By: Christopher J. McHattie, Esq. and Christie McGuinness

Ever wonder why other soda companies can never quite get their soda to taste like Coca Cola’s? Coca Cola has maintained its competitive edge by keeping its recipe for soda a very well protected ‘trade secret,’ which, legend has it, has been kept under lock and key since the founding of the company. This illustrates a much broader truth: trade secrets are one way companies remain competitive, and ultimately how they make money.

Defend Trade Secrets Act

The recently enacted Defend Trade Secrets Act (hereinafter “DTSA”) will help companies protect their trade secrets. The DTSA creates a federal private right of action for damages and injunctive relief which can be filed in federal court for misappropriation of trade secrets. The DTSA is also a significant step forward in ensuring uniform protection of trade secrets regardless of where the trade secret is held. The DTSA provides a federal “base line” of protection for trade secrets distinct from the unique and conflicting trade secret protections provided by the states.

Prior to the DTSA, a trade secret owner’s (“TSO”) only recourse for misappropriation of trade secrets was provided by state law. While the Uniform Trade Secrets Act (“UTSA”) went a long way toward creating consistency, there were still very real holes in the protection provided, variation in interpretation and application by the various states and their courts, and an inherent uncertainty to how best to proceed. While the UTSA was also a great step forward, any multi-state company still faced challenges to comply with and plan for the variations in law among the states. The absence of federal trade secret protection law meant that planning for and compliance with each state’s rules still required individualized legal advice on the nuances of state law and how each state was interpreting the UTSA, adding complexity and additional expense.

The DTSA allows for access to the federal courts, and their ability to render Orders and decisions applicable to the entire country. The DTSA provides for (a) damages for actual loss and damages for unjust enrichment; (b) in lieu of damages, a reasonable royalty for the unauthorized use or disclosure; (c) exemplary damages for willful or malicious misappropriation; (e) attorneys’ fees for bad faith misappropriations; (f) injunctive relief, or where inequitable, a reasonable royalty; and (g) in extraordinary circumstances, ex parte seizures.

Practice Note

Significantly, if TSOs would like to take advantage of the exemplary damages and attorneys’ fees provision of the DTSA, TSOs are required to provide notice of the DTSA’s “whistle blower” immunity provisions in any new agreement governing trade secrets or other confidential information. The DTSA’s immunity provisions allow the disclosure of trade secrets to a governmental official and/or to an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or for use in an anti-retaliation lawsuit. TSOs must either incorporate the immunity provisions in the agreement or include a cross-reference to the “whistle-blower” policy in the TSO’s employee manual. The DTSA immunity provision applies with equal force and effect to employees, contractors and consultants. The following is an example of the required disclosure:
An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade
secret that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting
or investigating a suspected violation of law. An individual shall not be held criminally or civilly liable under any Federal or State
trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding,
if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of
law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the
individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order.

Differences between DTSA and the NJTSA

There are some distinctions between the DTSA and the New Jersey Trade Secrets Act (hereinafter, “NJTSA”) enacted in 2012. According to an article in the New Jersey Law Journal, “a clause in the NJTSA definition may suggest a higher burden than that under the DTSA to show one form of misappropriation concerning disclosure or use of trade secret without the TSO’s consent.” (Mitchell Boyarsky and Elizabeth Cowit, Feds Take Further Aim at Trade Secrets Protection with Similarities to NJ Law, 222 N.J.L.J. 2042). The NJTSA “limits misappropriation to include situations wherein the party who disclosed or used the trade secret knew it was a trade secret and that knowledge of it had been acquired by improper means.” (emphasis added.) Whereas, the DTSA’s standard is accident or mistake, seemingly a lower standard.

Some other differences are that the NJTSA does not provide for the extraordinary seizure mechanisms to prevent dissemination of a trade secret while the DTSA does. Both statues provide that a court may award reasonable attorney’s fees and punitive damages if for “malicious appropriation” of a trade secret is shown.

Trade Secrets as a Tool to Protect Assets

While most businesses are familiar with the value of patents, trademarks and copyrights, and inherently understand keeping their important confidential and trade secret information protected, the nuances of that protection are often less clear. Protecting important confidential information and trade secrets requires diligence. Confidential information and trade secrets should be kept away from public disclosure, broad dissemination and prying eyes. Confidential information and trade secrets should be kept behind locked doors or in locked cabinets, and should be password protected if in a digital form. If disclosed, confidential information and trade secrets should only be disclosed to employees, contractors and consultants who have signed a nondisclosure agreement; i.e., an agreement forbidding disclosure and/or use of such information except as allowed by the TSO. All employees, contractors and consultants must sign an agreement that all confidential information and trade secret information they develop or come into contact with is the sole and exclusive property of the TSO, for example by way of Work for Hire and Non-disclosure agreements. And, if confidential information and trade secret information is wrongfully disclosed, the TSO must act quickly to protect its confidential information and trade secrets by way of court intervention. If confidential information and trade secrets are not “recaptured,” confidential information and trade secrets lose their status as confidential information, and trade secrets and will no longer be protectable.

Simply stated, protecting your confidential information and trade secrets requires only a small investment, but that small investment can pay big dividends in protecting what makes a TSO’s business unique and successful.

The McHattie Law Firm – We look forward to providing you with additional information and guidance on your business’ IP assets and confidential information and trade secrets.