Trade Secret Misappropriation Rights: Defend Trade Secrets Act
A company that invents original technologies, unique compositions, or special development processes (“IP”) knows intuitively that it must protect those interests to stay ahead of the competition. However, knowing how to protect that IP is not quite so instinctual.
In the recent past, a company would weigh the benefit of 1) filing a public patent with 20 year exclusivity and strong infringement remedies; or 2) choosing to keep the IP “secret” despite limitations on court actions and remedies. A balancing advantage for “trade secret” over patent is the indefinite period of protection. If the business keeps it well-hidden, it has a sort of quasi-monopoly over the “product.”
Unlike with patents, however, trade secret misappropriation rights have historically been limited. For example, if a suspected bad actor reverse-engineered a product protected by patent, it would be ruled an infringement with harsh penalties. For a trade secret however, accidental discovery or reverse-engineering are not protected rights. Both are valid defenses to a misappropriation claim.
In addition, there has been little consistency in state court for trade secret actions under the historic 1979 Uniform Trade Secret Act (UTSA). There are alternate definitions, a variety of misappropriation tests, shifting burdens of proof, and limitations on remedies that make it difficult to predict the outcome to legal action. Furthermore, in the recent past, the only option for federal court was dependent on diversity jurisdiction.
Some of these challenges were relieved in May of this year when President Obama signed the Defend Trade Secrets Act (DTSA). The new law enables trade secret IP owners to bring a civil cause of action in federal court for misappropriation acts. One of the most powerful business advantages under the new law is the ability to get a preliminary “civil seizure” of misappropriated products prior to a ruling in the case. There is a strict set of facts that must be proven to secure an order including, among other things, that the harm to the applicant outweighs the harm to the defendant and third parties; and that the seizure request has not been publicized. The DTSA also provides for additional remedies including injunction (sans certain non-compete restrictions on former employees); imposition of royalty payments; monetary damages; and attorney fees for bad faith actions.
Without losing sight of the reverse engineering loophole, the DTSA enhanced protection has strengthened arguments in favor of choosing a “trade secret” strategy over patent registration in certain cases. Moreover, the DTSA’s broad definition of “trade secrets” may expand IP monetization opportunities. Depending on interpretation of that definition companies may be able to protect previously unprovided-for and/or borderline unpatentable formulas, technologies, and developing processes that can be capitalized on for licensing and partnership opportunities.
Dealing with issues involving patents or trade secrets can be very complex. It is suggested that you consult with experienced legal council to assist with the process.