Federal Trade Secret Reform Helps Whistleblowers

From time to time, companies accuse whistleblowers of disclosing trade secrets in violation of a confidentiality agreement. In False Claims Act cases, these counterclaims have sometimes caused relators to have to defend their reports to the federal government against potential legal liability asserted by the business. A recent act of Congress has been sent to President Obama that would clarify the law in a favorable manner.

The Defend Trade Secrets Act of 2016 will provide immunity from civil or criminal liability under any Federal or State trade secret law for a disclosure that is made in a complaint filed under seal in a lawsuit. It will also protect disclosures in confidence to government officials that are made in confidence and solely for the purpose of reporting a suspected violation of law.

The law will also require employers to provide notice of the immunity in any contract or agreement with an employee that governs the use of confidential information. An employer will be in compliance with this requirement so long as it provides a cross-reference to its reporting policy for a suspected violation of the law. If notice is to provided, the employer can not be awarded exemplary damages or attorney fees for the pursuit of a disclosed trade secret.

It is worth noting that the new law does not limit liability for the unlawful access of material by unauthorized means.

President Obama is expected to quickly sign the legislation. The bill adds a federal civil cause of action for trade secret misappropriation. Previously, the law has been governed by state civil statutes, many of which have adopted forms of the Uniform Trade Secrets Act. Overall, the law is expected to be a boon to business as it sets a national standard for protection of trade secrets (confidential business information), but it is nice to see that a carve-out was included to protect whistleblowers. Given Senator Grassley’s work on the bill, I guess that wouldn’t really surprise anyone.

Counterclaims in response to False Claims Act lawsuits seem to have been an area of increasing litigation over the past decade with more defendants adopting them in declined cases pursued by the relator on behalf of the federal government.  Hopefully, the U.S. will also have the opportunity to favorably clarify the public policy exemption as to when a whistleblower can take documents from their employer to give to the government.

For additional information about this important area of whistleblower law, contact one of our False Claims Act attorneys.