Defend Trade Secrets Act of 2016:

Effect of Notice Provisions on Contracts and Agreements

Published on June 6, 2016

Quinn Stine, Esq.

The Defend Trade Secrets Act of 2016 (“DTSA”) affords trade secret owners a federal cause of action for trade secret misappropriation occurring on or subsequent to its effective date of May 11, 2016, if, the trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” [1] The DTSA substantially tracks the Uniform Trade Secrets Act (“UTSA”), of which many states have adopted a version, including Oklahoma and the District of Columbia. The UTSA affords trade secret owners a state law cause of action for trade secret misappropriation. The DTSA does not preempt or displace state law or other trade secret misappropriation remedies, but supplements them instead.[2]

Oklahoma Uniform Trade Secret Act vs. Defend Trade Secrets Act.

The Oklahoma Uniform Trade Secret Act (“OUTSA”) became effective November 1, 1986.[3] Like the DTSA, the OUTSA permits trade secret owners to obtain:

  • Actual Damages;[4]
  • Equitable Remedies;[5]
  • Punitive Damages;[6] and
  • Reasonable Attorneys’ Fees.[7]

However, the DTSA permits trade secret owners the additional remedy, in extraordinary circumstances, of an ex parte order providing for “the seizure of property necessary to prevent the propagation or dissemination of the trade secret.”[8]

Immunity from Civil and Criminal Liability.

The DTSA also grants individuals immunity from civil and criminal liability for confidential disclosures of trade secrets in court filings and to government officials when the disclosure is made for certain purposes and under certain circumstances which are: (1) use of a trade secret in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal,[9] or (2) in confidence to a government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law.[10]

DTSA: Notice Provisions.

There is not a penalty for an employer’s failure to comply with the notice requirements under the DTSA. However, an employer may not be able to obtain an award of punitive damages or attorney fees if it does not provide notice of an individual’s aforementioned immunity from civil and criminal liability (“Notice”) in the contracts or agreements it enters into or updates after May 11, 2016, with its employees, independent contractors, and consultants that governs the use of trade secrets or other confidential information.[11] Those contracts or agreements include, but may not limited to:

  • Employment Agreements;
  • Independent Contractor Agreements;
  • Services/Consulting Agreements;
  • Separation, Severance, and Release of Claims Agreements;
  • Non-Compete Agreements; and
  • Non-Disclosure and Confidentiality Agreements.

An employer will be considered to be in compliance with the DTSA’s Notice requirement if the employer provides a cross-reference to a policy document provided to its employees, independent contractors, and consultants that sets forth the employer’s reporting policy for a suspected volition of law.[12] For example, the cross-reference to the Notice Language (defined below) may be included in the section of the employer’s employee handbook containing its whistle-blower policy.

Effect on Contracts and Agreements.

Beginning on May 12, 2016,[13] employers may comply with the DTSA Notice requirement by including the following provision (“Notice Language”) in all contracts or agreements governing the use of trade secrets or other confidential information (“Agreement(s)”):

[Employee/Consultant/Independent Contractor] hereby understands that in accordance with the Defend Trade Secrets Act of 2016:

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: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

[Moreover,] [a]n individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the employer’s trade secrets to the attorney and use the trade secret information in the court proceeding, if the individual: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.

18 U.S.C. § 1833(b)(1) and (2).

Alternatively, an employer may include the following provision in all Agreements with employees, independent contractors, and consultants, if, the employer has provided them an employee handbook, or other policy document, containing the Notice Language:

Notwithstanding any other provisions of this Agreement, [Employee/Consultant/Independent Contractor] may be entitled to immunity under the Defend Trade Secrets Act of 2016 for the confidential disclosure of a trade secret for certain purposes and under certain circumstances, as set forth in Corporation’s [INSERT TITLE OF POLICY DOCUMENT, POLICY NAME AND NUMBER].

Employers who have questions about the DTSA Notice or other intellectual property issues should contact an attorney to learn more.

[1] 18 U.S.C. § 1836(b)(1).
[2] 18 U.S.C. § 1838.
[3] Okla. Stat. tit. 78, § 85 et seq.
[4] Okla. Stat. tit. 78, § 88.
[5] Id.
[6] Id.
[7] Okla. Stat. tit. 78, § 89.
[8] 18 U.S.C. § 1836(b)(2)(A)(i).
[9] 18 U.S.C. § 1833(b)(2).
[10] 18 U.S.C. § 1833(b)(1).
[11] 18 U.S.C. § 1833(b)(3).
[12] 18 U.S.C. § 1833(b)(3)(B).
[13] 18 U.S.C. § 1833(b)(3)(D).