The Trade Secret Seesaw: After the Economy Goes Down, Cases Go Up
An economic downturn usually leads to a rise in trade secret theft and litigation, and conditions are ripe for a major surge in cases from the current slump, given widespread job losses and companies’ embrace of remote working arrangements.
A wave of trade secret cases typically starts about three years after the end of a recession — the time when the statute of limitations for trade secret claims expires in most jurisdictions. Economic turmoil usually leads to an increase in employee mobility, and thus situations where a former employee uses their former employer’s information at a new job or to start a business. Several years after the financial crisis of 2007 to 2009, for example, annual filings of federal and state trade secret cases in the United States ranged from more than 7,000 to more than 9,000 from 2013 to 2015, according to data from Bloomberg Law. Compare that to 770 to 1,100 yearly case filings during the three years of the crisis.
A broader range of companies is at risk of having their confidential information fall into the wrong hands during the current recession and eventually becoming a party to trade secret litigation. Amidst this pandemic, companies have asked an exceptionally high percentage of knowledge workers to work from home, often allowing them access to highly valuable information remotely, often with their own computers. And a 2016 federal law, the Defend Trade Secrets Act, paves the way for even more litigation by allowing a plaintiff to file a trade secret misappropriation case in federal court.
Amid the most turbulent economic period in decades, changing employment practices, and a change in the law that facilitates federal trade secret litigation, companies should expect an upswing in trade secret disputes in the coming years.