Theft of trade secrets by rogue employees is frighteningly common. When employees leave or lose their jobs, about half “steal corporate data and don’t believe it’s wrong” and forty percent “plan to use the data in their new jobs,” according to a 2012 global survey published by Symantec, a security firm. The survey was based on responses from thousands of employees in the United States, United Kingdom, France, Brazil, China, and Korea.
To help businesses crack down on trade secret theft, on Wednesday President Obama signed the Defend Trade Secrets Act of 2016. When someone willfully and maliciously steals another’s trade secrets, the Act gives the trade secret owner a powerful weapon: a right to seek exemplary damages and attorney’s fees. Exemplary damages may be up to twice the amount of the damages that may be awarded under the Act.
But if the trade secret owner is an employer and the thief is an employee, contractor, or consultant, there is a special requirement to preserve the employer’s right to exemplary damages and attorney’s fees. The employer must have given them notice of a subsection of the Act relating to immunity.
Specifically, the Act grants civil and criminal immunity, from both state and federal trade secret law, to individuals who disclose a trade secret in two instances. First, the individual has immunity to disclose the trade secret to his or her attorney or to any government official “solely for the purpose of reporting or investigating a suspected violation of law.” Second, the immunity also generally applies to disclosures of trade secrets in any complaint or other document filed in a lawsuit or other proceeding “if such filing is made under seal.”
The Act requires every employer to include notice of the immunity in their contracts with employees, contractors, and consultants. Or the contract may cross-reference a policy provided to them with the notice provisions. Employers should thus review and revise their contracts to ensure they have full rights to recover exemplary damages and attorney’s fees for trade secret theft. Importantly, however, this notice requirement is not retroactive and applies only to contracts and agreements “entered into or updated” after the date of the Act’s enactment, i.e., May 11, 2016.
Here are the details on the Act’s notice requirement:
- The notice requirement applies only to employees, contractors, and consultants for the employer.
- The notice requirement is not retroactive. It applies to contracts and agreements “entered into or updated” after May 11, 2016.
- Employers must “provide notice of the immunity” in “any contract or agreement with” an employee, contractor, or consultant “that governs the use of a trade secret or other confidential information.”
- In addition or alternatively, the Act permits notice through a “cross-reference to a policy document” that “sets forth the employer’s reporting policy for a suspected violation of law” and that is provided to the employee, contractor, or consultant.
- There is an open question of the scope and content of the notice. The Act also permits limited use and disclosure of trade secrets in certain anti-retaliation lawsuits involving employers. The Act does not expressly state whether this permission also forms part of “the immunity” for which employers must give notice.
- Failure to give notice does not bar an employer from suing for any trade secret thief, applying to seize property to prevent the propagation or dissemination of the trade secret, or recovering actual losses, unjust enrichment, or other damages.
- But when employees, contractors, and consultants willfully and maliciously misappropriate their employer’s trade secrets, failure to give notice does bar the employer from recovering exemplary damages and attorney’s fees to which it might have otherwise been entitled.
The Defend Trade Secrets Act is a powerful tool to help protect a company’s trade secrets and to recover damages when trade secret theft occurs. But to take full advantage, employers must include the required notice provisions in their employment agreements, confidentiality agreements, consulting agreements, etc. If they don’t, they could lose out on enhanced damages and the right to recover attorney’s fees… if or when their next ex-employee goes rogue.