Thought Leadership on Intellectual Property Protection presented by Nath, Goldberg & Meyer.
By Joshua B. Goldberg
When most people think of intellectual property, they think of the most common, well-known intellectual property rights one can obtain: patents, trademarks or copyrights. One thing that each of these types of rights has in common is that they all require public disclosure. That is, to obtain protection for these properties, you have to make the general public aware of what rights you are claiming for yourself so the public can hopefully avoid them. But what do you do if the value to your intellectual property resides in your ability to keep your knowledge, or “secret sauce,” a secret? Clearly, none of these types of intellectual property rights will work for you in this situation.
Instead, there is another type of intellectual property right that may be of use, called a “trade secret.” As the name implies, the value of trade secrets lies in some secret knowledge only you have, as well as your ability to maintain this knowledge as a secret. As an ideal example, think of the recipe for Coca-Cola®. Clearly, this recipe is a corporate secret maintained by the company, and the ability of the company to keep this information secret gives Coca-Cola® a clear, highly valuable competitive advantage in the marketplace. One of the critical aspects is that this recipe is apparently incapable of being reverse-engineered; history is littered with companies who have tried and failed to analyze Coca-Cola® samples to figure out how it can be recreated. If this were not the case, it would be very difficult to maintain the formulation as a secret.
For those who are unaware, a trade secret is a formula, practice, process, design, instrument, pattern, commercial method or compendium of information not generally known to or readily determined by the public, that a business can use to obtain an economic advantage over competitors, and that is capable of being maintained as a secret. In other words, a trade secret is any company secret that gives your company a clear competitive advantage, and that you take all reasonable efforts to maintain as a secret.
A new way to protect trade secrets
Until recently, the only federal protection for trade secrets in the U.S. was based in the Economic Espionage Act of 1996, which criminalized certain trade secret thefts. However, on May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA). With the signing into law of the DTSA, federal protection for trade secrets in the U.S. is extended to private companies, who can now sue in federal court when their trade secrets have been stolen. This is the first federal cause of action for trade secret misappropriation. It’s a welcome change from the previous state-driven approach, where there were a multitude of differences between the states in terms of form, definitions and scope of protection, particularly in view of the $450 billion per year that trade secret theft is estimated to cost innovators.
One of the goals of the DTSA is to address the internationalization of trade secret theft. The intent is to make up for one of the biggest long-standing problems in addressing trade secret theft-enforcement. This known issue was a result of the patchwork, state-by-state approach that was previously the sole option in the U.S. Further, the DTSA specifically includes provisions meant to protect a trade secret owner from losing their trade secret entirely by filing a civil action; the DTSA permits trade secret owners to file a sealed statement with the court explaining why the secret should be protected, and hopefully preventing the secret from becoming publicly known during the course of the lawsuit.
Some of the remedies specifically included in the DTSA are:
- Damages for both actual loss and unjust enrichment.
- Reasonable royalties for the length of time of the improper use.
- Injunctive relief.
- Civil and criminal immunity for whistleblowers.
- Increased criminal penalties.
- Ex parte property seizure upon a showing of “extraordinary circumstances.”
The ex parte seizure is one of the key provisions of the DTSA, as it lets trade secret owners seek an order to seize allegedly stolen trade secret items in the defendants’ possession. This is an entirely new provision, with no foundation in any previous state or federal law. Essentially, the ex parte seizure provision can enable a judge to seize a defendant’s (and possible key competitor’s) assets without the defendant even knowing about the action. That being said, the DTSA contains many “safeguards” to avoid this provision being abused, and my expectation is that judges will view any such request with a very critical eye, and will err on the side of protecting the ex parte defendant, rather than the plaintiff.
Of course, the preceding state system remains in place, existing side-by-side with the new federal system. For the immediate future, this may cause some difficulties, as company practices and litigation have to take into account both the state and federal laws. Accordingly, both state and federal trade secret causes of action can be brought for a single issue, increasing the costs of trade secret litigation.
We have helped numerous of our clients determine if they have any valuable trade secrets, and what they can do to protect and maintain them. We stand ready to help you as well. Please feel free to contact me to discuss any aspect of trade secret law or what you can to to protect and derive additional value from your trade secrets.