By: Jeffrey G. Sheldon, Esq.
Congress has passed, and it is expected that President Obama will sign, a Federal trade secret law.
Of most importance to employers is a “safe harbor” provision under the law. We recommend that all employers provide a notice to their employees about the safe harbor provision and update their employment agreements to explicitly include this. See the end of this alert for the language of the safe harbor provision.
If by chance you do not have an employment agreement that includes trade secret protection, then please contact us to have one prepared. Almost every business has the potential for trade secrets, such as customer lists and future business plans.
Consistent with the U.S. Constitution, the Federal law is limited to trade secrets that are related to a product or service used in or intended for use in interstate or foreign commerce. Thus, trade secrets related to products or services that are solely intrastate are not subject to the Federal law.
The Federal trade secret law is similar to those that have been adopted by most states. Most states have adopted a version of the Uniform Trade Secrets Act.
Among the notable aspects of the Federal law are the following:
1. The definition of trade secrets is very broad.
2. A key procedural benefit of the law is a mechanism for a civil seizure order that can be enforced by federal, state, and/or local law enforcement as a preventative measure.
3. Willful misappropriation of a trade secret can result in double damages.
4. Most likely the inherent disclosure doctrine, which some states have, is not available under the Federal law. The possibility of an ex-employee disclosing trade secrets is not enough to get an injunction under the Federal law. It is necessary to have evidence of threatened misappropriation; the mere fact that an ex-employee knows trade secrets is insufficient for an injunction.
5. It is unclear how provisions in the Federal law conflicting with state law will play out.
As an example, California does not allow a covenant not to compete under most circumstances. The Federal law provides that there cannot be injunctive relief inconsistent with the state law, so a California employee cannot be enjoined under the Federal law from competing. But will damages for violating a covenant not to complete be available under the Federal law, even though damages will not be available under state law? It is also unclear how the Federal law will be applied to a situation where an employee enters into an agreement in a state allowing a covenant not to compete and then takes a new job in a state, such as California, that does not enforce covenants not to compete. There are conflicting decisions regarding how that plays out under state law.
The safe harbor provision states:
(2) USE OF TRADE SECRETSECRET INFORMATION IN ANTI-RETALIATION LAWSUIT.—An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual—
“(A) files any document containing the trade secret under seal; and
“(B) does not disclose the trade secret, except pursuant to court order.
“(A) IN GENERAL.—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.
“(B) POLICY DOCUMENT.—An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.
Questions about the Federal Trade Secrets Act and trade secrets can be directed to Jeffrey G. Sheldon, a Partner in Leech Tishman’s Intellectual Property Practice Group. He is based in the Pasadena office. Jeff can be reached at 626.796.4000 or email@example.com.
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