New Federal Protections to Safeguard Trade Secrets
Congress has passed a new law (which the President indicted he is poised to sign) which will extend federal protections to employers whose trade secrets are misappropriated by rogue employees. Known as the Defend Trade Secrets Act (“DTSA”), the new law will open a new venue to aggrieved employers to combat trade secret theft. With cyber-crime on the rise, an employer’s confidential and proprietary trade secrets have never been at greater risk.
It was estimated that the cost to American business from trade secret theft in 2013 was $300 billion. That figure skyrocketed to over $500 billion in 2014. It is easy to see the competitive disadvantage business face from this very serious issue.
Prior to the passage of the DTSA, employers had to rely on a patchwork network of varying state laws. Most state laws (including Illinois) model their trade secret protection laws after the Uniform Trade Secrets Act. Illinois has a law known as the Illinois Trade Secrets Act along those lines. In Illinois, in order to claim protection, an employer must demonstrate three things: (1) that the employer has a clearly identifiable confidential and proprietary secret that gives it a competitive advantage worthy of trade secret protection (Typical examples include customer lists, pricing data, marketing plans, sales projections, customer preferences, and highly complex computer algorithms and code just to name a few.); (2) the employer must demonstrate that it took reasonable measures to maintain the confidentiality of its trade secret. For example, were there non-disclosure agreements required of employees? Was the information only available on a need to know basis; was the information contained in a protected environment (i.e. locked doors, password protection, etc.); and (3) Was the information wrongfully misappropriated?
The DTSA gives employers a valuable new weapon. It does not supplant existing state laws, but rather works in concert with those laws. An employer can now decide on which court to bring an action. Often, federal courts have lighter case loads than do state court. Secondly, cases advance at a much more rapid pace in federal court. Finally, federal courts are on the cutting edge of electronic discovery procedures which make case management much more efficient.
The DTSA also has one provision in it that state laws do not – the ability of an employer to seek an ex-parte immediate seizure of the property so as to prevent its promulgation of further dissipation. A seizure hearing must be held within 7 days of the seizure and an individual or business found not to have wrongfully misappropriated the trade secret (for immediate seizure purposes) may be able to collect actual damages, punitive damages for bad faith litigation and attorney’s fees.
The DTSA also has a safe harbor protecting individuals who disclose trade secrets solely for the purpose of reporting or investigating a suspected violation of law (“whistleblowers”). This protection applies to providing trade secret information to a government agency or in filings in a court case.
There is a three (3) year statute of limitations under the DTSA from the time the theft was first discovered or when it could reasonably have been discovered through normal means.
Businesses should begin inventorying and protecting their trade secrets from now. Systematically identifying confidential information that merits protection as a trade secret is a prudent and often overlooked step in maintaining a protectable trade secret portfolio. Businesses should also carefully review their non-disclosure agreements to provide for the safe harbor allowed for whistleblowers. Lastly, businesses should develop a response plan for suspected misappropriation and for receiving a seizure order.
With over 30 years’ experience in advising employees and businesses on labor and employment issues such as ADA compliance, let Boznos Law work with you to ensure you are ready to meet the challenges posed by the ever changing business law landscape. Call Bill Boznos today at (630) 375-1958.