New Federal Civil Cause of Action for Trade Secret Theft – Considerations for Employers: To Obtain All Benefits of New Law, Companies Must Incorporate Notice of the Act’s Whistleblower Immunity Provision in Employee Confidentiality or Severance Contracts That Concern Trade Secrets Entered into or Updated After May 11, 2016

Sullivan & Cromwell LLP - May 16, 2016

The Defend Trade Secrets Act of 2016 (the “Act”) creates for the first time a federal civil cause of action for theft of trade secrets of U.S.-based individuals and companies, which may be of value to companies who were previously limited to state courts for protection.  The Act authorizes federal district courts to award damages, injunctive relief and attorneys’ fees to private plaintiffs proving theft of trade secrets and, in extraordinary circumstances, to order ex parte seizure of property where necessary to prevent the dissemination of trade secrets.  The Act also provides protection to whistleblowers who disclose information containing trade secrets to a governmental entity for the purpose of reporting a suspected violation of law and to individuals who disclose information containing trade secrets in a court filing, under seal, in a lawsuit alleging employer retaliation for reporting a suspected violation of law.  In order to be entitled to full damages and attorneys’ fees under the Act, employers must include in any agreement with employees, contractors or consultants containing provisions concerning trade secrets a description of the Act’s immunity provision.  The notice requirement applies to agreements that are entered into or updated after the date of the enactment of the Act – May 11, 2016.  Accordingly, employers wishing to use the new statute should incorporate these provisions in new agreements and any amendments to existing agreements that govern the use of trade secrets or other confidential information.