Every company has trade secrets, whether these are technical trade secrets (such as a certain process) or commercial trade secrets (such as business strategies and client lists). The US House of Representatives recently approved the Trade Secrets Protection Act, which creates a federal civil remedy for the misappropriation of trade secrets. The act will now have to be voted on by the US Senate, but is expected to pass. Once implemented, the protection of trade secrets will be more consistent between states and in some respects also broader. That is because currently the Uniform Trade Secrets Act of 1979 allows for protection at state level. The act will also provide a more streamlined form of protection, as intellectual property rights are already regulated at federal level. The act, together with recent developments in Europe regarding a Trade Secret Directive, reflects the importance of protecting trade secrets. Companies must protect their trade secrets by developing a trade secret protection strategy, and include it in their intellectual property strategy. Only companies that have taken appropriate measures to protect their trade secrets will be able to request protection of their trade secrets under the trade secret provisions.
Current situation in the US
The Uniform Trade Secrets Act of 1979 (1979 Act), which now provides the basis for the protection of trade secrets at state level, aimed to codify and harmonise standards regarding the misappropriation of trade secrets. Trade secret protection is available for information that:
- is “secret”; that is, not publicly accessible for people in the same business
- has commercial value because it is secret, providing an advantage over competitors
- is subject to reasonable steps to keep it secret, through actions, policies and agreements.
If these requirements are fulfilled, the proprietor can take action to prevent the information from being disclosed, acquired or used by third parties without its consent and in a manner contrary to the honest commercial practice.
Since its implementation, 47 of the 50 states adopted the 1979 Act. In the three states where it was not adopted (including New York), trade secrets protection is rooted in tort and these states created their own definition of what constitutes a trade secret. They also enacted their own set of remedies. Compared to the protection of intellectual property rights at federal level, in particular patent rights, state level trade secret protection provides a more diverse and complex arsenal of possible state law claims in the US.
The Trade Secrets Protection Act
The Trade Secrets Protection Act (New Act) aims to create a federal civil remedy for the misappropriation of trade secrets. The hope is that this will create a system that is clearer and more transparent, giving companies a better method to protect their trade secrets in the most effective way.
The definition of trade secrets in the New Act remains broad and includes both “technical trade secrets” and “commercial trade secrets”. The New Act includes detailed provisions on what constitutes misappropriation, including acquisition and disclosure or use of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means. The owner of trade secrets can choose to sue either before state court or federal court. Under the 1979 Act, there is no possibility to sue before federal court. Considering that patent law claims can already be brought before federal courts, it will be more efficient for parties to be able to also bring trade secret claims at federal level as well.
The New Act’s most significant departure from the 1979 Act is that a provision is created for the ex parte seizure of evidence. This means that the owner of trade secrets can ask the court, without the other party being present, to preserve evidence with regard to the misappropriation of their trade secrets. In addition, the New Act includes specific provisions on available remedies which include injunctions and the award of damages. Similar to the rules on wilful patent infringement, the New Act provides for triple damages in the event of the wilful misappropriation of trade secrets.
Developments in Europe
In Europe, the importance of having an effective system for the protection of trade secrets is also being recognised. In November 2013, the European Commission adopted a proposal for a new directive. On 26 May 2014, the European Council issued its own proposal and now the European Parliament must decide whether to adopt the directive.
What should you do?
Companies are required to take appropriate measures to keep their trade secrets secret. This requirement is outlined in Article 39 of the TRIPS agreement and, as a result, is included as part of the assessment of misappropriation of trade secrets throughout Europe and in the 1979 Act. This requirement will also be included in the proposals of the European Directive as well as the New Act. Only companies that fulfil this important requirement will be able to request protection of their trade secrets.
What steps should you take?
- Instruct personnel to keep trade secrets secret. This means implementing confidentiality policies and adequately training personnel
- Close off workspaces and prohibit entry to third parties, unless confidentiality is agreed on
- Limit the number of people with access to the trade secret, and know who has access
- Enter into confidentiality agreements with personnel, licensees, suppliers, and other parties with whom information is shared
- Those agreements should not only limit disclosure of the information, but also its use
Observance of these measures allows companies to better protect themselves against misappropriation of their trade secrets.
Companies should also consider how to deal with the possibility of accessing the trade secrets of third parties. This reduces the risk of claims from third parties in the future. For example, if a company hires an employee from a competitor, it should shield itself from any of the previous employer’s trade secrets by allowing the employee to exercise only general knowledge at the new place of employment. Another example includes being cautious in collaborations with third parties. These should not have the potential to affect the company’s existing plans for a product or the possibilities of obtaining a patent right in the future. Measures to be taken include entering into agreements with employees where they expressly agree not to use any of the previous employer’s trade secrets, and carefully drafting agreements with third parties providing the necessary freedom in the relevant field.
The importance of observing protective measures has increased with the proposals in the US and Europe, and cannot be underestimated. Should these new acts pass, companies will have not only a broader set of remedies to invoke against third parties, but they will also provide, at the same time, third parties with a broader set of remedies to file claims against companies on the basis of the misappropriation of trade secrets, including ex parte actions against “infringing” products. Companies must protect their trade secrets by developing a trade secret protection strategy and include it in their intellectual property strategy. Only companies that have taken appropriate measures to keep their trade secrets secret will be able to request protection of their trade secrets under the trade secret provisions.