Posts Tagged: "Trade Secrets"

On April 27, 2016, Congress passed the Defend Trade Secrets Act (“DTSA”), which President Obama is scheduled to sign later today. The DTSA extends the current Economic Espionage Act of 1996 (“EEA), which criminalizes trade secret thefts, to the civil arena. This means for the first time, trade secret owners can now bring suits in federal district courts, without having to resort to another basis for jurisdiction, such as the ill-fitting Computer Fraud and Abuse Act. While not without critics, the DTSA is a major step forward in the protection of intellectual property in the United States, not least because federal law now fully recognizes four types of intellectual property (patents, copyrights, and trademarks). This article highlights five important things that every trade secret owner should know, which includes almost every company in the U.S.

Source Code Review is the most powerful tool in a litigator’s war chest in patent and trade secrets cases. An important consequence of the judicial climate shifting farther away from business methods and closer to technically complex IP is that receiving parties now face a higher burden of proof and subsequently higher legal costs. Not only are receiving parties now required to be more diligent prior to a case filing but they also end up spending extra thousands of dollars reviewing millions of lines of code to successfully formulating their infringement arguments. A significant cost and exposure risk can be avoided simply by a diligent assessment on both sides as to what source code needs to be produced to the receiving party.

Trade secrets are easy to protect, at least in theory, because all the law requires is that the owner of the trade secret take reasonable precautions to keep that valuable business information a secret (i.e., not known by the general public). What is reasonable will vary depending on the value of the business information, but keeping things such as customer lists in a filing cabinet in a locked office and stamping the file “Confidential” are relatively low cost efforts and should be employed by everyone seeking to protect information as a trade secret. Any other efforts you take are certainly helpful.

Where an ex parte order is unavailable under the DTSA, complainants may still seek injunctive relief. However, unlike the UTSA, which also offers injunctive relief, the DTSA includes language providing that an injunction is improper and not issuable if it: (1) prevents a person from entering into an employment relationship, or if conditions placed on employment are not supported by evidence of threatened misappropriation, or (2) otherwise conflicts with an applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business.

Trade secrets are the only major type of intellectual property (IP) that is not backed by U.S. federal civil remedies to compensate owners for theft. Notably, American businesses face hundreds of billions of dollars in losses per year due to trade secret misappropriation, and the problem is worsening, as cybertheft (particularly from China) continues to grow in scale… Appropriately crafted civil trade secret legislation is no panacea, but it holds the promise of providing tangible benefits, not just to private trade secret holders, but to the overall economy. In addition to vindicating property rights and protecting individual businesses, such legislation should enhance the effectiveness of the competitive process and thereby raise economic welfare.

A trade secret is defined as any valuable business information that is not generally known and is subject to reasonable efforts to preserve confidentiality. Generally speaking, a trade secret will be protected from exploitation by those who either obtain access through improper means, those who obtain the information from one who they know or should have known gained access through improper means, or those who breach a promise to keep the information confidential. While virtually every business has at least some trade secrets, they are quite fragile because they protect information and resources that are secret, which necessarily means that protection is lost if and when the secret becomes publicly known. For that reason, when other forms of intellectual property protection are available, such as copyright or patent protection, one should carefully consider the wisdom of relying only on trade secret protection.

In today’s political climate, any bipartisan legislative action is, well, unusual. Unanimous votes are like unicorns. But one happened yesterday, as the Senate voted 87-0 to approve the Defend Trade Secrets Act, S.1890. The DTSA does not preempt state laws, but provides trade secret owners with another, optional forum when the subject matter of the trade secret relates to interstate commerce. This means that local disputes will for the most part continue to be litigated in state courts, but for cases that can use the special advantages provided by nationwide service of process and a single set of rules across multiple jurisdictions, plaintiffs are likely to use the federal option.

Earlier today the White House released a Statement of Administration Policy, which strongly supports passage of s. 1890, the Defend Trade Secrets Act of 2016 (DTSA). The policy statement explained: ”The Administration strongly supports Senate passage of S. 1890, the Defend Trade Secrets Act of 2016… S. 1890 would establish a Federal civil private cause of action for trade secret theft that would provide businesses with a more uniform, reliable, and predictable way to protect their valuable trade secrets anywhere in the country.”

With leading-edge, tech-savvy companies in the internet, social networking, and e-retailing space often dominating headlines nationwide, it is easy to overlook the myriad businesses competing in the Fast Moving Consumer Goods (“FMCG”) industry, and to dismiss them as somewhat out-of-touch with the modern consumer. However, FMCG companies have combined revenues nearly on par with those in the more highly-publicized technology-based sectors, and have been thriving in the retail space for decades. IP Rights are critically important in the FMCG industry because businesses operating in this sector rely heavily on brand awareness and brandy loyalty for their success. It makes sense then that IP Rights are pivotal in any FMCG company’s long-term strategy for success.

This year our panel has a diverse variety of wishes. We see the usual wishes relating to patent eligibility and the abstract idea exception, with a reference to a Moody Blue’s song to make the point. We also see wishes relating to inter partes review (IPR) and the biotech industry, and a wish for uniformity at the Federal Circuit. There is a wish for federal trade secret legislation to finally pass, and a reminder that elections matter, even for us in the intellectual property space, a topic that we will return to quite a lot during 2016 here at IPWatchdog.com. We also see several exasperated wishes, hoping for solutions to the real problems facing the industry rather than the same old tired cries for “reform” that would benefit only a handful of large entities while harming practically everyone else.

If Gene (the “genie”) were to grant me patent and IP wishes for 2016, I would ask for (in no particular order) the passage of trade secrets legislation, resolution of the current patent reform legislation stalemate in Congress, that the USPTO consider evidence of non-preemption during its initial determination of patent eligibility; and that the USPTO prioritize accuracy, completeness and accessibility of the public record as part of its Patent Quality Review.

Over the last decade, there has been a movement among the software developer community to employ some form of “agile development” rather than the traditional software development methodology. The belief is that these agile methodologies lead to higher quality software and faster development cycles. More recently, the implementation of agile software development has transitioned not only from small startups to large companies, but also from enterprises developing noncritical, consumer apps to those developing software for medical, aviation, military, and financial systems, where the presence of errors pose high human or economic risk. With these transitions, intellectual property (IP) law practitioners must adopt their traditional lawyering approaches to capturing and securing IP (especially patent) rights. A failure to recognize and adapt to the agile software development environment will result in a failure of IP law practitioners’ essential job function—helping to create or sustain client profitability and enable long-term business growth.

The Defend Trade Secrets Act (“DTSA”) will improve trade secret protection, which will incentivize innovation and benefit companies–large and small–in all industry sectors. I have seen the letter in support of this legislation signed by the Chamber of Commerce, the National Association of Manufacturers, tech associations, and an array of well-known companies in a variety of industries. But I can also tell you from my experience representing small businesses that they rely on trade secret law far more than patenting to protect their intellectual property, and this legislation will improve their ability to compete.

While trade secrets have become more important, advances in electronics like flash drives and smartphones have made data theft almost infinitely easier and faster. And unlike the threats of a generation ago, when trade secret theft typically benefited a local competitor, globalization of business means that today’s insiders often steal on behalf of companies located in other states or countries.

In a 2014 Heritage Foundation Legal Memorandum, I highlighted the growing problem of trade secret misappropriation faced by American business, and explained that an appropriately crafted federal law would help American victims recover damages for theft of their trade secrets, make it easier to stop thieves before they leave the country, and thereby strengthen the American economy, without undermining federalism.…