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Adapting to the New Defend Trade Secrets Act

Coca Cola may be the epitome of trade secret protection: according to the company, only two senior executives know the iconic soda’s formula at any given time, the names of those executives aren’t disclosed to the public, and those executives are never allowed to travel on the same airplane together.  Meanwhile, the written copy of the formula is locked in a highly secure vault which is rarely opened.

While you may not need to go to such lengths, trade secret protection is still important. And with the new Defend Trade Secrets Act, signed into law on May 11 by President Obama, there are some things every business owner needs to know.  Among other reasons, this is because trade secret misappropriation reportedly costs U.S. businesses $160 to $480 billion dollars annually

What is the Defend Trade Secrets Act?

The DTSA is a new federal law which gives plaintiffs expanded rights to sue for misappropriation of trade secrets.  Among other things, businesses can now bring misappropriation claims in federal court.  The federal courts can award remedies similar to state courts, but also now have the power to grant ex parte seizure orders, which allow federal marshals to seize property suspected to contain trade secrets in order to prevent that secret from being widely leaked.

The DTSA defines trade secrets broadly to include all forms of business and technical information that an employer has taken reasonable measures to keep secret and which have economic value when kept as secrets.  This is significant because many trade secret lawsuits involve improper use of confidential technical information, customer lists, and internal business information by former employees, contractors, or business partners.

The new law also provides “whistleblower” immunity for those that disclose a trade secret in confidence to a government official who is investigating a trade secret violation.  In order to seek protection or repayment for trade secret violations under the DTSA, employers must inform employees about the whistleblower provision.

What should small/mid-sized businesses do now that the DTSA is law?

Take reasonable measures, under advice from competent counsel, to keep your company’s information secret. Below are a few common ways to protect your trade secrets:

  • Identify your trade secrets. These could be anything from a compilation of information, a device, formula, method, pattern, program, process, or technique that has commercial value and that you take care to make sure they’re secret. (SBA)
  • Mark your trade secret documents with a confidential legend.
  • Limit access to your trade secrets, either by keeping documents in a locked filing cabinet, restricting access to online folders, or restricting access to areas of your office or plant.
  • Provide access only to those with a reasonable need to knowReview and update that list regularly.
  • Update employment and confidentiality agreements in accordance with DTSA provisions. An important piece of that is informing employees about the whistleblower immunity discussed earlier.
  • Train employees to take trade secrets seriouslySpecify what is and what isn’t trade secret. In your employee manual, include the company’s expectations for employee behavior, warnings, and instructions.
  • Put someone in charge of trade secret protection to make sure that these measures are being enforced.

The DTSA gives established companies an edge over startups.

Less publicized is that fact that under the DTSA, established companies have a powerful new weapon to wield against up-and-coming competitors across the country. So, making certain that no other company’s trade secrets are quietly leaking in may be just as important to success as ensuring that your own company’s trade secrets are not leaking out. This is because even if you are unaware that a founder, contractor, or employee at your company has subtly leveraged another company’s confidential information, a federal lawsuit can drain millions of dollars and hundreds of hours when you can least afford it.  Work with a good attorney to put policies and practices in place to ensure that those helping to build your company aren’t violating agreements with previous employers, even unwittingly, for example, by drawing upon “personal copies” of presentations, emails, or other confidential information. Make as many business decisions as possible without receiving any confidential information.

Comments (6)

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