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Trade Secrets Finally Get the Respect They Deserve

In May, President Obama signed into law new legislation known as the Defend Trade Secrets Act of 2016 (or "DTSA") which is intended to provide enhanced means of protecting the confidential information that many companies rely upon as the basis for their competitive advantage. More specifically, the DTSA amends the Economic Espionage Act of 1996 to provide a federal cause of action to private companies for trade secret misappropriation. The DTSA became effective immediately, but only applies to misappropriation occurring on or after the law's effective date and only protects trade secrets that are "related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. ยง 1836(b).

Those of us who have been to law school know (or should know) that the three main types of intellectual property (or "IP") are patents, trademarks, and copyrights. But, we also know that trade secrets are often considered as IP, too. Generally speaking, trade secrets include lists of suppliers and clients, sales and distribution practices, advertising strategies, manufacturing methods, and even product formulas or recipes. So, when it comes to intellectual property, why are trade secrets so often looked upon as an afterthought?

Well, for one thing, companies want their competitors to know about their patents, trademarks, and copyrights (so that they won't infringe or misuse them) and in order to protect them the government provides mechanisms for registration. In the U.S., patents and trademarks are registered with the U.S. Patent and Trademark Office while copyrights are registered with the U.S. Copyright Office. Registration gives notice, both actual and constructive, to prospective infringers and wrongdoers and is intended to act as a deterrent to infringement. For another thing, all three are protected by federal statutes and lawsuits to enforce them may be filed in federal court (copyright lawsuits must be filed in a U.S. district court).

But by their very nature, trade secrets cannot be revealed. Indeed, it is their confidential nature that makes them more valuable. And a registration protocol would, by necessity, require disclosure. (Just think of the conundrum Colonel Sanders would face over the possibility of registering his "secret blend of herbs and spices.") Nevertheless, there has been mounting pressure in recent years from within American industry and government agencies circles that have called for legislation to raise trade secret protection to the federal level.

Prior to passage of the DTSA, it was a federal crime to steal trade secrets, but victims could only sue in state courts and most state court actions were filed under local trade secrets laws based on the Uniform Trade Secrets Act (or "UTSA"). The UTSA was not actually a law, but merely a set of recommendations for individual states to use in crafting their own laws. The result was a hodgepodge of state laws that made it increasingly difficult to protect trade secrets across state lines just as commerce was becoming more national and international in scope. The DTSA, according to its proponents, should help solve this problem and allow businesses to confidently develop the new products and services of the future.

Why It Matters. In order to help address a problem that some have estimated costs the U.S. economy more than $300 billion per year, the DTSA provides the Federal court system with a potent enforcement framework. The advantages to this approach include the following,

  1. Federal courts will operate under a single, national standard for trade secret misappropriation and a uniform set of procedural rules resulting in predictability and ease of use;
  2. Federal courts will provide nationwide service of process and a unified approach to discovery, enabling quick action by trade secret owners even when confronted with bad actors in multiple jurisdictions;
  3. Federal courts should be able to resolve jurisdictional issues quickly and applications for injunctions or seizures equitably; and
  4. Federal court discovery procedures will better serve the needs of trade secret plaintiffs who typically must develop most of the facts to prove their case through defendants and third parties.

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