This act was recently passed by Congress and signed into law by President Obama. In short, this creates a federal cause of actions. Along with its benefits, however, the Defend Trade Secrets Act adds more responsibilities for employers. NDA agreements and independent contractor agreements now need to include special language about whistleblower provisions.
What’s Behind the Defend Trade Secrets Act of 2016?
This federal law became active on May 11th, 2016. The primary goal of this legislation was to protect confidential business information as a result of the devastating impact that misappropriation can have on the American economy.
According to recent research, trade secret theft causes yearly losses of more than $300 billion to the American economy and 2 million jobs, giving entrepreneurs little incentive or opportunity to innovate. That’s why the government decided to take action with this most recent law to protect companies further, but company owners should also know that they need to ensure that the legal agreements used with freelancers are properly written.
What Businesses Should Know About Trade Secrets
Trade secrets are typically classified as types of intellectual property that consist of details that have economic value, independently for a business that has been kept secret and is not easily obtained by others. This might include programs, devices, formulas, techniques, processes, compilations or methods.
It can come in the form of customer lists, pricing information, plans software, recipes, manufacturing details or designs. So long as a trade secret is kept a secret, it is of very high value to the developer or original creator.
Once it has been shared, however, its value is essentially lost forever. This is why it is imperative for businesses to take necessary precautions in order to restrict access to this vital information.
This is why the majority of businesses with trade secrets have agreements and documents signed by employees who may be involved in knowing about or working with any of the special data or project details.
Tightening Up Agreements Could Benefit Business Owners
One of the primary ways that businesses control dissemination of sensitive data like trade secrets is to use non-disclosure and confidentiality agreements in addition to other methods. In the past, trade secrets were primarily managed by state law. As these are complex documents, they are well worth protecting by hiring an intellectual property lawyer for review purposes. With laws like the Defend Trade Secrets Act adding further complexity and responsibility for employers, it is wise to set a calendar reminder to investigate these documents regularly.
The majority of states had adopted the uniform Trade Secrets Act, however, the Defend Trade Secrets Act of 2016 now gives a federal-private right of action for trade secrets. These are the primary elements of the Defend Trade Secrets Act:
- The Act allows for an award of attorney’s fees for even punitive damages, if the misappropriation of a trade secret was made in bad faith or malicious.
- Additional remedies could include damage awards, royalty payments, or unjust enrichment.
- The Act allows for stolen trade secrets to be seized on a short-term basis until a hearing can be scheduled with all relevant parties.
- Safeguards can be implemented to protect trade secret confidentiality over the course of litigation.
- The Act carries a whistleblower provision that protects employees from disclosing trade secrets to law enforcement in order to investigate possible legal violations or in a complaint in any proceedings such as a lawsuit, if a filing is made under seal.
What This Means for Employers
Most importantly, the whistleblowers’ provisions of the Defend Trade Secrets Act must be disclosed in each employee contract that governs the use of confidential information like a trade secret. If an employer does not update these agreements, the failure to provide this disclosure could prevent him or her from recovering attorney’s fees or exemplary damages against an employee who did not receive this official notice.
Other Things for Employers to Keep in Mind
Employers should also consider the benefits of updating company policies, company manuals and employee contracts to be under compliance with these notice provisions. Bear in mind that even though the new federal legislation does not pre-empt state law, it is in the employer’s best interest to consult with an intellectual property attorney as soon as possible about all possible methods for protecting their trade secrets.
The loss of a trade secret can be devastating, but it is also imperative to protect employers from an employee who alleges that the contract was not valid. This is why any employer and business owner should always have a regular meetings scheduled with an intellectual property attorney to review existing company policies and contracts.
An experienced intellectual property attorney can advise the business about potential gaps and problems so as to rectify them quickly and avoid problems down the road. If you have further questions about what you need to do to take action with the Defend Trade Secrets Act of 2016, reach out to an experienced intellectual property attorney today.