Posts Tagged: "Defend Trade Secrets Act"

Part I of this series covered (1) Food Marketing Institute v. Argus Leader Media, 139  S.Ct. 2356 (2020) in which the Supreme Court held that commercial or financial information that is customarily and actually treated as private by its owner and provided to the government under an assurance of privacy is “confidential” under exemption 4 to the Freedom of Information Act and is therefore shielded from disclosure; (2) trade secret cases dismissed on the statute of limitations; (3) improper acts for unclean hands doctrine must be related to the misappropriation claim; (4) the Department of Justice’s continued and increasing focus on theft of trade secrets involving a Chinese connection; and (5) award of “head start” damages. In Part II, we will look at some additional important 2019 trade secret decisions and trends.

The primary purpose of the Defend Trade Secrets Act (DTSA) is to provide federal remedies to individuals and companies that have had their trade secrets misappropriated. That is not, however, its sole purpose. One of the DTSA’s more controversial provisions actually protects certain alleged misappropriators by precluding DTSA liability when an individual discloses trade secrets in the context of “whistleblowing” activity. Indeed, the DTSA’s immunity provision dictates that a whistleblower may not be held criminally or civilly liable for disclosing a trade secret, provided that the disclosure satisfies certain requirements. 18 U.S.C. § 1833. This immunity provision creates serious risk for companies: A whistleblower could expose a company to civil and criminal penalties stemming from the company’s alleged misconduct and simultaneously reveal valuable trade secrets, and the company would have no recourse. Fortunately, the immunity provision itself and the applicable case law, which is still in its infancy, can be used to develop a strategy for trade secret holders to avoid and/or mitigate this risk.

In general, a trade secret is any information used in business if the owner has taken reasonable measures to keep such information secret, and the information derives independent economic value, from not being generally known to, and not being readily ascertainable through proper means by the public. Almost every state has adopted some form of the Uniform Trade Secrets Act. In addition, with the enactment of the Defend Trade Secrets Act of 2016 (DTSA), trade secrets are also protected under civil and criminal federal law. See 18 U.S.C. § 1831, et seq. Due to the enactment of this Act and the weakening of patent protection in the United States, trade secrets are becoming an increasingly important means for companies to protect their intellectual property. This article provides a summary of important 2019 trade secret decisions and trends.

Recent multi million-dollar jury verdicts on trade secret misappropriation claims reflect that there can be significant risk to companies when employees leave or joint development relationships dissolve. Coupled with the passage of the federal Defend Trade Secrets Act of 2016, which created a federal civil cause of action for such claims, these verdicts have heightened the need to refine intellectual property protection strategies. But even with greater attention paid to improving protection measures, litigation can be inevitable, and such cases, as demonstrated by a recent survey conducted by the American Intellectual Property Law Association (AIPLA), can be expensive. Companies should consider whether insurance coverage is available to cover litigation costs. In this article we examine a sampling of cases where coverage questions were raised in connection with intellectual property disputes and the differing outcomes which ensued.

Tesla recently filed two lawsuits for theft of trade secrets. In March, the auto maker sued several former employees and the two companies they joined, Zoox and Chinese EV automaker Xiaopeng. The trade secrets involved their driverless vehicle technology. Haliburton just sued a former employee for stealing information, getting a patent on it, and then trying to sell it back to Haliburton. Phillips is suing a former employee for stealing secrets that will give competitors a “decades long head start.” Waymo, Google’s self-driving car program, settled with Uber for theft of trade secrets. The settlement was reported by CNN Business to be a portion of Uber’s equity, estimated at $245 million. In In August, the United States Attorney’s Office (USAO) for the Northern District of California charged former Google employee Anthony Levandowski with 33 counts of theft and attempted theft of trade secrets from Google under 18 U.S.C. § 1832 of the Economic Espionage Act (EEA). These cases, and many more like them, involve employees leaving and taking trade secrets with them. Employees come and go, but they shouldn’t take your valuable secrets. You can stop them if you have systems in place, but you have only yourself to blame if you don’t.

In 1994, the United States was winding up the Uruguay Round of trade negotiations leading to the establishment of the World Trade Organization (WTO). Tucked in among the toothbrush and rice tariffs was the Agreement on Trade-Related Aspects of Intellectual Property. The TRIPS Agreement was seen as a breakthrough, setting common standards for protecting IP, including provisions on trade secrets that closely aligned with U.S. law. Twenty years later, I visited a friend at the WTO to find out what had actually been happening as a result of TRIPS. I was especially interested in what countries had done since 1994 to bring their national laws into harmony with the trade secret requirements. Because each member of the WTO was supposed to submit reports on its compliance, I asked about them. Yes, we have them, my friend told me. They were in boxes in the next room. But no one had ever read them. Just months before my visit, the European Commission had received an industry report lamenting the legal chaos facing companies that tried to enforce their trade secret rights in Europe. Although every one of the 27 member states of the EU was also a signatory to the TRIPS agreement, virtually none of them was in compliance. In response, the Commission issued a “Directive,” instructing all member states to (finally) harmonize some basic aspects of their trade secret laws.

Under normal circumstances, infringement and misappropriation of the intellectual property (IP) rights of others are subject to civil liability under U.S. federal (and some states’) law; the remedies for those whose rights have been violated typically include money damages or some form of equitable relief, such as an injunction. However, sometimes the conduct of offenders is so egregious and the remedies so inadequate that pursuit of a private cause of action is insufficient to make IP owners whole. To make matters worse, civil remedies do little to deter further infringement or misappropriation on the part of individuals and entities with more than enough money to game the system. Known as efficient infringers, according to some IP practitioners, they have mastered the business practice of paying out as little in damages as possible and refusing to negotiate licenses with IP owners, all the while bullying IP owners into spending their much smaller fortunes in order to defend their IP rights or to forfeit them—the end result sometimes being the invalidation or cancellation of their IP. Accordingly, lawmakers have enacted legislation with the goal of creating true deterrents against infringement and misappropriation by imposing criminal sanctions on a narrow set of conditions associated with infringement and misappropriation. However, the law does not criminally punish infringement of a particular type of IP: patents.

Trade secret holders must take reasonable precautions to maintain the secrecy of their secrets, such as keeping such information on a “need-to-know” basis. Companies should have clear IP, confidentiality, and employment agreements describing which types of information are considered trade secrets. These agreements should also describe an employee’s responsibility for maintaining the secrecy of such information. In spite of reasonable precautions by a trade secret holder, bad actors may maliciously misappropriate trade secrets.

The Lex Machina report supports the notion that trade secret litigation has ramped up in U.S. district courts in the time since the passage of the DTSA. Between 2009 and 2016, trade secret suit filings generally remained within a range of 860 cases per year and 930 cases per year. In 2017, however, U.S. trade secret case filings saw an increase up to 1,134 cases filed. Through the first half of 2018, 581 trade secret cases have been filed, putting this year on pace to slightly exceed the number of trade secret cases filed in 2017.

Although the amount of the settlement was far less than $2.7 billion in amount sought by Waymo, the settlement apparently did include a payment from Uber of 0.34% of Uber equity—or about $244.8 million in stock based on a $72 billion valuation of Uber… Both sides had a lot riding on the outcome of the trial. In addition to the billions in damages, Waymo was seeking an injunction to prevent Uber from using any technology that may have originated from Waymo, which would have been a huge set back for Uber’s program. Indeed, during his first day of being questioned, the former CEO of Uber, Travis Kalanick, agreed that developing autonomous vehicles amounts to an “existential question” for Uber, and that the market for driverless cars is likely to be “winner-take-all.”

Chicago, IL-based wireless power solutions provider NuCurrent filed a complaint alleging trade secret misappropriation and patent infringement against Korean tech giant Samsung Electronics (KRX:005930). The case, filed in the Eastern District of Texas, alleges that wireless charging technologies incorporated by Samsung into their Galaxy S7 and S8 product lines copies technology which was presented to them by NuCurrent under the terms of a confidentiality agreement.

Recently a client asked me for advice on setting up a “reverse engineering” project. He no longer had access to any trade secrets of his former employer; what could possibly go wrong?… In most circumstances, there is nothing wrong with reverse engineering. The recently-enacted Defend Trade Secrets Act declares that it cannot be an “improper means” of acquiring information. (In fact, if you properly reverse engineer a product, the information you discover can be held by you as your own trade secret.) The reason behind the rule is apparent when you consider the limits of trade secret protection: selling a product that reveals the design and method of its manufacture means the secret is imperiled. If it is very easy to discern, then the secret is lost immediately. If it might take some time to figure out, then that’s called reverse engineering, and anyone is allowed to do it.

Uber Technologies, Inc. and Ottomotto LLC (“Uber”), appealed the district court’s order, denying Uber’s motion to compel arbitration of pending litigation with Waymo, LLC (“Waymo”). Levandowski, a former employee of Waymo, was an Intervenor in this case. Uber sought to compel arbitration on the basis of Waymo’s arbitration agreement with Levandowski, not because of any arbitration agreement with Waymo.

“The most important change was that DTSA allowed someone claiming their trade secret was being used improperly to go into a federal court,” explained Jacoby. “In most situations, the employer and the employee in a trade secret dispute are likely to be in the same state. Usually, two citizens of the same state can’t bring a lawsuit into a federal court unless an independent basis for federal jurisdiction over the case exists. So, if my client wants to sue the business next door to his yoga school for blasting out heavy metal during his meditation classes, I literally can’t make a federal case out of it.” However, DTSA changed that rule for trade secret protection — that claim now can be brought into a federal court even if the parties are both from the same state. Up until DTSA, that only happened if you had some other jurisdictional basis to be in federal court, such as the parties were from different states and met the jurisdictional amount for a diversity claim, or perhaps if you sued under another federal statute relating to IP.

In the wake of recent judicial and legislative developments, protecting “what’s yours” has become even more complex. Many businesses and intellectual property lawyers have appropriately favored a strategy focused on obtaining patents when available to protect intellectual assets. However, in recent years there have been unprecedented changes to the American patent system… Developments in patent law have caused owners of intellectual capital to evaluate all available means for its protection including considering when appropriate the protection of innovations as trade secrets.