QUESTION:         We’ve been hearing about a new federal law called the Defend Trade Secrets Act of 2016.  What is it and how does it apply to hospitals?

ANSWER:            The Defend Trade Secrets Act of 2016 (“DTSA”) was signed into federal law in May 2016 by President Obama.  The DTSA allows private companies to sue in federal court when their trade secrets have been “misappropriated” (basically, stolen).  The DTSA was passed since it is believed that the theft of trade secrets has caused trillions of dollars of losses to the U.S. economy.

Certain disclosures of trade secrets are permitted and give the employee/contractor that disclosed the trade secret immunity – clearly, these provisions mean to protect “whistleblowers.”  Also, if an employee/contractor files a lawsuit for retaliation for reporting a suspected violation of law, the employee/contractor may disclose the trade secret subject to certain conditions.

So, how does this apply to hospitals?  Courts have ruled that the compensation/bonus formula in a contract is a trade secret.  The DTSA requires a notice of immunity from liability for all individual employees/contractors in any contract which governs the use of a trade secret or other confidential information.  This immunity applies to those employees/contractors who disclose trade secrets in a government investigation, provided that the disclosure is in accordance with the DTSA.

Therefore, we recommend a notice provision for all physician employment contracts and personal services contracts, since those contracts contain compensation/bonus formulas.  Even if a hospital does not believe that its contracts contain trade secrets, we recommend adding a notice provision “just in case.”  In lieu of a notice provision, a hospital could provide a cross-reference in the contract to a hospital policy.  In any event, we recommend that a hospital consult with counsel to develop a notice provision, policy, or both.