Defend Trade Secrets Act Signed Into Law

By Peter Domas and Jena Grady

In an era of unprecedented integration and collaboration in the healthcare industry, providers, payors, contractors and patients are exchanging information at an ever expanding pace. This collaboration includes sharing best practices, data, technology, and resources, many of which may have significant value to a healthcare provider and qualify for protection as a trade secret. Disclosing such information without precautions necessary to preserve such trade secrets, however, may waive a healthcare provider’s claim to such an asset.

On May 11, 2016, President Obama signed into law The Defend Trade Secrets Act (“DTSA”) which became effective immediately. Prior to DTSA, trade secrets were mostly protected by state laws, which varied significantly from state to state. Below is a summary of what Healthcare Providers must know about the new law and what steps should be taken to protect your trade secrets and comply with DTSA.

Terms for Application of DTSA

  • Trade Secret: “Trade Secret” generally is all forms and types of information where the owner has taken reasonable measures to keep such information secret and the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
  • Misappropriation: While the definition of “misappropriation” is quite broad, it can be summarized as the acquisition, use, or disclosure of a trade secret of another by a person who knows, or has reason to know, that the trade secret was acquired by improper means. Additionally, misappropriation includes acquisition, use, or disclosure by a person who knew, or had reason to know, that the trade secret was a trade secret and his or her knowledge of the trade secret had been acquired by accident or mistake.

Protection for Trade Secrets under DTSA

The enactment of DTSA will allow healthcare providers with trade secrets to file private civil lawsuits in federal court against employees, contractors, and competitors for misappropriating trade secrets. DTSA remedies for misappropriation include injunctive relief and damages when there is actual loss. Healthcare providers also can request the court to order seizure of stolen trade secrets for misappropriation of trade secrets in extraordinary circumstances. Additionally, DTSA does not preempt state law and, therefore, healthcare providers can bring state law trade secret claims as well.

DTSA Protection for Whistleblowers

While providing new enforcement power for healthcare providers against individuals that disclose trade secrets, DTSA also provides immunity protection for whistleblowers. Under this immunity, if an individual discloses a trade secret to a federal, state, or local government official, or to an attorney, he or she may not be held criminally or civilly liable under any federal or state trade secret laws. This protection not only applies to healthcare provider’s employees but also independent contractors.

Healthcare providers most likely will see the application of whistleblower immunity when it comes to whistleblowers filing false claim actions against healthcare providers. If an individual discloses trade secrets when bringing a qui tam suit under the federal False Claims Act or similar state laws alleging fraudulent Medicare or Medicaid payment, any trade secret disclosure would not violate DTSA.

What Healthcare Providers Should Do Now

Trade secret issues occur in multiple situations including hiring and firing employees, signing vendor agreements, and discussing future business ventures and proposals. With the enactment of DTSA, healthcare providers should take the following steps:

  • Audit and Identify: Perform an audit of corporate assets to identify and designate trade secrets and determine where trade secrets are maintained and determine who within the healthcare entity and outside the healthcare entity should have access to them.
  • Review and Revise Vendor Agreements: Since a healthcare provider’s agreements with other parties usually include access to data and confidential information, healthcare providers should review their non-disclosure agreements and other confidentiality and non-disclosure-type agreements to ensure they are sufficient to identify and protect trade secrets.
  • Notify Employees and Independent Contractors: For all new and amended contracts or agreements that govern the use of trade secret or other confidential information, healthcare providers must give employees notice of DTSA’s immunity for whistleblowers as discussed above. Healthcare providers may comply with this requirement by cross-referencing a policy document provided to the employee that sets forth the employer’s internal mechanism for reporting a suspected violation of law. If a provider fails to provide notice to an employee or contractor and then files suit against the individual for misappropriation of a trade secret, the employer cannot be awarded exemplary damages (up to two times the amount of compensatory damages) or attorneys’ fees. Additionally, a provider’s failure to provide notice may be used by an employee/independent contractor as evidence in a subsequent trade secret misappropriation suit that there was no agreement in place regarding trade secrets.

For assistance with protecting your organization’s trade secrets, as well as revising your confidentiality or employment agreements in light of DTSA, please contact Peter Domas at 248-433-7595, Jena Grady at 602-285-5056 or any member of Dickinson Wright’s Healthcare Practice Group.