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Enactment of the Defend Trade Secrets Act (DTSA) Creates Mandatory Notice Requirement for Employers

On May 11 President Obama signed into law the Defend Trade Secrets Act (DTSA), creating a new federal civil cause of action for misappropriation of trade secrets. Prior to the DTSA, trade secrets were the only major form of intellectual property whose theft did not provide its owner with a federal private right of action. To a large extent, the DTSA parallels the Uniform Trade Secrets Act (UTSA), which is the model for most state trade secret statutes. However, the DTSA provides significant additional benefits for trade secret owners, including increased harmonization that should simplify nondisclosure policies, along with greater access to federal courts, thereby providing nationwide service of process, more predictable discovery procedures, and greater experience dealing with complex technologies in other intellectual property disputes.

On May 11 President Obama signed into law the Defend Trade Secrets Act (DTSA), creating a new federal civil cause of action for misappropriation of trade secrets. Prior to the DTSA, trade secrets were the only major form of intellectual property whose theft did not provide its owner with a federal private right of action. To a large extent, the DTSA parallels the Uniform Trade Secrets Act (UTSA), which is the model for most state trade secret statutes. However, the DTSA provides significant additional benefits for trade secret owners, including increased harmonization that should simplify nondisclosure policies, along with greater access to federal courts, thereby providing nationwide service of process, more predictable discovery procedures, and greater experience dealing with complex technologies in other intellectual property disputes.

Employers need to be aware, however, that the DTSA also creates "whistleblower immunity" for employees, including consultants and contractors, and a requirement that employers notify their employees (and consultants or contractors) of the existence of this immunity. In particular, Section 7 of the statute insulates whistleblowers and their counsel from trade secret liability for disclosing trade secret information in confidence to government officials, or as part of a lawsuit alleging retaliation by an employer, provided that the information is filed under seal. Importantly, under the DTSA, employers are required to provide notice of this immunity "in any contract or agreement with an employee that governs the use of a trade secret or other confidential information," e.g., any nondisclosure agreement or employment agreement addressing confidential information. This notice requirement can be satisfied by providing employees with a "cross-reference to a policy document... that sets forth the employer's reporting policy for a suspected violation of law."

Employers should review the language of their existing agreements to ensure compliance with the DTSA. Note that the mandatory notification requirement applies to all "contracts and agreements [governing the use of confidential information] that are entered into or updated after [May 11, 2016, i.e., the date of enactment]."

Although on its face the mandatory notice requirement only applies to agreements between employers and individuals (either employees or independent contractors), a company entering into an agreement with another company would be well-advised to require the other company to warrant and represent that its employee/contractor/consultants have been notified of the DTSA's whistleblower immunity provisions. It might also be wise to seek indemnification in the event the other company fails to provide its employees with the mandated notice - it is not uncommon for contracts to include similar provisions relating to confidentiality and non-use provisions.

I recently published an article in Biotechnology Law Report entitled Trade Secret Law: An Increasingly Important Form of IP for Biotechnology, which discusses the DTSA and the role of trade secrets in protecting innovation in biotechnology. For a limited time, this article is freely available under the BLR's open access program (http://online.liebertpub.com/toc/blr/35/2).

A member of the UMKC faculty since 2005, Dr. Holman holds the position of Scholar In Residence at Hovey Williams, a position created for him in part because of his international renown in the field of biotechnology and pharmaceutical patents. In addition to his law degree, he holds a Ph.D. in biochemistry and molecular biology and, with his prior legal experience in Silicon Valley, he brings a deep understanding of biotech intellectual property law and patent protection to Hovey Williams and its clients.

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