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CALIFORNIA CORPORATE & SECURITIES LAW

How The Defend Trade Secrets Act Of 2016 Opens The Door To Disclosure Of Trade Secrets

François-Marie Arouet, better known as Voltaire, once famously wrote “Ce corps qui s’appelait et qui s’appelle encore le saint empire romain n’était en aucune manière ni saint, ni romain, ni empire (This body, which was, and is, titled the Holy Roman Empire was in no way holy, Roman, or an empire)”.  Essai Sur Les Moeurs, Ch. LXX.  A similar observation could by made about the Defend Trade Secrets Act of 2016 (S. 1890), which President Obama signed into law earlier this month.

My concern is with Section 7 of the Act that amends 18 U.S.C. § 1833 to provide immunity for confidential disclosure of a “trade secret” (defined in § 1839) to the government or in a court filing.  Newly added subsection (b)(1) provides:

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.

Here are just a few lacunae in the statute:

  • Congress has failed to define what it means to disclose a trade secret in “confidence”.  Does this mean the disclosing party makes the disclosure only to the government official or attorney?  Does it require some assurance that the government official or attorney will maintain the confidentiality of the disclosure?  Federal and state governments are subject to public disclosure statutes.  In general, government officials can’t exempt information from these laws simply by declaring the information to be confidential.  For example, California Labor Code 1102.7 requires that the California Attorney General or other appropriate governmental official “hold in confidence” information disclosed through the whistleblower hotline maintained by the Attorney General.  However, this obligation only applies during “the initial review of a call”.
  • The statute is not limited to suspected violations of criminal law.  Investigations of suspected violations of civil laws may be less likely to be exempt from applicable freedom of information laws.
  • Given the thousands of federal, state and local laws on the books, the requirement that the disclosure be solely for the purpose of reporting or investigating a suspected violation of law is essentially meaningless as it imposes no practical limitation on disclosure of trade secrets.
  • The statute does not require that the holder of the trade secret be the subject of the suspected violation.  Thus, any investigation of anyone could be the pretext for trade secret disclosures.

Finally, it is worth noting that the law expressly immunizes individuals from criminal or civil liability under federal and state trade secret laws. Thus, the statute does not appear to override other laws, such as an attorney’s duty to preserve client confidences under Business & Professions Code Section 6068(e).

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