Written by: Hilary J. Sumner, Esq.
What is DTSA? The Defend Trade Secrets Act (DTSA) was signed into law on May 11th, 2016. This law creates the first federal civil remedy to address the misappropriation of trade secrets. Prior to the enactment of this law, civil trade secret actions were governed primarily by individual state unfair competition laws. These conflicting laws led to varying standards of protection and remedies to injured parties and non-uniformity created uncertainty as to best means to protect and defend trade secrets in interstate commerce.
The DTSA provides a robust and uniform protection for any trade secret that is related to a product or service used or intended for use in interstate or foreign commerce. It gives US district courts original jurisdiction over civil actions involving trade secret misappropriation, allowing the granting of an injunction, damages for actual loss, unjust enrichment and reasonable royalties. If the plaintiff successfully demonstrates that the misappropriation was willful or malicious, exemplary damages as well as reasonable attorney’s fees may also be awarded; but protections are offered to the defendant as well. If the defending party can demonstrate that a claim of misappropriation was made in bad faith, reasonable attorney’s fees may be awarded to the defense.
What qualifies as a Trade Secret? The certainty provided by this new legislation has prompted many companies to revisit their intellectual property profiles. Unlike patents, trade secrets do not need to be technical in nature to be deserving of protection nor do they need to be new, useful or non-obvious. A trade secret must only confer some economic benefit to the owner. That economic benefit cannot be derived from the information itself but from the fact that the information is not known to others.
In order to qualify for protection, the trade secret owner must take reasonable steps to keep that information a secret. The information cannot be generally known to the public or to others in the same industry or business. Customer lists, recipes, special manufacturing processes, marketing plans, and sales methods are all examples of items that may be protected by trade secret law. Coca-Cola provides a prime example of the power of a trade secret, holding their recipe in confidence since 1903. Unlike patent protection, trade secret protection can last indefinitely so long as the information remains undisclosed. It is important to note that a competitor is free to ascertain the trade secret through any lawful means including reverse engineering.
What is the Best Method for Protecting Trade Secrets? Companies should periodically audit their intellectual property portfolio and determine what qualifies as a trade secret. Once a trade secret has been identified, it should be recorded in a trade secret asset management system that will track and identify the appropriate level of protection needed for each trade secret. This system should also identify the person(s) in the organization responsible for safeguarding each trade secret. A policy should be created to periodically review each trade secret and the steps being taken to limit access and prevent unintentional disclosures. All employees with knowledge of the trade secret(s) should be trained in the proper disclosure and safeguarding and access to this information should be limited to those with a genuine need to know.
Contracts Involving Trade Secrets: Contracts involving trade secrets must also be reviewed. The DTSA provides immunity to employees reporting a suspected violation of law. Employers are required to provide notice of this immunity in any employee agreement governing the use of a trade secret or confidential information. Failure to include this immunity provision may result in the loss of exemplary damages and attorney’s fees.
Trade secrets have always provided a robust means of long term protection for intellectual property and the certainty of this protection will only increase with the introduction of DTSA. Those with trade secrets should take the necessary steps to make the most of this new legislation.