protect trade secrets

How to Protect Trade Secrets Under Federal Law

By John DiGiacomo

Trade secrets are among the most valuable forms of intellectual property owned by any business. Those trade secrets should be and must be protected from misappropriation and unauthorized disclosure. As recently reported here, trade secret litigation is on the rise, particularly in federal courts since the passage of the Defend Trade Secrets Act of 2016. Given the rise workforce mobility, marketplace pressures, and technological advances, how to protect trade secrets is a growing concern. Recent changes in patent law suggests a weakening in the protections provided by patent law. Consequently, use of trade secret law has increased.

How to Protect Trades Secrets Under Federal Law

To protect trade secrets, two federal statutes are particularly relevant – the Economic Espionage Act of 1996 (“EEA”) and the Defend Trade Secrets Act of 2016 (“DTSA”) both of which are now codified at 18 U.S.C. § 1831 et seq.

The EEA is a criminal statute. It criminalizes economic espionage and theft of trade secrets. The economic espionage provisions punish those who knowingly steal trade secrets, OR attempt, OR conspire to steal trade secrets with the intent or knowledge that such theft will benefit a foreign government or agent. 18 U.S.C. § 1831.

The more general theft of trade secrets provisions punishes theft of trade secrets when the theft is intended to economically benefit someone other than the owner of the trade secret, is intended to harm or injure the owner thereof related to goods or products produced for or placed in interstate or foreign commerce. 18 U.S.C. § 1832.

The DTSA is a civil statute. The DTSA provides a civil remedy if trade secrets are stolen and if such trade secrets relate to goods or products produced for or placed in interstate or foreign commerce. 18 U.S.C. § 1836.

For both the EEC and the DTSA, “trade secrets” are created by the interplay of three components;

  • Information, specifically”… all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes…” IF
  • The owner of the information has taken reasonable measures to keep such information or device 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, the public.” 18 U.S.C. 1839(3).

“Misappropriation” is defined as an unconsented disclosure or use of a trade secret by one who used improper means to acquire the secret, or, at the time of disclosure, knew or had reason to know that the trade secret was acquired through improper means, under circumstances giving rise to a duty to maintain the secrecy of the trade secret, or derived from or through a person who owed such a duty. 18 U.S.C. § 1839(5). Note, however that reverse engineering and independent derivation are not considered theft of trade secrets. 18 U.S.C. § 1839(6).

Note that, unlike the EEC, the DTSA does not allow civil prosecution of attempted theft of trade secrets or conspiracies to steal trade secrets.

Note also that the DTSA is similar to the Uniform Trade Secrets Act which has been enacted in various forms in 48 states. See here.

If you have a claim for trade secret misappropriation, it is highly recommended that trade secret owners sue under both federal and state laws.

Remedies Under DTSA

Under the DTSA, civil actions can be filed in federal court seeking a number of remedies including:

  • Injunctive relief
  • Ex parte seizure of property (e.g., computers) containing the alleged trade secrets or the trade secrets themselves (e.g., customer lists) where Rule 65 injunctive relief is insufficient
  • Damages
  • In lieu of other damages, royalties for future use of the trade secret “in exceptional circumstances” where an injunction is “inequitable”
  • Punitive damages (if theft is willful/malicious)
  • Attorneys’ fees (if theft is willful/malicious)

Obligations Imposed by the DTSA: Changes to Employee and Nondisclosure Agreements

While the DTSA provides positive legal protections for trade secret owners by creating a federal cause of action, the DTSA also creates immunities where disclosure is made to the government and imposes obligations with respect to notice of such immunities.

Government, Attorney, and Court Access to Your Trade Secrets

The DTSA provides for immunity from criminal and civil prosecutions for disclosure of trade secrets under certain circumstances, including:

  • Disclosure in confidence to a federal, state, or local government officials, directly or indirectly, for the sole purpose of reporting or investigating a suspected violation of law
  • Disclosure in confidence to an attorney for the sole purpose of reporting or investigating a suspected violation of law
  • Disclosure made, under seal, in a document filed in a lawsuit
  • Disclosure to a person’s attorney in a retaliation lawsuit by said person’s employer

See 18 U.S.C. § 1833.

Notice Required of the Immunities

The DTSA mandates that employers “… shall provide notice of the immunity set forth in this subsection [18 U.S.C. § 1833] in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employee is defined to include consultants and contractors. Although not defined, it is likely that courts will broadly construe a “contract or agreement with an employee.” It is probably wise to include the notice provision in any contract or agreement that relates in any way to trade secrets. Likewise, if your company owns trade secrets, it is also probably wise to review the employee handbook.

If your company has trade secrets, it is highly recommended that you seek legal advice and review of employee and nondisclosure agreements.

Contact Revision Legal

If you have any concerns about whether your employee contracts, employee handbooks or nondisclosure agreements comply with the DTSA or if you need more information on trade secret protection, contact the professionals at Revision Legal. Revision Legal offers a wide array of legal services related to intellectual property and business law. We are experienced in conducting IP audits to identify what IP you have and how best to provide the most expansive and solid legal protections. We can be reached by using the form on this page or by calling us at 855-473-8474.

 

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Image credit to Mark Williams

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