September 16, 2016 Practice Points

NDA Alert: Modify Your Non-Disclosure Agreements!

Remedies under the new federal trade secrets statute may no longer be preserved.

By Linda K. Stevens

The recently enacted federal civil trade secret legislation immediately impacts the way non-disclosure agreements should be drafted. The owner of confidential information may find himself without important remedies under the new statute if he has failed to include notice of the statute’s whistleblower immunity provisions in his employee agreements. Notice of those provisions must be provided in all agreements imposing a confidentiality obligation on employees, independent contractors and consultants.

What Activities Receive “Immunity”?
Amendments to the Economic Espionage Act, 18 U.S.C.A. §§. 1831 et seq. (EEA) contain new whistleblower protections. The amended EEA now provides that the following types of disclosures will enjoy at least some measure of immunity:

• Disclosure of a trade secret to a governmental official or an attorney solely for the purpose of reporting or investigating a suspected legal violation;

• Disclosure of a trade secret in a document that is filed under seal in a lawsuit or other proceeding;

• Disclosure or use of a trade secret in connection with retaliation lawsuits, so long as filings containing the secret are made under seal.

What Activities Do Not Receive “Immunity”?
Under the plain meaning of the statute’s immunity language, certain activities receive no protection. Disclosures to the media and the public, for example, are not covered. The only disclosures afforded immunity are to legal counsel, governmental authorities, and adjudicative tribunals. And the statute is clear that such disclosures to the authorities must be made “in confidence” and disclosures in lawsuits and other proceedings must be made “under seal.” Any whistleblower publicly disclosing confidential materials (e.g., by posting information on social media or by talking to the press) therefore will find no shelter under the EEA.

Nor do the EEA’s new immunity provisions extend to the unauthorized or otherwise improper acquisition of a trade secret. Indeed, the statute expressly states that it does not “authorize, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.”

Furthermore, the immunity provided in subsection (b)(1) is expressly limited to liability “under any Federal or State trade secret law.” This limitation is important because, as stated above, claims brought against whistleblowers frequently sound in contract (e.g., breach of a confidentiality agreement) or are brought under common law principles that do not require a trade secret (e.g., breach of fiduciary duty). Such claims apparently will not receive immunity under the EEA.

Impact on Employers—The Need to Update All Non-Disclosure Agreements
Employers across the country should revisit their non-disclosure agreements to ensure compliance with the amended EEA’s notice provision: “An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” 18 U.S.C.A. §1833(b)(3)(A) (emphasis added). This broad wording extends to any and all agreements with an employee that address confidentiality, potentially encompassing employment agreements, confidentiality and non-disclosure agreements and benefits agreements. The notice provision is quite broad in another respect as well. It applies not only to contracts with employees, but contractors and consultants as well. 18 U.S.C.A. § 1833(b)(4).

Notice can be provided by reciting the immunity provisions, or by referencing a “policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.” Presumably, this would allow an employer to insert into its employment and confidentiality agreements a reference to the page in its employee handbook wherein its reporting policy can be found. The prudent employer will ensure that its reporting policy provisions mirror those in the statute, and will address in some other way any consultants and/or independent contractors who might undertake contractual confidentiality obligations without receiving a copy of the handbook.

The ramifications for failing to provide this notice are limited to a restriction of the array of remedies available to the employer under the statute. Employers are ineligible to receive an award of exemplary damages or attorneys’ fees under the EEA against any employee to whom notice was not provided. 18 U.S.C.A. §1833(b)(3)(C) . While such remedies still might be available to such an employer under the UTSA, depending on the circumstances, prudent employers will consider adding the required notice provision to their NDAs.

For more information and practice points about the new Defend Trade Secrets Act of 2016, see the Defend Trade Secrets Act of 2016 Handbook.

Linda K. Stevens is a partner at Schiff Hardin LLP in Chicago, Illinois.


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Linda K. Stevens – September 16, 2016