The Defend Trade Secrets Act (DTSA), signed into law by President Obama last week and effective immediately, changes the law in every state in several ways. First, it provides a new federal remedy for trade secret misappropriation and a uniform law under which to pursue such claims. Washington, Oregon, and California have already adopted the Uniform Trade Secrets Act (UTSA) as have most states, but the DTSA adds important remedies and claims. The new law offers clear trade secret injunctive relief immediately, and intellectual property practitioners can use this as the main hammer, along with a host of other laws to conduct physical seizure operations. For private employers, immediate action should be taken to add to all confidentiality and non-disclosure agreements (“NDA/CA”) language informing the employee of their “whistleblower” rights. While the DTSA does not preempt states’ UTSA laws, it adds different tools for companies to use against those who misappropriate trade secrets.
In a broad sense there are three elements to a trade secret: first, it must be secret. In court you will have to prove that you actually keep the secret a secret. This is done through non-disclosure or confidentiality clauses in your NDA/CA or other agreements. Second, the information must have an actual or prospective economic value. This is a fairly low bar to obtain. Finally, the secret must give you a competitive advantage. For example, if the secret is a method for placing ball bearings for a doorknob whose function, utility, lowered production cost, or other value was not distinguishable by the consumer or prospective consumer in the marketplace, there would be no decision point that would make your secret packing method competitive, all things being equal. If, on the other hand, you had a secret method of packing bearings that reduced your costs by 40% over your competitor, that may be a trade secret as it has all three elements: secret, value, and advantage.
Generally, the application of the USTA deals with two main legal concepts. The first is the idea of when information is obtained by “improper means,” which may include things like theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Many of these means can be contracted around, for example via a licensing arrangement. They may be done through non-contractual means, such as reverse engineering, unless otherwise prohibited. The next concept is that of “misappropriation,” which means obtaining a trade secret from a person who has actual or constructive knowledge of the nature of the trade secret and discloses it.
One new provision that will now be available in all states is injunctive relief for rapid seizure of stolen trade secrets. This is effective because it can be done without the alleged infringer at a hearing, known as an ex parte proceeding. This will be granted if the presiding judge believes the threat is so great that immediate seizure is needed. A full hearing with all parties and their attorneys present will be held thereafter. This injunctive relief is also available for imminent disclosure as a preventative measure. Most employers know or have reason to know former employee disclosure is imminent, in MLG’s experience. States will vary in their application, as many trade secrets are protected by non-competition and non-solicitation agreements, especially those in states that allow unrestricted employee movement from company to company, like California. States like Oregon have a process to ensure a uniform enforcement regime for non-competition agreements.
Protecting trade secrets is not automatic. You must have a policy, practice, and purpose. Employers’ largest hurdles are knowing what types of information are treated as secret (which may involve privacy law) and what information is treated as a trade secret. Employers must also work to protect trade secrets by processes designed by their legal departments to protect the secrets. There must also be a reason to protect. If you cannot point to the trade secret and say “we’ve protected this method for years and only executives who signed a NDA/CA could view the method,” then your claims will be difficult to enforce.
Popular in our contemporary labor laws and other fields are whistleblower provisions providing immunity to employees who disclose trade secrets to government officials in connection with a suspected violation of law. The author likes to call this the “Apple provision.” It gives the federal government much more power to access information. If you require employees to sign trade secret protections, the DTSA imposes a notice requirement. For employees who sign a NDA/CA, employers are required to provide notice of the whistleblower immunity. If this notice is missing, damages are taken away from the employer. These damages include punitive damages (those available by the court to “punish” blatant offenders economically) and attorney’s fees. Employers and those who hire independent contractors must update their NDA/CA agreements immediately.
Martin Medeiros is president of Medeiros Law Group and has been creating and enforcing intellectual property rights for over twenty years using statistical methods protected by trade secret that give clients, law firms, and general counsel confidence in decision making in deals and disputes.