Government contractors are often required to sign non-disclosure agreements when they conduct business with the federal government. In some cases, the contractor may also consider an NDA to protect their own trade secrets. It is important for every contractor to remember that when they sign an NDA, the agreement is between the contractor and the government but not with a specific government employee. This is important because there are federal laws in place that deal with a federal employee’s disclosure of trade secrets and these laws take precedence over a contractors efforts to enforce their own NDA signed by a government employee. There are steps, however, that a contractor can take to enforce laws that are designed to protect their trade secrets.
How Federal Law Addresses Trade Secrets
Trade secrets, under the Economic Espionage Act of 1996 (18 USC 1831-39), are defined as all forms and types of financial, business, scientific, technical, economic or engineering information including:
- Program devices
These can be considered trade secrets whether they are tangible or intangible. In addition, how they are stored, compiled or memorialized is irrelevant when determining if they are trade secrets, including physical and electronic storage as well as whether the item is graphic, photographic or in writing. However, the following criteria must also be met for something to be considered a trade secret, according to federal law:
- The owner has taken reasonable steps to keep the information secret, and;
- There is independent, actual or potential value to keep the information secret and it the information is not readily attainable through regular means or to the public.
In the case of proprietary code, the Federal Acquisition Regulation (48 CFR 27.402 Policy) provides a definition despite the fact that federal law does not provide a general definition. According to the policy, contractors who have a legitimate proprietary interest in data resulting from private investment are provided protections for that data. Proprietary interest is defined as a property right or valid economic interest. The policy explains that protection is necessary to prevent compromise of the property right or economic interest which could damage the commercial position of a contractor. If the contractor’s position is damaged, the government could also be unable to obtain access or use the data as well. In other words, the regulation aims to protect data from disclosure information that is provided as part of the bidding process. For this reason, the Department of Defense requires an NDA with third parties to protect information.
The Data Rights regulations must be met when delivering trade secrets to the government. These regulations, found in the FAR and DFARS, not only protect trade secrets but also copyrightable materials that may include:
- Computer software
In most cases, the contractor owns all material that their employees create, even when they are performing under government contracts. The government may choose to acquire a license for any technology developed under their contracts and the contract or source of funding will determine disclosure of any trade secrets.
Penalties for Violation
There are three federal laws which explain the penalties for disclosing proprietary information by government personnel. Anyone who knowingly discloses non-government information obtained through a procurement action is subject to both civil and criminal penalties under Title 41 USC 423. A civil fine of up to $100,000 and applies to government employees who receive non-governmental information as well as personnel who are not employees who obtain sensitive procurement information. This can occur if a bid package with trade secret information to a subcontractor. Once a contract has been awarded, however, lesser penalties apply as this law only pertains before the award is given.
If the information is identified as proprietary and given to the government in confidence, disclosure by a government employee or non-government organization may result in a mandatory removal from office and a fine of not more than $1,000 plus not more than one year in prison. Mandatory removal from office means that an employee would be immediately terminated from their position, according to Title 18 USC 1905.
In the case of disclosed financial information that was entrusted to the custody of the government, Title 12 USC 417 Civil Penalties allows for civil remedies. The code also requires the Office of Personnel Management to investigate the situation and recommend disciplinary action for all employees involved.
In order to enforce laws dealing with trade secrets and proprietary information, the owner of the information must take reasonable steps to protect their interests. This may include instituting access controls, having visitors escorted in and out of data-sensitive buildings or areas or marking sensitive documents properly. Non-disclosure agreements are another avenue for contractors, employees and third-parties. Any documents that are no longer needed should be shredded to further insure that trade secrets are protected.
Contractors who work under government contractors must take reasonable steps to protect their proprietary information from disclosure. Although non-disclosure agreements go a long way toward protecting trade secrets, other steps should be taken to provide added protections to information a contractor does not want disclosed. Should it be discovered that a government employee may have released proprietary information, there are penalties in place to punish those who do so, but it may be too late for the contractor to keep their proprietary information secret. Because leaking of this type of information may also be damaging to the government, federal agencies have a vested interest in making sure government contractor data is safe and secure as well. Our firm is here to help contractors develop strong non-disclosure agreements and to provide advice should a contractor learn that their information has been disclosed improperly.
Professional Legal Assistance is Available
The government contract attorneys at Ravenhearth Law have decades of experience with both government contracts counseling and government contracts litigation. If you have a question regarding any type of contractual agreement including non-disclosure agreements – contact our firm today. We offer free initial consultations so that you can understand your options before making an important decision. Call now or, send us a description of your case online to set up your free consultation.