DEFEND TRADE SECRETS ACT, Part 4: OK, now you’ve crossed the line

Currently there are few decisions for the ‘whistleblower provision’ of the federal Defend Trade Secrets Act ([hereinafter the ‘Act’]. Under this provision an employee is immune from civil and criminal trade secret misappropriation liability under both the Act and state law if

  • an employer’s trade secrets are conveyed to an employee’s attorney or the government;
  • in a lawsuit document or other proceeding under seal, and
  • solely to report or investigate a possible violation of law.

However, the employee must be ‘squeaky clean’ and strictly comply with the conditions of the Act’s whistleblower provision to benefit from the immunity.

In an early decision, the court denied whistleblower immunity because an employee’s reliance upon this immunity was premature. Unum Group v. Loftus, 220 F. Supp3d 143 (D. Mass. 2016). In this case Unum Group requested a preliminary injunction against former employee Loftus to prevent disclosure of  confidential health care information.  Loftus then moved to dismiss the employer’s lawsuit based upon whistleblower immunity. The court concluded that

  • it was not known which documents containing confidential health care information the employee provided to his attorney; or
  • whether the employee planned to use, disclose or transfer the trade secrets for purposes other than investigating an employment related grievance; and
  • the employee had not yet filed a lawsuit that required trade secret disclosure.

Consequently, the court took the employer’s allegations as true, denied the motion to dismiss and granted the preliminary injunction.

Another court granted an employee’s motion to dismiss the employer’s counterclaim for trade secret misappropriation based upon this immunity. Christian v. Lannett Company, Inc., 2018 WL 1532849 (E. D. Pa. March 29, 2018). In this case the disputed information was disclosed under a court order related to the employer’s alleged civil rights violations against the employee. The court also observed that the employer never alleged that

(i)the plaintiffs’ attorney intended to use or disclose the purported trade secrets to other persons, or

(ii) the plaintiff intentionally or accidentally disclosed or intended to disclose these same disputed trade secrets to third persons.

However, in the pending litigation of Spano v. Ohio Hospice & Palliative Care, 2018 U.S. Dist. LEXIS 15516 (W. D.  Pennsylvania, filed January 31, 2018), according to an employer’s counterclaim the former employee had misappropriated and then transferred several hundred pages of confidential records to her attorney purportedly for an age discrimination and wage dispute.  Thereafter, the state government filed a criminal complaint against the employee for affirmatively misappropriating this information.  Although the counterclaim was not originally brought under the Act, the Act provides immunity for state law misappropriation claims. For this reason, employees should understand the scope of the Act’s immunity provision, as well as potential consequences if their actions lie outside this scope. Let’s be careful out there!

©2019 Adrienne B. Naumann, all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com.

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