This year Congress gave business owners a new tool to combat theft of their trade secrets: the Defend Trade Secrets Act of 2016, Public Law No: 114-153 (18 U.S.C. 1836(b)) (“DTSA”).
Even prior to DTSA, theft of trade secrets was a federal offense under 18 U.S.C.1832 (“Theft of Trade Secrets”)(“ToTS”), exposing offenders to penalties up to $5 million. However, only the U.S. Attorney General was authorized to take action against wrongdoers under this statute, so victims of trade secret theft hoping for compensation or enforcement when the AG would not act had to rely on state law. DTSA now gives victims of trade secret misappropriation a right of private action, with a remedy not available under state law.
Connecticut, like most other states, has adopted a version of the Uniform Trade Secrets Act (“UTSA”) (35 CGS §50 et seq.), providing private relief such as injunctions, recovery of damages or of the unjust enrichment garnered by the wrongdoer, and also the possibility of punitive damages and attorney’s fees in cases of wilfull and malicious misappropriation. DTSA goes farther for cases in which these remedies are inadequate: a plaintiff can instead seek a reasonable royalty for use of the misappropriated information.
How should counsel advise clients to identify information that qualifies as a “trade secret” under these statutes? Essentially, any kind of information which (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable (to the public), and (ii) for which the owner can show that reasonable efforts are employed to keep the information secret, will qualify.
Showing efforts to keep the information secret is crucial, and fundamentally includes telling those who are ‘in the know’ that the information is confidential. The Connecticut Court of Appeals recently found the failure to do so to be a critical factor under state law in BTS, USA, INC. v. Executive Perspectives, LLC, Conn. App. (2016). BTS sued competitor Executive Perspectives (EP) when a former BTS employee (Bergmann) went to work for EP and suggested that EP could source packaging for a new EP product from a vendor that BTS had used; BTS claimed that Bergmann’s disclosure of the vendor name was a wrongful disclosure of a BTS trade secret. The problem was that BTS never told Bergman that the identity of the vendor was a secret, and the employment contract that Bergmann had signed with BTS, which defined BTS Confidential Information in detail, did not include vendor names as BTS secrets. So, BTS could not show that it made reasonable efforts to keep its relationship with its vendor a secret. For this reason, the court had to strike that claim.
BTS could have avoided this adverse finding by (i) limiting information about the identity of its vendors to BTS employees who needed to know, (ii) telling them that BTS considered the information confidential, e.g., by including that advisory in an employment contract, and (iii) making sure the vendor relationship is not freely revealed, e.g., by requiring the vendors to sign confidentiality agreements.
Acts that constitute misappropriation of a trade secret and trigger a right of remedy are broadly defined to include getting the trade secret information by “improper means” and disclosing or using the information with knowledge that it was obtained by improper means. Both the federal and Connecticut state statutes define ‘improper means’ similarly to include most (if not all) manner of theft of the information. (The Connecticut statute makes dumpster diving an ‘improper means’ of obtaining trade secret information; the federal statute does not go to that depth.)
For other instructive cases on the Connecticut UTSA, look to Lydall, Inc. v. Ruschmeyer, 282 Conn. 209, 919 A. 2d 421 (2007) and the Connecticut landmark Elm City Cheese Co. v. Federico, 251 Conn. 59, 68, 752 A.2d 1037 (1999).
Overall, the new federal statute is so similar to the Connecticut UTSA that Connecticut companies can look at the passage of DTSA in a positive light, extending a right of recovery for misappropriation of trade secrets beyond state borders and into federal court, subject to conditions that they are generally familiar with. The next chapter of this article will detail differences between DTSA and state law.