Trade Secrets Protection: New US Law Enacted
By Louis Rumao
Intellectual property (IP) results from the fruits of mental labour either by individuals or a by a group of individuals working together. Ownership of the IP enables entrepreneurs to license or franchise ideas to others without risk. This means entrepreneurs are able to expand the market for their products and services more easily, and can increase revenue for the business. By being able to profit from their IP, entrepreneurs and companies are rewarded for taking risks and developing new innovations. They can invest profits in work on new ideas. It helps convince financial institutions to invest in a business, enabling more money to be raised for development. Protecting IP rights ensures that consumers will have innovative products and services in virtually every area of life, while saving consumers from counterfeit and pirated products.
Types of IP
Copyright is a legal term used to describe the rights that creators have over their literary and artistic works. Works covered by copyright range from books, music, paintings, sculpture and films, to computer programs, databases, advertisements, maps and technical drawings. A patent is an exclusive right granted for an invention. Generally speaking, a patent provides the patent owner with the right to decide how – or whether – the invention can be used by others. In exchange for this right, the patent owner makes technical information about the invention publicly available in the published patent document.
A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises. Trademarks date back to ancient times when craftsmen used to put their signature or “mark” on their products. In general, patents protect inventions of tangible things; copyrights protect various forms of written and artistic expression; and trademarks protect a name or symbol that identifies the source of goods or services. Trade secrets can be used as another form of IP. There are advantages of trade secrets versus other avenues mentioned above. Trade secrets have immediate effect and their protection has the advantage of not being limited in time – patents last in general for up to 20 years. It may therefore continue indefinitely as long as the secret is not revealed to the public. Trade secrets involve no registration costs, though there may be high costs related to keeping the information confidential.
Defend Trade Secrets Act (DTSA) of 2016
IP needs to be protected from thieves. Legal systems provide certain rights and protections for owners of IP through various categories. Trade secret disputes often arise in the context of an unscrupulous competitor or an ex-employee attempting to use the company’s confidential information to their own advantage. Issues can also arise when exploring a business relationship with another company and exchanging sensitive information about business practices or product information. If the deal never materialises, the exchanged materials may nevertheless be improperly used by the other company. Data breaches and other intrusions into computing networks can also lead to theft of trade secrets.
In USA, The absence of a uniform federal standard forced companies to navigate a patchwork of different state laws and courts to bring actions against entities that had stolen or otherwise misappropriated their proprietary trade secret information. In an effort to counter IP theft, President Obama recently signed the law that enables businesses to protect their trade secrets. Prior to the enactment of the Defend Trade Secrets Act, the only mechanism for companies to enforce valuable trade secret rights was through civil actions under state laws. U.S. Congress’ overwhelming bipartisan support for trade secret reform is a clear signal that state laws have not sufficiently protected businesses from trade secret theft. U.S. authorities estimate the value of U.S. trade secrets stolen each year at $300 billion.
“Enacting this bill into law will help address the critical problem of trade secret theft, which stifles innovation and costs American companies billions of dollars annually,” said Senator Hatch. “I hope our success in acting to protect trade secrets will serve as a springboard for additional congressional action to safeguard other forms of intellectual property.”
DTSA amends the Economic Espionage Act of 1996, which provides for federal criminal penalties for foreign economic espionage and trade secret theft and adds new federal civil trade secret protections. The DTSA modernises and strengthens trade secret law in a number of key respects. The primary effect of the DTSA is to federalize trade secret misappropriation actions and ensure full access to the federal courts for trade secret litigants. Courts are likely to interpret provisions of the DTSA to be consistent with existing state law – but by federalising trade secret law, US Congress has paved the way for greater predictability in an area of law that has been subject to the patchwork laws of 50 states.
The DTSA will not preempt existing state laws, which will preserve and afford plaintiffs’ options in regards to whether to file federal or state claims and which court to select. It also notably omits any requirement that a trade secret plaintiff describe its trade secrets with particularity, which several states currently require.
What IP owners need to do
While companies do not have to register their trade secrets with a government agency, efforts must be undertaken to preserve IP rights in a trade secret dispute. Success on a claim based on theft of trade secrets, both at the state and federal levels, requires a showing that the material was subject to reasonable secrecy efforts. If a court determines that a company has not undertaken efforts that are reasonable under the circumstances to maintain secrecy, a trade secret claim will fail.