April 29, 2016 Practice Points

DTSA Most Recent Reminder of Value Government Places on Whistleblowers

“The Biggest IP Development in Years.”

By Brian C. Spahn

On April 27, 2016, Congress passed the Defend Trade Secrets Act (DTSA), which President Obama is anticipated to sign into law in the next couple of weeks. Forbes magazine has already described the DTSA as, “The Biggest IP Development In Years.” While the DTSA’s most notable provision allows plaintiffs to bring federal civil lawsuits for the misappropriation of trade secrets, an equally important provision of the law reinforces the government’s reliance on whistleblowers to police corporate wrongdoing.

Last year the Securities and Exchange Commission (SEC) sanctioned KBR, Inc. for attempting to prevent employees from reporting misdeeds to regulators by asking employees to sign a non-disclosure agreement that prohibited employees from discussing an internal investigation without prior approval of KBR’s legal department. SEC rules prohibit employers from taking measures through confidentiality provisions, employment agreements, and severance packages that may silence potential whistleblowers before they can reach out to the SEC. As with those SEC rules, after President Obama signs the DTSA into law, it will be added to the array of federal laws that protect the rights of whistleblowers.

While the DTSA provides companies new ammunition to bring a federal trade-secret claim against employees that walk off the job with valuable trade-secret assets, the DTSA also contains a whistleblower-immunity provision that makes clear that employees will not be found liable for trade-secret misappropriation when reporting legal violations to the government. Moreover, the DTSA requires employers to notify their employees about the immunity provision, “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Trade-secret issues already arise when companies seek to hire and fire employees. The use of non-disclosure and confidentiality agreements is commonplace. The SEC’s sanctioning of KBR last year served as a reminder that employers are not to use non-disclosure agreements in a way that could be perceived as silencing employees’ ability to blow the whistle on an employer’s perceived misconduct. With the passage of the DTSA, employers will have a new affirmative duty to provide employees notice of the DTSA’s immunity provision. Should an employer not comply with the DTSA’s immunity provision, it may be prevented from recovering exemplary damages or attorney fees in an action brought under the law against an employee to whom no notice was provided.

Accordingly, the DTSA serves as yet another reason why employers must constantly review employee contracts, non-disclosure agreements, and non-competes to ensure that the protections those agreements are meant to provide are enforceable.

Keywords: litigation, corporate counsel, Defend Trade Secret Act, DTSA, whistleblower,trade secret misappropriation

Brian C. Spahn, Godfrey & Kahn, S.C., Milwaukee, WI

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