[US] Does the Defend Trade Secrets Act protect confidential data?

Employers take pains to protect company documents and communications concerning and discussing confidential trade secret information. However, in the US, when employees leave and bring a whistleblower claim and the employer discovers they have sent themselves confidential information or an employee wants to introduce trade secret documents as evidence in a whistleblower lawsuit, federal and state whistleblower protections leave employers with few options. Ogletree Deakins considers what effect the federal Defend Trade Secrets Act (DTSA) could have.

The DTSA amended the Economic Espionage Act (EEA) to provide a federal civil remedy against trade secret misappropriators, however, there is a carve-out providing limited immunity for purported whistleblowers. 

The DTSA reportedly states that:

(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (A) is made— (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Ogletree Deakins advises that employers facing this issue may need to strategise regarding the whistleblower claim while, at the same time, attempting to protect confidential information. In these cases, some employers will try to get a protective order in place from the start of the dispute. To the extent the purported whistleblower seeks to produce confidential documents containing trade secrets information, the employer is permitted to ask that the production is made under a “confidential” designation under the protective order. The protective order can also ensure any otherwise public filings containing the confidential documents are also made under seal if litigating in state court.

Employers could still consider bringing claims for various civil violations against an employee despite the cited protection from the DTSA. Examples reportedly include breach of contract for violating a confidentiality agreement, conversion, tortious interference, or breach of fiduciary duty. But the challenge with proving such claims generally is that the employer must show both harm and damages.

Ogletree Deakins says employers should be aware of a developing trend in which US courts might choose to excuse an employee’s violation of a confidentiality agreement where the employee brings a whistleblower claim relating to the information taken from the company. Typically, courts will consider what information was taken, ask how and why it was taken and to whom it was given. Another key consideration is that, with a pending whistleblower claim, a trier of fact may reportedly not be sympathetic to the employer’s attempts to pursue the employee.

Source: Ogletree Deakins

Employers take pains to protect company documents and communications concerning and discussing confidential trade secret information. However, in the US, when employees leave and bring a whistleblower claim and the employer discovers they have sent themselves confidential information or an employee wants to introduce trade secret documents as evidence in a whistleblower lawsuit, federal and state whistleblower protections leave employers with few options. Ogletree Deakins considers what effect the federal Defend Trade Secrets Act (DTSA) could have.

The DTSA amended the Economic Espionage Act (EEA) to provide a federal civil remedy against trade secret misappropriators, however, there is a carve-out providing limited immunity for purported whistleblowers. 

The DTSA reportedly states that:

(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (A) is made— (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Ogletree Deakins advises that employers facing this issue may need to strategise regarding the whistleblower claim while, at the same time, attempting to protect confidential information. In these cases, some employers will try to get a protective order in place from the start of the dispute. To the extent the purported whistleblower seeks to produce confidential documents containing trade secrets information, the employer is permitted to ask that the production is made under a “confidential” designation under the protective order. The protective order can also ensure any otherwise public filings containing the confidential documents are also made under seal if litigating in state court.

Employers could still consider bringing claims for various civil violations against an employee despite the cited protection from the DTSA. Examples reportedly include breach of contract for violating a confidentiality agreement, conversion, tortious interference, or breach of fiduciary duty. But the challenge with proving such claims generally is that the employer must show both harm and damages.

Ogletree Deakins says employers should be aware of a developing trend in which US courts might choose to excuse an employee’s violation of a confidentiality agreement where the employee brings a whistleblower claim relating to the information taken from the company. Typically, courts will consider what information was taken, ask how and why it was taken and to whom it was given. Another key consideration is that, with a pending whistleblower claim, a trier of fact may reportedly not be sympathetic to the employer’s attempts to pursue the employee.

Source: Ogletree Deakins