Misconstruing Whistleblower Immunity Under the Defend Trade Secrets Act
6 Pages Posted: 6 Jan 2017 Last revised: 21 Mar 2017
Date Written: January 3, 2017
In crafting the Defend Trade Secrets Act of 2016 (DTSA), Congress went beyond the federalization of state trade secret protection to tackle a broader social justice problem: the misuse of nondisclosure agreements (NDAs) to discourage reporting of illegal activity in a variety of areas. The past few decades have witnessed devastating government contracting abuses, regulatory violations, and deceptive financial schemes that have hurt the public and cost taxpayers and investors billions of dollars. Congress recognized that immunizing whistleblowers from the cost and risk of trade secret liability for providing information to the Government could spur law enforcement.
Congress solved the problem through a true “cone of silence.” Congress immunized whistleblowers from liability under federal and state trade secret law for disclosure, in confidence, of trade secrets to government officials and attorneys for the purpose of reporting or investigating a suspected violation of law. Defend Trade Secrets Act of 2016, § 7 (codified at 18 U.S.C. § 1833(B)(1)(A) (2016)). By limiting disclosure to trusted intermediaries -- government officials bound by state and federal law to protect trade secrets and attorneys bound by confidentiality obligations -- the DTSA whistleblower immunity regime promotes law enforcement without risking commercial harm to legitimate trade secret owners.
Unfortunately, the first case to apply the DTSA whistleblower immunity provision (Unum Group v. Loftus, 2016 WL 7115967 (D. Mass.)) turns Congress’ immunity regime on its head. By treating a statutory immunity as a defense rather than a safe harbor, the court effectively resurrected the murky situation that Congress corrected by immunizing employees and contractors for protected activities. Notwithstanding that Unum provided no evidence that Loftus has done anything more than share company records with his counsel as part of an effort to investigate a suspected violation of law, the court nonetheless imposed upon Loftus the burden of proving that he did not have an improper purpose. In so doing, the court ignores the vaccine and subjects Loftus to the very disease that Congress cured: the imposition of substantial costs and adverse career repercussions by sharing, in confidence, company documents with counsel.
Where the employee asserts under oath that he or she disclosed company documents to government officials or an attorney in confidence solely for the purpose of reporting or investigating a suspected violation of law, the DTSA whistleblower regime requires the employer-trade secret owner to come forward with concrete evidence that the employee or contractor has shared trade secret information outside of the protected categories or for an impermissible purpose. Absent such evidence, the employee-contractor remains free to work with counsel to investigate and report alleged violations of law and immune from suit for trade secret violations.
Keywords: trade secrets, whistleblower, immunity, Defend Trade Secrets Act
JEL Classification: K19, J83, J88, K32, K42, O31, O32, O34, O38
Suggested Citation: Suggested Citation