Wait . . . What About Trade Secrets?
Stites & Harbison Client Alert, May 2, 2022
When one seeks to protect one’s intellectual property, patents, trademarks and copyrights immediately come to mind. Often given short shrift is the "forgotten stepchild" —trade secrets.
Trade secrets may encompass a wide range of business information that (a) has value because it is not generally known in the trade and (b) is subject to reasonable efforts to preserve its confidentiality. When considering trade secrets, “business information” should be given a very broad definition and may include, but is not necessarily limited to, processes, procedures, research projects, nonpublic company documents (relating to, for example, recruiting, accounting, financial information and legal information), drawings, blueprints, laboratory notebooks, test data, training manuals, customer information and supplier information.
Actions for misappropriation of trade secrets may be brought under both state and federal law. State laws protecting trade secrets differ from state to state. This “mixed bag” of legal standards can make trade secret misappropriation enforcement difficult. In contrast, The Defend Trade Secrets Act of 2016 (DTSA) creates a federal civil cause of action for trade secret misappropriation when “…the trade secret is related to a product or service used in, or intended for use in interstate or foreign commerce.” The DTSA provides a uniform statute to be applied nationwide in federal court to trade secret misappropriation matters. More business owners need to take advantage of this opportunity to meet one legal standard for trade secret misappropriation enforcement in all 50 states.
Among other remedies for trade secret misappropriation, the DTSA establishes a civil seizure mechanism that may be employed prior to a finding of misappropriation in which a court, upon ex parte application by a trade secret owner, may “…issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” A successful application of this remedy allows a trade secret owner to quickly prevent further dissemination of the proprietary trade secret information during the pendency of any DTSA case.
Business owners and employers should also be aware that the DTSA also includes a safe harbor for whistleblower employees that provides immunity from any civil or criminal liability under any state or federal trade secret law for disclosure of a trade secret that is made in confidence to an attorney or a governmental official “…solely for the purpose of reporting or investigating a suspected violation of law” or for filing in a lawsuit under seal. The business owner and employer should be certain to follow the notice provisions set forth in the whistle blower immunity section of the DTSA because compliance with this notice provision may effect whether a business owner is able to seek certain remedies under the DTSA.
Many business owners and employers are unaware of the broad scope of business information that may be protected by trade secrets and, as a result, fail to take the necessary steps to preserve the confidentiality of certain types of business information thereby losing their trade secrets rights. This loss of trade secrets can often be avoided by engaging a law firm to (a) take an inventory of your trade secrets and (b) review your procedures for preserving their confidentiality.
In many instances the trade secret inventory increases awareness with respect to the valuable business information that can and should be protected by trade secrets. The procedure review can be even more important. While many business owners and employers take the initial step of requiring their employees to protect an entity’s trade secrets in their employment agreements, few properly follow through with their trade secret protection efforts. Ask yourself:
- Do you conduct employee exit interviews where the soon-to-be former employee is reminded of the duty to maintain the trade secrets and proprietary information of the business entity?
- Do you ask the soon-to-be former employee to sign an Employee Separation Agreement, listing the business information known to the employee that is trade secret and acknowledging that he/she has been advised and is aware of his/her obligations respecting the trade secret and proprietary information of the business entity?
- Do you ask terminated employees to sign a Termination Statement regarding trade secret information?
- Do you send a follow-up letter to former employees reminding them of their obligations respecting the trade secret and proprietary information of the business entity?
- Do you send a letter to the future employers of departed employees informing them of your former employee’s obligations respecting the trade secret and proprietary information of your business entity?
These and other issues will all be covered in a procedure review. Get one today.
Stites & Harbison, PLLC’s full-service Intellectual Property & Technology Group regularly assists clients in the acquisition, management, licensing, and litigation of patents, copyrights, trademarks and trade secrets. For questions, comments or assistance with any intellectual property-related matters, please contact the author or any of the other attorneys in our group.