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Federal Law Now Allows Private Causes of Action to Protect Trade Secrets

Trade SecretBusinesses must take great care to protect their intellectual property from various types of infringement. With intellectual property that is subject to copyright, trademark, or patent protection, businesses want to protect their exclusive rights to use, display, or distribution. The value of this type of intellectual property derives from the fact that it is known to others but controlled by its owner. Another type of intellectual property, trade secrets, has value because it is not widely known to others. Businesses have had to rely on state laws to enforce trade secret rights, which can be difficult when a dispute crosses state lines. Federal law, however, now offers similar trade secret protections, thanks to the Defend Trade Secrets Act (DTSA) of 2016, Pub. L. 114-153 (May 11, 2016).

Many different forms of information, such as formulas, processes, or designs, can be considered a trade secret. The Uniform Trade Secrets Act (UTSA) identifies three key features of a trade secret. It must have economic value based on the fact that it is not generally known to others who could also derive economic benefit from it. It must be something specialized enough that others could not, through reasonable effort, develop or discover it themselves. Finally, the person or business claiming it as a trade secret must have made a reasonable effort to keep it secret. The formula for Coca-Cola is one of the most famous trade secrets in the world. It is not patented or copyrighted but instead kept in a vault in the company’s Atlanta, Georgia headquarters.

Forty-seven U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have adopted the UTSA. See Cal. Civ. Code § 3426 et seq. The owner of a trade secret may seek injunctive relief in state court to prevent “actual or threatened misappropriation.” Id. at § 3426.2. A court may also compel a party to take “affirmative acts to protect a trade secret.” Id. The UTSA allows damage awards for actual losses, as well as punitive damages in certain circumstances. It directs courts to use “reasonable means” to “preserve the secrecy of an alleged trade secret,” such as in-camera hearings, orders of nondisclosure, and sealed court records. Id. at § 3426.5.

At the federal level, the Economic Espionage Act of 1996, 18 U.S.C. § 1831 et seq., makes certain instances of theft or misappropriation of trade secrets a federal offense, punishable by up to 10 years in prison. It allows the U.S. Attorney General to seek injunctive relief in a civil action, but it does not extend this right to private businesses or individuals. This means that, until the DTSA takes effect, businesses must use state laws to enforce their trade secret rights. If the business and the prospective defendant in an enforcement action are in the same state, this is generally not a problem. If they are in different states, however, questions of personal jurisdiction may arise in state court, along with questions of diversity jurisdiction in federal court.

The DTSA eliminates the need to establish diversity jurisdiction. It creates federal question jurisdiction for trade secret misappropriation claims that involve interstate or foreign commerce. It allows private businesses to file suit for injunctive relief and damages in federal court, and even to seize property if necessary to protect trade secrets.

For nearly four decades, trade secret attorney James G. Schwartz has advocated for Bay Area businesses and business owners, helping clients in a wide range of transactional and litigation matters. To schedule a free and confidential consultation with a skilled and experienced business advocate, contact us today online or at (925) 463-1073.

More Blog Posts:

Recent Settlement of Zynga Misappropriation of Trade Secrets Claim Highlights Importance of Confidentiality and Non-Disclosure Agreements, Pleasanton Business & Commercial Lawyer Blog, September 30, 2013

Potential Fracking Legislation in California and its Possible Impact on the Fracking Industry’s “Trade Secrets”, Pleasanton Business & Commercial Lawyer Blog, June 27, 2013

California company accuses Toys R Us of trade secrets theft, Pleasanton Business & Commercial Lawyer Blog, October 8, 2012

Photo credit: “Trade Secret” by Benjamin Chun [CC BY-SA 2.0], via Flickr.