To Give Your Trade Secrets Maximum Protection, Make Sure Compliance-With-Government-Request Notice is in Your Contracts

Trade secrets are protected under both California and federal law. The federal law is called the Defend Trade Secrets Act (“DTSA”) and was passed in 2016. See 18 U.S.C. § 1836, et seq. It is similar to many state statutes and provides a federal law which can be used to file lawsuits if employees or former employees steal or threaten to steal your business’ trade secrets. However, there is a compliance-with-government-request protection provision in the DTSA which requires that certain notices be given. Failure to give the notices limits the remedies that can be sought by a business that suffers the loss of trade secrets. Importantly, the lost remedies are the ability to seek punitive damages and attorney’s fees. The latter is crucial since litigation is costly. An experienced San Diego corporate attorney can review your existing contracts and help ensure that your trade secrets are fully protected.

Unlike many state statutes — including the California statute — the DTSA has a provision that protects an employee from being sued (and from criminal liability) if the employee discloses trade secret information under two circumstances:

  • If the trade secret information is disclosed in confidence to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of law
  • If the information is disclosed under seal in a judicial proceeding

These are often called protections for “whistleblowers” but, at least under current interpretations of the DTSA, the provision is not limited to circumstances of whistleblowing. As written, the “suspected violation of law” is not limited to violation of law by the owner of the trade secret but can be an investigation of any suspected violation of any law by anyone. Court proceedings, of course, include grand jury investigations.

As noted, the DTSA requires that employers are to give notice of these “whistleblower” protections to employees, contractors, and other workers in any contract “with an employee” that relates to trade secrets or “other confidential communication.” See 18 U.S.C. §1833(b). Note that this definition is broad and is not limited to only contracts targeted to protecting trade secrets. Confidentiality provisions are contained in many types of contracts including:

  • Employment contracts
  • Business purchase agreements
  • IP sales and/or licensing agreements
  • Franchise agreements
  • Standard nondisclosure agreements
  • Settlements, severance, and employee separation agreements
  • Contractor and vendor service agreements
  • And more

The term “employee” is also broadly defined. When providing the “whistleblower” notice provisions, the best practice is to quote from the DTSA directly or provide a copy of the statutory sections as an exhibit. As noted, to maximize the protection of your trade secrets, your contracts must contain these ‘whistleblower” notice provisions.

Contact San Diego Corporate Law Today

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” for four years running by Mr. Leonard provides a full panoply of legal services for businesses and proudly serves the San Diego business community. Like us on Facebook.

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