Trade Secrets Theft–Costs of Not Updating Existing Agreements (Guest Contributor: IP Attorney Michael D. Ross)

GUEST CONTRIBUTOR: MICHAEL D. ROSS

Although not widely reported by the media, trade secret theft is very common.

In my experience, most trade secret thefts are committed by departing employees, consultants and contractors. Three separate U.S. Federal lawsuits were filed just in the last month by U.S. companies alleging a former employee stole its critical trade secrets.

Below I will discuss a very important notice provision in the current U.S. Federal trade secret statute. Frequently trade secret owners are finding when there is a need to enforce its trade secret rights in a U.S. Federal District Court, the owner’s remedies are severely limited due to failure to comply with this provision.

Historically, trade secret owners had few options in trade secret misappropriation cases. Owners could only file a trade secret misappropriation civil lawsuit in a U.S. state court. State courts had limited or no jurisdiction over the defendants. Litigating a civil trade secret theft case in a U.S. state court has been historically difficult.

1996 U.S. ECONOMIC ESPIONAGE ACT (EEA)

The Economic Espionage Act (EEA) was signed into law in 1996. The EEA criminalized trade secret theft on a Federal level. This meant if a theft took place across state lines or for the benefit of a foreign government, instrumentality or agent, a trade secret theft victim could ask the Federal government to bring criminal charges. With limited resources, the Federal government could not prosecute all offenders. Also, because EEA proceedings were criminal in nature, a more stringent set of Federal court procedural rules applied.

LIMITATIONS OF THE EEA

It’s important to keep in mind that although the Federal government prosecuted the offender under the EEA, the trade secret owner often retained its own counsel to advise on the proceedings. In addition, internal resources (e.g. employees) were almost always needed to help prosecute these cases. In other words, these criminal cases did not come without a cost to the trade secret owner.

2016 U.S. DEFEND TRADE SECRETS ACT (DTSA)

Recognizing the need for trade secret owners to have the ability to file Federal civil trade secret theft cases, in 2016 the Defend Trade Secrets Act (DTSA) was passed. The DTSA was an expansion of the EEA. After the passage of the DTSA, certain trade secrets thefts were now subject to both civil and criminal liability under Federal law.

DTSA EXTRAORDINARY REMEDIES

The DTSA provides trade secret theft victims with extraordinary remedies, including the right to seek an injunction, seize property, be awarded actual and extraordinary damages, request damages for unjust enrichment, and attorney’s fees.

TRADE SECRET OWNERS NEED TO BE PROACTIVE

However, the DTSA requires trade secret owners to be proactive. Some of these remedies (e.g. recovery of attorney’s fees) are not available to the trade secret owner unless: (1) the owner’s agreement with its employee/contractor/consultant/business partner contains specific contractual language, and (2) this language was included prior to the misappropriation and after the enactment of the DTSA.

ABILITY TO RECOVER ATTORNEY’S FEES

A Federal trade secret lawsuit could potentially cost a trade secret owner hundreds of thousands of dollars (or more) in attorney’s fees. The ability to recover attorney’s fees in a trade secret lawsuit can be a significant tactical and financial advantage to the owner.

COSTS OF NOT UPDATING EXISTING AGREEMENTS

Unfortunately, since the passage of the DTSA in 2016, many trade secret owners have not proactively updated their existing agreements and company policies to ensure DTSA compliance. As a result, if these owners suffer a los and need to file a Federal trade secret theft lawsuit, the available remedies will be limited un the DTSA.

SUMMARY

In summary–it’s important for trade secret owners to engage an attorney to review their existing agreements and company policies to ensure DTSA compliance in the event there is a misappropriation.

ADDITIONAL THOUGHTS

a. Information is not considered a “trade secret” unless it meets certain criteria. Generally, the information must have value for not being available to the public, and the trade secret owner must take certain precautions against misappropriation.

b. One of the hardest elements to prove in a trade secret case is the actual act of misappropriation. Companies should have robust systems in place for locking down information and monitoring access. Ideally, a company should be able to detect a misappropriation as it’s occurring.

c. A company should periodically inventory its trade secrets and ensure the right protections are in place. A trade secret management plan and employee training are key elements.

d. Defensively, it’s equally important for companies to avoid being tainted with third party trade secrets. The most common source for this tends to be new hires, contractors and consultants. As part of the on-boarding process, many companies will perform patent searches to better understand what technology areas the person previously worked in. I’ve had employees omit this information during the interview process.

Michael D. Ross is an attorney and registered to practice before the U.S. Patent and Trademark Office.  For over 20 years, he has helped clients with intellectual property matters (patent, trademark, copyright, trade secret), technology and commercial litigation and transactions, and regulatory compliance matters.  Mr. Ross can be reached at mdr@mdrosslaw.com or +1-312-948-9668.

Disclaimer: IPPIBlog.com is offered as a service to the professional IP community. While every effort has been made to check information in this blog, we provide no guarantees or warranties, express or implied, with regard to content provided on IPPIBlog.com. We disclaim any and all liability and responsibility for the qualification or accuracy of representations made by the contributors or for any disputes that may arise. It is the responsibility of the readers to independently investigate and verify the credentials of such person and the accuracy and validity of the information provided by them. This blog is provided for general information purposes only and is not intended to provide legal or other professional advice.