On
April 27th the House of Representatives overwhelmingly passed the
“Defend Trades Secrets Act” (DTSA), paving the way for a federal statute
employers can use to bring civil lawsuits for theft of their trade secrets.
Currently, employers’ recourse against employees and others for
misappropriating company trade secrets, as opposed to patent and copyright
infringement, for example, is through state laws. While many state laws
protecting trade secrets are based on a uniform template that makes them
similar, differences in these laws still occur. Beyond the challenges for
employers trying to protect their trade secrets in an interstate and global
economy through a patchwork of state laws, access to federal courts for these
claims is limited. Therefore, perhaps the greatest impact of the DTSA will be
the uniformity of a federal law and access to federal courts capable of
transcending state lines in litigation over the theft of proprietary company
information that qualifies as a protectable “trade secret,” as well as a more
aggressive enforcement scheme.
President
Obama is expected to sign the DTSA into law when it reaches his desk. This is
some rare good news for employers who all too frequently have come to expect
that the passage of a new law will mean greater government oversight or
litigation against them. However, this new federal law will not preempt
existing state trade secret laws. Consequently, employers may have more than one
avenue in which to pursue those who would misappropriate their trade secrets.
Under many state laws, a “trade secret” is defined as:
[I]nformation,
including a formula, pattern, compilation, program, device, method, technique,
or process, that:
(i)
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
(ii)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
The
definition of a trade secret under the DTSA is similar. Thus, depending on these details anything
from customer lists, to pricing schemes, to production processes may qualify for
protection. However, both the DTSA and
virtually every state trade secrets law require fairly extensive efforts on the
part of employers aimed at maintaining the secrecy of information before it can
be protected. Because employers can control whether or not they take appropriate
internal measures to protect their highly proprietary information, it is crucial
that management implements practices and policies that allow them to take
advantage of the business protections afforded under existing state and, now,
this anticipated and welcome new federal law. However, a caveat is that under the DTSA,
employers are required to notify employees in any contract or agreement
governing the use of trade secrets or other confidential information, of their immunity
from liability for confidential disclosure of a trade secret to the Government
or in a court filing (made under seal).
Questions? Contact Attorney James B. Sherman at (952) 746-1700 or email jasherman@wesselssherman.com.
