By Heather Flick and Krista L. Baughman
Trade secrets are a valuable asset in every industry, but they are frequently misunderstood by employees and left vulnerable by business owners. With the US Supreme Court’s June 2014 ruling in the infamous case of Alice Corp. v. CLS Bank International, trade secrets are now becoming a more popular way to protect a business’ intellectual property.
In Alice, the Supreme Court held that abstract ideas implemented using a computer are not eligible for a patent, thereby invalidating countless software application patents. Fortunately, these ideas may still be protectable through trade secret law which, until last week, was a creature of state law.
Last Wednesday, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA), which strengthens trade secret enforcement by providing federal protection for trade secret owners, in addition to the protections already existing under state laws. The DTSA creates a private, federal civil cause of action to protect against the misappropriation of trade secrets, potentially reducing jurisdictional disputes between interstate parties and setting uniform rules, nationally.
Under the DTSA, a trade secrets owner must show both that it has taken “reasonable measures” to keep the information secret, and that the information derives “independent economic value,” actual or potential, from being maintained as confidential. Available remedies under the DTSA include injunctive relief, actual damages, unjust enrichment damages caused by the misappropriation, and, under certain circumstances, exemplary damages, attorneys’ fees, and payment of a reasonable royalty by the infringer. However, injunctions to prevent theft of trade secrets will generally not be available to prevent a person from changing employers, when the employee is taking “merely the information the person knows.” The DTSA also includes procedures for obtaining a civil seizure order to prevent the dissemination of the trade secrets, where there is a sufficient showing of “extraordinary circumstances” and injunctive relief is insufficient.
The DTSA requires employers to ensure that their confidentiality agreements contain notices stating under what circumstances the employee has immunity from criminal and civil liability for disclosing trade secrets and confidential information made in confidence to a federal, state or local government or to an attorney. In general, former employees cannot be restrained from working for a competitor, unless required to protect the trade secret. The DTSA does not preempt state trade secrets laws, which may still be the best way to protect a business’ intellectual property in some cases.
The DTSA will provide companies with increased predictability and consistency in protecting their trade secrets. Employers should review and update their confidentiality and employment agreements to ensure compliance with the terms of the new law (and also with current state law and choice of law provisions), in order to provide the opportunity for maximum protection and recovery of damages, should litigation under the DTSA become be necessary.
If you have trade secrets to protect, DLG can advise on the state and federal laws applicable to your business, and how best to ensure the protection of your assets.
Heather Flick is Of Counsel to Dhillon Law Group, and she frequently represents technology and traditional companies in protecting and enforcing their intellectual property rights as well as business organization advice. Krista Baughman is DLG’s Managing Attorney, and she has extensive experience in representing clients in state and federal court in theft of trade secrets cases, unfair competition cases, and a broad spectrum of business and internet litigation disputes.