, the statute contains a requirement that employers/contracting companies provide certain notices in their employment/contractor/consultant agreements that address the use of trade secrets or other confidential information. If the notice is not provided, certain of the remedies may not be available under the DTSA.

Specifically, the DTSA provides for immunity for an employee, consultant or independent contractor making a confidential disclosure of a trade secret to a government official, directly or indirectly, or a private lawyer solely for the purpose of reporting or investigating a suspected violation of law. There is also immunity when an employee, consultant or independent contractor makes a disclosure in a court filing if the filing is made under seal. The DTSA also specifically provides that trade secrets may be used in a lawsuit where an employee, consultant or independent contractor claims retaliation by the employer/contracting company as long as the filings are under seal and the plaintiff does not disclose the trade secret, except pursuant to court order. An employer/contracting company must give notice of the foregoing immunities in any contract or agreement (either new or updated after enactment of the DTSA) that governs the use by an employee (including contractors or consultants) of trade secrets or other confidential information. This can be accomplished by providing the notice directly in the contract or agreement or by cross-referencing a policy document provided to the employee that shows the employer’s reporting policy for suspected violations of the law.

Ordinarily, the DTSA provides various remedies for acts of trade secret misappropriation. These remedies include exemplary damages of not more than two-times the actual damages in instances of willful and malicious misappropriation and reasonable attorneys’ fees to the prevailing party where 1) the trade secret is willfully and maliciously misappropriated, 2) the claim of misappropriation is made in bad faith or 3) a motion to terminate an injunction is made or opposed in bad faith. However, the foregoing exemplary damages and/or attorneys’ fees may not be available to an employer/contracting company in an action against an employee (or contractor or consultant) if the employer/contracting company fails to provide the required notice to the employee/contractor/consultant.

It will be prudent for employers to review their agreements and policies in view of the foregoing and evaluate what amendments may be proper after weighing relevant considerations.

1 The text of the bill can be found at https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

Authors

  • Marcia E. Goodman
    T +1 312 701 7953
  • Sharon A. Israel
    T +1 713 238 2630
  • Trent L. Menning
    T +1 713 238 2621
  • Andrew S. Rosenman
    T +1 312 701 8744
  • Lori A. Zahalka
    T +1 312 701 7921

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