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Defending Trade Secrets Under Federal Law

October 19, 2016

 

Earlier this year, Congress enacted the Defend Trade Secrets Act, creating a federal right, and federal jurisdiction, to protect trade secrets from misappropriation and threatened misappropriation. (You don't have to wait until the horse is out of the barn.) The DTSA builds off of the Uniform Trade Secrets Act, which has been adopted in 47 states, and subject to thirty years of various state court interpretations and applications.

 

I delivered remarks and facilitated a discussion this morning with Priori Legal, for executives who are concerned about protecting their business's trade secrets -- including pricing data, software coding, unique know-how, and other confidential, proprietary methods.

 

We discussed a number of different issues related to trade secret protection, including what constitutes a trade secret, how trade secrets have historically been protected, and the need for a federal enforcement scheme, which has now been enacted. The materials are here. I left the attendees with a few, practical points:

 

 1.  Take the mystery out of trade secrets. A trade secret is simply a type of intellectual property -- information in whatever form -- that (i) has value or may have value to your business (or to the business misappropriating it), and (ii) which is confidential, and which your business takes reasonable steps to protect from public disclosure. The quintessential trade secret is the formula for Coca-Cola. But trade secrets need not be so inimitable. Client data, unique and confidential methods of design or production, strategic or operational plans -- all may constitute trade secrets under certain circumstances.

 

2.  Manage your trade secret portfolio. Just as your business manages its trademarks, patents, or copyrights (other forms of intellectual property protected by federal law), it is a good idea to define and manage a portfolio of important trade secrets. This means identifying and documenting key tangible and intangible secrets, informing employees that certain information is confidential, proprietary, and viewed by the company as trade secret, and enforcing rights under employment agreements, non-disclosure agreements, or other contracts accordingly. Establishing a pattern of protection and enforcement over key secrets will benefit your company if and when it needs to seek court protection.

 

3. Take advantage of federal jurisdiction. Federal jurisdiction means access to courts that are (generally) faster and more sophisticated, and procedural tools (including nationwide service) that make enforcement more efficient. With newly-enacted powers of civil seizure (in extraordinary circumstances), and a trade secrets protection act that is at least as broad as -- and perhaps more broad than -- the Uniform Trade Secrets Act, the availability of federal courts makes enforcement a more attractive option.

 

4. Consider revising employment agreements. The DTSA includes a carve-out for the disclosure of trade secrets by employees to law enforcement or in sealed court documents (i.e., a whistleblower provision). In the event of employee misappropriation (or threatened misappropriation), if your business wishes to take advantage of the DTSA's exemplary damages and attorneys' fees provisions, then you must have advised the employee about its whistleblowing rights. Consider whether these disclosures make sense for your business, and whether to revise your employment agreements accordingly.

 

 

 

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