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Intellectual Property, Corporate

Aug. 2, 2017

Ensure you’re using the Defend Trade Secrets Act to your advantage

Many businesses, especially those in the tech sector, spend a great deal of time and money obtaining patents to protect their innovations. Unfortunately, some of those same businesses fail to devote an equivalent level of resources to protecting their trade secrets — that is, until their trade secrets are stolen.

Many businesses, especially those in the tech sector, spend a great deal of time and money obtaining patents to protect their innovations. Unfortunately, some of those same businesses fail to devote an equivalent level of resources to protecting their trade secrets -- that is, until their trade secrets are stolen. With the ease of employee mobility and portability of data storage, the theft of trade secrets has become easier than ever. Despite this, a recent survey of 404 senior executives at multinational companies revealed that, while nearly half of them believe that their company's trade secrets are more important than its patents and trademarks, less than one-third indicated that their company had taken basic measures to protect its trade secrets. Euromoney Institutional Investor Thought Leadership, "The Board Ultimatum: Protect and Preserve," 2-3 (Baker McKenzie 2017).

With the enactment of the Defend Trade Secrets Act (DTSA, 18 U.S.C. Sections 1836 et seq.) in 2016, businesses now have more options for protecting their trade secrets, including a new federal cause of action for trade secret misappropriation. At the same time, recent changes and trends in patent law have made it more difficult to successfully enforce patent rights. In light of these developments, trade secret laws are arguably becoming an even more important option for protecting a business's sensitive technical information and other intangible work product. Thus, it is important for companies to keep in mind this legal tool for defending their intellectual property. Below are several recommendations to help ensure that businesses can use the DTSA and other trade secret laws to their advantage.

1: Take Action Now -- Do Not Wait to Protect Your Trade Secrets Until they are Stolen

Under the DTSA, trade secrets encompass "all forms and types of financial, business, scientific, technical, economic, or engineering information," so long as: (1) the owner takes reasonable measures to keep the information secret; and (2) the information derives independent economic value (actual or potential) from not being generally known. Thus, in order to qualify for trade secret protection under either the DTSA or the state laws adopting the Uniform Trade Secrets Act, the information at issue must (among other things) be both secret and subject to reasonable efforts to maintain its secrecy. Businesses must therefore take appropriate precautions beforehand in order to have to an enforceable trade secret. This will likely include identifying the business's trade secrets and limiting access to those trade secrets to those employees, customers, and other parties that really need them for legitimate business purposes.

Businesses must also implement safeguards to prevent those who have access to the trade secrets from disseminating the trade secrets to anyone else. Examples include legal controls, such as such as confidentiality and nondisclosure agreements with those who have access to the trade secrets, and technical controls preventing those with access from copying or migrating trade secret information outside the organization. In addition, training all employees on the importance of trade secrets and the legal consequences of misappropriation is among the best practices for protecting trade secrets.

Of course, whether these efforts are "reasonable" depends on a number of factors, including the size of the business, the resources at its disposal, and the type and value of the trade secrets. Keep in mind that these measures add value beyond merely preserving your business's ability to assert a trade secret misappropriation claim in the event that your trade secret information is stolen; they will also help to prevent the theft from occurring in the first place.

2: Update Your Confidentiality and Nondisclosure Agreements with Your Employees

Employers should update their confidentiality agreements, nondisclosure agreements, and employee handbooks in order to ensure that they can take full advantage of the remedies for trade secret misappropriation available under the DTSA. The DTSA establishes a protection for whistleblowers, stating that an individual is not liable for the disclosure of a trade secret that is made in confidence to a government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law. The DTSA requires employers to provide notice of this immunity in any contract or agreement with an employee entered into or updated after May 11, 2016, that governs the use of a trade secret or other confidential information (such as confidentiality and nondisclosure agreements, and employee handbooks). If the employer fails to do so, the law states that the employer cannot recover exemplary damages or attorney fees under the DTSA in an action against an employee to whom notice was not provided.

3: If Your Trade Secrets are Stolen, Contact Counsel Right Away

If you discover (or suspect) that your trade secrets have been misappropriated, contacting counsel early can help maximize your chances of limiting the disclosure of your trade secrets and obtaining relief for the harm caused by the misappropriation. For example, the DTSA allows the owner of a misappropriated trade secret to apply ex parte for an order directing the U.S. Marshalls to seize property -- such as a computer or other electronic devices on which the trade secret data is believed to be stored -- where doing so is "necessary to prevent the dissemination of the trade secret." Using this procedure, an attorney could help the business recover the trade secret materials before the alleged wrongdoer has an opportunity to cause too much harm by, for instance, concealing the evidence, or disclosing the trade secrets to others.

Notably, this extreme relief requires a showing of "extraordinary circumstances" and is not often granted. But even if the court does not order an ex parte seizure, trade secret law authorizes other less extreme injunctive relief in appropriate circumstances, such as court orders prohibiting the access to or use of the misappropriated trade secret.

Another benefit of involving an attorney early in the process is that they can help ensure that the trade secret owner identifies and preserves key evidence of misappropriation. Most trade secrets are stored in some type of electronic format, and copying and transferring trade secret files and data often leaves an electronic "trail," which may be very valuable in proving misappropriation. Unfortunately, efforts to obtain forensic evidence of copying can be inadvertently thwarted through a business's routine data and document destruction policies implemented by its IT department, or through its regularly-scheduled replacement of broken or outdated systems. An attorney, with the help of the business's IT staff or a forensic expert, can help to ensure that this potentially valuable evidence is identified and preserved so that it can be effectively used against the party that misappropriated the trade secret.

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Ben Armistead

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