Recently enacted federal law combats trade secret misappropriation

In a broad conceptual sense, a trade secret is the opposite of a patent. A patent requires disclosure to the public of the invention in exchange for a monopoly over a technology for a limited period, whereas a trade secret is purposely not disclosed to the public with the intellectual property rights lasting as long as the technology is kept secret. While lesser known than their patent counterpart, trade secrets form an important part of a robust intellectual property portfolio, particularly to medical device and other technology-centric companies.

Paul Mazzola

Prior to mid-2016, there was no readily accessible federal cause of action for trade secret misappropriation. Rather, 48 states enacted laws that varied in certain aspects with the variances often exploited by plaintiffs and defendants alike. As a result, the Defend Trade Secrets Act (DTSA) was enacted last year by Congress to, among other things, provide uniform law and court procedures along with nationwide subpoena power and access to evidence. After the passage of the DTSA, several companies have filed suit under the act, and thus having a working understanding of its salient provisions is worthwhile.

The definition of “trade secret” is broad. A trade secret may include scientific data, regardless of whether it is copied in electronic form. The DTSA protects against misappropriation of the trade secret, including its acquisition, disclosure and/or use through “improper means.” The term “improper means” includes, most notably, theft, bribery and misrepresentation.  Reverse engineering and independent derivation are not improper means of acquiring the trade secret.

Perhaps the most notable or publicized provision of the DTSA provides for ex parte seizure of property to prevent propagation or dissemination of the trade secret.  Ex parte seizure is an order by a court in which the authorities seize property without the adverse party being permitted to first address the underlying facts (akin to a search warrant, but in the context of a civil cause of action between two possible business adversaries). The ex parte seizure order is provided only with a showing of “extraordinary circumstances,” and federal courts are hesitant to grant such a remedy thus far.

Other provisions of the DTSA include equitable remedies, such as injunctions, damages for actual loss and unjust enrichment of the party that misappropriated the trade secret, whistleblower protections and a 3-year statute of limitations.

From a practical standpoint, what is most important to companies and individuals leveraging trade secrets as a form of intellectual property is protecting the secrets through reasonable measures. What constitutes “reasonable measures” is a matter of interpretation – yet arguably any measures needed to ensure the technology remains secret are reasonable and necessary. The World Intellectual Property Organization (WIPO) opines the measures may be categorized into eight areas: creating agreements, policies, procedures and records to establish and document protection; establishing physical and electronic security and confidentiality measures; assessing risks to identify and prioritize trade secret vulnerabilities; establishing due diligence and ongoing third-party management procedures; instituting an information protection team; training and capacity building with employees and third parties; monitoring and measuring corporate efforts; and taking corrective actions and continually improving policies and procedures.

In an era of increasing cyberattacks and with the alleged person who misappropriates a trade secret often being an employee or a business partner, it is incumbent on technology-based companies to be aware of remedies available to them under the relatively new federal law and implement protocols to avoid misappropriation of trade secrets from occurring.

References:

Passman P. Eight steps to secure trade secrets. WIPO Magazine; Feb. 2016; www.wipo.int/wipo_magazine/en/2016/01/article_0006.html.

For more information:

Paul S. Mazzola, JD, an intellectual property associate with Howard & Howard Attorneys PLLC, can be reached at pmazzola@howardandhoward.com.

Disclosure: Mazzola reports no relevant financial disclosures. This article is for informational purposes and is not intended to constitute legal advice.

In a broad conceptual sense, a trade secret is the opposite of a patent. A patent requires disclosure to the public of the invention in exchange for a monopoly over a technology for a limited period, whereas a trade secret is purposely not disclosed to the public with the intellectual property rights lasting as long as the technology is kept secret. While lesser known than their patent counterpart, trade secrets form an important part of a robust intellectual property portfolio, particularly to medical device and other technology-centric companies.

Paul Mazzola

Prior to mid-2016, there was no readily accessible federal cause of action for trade secret misappropriation. Rather, 48 states enacted laws that varied in certain aspects with the variances often exploited by plaintiffs and defendants alike. As a result, the Defend Trade Secrets Act (DTSA) was enacted last year by Congress to, among other things, provide uniform law and court procedures along with nationwide subpoena power and access to evidence. After the passage of the DTSA, several companies have filed suit under the act, and thus having a working understanding of its salient provisions is worthwhile.

The definition of “trade secret” is broad. A trade secret may include scientific data, regardless of whether it is copied in electronic form. The DTSA protects against misappropriation of the trade secret, including its acquisition, disclosure and/or use through “improper means.” The term “improper means” includes, most notably, theft, bribery and misrepresentation.  Reverse engineering and independent derivation are not improper means of acquiring the trade secret.

Perhaps the most notable or publicized provision of the DTSA provides for ex parte seizure of property to prevent propagation or dissemination of the trade secret.  Ex parte seizure is an order by a court in which the authorities seize property without the adverse party being permitted to first address the underlying facts (akin to a search warrant, but in the context of a civil cause of action between two possible business adversaries). The ex parte seizure order is provided only with a showing of “extraordinary circumstances,” and federal courts are hesitant to grant such a remedy thus far.

Other provisions of the DTSA include equitable remedies, such as injunctions, damages for actual loss and unjust enrichment of the party that misappropriated the trade secret, whistleblower protections and a 3-year statute of limitations.

From a practical standpoint, what is most important to companies and individuals leveraging trade secrets as a form of intellectual property is protecting the secrets through reasonable measures. What constitutes “reasonable measures” is a matter of interpretation – yet arguably any measures needed to ensure the technology remains secret are reasonable and necessary. The World Intellectual Property Organization (WIPO) opines the measures may be categorized into eight areas: creating agreements, policies, procedures and records to establish and document protection; establishing physical and electronic security and confidentiality measures; assessing risks to identify and prioritize trade secret vulnerabilities; establishing due diligence and ongoing third-party management procedures; instituting an information protection team; training and capacity building with employees and third parties; monitoring and measuring corporate efforts; and taking corrective actions and continually improving policies and procedures.

In an era of increasing cyberattacks and with the alleged person who misappropriates a trade secret often being an employee or a business partner, it is incumbent on technology-based companies to be aware of remedies available to them under the relatively new federal law and implement protocols to avoid misappropriation of trade secrets from occurring.

References:

Passman P. Eight steps to secure trade secrets. WIPO Magazine; Feb. 2016; www.wipo.int/wipo_magazine/en/2016/01/article_0006.html.

For more information:

Paul S. Mazzola, JD, an intellectual property associate with Howard & Howard Attorneys PLLC, can be reached at pmazzola@howardandhoward.com.

Disclosure: Mazzola reports no relevant financial disclosures. This article is for informational purposes and is not intended to constitute legal advice.

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