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Ahead of the Curve Auto Supplier Blog

July 18, 2016

New Federal Legislation Creates Notice Requirement for Confidentiality Agreements

President Obama recently signed the Defend Trade Secrets Act (DTSA) into law. Effective immediately, the DTSA gives some teeth to federal protections by allowing an employer to sue in federal court for misappropriation of trade secrets.

The DTSA also provides employers with other enforcement mechanisms, such as the right to seek ex parte seizure of misappropriated trade secrets. An employer can now ask a federal court to order law enforcement officers to immediately seize property "necessary to prevent the propagation or dissemination of a trade secret" without waiting for the alleged disseminator to respond. This powerful yet difficult to obtain remedy is meant to allow employers to stop the spread of trade secrets without lengthy litigation delays.

The act is particularly important in the auto supply chain where products, and the underlying technologies, are frequently shared externally through customer and supplier relationships and/or increasingly prevalent joint development agreements, cross-license agreements and other such collaborations. And, as employee turnover remains high in the industry, suppliers need to be vigilant in ensuring that secrets don’t walk out the door when employees do.

It’s important to note that the DTSA comes with a new notice requirement. To reap the full benefits of the DTSA, an employer must first provide written notice to any employee who signs a new or amended contract governing the use of trade secrets or confidential information after May 12, 2016.  Because whistleblowers are protected under federal law and retaliation for whistleblowing is prohibited, the notice must contain the following:
  1. That the employee cannot be held civilly or criminally liable for a disclosure made in confidence to a government official or an attorney, if made for the purpose of reporting or investigating illegal activity; and
  2. That the employee may disclose trade secrets to his or her attorney and use those trade secrets in a court proceeding.
Employers can comply with this notice requirement either by editing the notice into the agreement itself or by providing "a cross-reference [in the agreement] to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law."
 
Failure to comply with the notice requirements will cut off an employer's ability to recover exemplary damages or attorney fees under the DTSA from an employee to whom notice was not provided. However, this notice requirement explicitly does not apply to agreements that predate the DTSA.

Please contact Warner Norcross & Judd for assistance with interpreting the new legislation and ensuring that your organization complies with the act's notice requirements.

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