By Tom Dunlap & Lee Sutherland

Dunlap is a partner at Dunlap, Bennett & Ludwig.

Sutherland is a law student at The George Washington University Law School. Sutherland is part of Dunlap, Bennett & Ludwig’s Summer Internship Program and is interested in national security law and cybersecurity law.

 

[07/11/2019 Leesburg & Tysons]   Before 2016 trade secrets claims could only be brought in state court (under state versions of the Uniform Trade Secrets Act (UTSA), excluding New York and North Carolina), or in federal court only when there was diversity jurisdiction or another federal question claim in the suit.  Then in 2016, Congress created a federal claim passing the “Defend Trade Secrets Act of 2016” (the “DTSA” or the “Act”, 18 U.S.C. § 1836(b)(1)). Significantly, creating a federal civil action for trade secret misappropriation that provides specialized provisions, including seizure and an immunity provision for employees reporting violations of the law which might include disclosure of trade secrets.  Under the DTSA a court can grant an injunction, award damages, and even issue an order to seize property “necessary to prevent the propagation or dissemination of the trade secret.”

Pro Tip: Since a claim under the DTSA must include an allegation that the trade secret was procured by improper means, it is important to note that the act does not include situations where a secret was obtained by reverse engineering or through independent derivation (see e.g. 18 U.S.C. 1836(b)(3)(B)(6)).

The Act provides limited immunity for whistleblowers who disclose trade secrets in certain circumstances.  It is important to read the Act carefully and two cases outlined below with opposite results, demonstrate the issue. Under section 7 of the Act, whistleblowers are immune from criminal or civil liability “under any Federal or State trade secret law” if their disclosure of the trade secret meets one of two conditions. First, the disclosure may be made “in confidence to a Federal, State, or local government official… or to an attorney,” and “solely for the purpose of reporting or investigating a suspected violation of law.” Second, the disclosure may be made in a sealed document filed in a court proceeding.

Section 7 also allows an individual filing suit for retaliation for reporting a violation to disclose the trade secret to his or her attorney and use it in a court proceeding. For this disclosure to be allowed, the individual bringing the suit must, first, file “any document containing the trade secret under seal,” and second, “not disclose the trade secret, except pursuant to court order.”

There is two instructive cases when it comes to whistleblower immunity.  First, in the case of Unum Group v. Loftus, (Federal District Court of Massachusetts), the employer Unum filed a DTSA claim against a former employee who was caught a few days after an internal investigation leaving the employer’s building with allegedly secret documents. The employee unsuccessfully invoked the DTSA’s whistleblower immunity provision, claiming that by turning the documents over to his attorney he was therefore immune. The court rejected the employee’s immunity claim, specifically noting the employee had not filed a whistleblower suit against Unum and therefore had not proven his intent to pursue a claim against the employer for unlawful activity. See e.g. Unum Group v. Loftus, 220 F. Supp. 3d 143 (D. Mass. 2016).

More recently, however, in Christian v. Lannett Co., Inc. (Eastern District of Massachusetts), the court upheld a claim of immunity.  In that case, the employee was fired in 2015 and immediately filed a discrimination suit against her employer. The DTSA claim resulted from a hoard of company documents the employee retained in violation of a trade secrets agreement with the company.  She shared more than 22,000 pages of her employer’s documents with her attorney in pursuit of her discrimination claim, which her attorney in turn produced to the company during the litigation. The employer filed counterclaims – including a claim for a violation of the DTSA.  The employee that moved to dismiss the DTSA claim, invoking the whistleblower protection of the Act.  The court agreed and dismissed the DTSA claim finding the discrimination claims fit within the confines of the DTSA’s immunity provisions.

The moral of these stories is that employers should be aware of the Act and how it can allow trade secrets to possibly leave their control.  Finally, it is important to note that the Act requires employers provide notice of the immunity provisions of the DTSA to their employees “in any contract or agreement… that governs the use of a trade secret or other confidential information.” The Act defines “employee” broadly, including contractors and consultants in the scope of the required notice. This notice can come in the form of a cross-reference to a separate policy document that lays out the employers’ policy for reporting suspected violations of law. If the notice required by this section is not given, the employer will be denied exemplary damages or attorney fees in any action brought against an employee who did not receive notice of immunity under the DTSA.

The below language outlines, minimally, what should be included as a sample of the language that an employer must use to comply with the DTSA in employee or independent contractor agreements:

Under Federal law, code section 18 U.S.C. 1833(b), an individual shall not be held criminally or civilly liable under Federal or State trade secret law for disclosing a trade secret that is either:

  1. disclosed in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and is solely for the purpose of reporting or investigating a suspected violation of law; or
  2. disclosed in a legal proceeding, if such filing is made under seal.

Additionally, any individual filing a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to his or her attorney and use the trade secret information in such court proceeding, if the individual files such document under seal; and does not otherwise disclose the trade secret, except pursuant to a valid court order.

For employment help and more information contact an employment lawyer at Dunlap Bennett & Ludwig, email clientservices@dbllawyers.com or call 800-747-9354.

Posted in: Intellectual Property, Intellectual Property - Trademarks