Trade Secret Protection
The American Bar Association estimates the market value of S&P 500 companies can include as much as 75% of intangible assets. This is quite an increase over a 1975 estimate indicating less than 20% of these companies’ collective market value consisted of intangible assets. A good portion of these intangible assets is intellectual property which includes patents, trademarks, copyrights and trade secrets. As you may be aware, there is now federal jurisdiction for trade secret theft. The Defend Trade Secrets Act of 2016 (DTSA) was signed into law on May 11, 2016, after being unanimously passed in the Senate and ratified in the House by a vote of 410-2. The DTSA became immediately effective for all trade secret misappropriation taking place after the bill’s signing date.
While many of us might not think of trade secrets (such as the formula for Coca-Cola) as being commonplace, the National Science Foundation estimates that corporations actually employ trade secret protection perhaps two times as often when compared to patents. As such, trade secrets certainly constitute a significant amount of value of intangible assets for American corporations. Trade secrets can include a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information. To fit the federal definition of a trade secret, the information must include a) information; b) reasonable measures taken to protect the information; and c) information which derives independent economic value from not being publicly known as defined under 18 U.S.C. § 1839(3) (A), (B) (1996).
A paper co-authored by create.org and Pricewaterhouse Coopers estimates that trade secret theft ranges from 1% to 3% of the Gross Domestic Product of the U.S. and other advanced industrial economies. As such, the federal government chose to create a federal cause of action for trade secret misappropriation in the DTSA. This legislation includes a three-year statute of limitations, and it authorizes remedies similar to those found in current state laws. The DTSA also creates a seizure procedure for use in extraordinary circumstances where the offender “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.” While the seizure may be carried out immediately, the new law provides that the court shall set a hearing not less than seven days after the issuance of the order. Finally, the law protects whistleblowers from retaliatory accusations of trade secret misappropriation, so long as the whistleblowers disclose the trade secret information to government or court officials in confidence.
The DTSA does not preempt existing state law, which will preserve options for metalcasters in regard to whether to file federal or state claims and court selection. It also notably omits any requirement that a trade secret plaintiff describe its trade secrets with particularity, which helps to protect the sensitive trade secret information after prosecution of the offender. The criminal provisions of the DTSA increase the penalties for a criminal violation from $5,000,000 to the greater of $5,000,000 or three times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets.
As a result of the legislation, your metalcasting operation may wish to consider four responses to the DTSA after consulting your business attorney:
First, you may wish to update your employment and confidentiality agreements to disclose the whistleblower immunity provisions in the DTSA. If you do so, your metalcasting facility may be eligible to recover double damages or attorney fees in trade secret litigation.
Second, reevaluate your company’s tolerance for bringing trade secrets claims. Many companies have been deterred from making claims in the past because of the uncertainties and delays in state courts. Federal courts, however, have smaller case loads, allowing them to more directly and efficiently manage such litigation.
Third, take inventory of your company’s trade secrets and evaluate the protections in place to maintain the confidentiality of those secrets. Preventative measures are far more effective and less costly at keeping your secrets safe than trying to “re-secure” a trade secret after it is disclosed.
Fourth, develop response plans for suspected misappropriation and for receiving a seizure order. Trade secret litigation tends to move relatively quickly. Having a plan for what to do in the event your secrets are stolen will prevent unnecessary delays that can compromise your rights.
Click here to see this story as it appears in the April 2017 issue of Modern Casting.