{"id":2502,"date":"2020-06-12T16:13:38","date_gmt":"2020-06-12T20:13:38","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=2502"},"modified":"2020-06-12T16:13:38","modified_gmt":"2020-06-12T20:13:38","slug":"seven-steps-to-address-trade-secret-misappropriation-by-whistleblowers","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/seven-steps-to-address-trade-secret-misappropriation-by-whistleblowers\/","title":{"rendered":"Seven Steps to Address Trade Secret Misappropriation by Whistleblowers"},"content":{"rendered":"

The primary purpose of the Defend Trade Secrets Act (DTSA) is to provide federal remedies to individuals and companies that have had their trade secrets misappropriated. That is not, however, its sole purpose. One of the DTSA\u2019s more controversial provisions actually protects certain alleged misappropriators by precluding DTSA liability when an individual discloses trade secrets in the context of \u201cwhistleblowing\u201d activity. Indeed, the DTSA\u2019s immunity provision dictates that a whistleblower may not be held criminally or civilly liable for disclosing a trade secret, provided that the disclosure satisfies certain requirements. 18 U.S.C. \u00a7 1833<\/a>.<\/p>\n

This immunity provision creates serious risk for companies: A whistleblower could expose a company to civil and criminal penalties stemming from the company\u2019s alleged misconduct and simultaneously reveal valuable trade secrets, and the company would have no recourse. Fortunately, the immunity provision itself and the applicable case law, which is still in its infancy, can be used to develop a strategy for trade secret holders to avoid and\/or mitigate this risk. The critical steps of the strategy are identified below.<\/p>\n

\u00a0<\/strong><\/p>\n

    \n
  1. Limit access.<\/strong> The best way to avoid the immunity provision\u2019s risks is to prevent your trade secrets from getting into the hands of would-be whistleblowers in the first place. Unfortunately, actual and potential whistleblowers are not easily identified within a company. Therefore, companies should implement detailed policies and protocols that identify and protect trade secrets, and sharply limit access to them.<\/li>\n<\/ol>\n

    \u00a0<\/strong><\/p>\n

      \n
    1. Notify.<\/strong> The DTSA requires companies to notify their employees regarding the specific terms of the immunity provision. 18 U.S.C. \u00a7 1833(b)(3). There are penalties for noncompliance with this notice requirement; an employer that fails to provide notice may not be awarded the exemplary damages or attorneys\u2019 fees that are available under the DTSA in an action against an employee to whom notice was not provided. 18 U.S.C. \u00a7 1833(b)(3)(C). In Xoran Holdings LLC v. Luick<\/em>, No. 16-13703, 2017 U.S. Dist. LEXIS 147868, at *19 (E.D. Mich. Sept. 13, 2017), the court held that the failure of the trade secret owner plaintiffs to provide notice of the immunity provision precluded them from recovering attorneys\u2019 fees and exemplary damages from the alleged misappropriators.<\/li>\n<\/ol>\n

      \u00a0<\/strong><\/p>\n

        \n
      1. Analyze how the whistleblower acquired the trade secrets.<\/strong> If a whistleblower discloses a trade secret, the company should immediately determine whether the whistleblower had authority to acquire the information. The immunity provision does not protect a whistleblower from liability that may arise from unlawfully acquiring the subject trade secrets. 18 U.S.C. \u00a7 1833(b)(5). In one recent case, the court found that a company was likely to succeed on its conversion claim that was based on an employee\u2019s unauthorized taking of documents. Unum Group v. Loftus<\/em>, 220 F. Supp. 3d 143, 148 (D. Mass. 2016). In another case, a company\u2019s claim under the Computer Fraud and Abuse Act survived the employee\u2019s motion to dismiss where the employee took a laptop without authorization and forwarded confidential and proprietary information to her personal email address. 1-800 Remodel, Inc. v. Bodor<\/em>, 2018 U.S. Dist. LEXIS 2250000, *17-21 (C.D. Cal. 2018).<\/li>\n<\/ol>\n

        \u00a0<\/strong><\/p>\n

          \n
        1. Examine how the whistleblower disclosed the secrets. <\/strong>To be eligible for immunity, a whistleblower must disclose the trade secrets in confidence to either law enforcement authorities or to an attorney. 18 U.S.C. \u00a7 1833(b)(1)(A)(i). Similarly, if the disclosure is made in a complaint or other document, the filing must be made under seal. 18 U.S.C. \u00a7 1833(b)(1)(B). Failure to do so will provide the trade secret holder with a strong argument that DTSA immunity does not apply as a matter of law.<\/li>\n<\/ol>\n

          \u00a0<\/strong><\/p>\n

            \n
          1. Be first to court.<\/strong> When a trade secret is stolen, the trade secret owner should always endeavor to tell its story first. Doing so allows the company to set the narrative in its complaint, which, in turn, sets limits on what the court can consider at the motion to dismiss stage. This becomes even more important in cases that implicate the DTSA immunity provision. In four cases that analyzed the applicability of the immunity provision, the only case in which the court found an employee established her immunity defense from the outset was the one in which the employee got to court first and established the grounds for why she had taken the information, which, in turn, supported her immunity defense. Christian v. Lannett Co<\/em>., 2018 U.S. Dist. LEXIS 52793, at *12-13 (E.D. Pa. 2018). In the other three cases, the companies got to court first, and were able to plead their complaints carefully enough to prevent the judges from finding (at the pleadings stage) that there were sufficient allegations to support the employees\u2019 immunity defense, including that the misappropriations were exclusively linked to any whistleblowing activity. Argos USA LLC v. Young<\/em>, 2019 U.S. Dist. LEXIS 150755, at *16 (N.D. Georgia June 28, 2019); Bodor<\/em>, 2018 U.S. Dist. LEXIS 2250000, at *16-17; Unum<\/em>, 220 F. Supp. 3d at 147.<\/li>\n<\/ol>\n

            \u00a0<\/strong><\/p>\n

              \n
            1. Protect the trade secrets during the litigation.<\/strong> Companies can use the DTSA to protect their trade secrets during the litigation, including by seeking court orders or injunctions and through ex parte<\/em> seizure of the trade secrets. 18 U.S.C. \u00a7 1836(b)(3)(A). In one recent case, a court entered an order requiring the employee to take several steps to protect the secrets during the case proceedings, including delivering to the court all documents he had taken, destroying all copies of all documents he had taken, and providing an affidavit stating the circumstances under which he had provided documents to any third party. Unum<\/em>, 220 F. Supp. 3d at 149.<\/li>\n<\/ol>\n

              \u00a0<\/strong><\/p>\n

                \n
              1. Do not concede that whistleblower immunity applies.<\/strong> The DTSA immunity provision will not apply unless the whistleblower satisfies each of its requirements. 18 U.S.C. \u00a7 1833. For example, a whistleblower can only qualify for immunity if he or she disclosed the trade secrets to a government official or attorney for the \u201csole purpose\u201d of making a report based on his or her suspicion that the law was broken. 18 U.S.C. 1833(b)(1)(A)(ii). This can be challenging to establish at the outset of a case, especially if the trade secret owner sets the narrative in its complaint. Indeed, on at least two occasions, courts refused to immunize defendant employees because the pleadings lacked sufficient allegations to establish immunity. Bodor<\/em>, 2018 U.S. Dist. LEXIS 2250000, at *16-17; Unum<\/em>, 220 F. Supp. 3d at 147.<\/li>\n<\/ol>\n

                 <\/p>\n

                While companies will have to adapt their strategies based on the facts of the case, these steps support a proactive approach to addressing potential trade secret misappropriation by a purported whistleblower.<\/p>\n

                \n

                This article was published on <\/em>IPWatchdog.com<\/em><\/a> on January 22, 2020. It is reprinted with permission.<\/em> The full article in its original form can be found <\/em>here<\/em><\/a>.<\/em><\/p>\n

                William M. Taylor (LAW \u201906) is a partner in the Trial and Dispute Resolution Practice Group of Pepper Hamilton LLP, resident in the Boston office. He concentrates his practice in commercial litigation. The disputes Mr. Taylor handles often involve contractual breaches, as well as related business tort and statutory claims, including noncompetes, trade secrets, fraud, misrepresentation, and tortious interference. \u00a0<\/em><\/p>\n

                Callan G. Stein is a partner in the Health Sciences Department and the White Collar Litigation and Investigations Practice Group of Pepper Hamilton LLP, resident in the Boston office. Mr. Stein has a broad litigation and investigation practice, focusing on white collar criminal matters, corporate and commercial civil litigation, internal investigations, and health care litigation.<\/em><\/p>\n

                 <\/p>\n

                 <\/p>\n

                 <\/p>\n

                 <\/p>\n

                 <\/p>\n","protected":false},"excerpt":{"rendered":"

                Temple Law alumni William Taylor (LAW \u201906) outlines how the whistleblower immunity provision of the Defend Trade Secrets Act (DTSA) can be used to develop a strategy for trade secret holders to mitigate the risk of incurring civil and criminal penalties stemming from the company\u2019s alleged misconduct.<\/p>\n","protected":false},"author":33,"featured_media":2504,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[12,36],"tags":[1775,1776,1777,625,1778,110,1779,1780,1781],"coauthors":[1773,1774],"class_list":["post-2502","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-alumni-authored","category-intellectual-property","tag-18-u-s-c--1833","tag-defend-trade-secrets-act","tag-immunity","tag-liability","tag-limit-access","tag-litigation","tag-narrative","tag-notification","tag-whistleblowing","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"\nSeven Steps to Address Trade Secret Misappropriation by Whistleblowers - The Temple 10-Q<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/law.temple.edu\/10q\/seven-steps-to-address-trade-secret-misappropriation-by-whistleblowers\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Seven Steps to Address Trade Secret Misappropriation by Whistleblowers - The Temple 10-Q\" \/>\n<meta property=\"og:description\" content=\"Temple Law alumni William Taylor (LAW \u201906) outlines how the whistleblower immunity provision of the Defend Trade Secrets Act (DTSA) can be used to develop a strategy for trade secret holders to mitigate the risk of incurring civil and criminal penalties stemming from the company\u2019s alleged misconduct.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/law.temple.edu\/10q\/seven-steps-to-address-trade-secret-misappropriation-by-whistleblowers\/\" \/>\n<meta property=\"og:site_name\" content=\"The Temple 10-Q\" \/>\n<meta property=\"article:published_time\" content=\"2020-06-12T20:13:38+00:00\" \/>\n<meta name=\"author\" content=\"William Taylor (LAW \u201906), Christopher M. 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