Employers Have a Strong New Weapon To Protect Against Theft of Their Trade Secrets —If They Know How to Qualify For It

Fact–the theft of trade secrets, much of it cyber-theft, annually costs American businesses approximately $320 billion, with over 75% of trade secret lawsuits over the last two decades being brought against employees.  To aid employers, Congress in May passed the Defend Trade Secrets Act (the “Act”).  The Act adds a federal cause of action against trade secret thieves, both foreign and domestic.  Only states’ law covered trade secrets theft in the past.

Trade secrets owners can now choose between state and federal laws for trade secrets theft.  The Act puts some serious teeth in protecting trade secrets by providing their owners with:

  • the ability in “extraordinary circumstances” to obtain ex parte (very quickly and without notice to the thief) seizure by law enforcement to prevent dissemination of a trade secret.
  • damages for actual losses and unjust enrichment.
  • exemplary (penalty) damages up to two times actual damages for willful and malicious theft.
  • a royalty on any future use of the trade secret, where circumstances render it impractical or inequitable to enjoin its use.
  • their attorneys’ fees in cases of willful and malicious theft.

The Act also provides “whistleblower” protections for individual employee, independent contractors and consultants (all of which are covered under the Act’s definition of “Employee”) when disclosing a trade secret to report a suspected violation of law.

However, an employer cannot avail themselves of the punitive damages and attorneys’ fees available against an Employee under the Act and its deterrent effect, unless they give that Employee proper notice of the Act’s whistleblower provisions.  So, employers, we recommend you do the following ASAP:

  • For new or re-signing Employees, have the agreement formats you use with them that govern the use of trade secrets or other confidential information (including confidentiality contracts and NDAs) revised, to include this notice or provide a cross reference to an Employee handbook or other policy document provided to Employees that contains this notice where it details the employer’s reporting policy for a suspected violation of law.
  • For existing Employees, this can be accomplished by an addendum to their existing contracts.
  • We also recommend that you require all of your suppliers, vendors and others whose employees have access to your trade secrets to provide proper notice to their employees.

The takeaway?  Employers have a strong new weapon to protect their trade secrets.  But much of that strength is unavailable unless you update your applicable contracts and other documents to provide the required notice to Employees.

Just sayin’ . . . TM

© 2016 Paul I. Menes


If you would like to receive further information or have any questions regarding this topic, please feel free to click here and comment your questions.