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The Defend Trade Secrets Act and Whistleblowers: Protections and Vulnerabilities

President Obama signed into law the Defend Trade Secrets Act (“DTSA”) during his last year in office.  Most notably, the DTSA creates a private federal civil cause of action for misappropriation of trade secrets.[1]  If that misappropriation is “willful[] and malicious[],” the plaintiff can recover punitive damages of up to two times compensatory damages and attorneys’ fees.[2]

The DTSA also contains whistleblower protection provisions that in certain situations give civil and criminal immunity to employees who divulge their employer’s trade secrets.[3]  For example, the DTSA protects an employee who discloses a trade secret to a government official or an attorney “for the purpose of reporting or investigating a suspected violation of law.”[4]  The DTSA incentivizes employers to make their employees aware of the DTSA’s whistleblower protections.  An employer cannot recover punitive damages and attorneys’ fees in an action against its employee for DTSA violations unless the employer gave the employee notice of DTSA whistleblower protections in its contract or agreement with the employee governing the use of trade secrets.[5]  Significantly, the DTSA includes in its definition of “employees” outside contractors and consultants.[6]

Some commentators have identified a potentially troublesome aspect of the DTSA whistleblower protection provisions.[7] The DTSA does not limit the employee’s immunity for disclosure of trade secrets only for reporting, or as part of the investigation of, its employer’s violations of the law.  Rather, the DTSA appears to provide immunity to the employee for disclosure of its employer’s trade secrets in connection with even a third party’s suspected violation of the law.  For example, if the FBI wants insights into a technology company’s encryption technology to access encrypted data relevant to a criminal investigation of an unrelated third party, an employee of that technology company could, with immunity, volunteer those trade secrets to the FBI.  The ramifications for the company that the government now holds the keys to its encryption technology could have a significant and perhaps even catastrophic financial impact on the company.

In summary, while the DTSA provides greater protection of trade secrets from private parties, it appears to enhance the government’s ability learn about and use those secrets.

[1] See 18 U.S.C. § 1836(b)(1)

[2] 18 U.S.C. § 1836(b)(3)(C)-(D).

[3] See 18 U.S.C. § 1833(b)(1)-(2).

[4] 18 U.S.C. § 1833(b)(1)(A)(ii).

[5] See 18 U.S.C. § 1833(b)(3).

[6] See 18 U.S.C. § 1833(b)(4).

[7] See Jordan J. Altman, Doreen L. Lilienfeld, Mark Pereira, License to Leak:  The DTSA and the Risks of Immunity,  28 No. 10 Intell. Prop. & Tech. L.J. 6-10 (October, 2016).

by Brian C. Kimball

Brian Kimball