Posts in Trade Secrets

In July, Kilpatrick Townsend and Ponemon Institute released their findings from The Cybersecurity Risk to Knowledge Assets study, which confirmed most companies’ worst fears — their intellectual property is at risk every day, and theft is rampant. The 600 survey respondents also disclosed that most companies are unsophisticated when it comes to identifying their key intellectual property (particularly trade secrets) and protecting that adequately. And, most surprisingly, the expected costs associated with loss of these important assets was estimated by nearly seven out of ten respondents to total more than $100 million.

American water treatment company Purolite of Bala Cynwyd, PA, recently filed a federal complaint over misappropriated trade secrets against the American division of Japanese conglomerate Hitachi (TYO:6501). Purolite alleges that Hitachi broke business agreements by sharing Purolite’s confidential trade secrets related to the decontamination of water including radioactive waste with other companies in the hopes of securing a major contract. Purolite filed its lawsuit in the U.S. District Court for the Southern District of New York (S.D.N.Y.).

The IP Licensing Guidelines, which state the agencies’ antitrust enforcement policy with respect to the licensing of intellectual property protected by patent, copyright, and trade secret law and of know-how, were issued in 1995 and are now being updated. In the agencies’ view, the IP Licensing Guidelines remain soundly grounded, as a matter of antitrust law and economics. Nevertheless, the agencies have determined that some revisions are in order because the IP Licensing Guidelines should accurately reflect intervening changes in statutory and case law.

The DTSA amends the Economic Espionage Act of 1996 (“EEA”) to provide for civil remedies in federal courts for the misappropriation of trade secrets. The new Section 1836(b) provides for both equitable and monetary relief. Subsection 1836(b)(3) authorizes a federal court to grant an injunction to prevent actual or threatened misappropriation of trade secrets. The language is identical to § 2 of the Uniform Trade Secrets Act (“UTSA”). However, there are a number of limitations as to when a court may issue an injunction under the DTSA. First, the injunction may not “(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows ….” Section 1836(b)(3)(A)(i)(I).

The DTSA’s provision for civil seizures provides victims of trade secret theft with a powerful remedy to prevent further dissemination of the trade secret and limit further harm. However, Congress balanced this powerful tool with severe consequences for those movants who misuse it. When seeking to use this remedy, victims of trade secret theft must be careful to comply with all the detailed requirements or they may be far worse off than before. It is a powerful weapon, but like most powerful weapons, it must be handled with great care lest it cause serious self-inflicted injury.

At present, there is no statutory penalty for not providing the required Notice. However, if an employer fails to provide the required Notice, the employer cannot recover punitive damages or attorneys’ fees under the DTSA from an employee to whom the required Notice was not provided. (The employer could nevertheless obtain such punitive damages and attorneys’ fees under state law in nearly every state.) There may also be adverse consequences from a contractual perspective, or in a government audit, if the required Notice is not provided.

The DTSA amends the definition of misappropriation from what was found in the EEA to bring the definition more in line with that of the Uniform Trade Secrets Act (UTSA) that has been adopted by almost all U.S. states. Indeed, apart of explicitly recognizing certain potential defenses that are discussed in the commentary of the UTSA, the DTSA is identical to the UTSA. According to the House Report, “The Committee intentionally used this established definition to make clear that this Act is not intended to alter the balance of current trade secret law or alter specific court decisions.” House of Representatives, Report No. 114-529, April 26, 2016, at 14. Federal courts therefore, will look to state decisions involving the state’s version of the UTSA for guidance.

In the field of Intellectual Property (IP) attorneys have options when counseling clients on how to protect their IP. However, these options remain subject to constant forces of change. For example, IPWatchdog readers will remember the latest version of the PATENT Act that the U.S. Senate worked on for months in 2015, which proponents say would strengthen enforceability of U.S. patents, but not as much as some would prefer. Then in 2016, the IP landscape changed again with the passage of the Defend Trade Secrets Act (DSTA) that President Barack Obama later signed into law, which federalizes civil actions in trade secret disputes.

In general, the form of the information qualifying as a trade secret under the DTSA is extremely broad, and includes information of any form, regardless of “how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing,” and of any type, “financial, business, scientific, technical, economic, or engineering information,” so long as: (1) the information is actually secret, because it is neither known to, nor readily ascertainable by, another person who can obtain economic value from the disclosure or use of the information; (2) the owner has taken “reasonable measures” to maintain the secrecy; and (3) independent economic value is derived from that secrecy.[i] By comparison the UTSA identifies, by way of example, eight specific types of trade secret information; “formula, pattern compilation, program device, method, technique or process.” The DTSA, unlike the UTSA, also provides that information “stored” only in an individual’s memory can be the subject of a civil claim for theft of trade secrets.

There is now federal jurisdiction for trade secret theft. The DTSA creates a federal cause of action for trade secret misappropriation that largely mirrors the current state of the law under the Uniform Trade Secrets Act, which has been adopted by 48 states. The DTSA uses a similar definition of trade secrets, and a three-year statute of limitations, and it authorizes remedies similar to those found in current state laws. The DTSA will not preempt existing state law, which will preserve and afford plaintiffs’ options in regards to whether to file federal or state claims and which court to select.

Legislative history is, of course, the compilation of the legislative process’ source documents—committee reports, hearing transcripts, bills and floor debate—to understand the Congressional intent behind a law. Such a use is controversial, with no less than the late Justice Antonin Scalia being a leading critic of the practice while Justice Stephen Breyer is one of its most notable proponents. However, lawyers and judges continue to employ legislative history, in some fashion, and will likely turn to it to understand and interpret a law of this magnitude. This article surveys the more significant legislative history documents available for the DTSA.

The DTSA amends the federal Economic Espionage Act of 1996 to create, for the first time, a federal civil remedy for the misappropriation of trade secrets. This new law provides a clear path to enforce trade secret rights in federal court. Proponents of the DTSA argue that this will lead to more uniformity and predictability in applicable standards. However, that remains to be seen. The DTSA does not preempt any existing state laws governing trade secret enforcement. Accordingly, to the extent that state laws differ from each other and the DTSA, the differences will likely persist despite the new federal scheme.

On April 27, 2016, Congress passed the Defend Trade Secrets Act (“DTSA”), which President Obama is scheduled to sign later today. The DTSA extends the current Economic Espionage Act of 1996 (“EEA), which criminalizes trade secret thefts, to the civil arena. This means for the first time, trade secret owners can now bring suits in federal district courts, without having to resort to another basis for jurisdiction, such as the ill-fitting Computer Fraud and Abuse Act. While not without critics, the DTSA is a major step forward in the protection of intellectual property in the United States, not least because federal law now fully recognizes four types of intellectual property (patents, copyrights, and trademarks). This article highlights five important things that every trade secret owner should know, which includes almost every company in the U.S.

Earlier today the United States House of Representatives passed S. 1890, the Defend Trade Secrets Act of 2016 (DTSA), by a vote of 410-2. Only Congressman Thomas Massie (R-KY) and Congressman Justin Amash (R-MI) voted against the bill. Even before the Senate passed the DTSA the Obama Administration voiced strong support for the bill, therefore, it is expected that President Obama will quickly sign the bill into law over the next several days.

Trade secrets are easy to protect, at least in theory, because all the law requires is that the owner of the trade secret take reasonable precautions to keep that valuable business information a secret (i.e., not known by the general public). What is reasonable will vary depending on the value of the business information, but keeping things such as customer lists in a filing cabinet in a locked office and stamping the file “Confidential” are relatively low cost efforts and should be employed by everyone seeking to protect information as a trade secret. Any other efforts you take are certainly helpful.