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From a cookie recipe or customer lists to manufacturing processes and many things in between, successful business operations rely on trade secrets. Deliberate or accidental exposure of this type of information can be detrimental to any size company.
Macro trends such as the digitization of intellectual property (IP) and continued competition between different industries increase trade secret theft risk.
Patent laws have shifted, weakening protection and influencing how businesses guard their assets and react if a trade secret is exposed.
All of these factors have increased trade secret litigation, which is predicted to continue its upward trajectory. Businesses must consciously and consistently work to protect their trade secrets.
Digital Information Storing Risk
An increase in the use of digital information storing resources has resulted in more trade secret lawsuits. With their digital information storage, it’s no surprise the consumer discretionary, information technology, and healthcare sectors have experienced steep increases in trade secret litigation.
Digital media creation and storage is undoubtedly convenient and has many benefits. Instead of safes and key locks, businesses use firewalls and encryption to protect their information.
However, as companies shift away from using physical forms of storage, the risk of trade secret exposure increases. These changes focus primarily on reducing external theft, leaving companies with increased exposure to internal theft from employees who have convenient access to otherwise-secure systems.
Once an employee has access to trade secrets, rapid duplication, and dissemination of information are possible.
The Defend Trade Secrets Act of 2016 (DTSA)
Both state and federal courts protect trade secret assets, although the definition of a “trade secret” has morphed over time.Litigators previously relied on the Uniform Trade Secrets Act (UTSA) for guidance, but now they look to the DTSA.
This law allows businesses to sue for trade secrets theft and seek remedies in either federal or state court. The DTSA enhances the protection of trade secrets by including more information under the umbrella of trade secrets.
As such, there has been a notable increase in trade secret litigation since its inception.
Under the DTSA, a trade secret is financial, business, scientific, technical, economic, or engineering information that the owner has taken reasonable measures to keep secret.
According to the DTSA, the information has its own economic value because it isn’t disclosed or readily accessible by someone else who could profit from it.
It also gives jurisdiction to the federal courts but works alongside state law instead of replacing it.
Examples of trade secrets protected by the DTSA may include tangible or intangible:
- Patterns
- Programs
- Formulas
- Prototypes
- Techniques
- Procedures
- Codes
The Differences Between Trade Secret Practices and Patenting
Patents can protect many types of inventions. However, the range of patentable inventions is narrower than the range of inventions covered by trade secret law. Courts generally frown upon the patenting of abstract ideas, laws of nature, or natural phenomena.
Court rulings in the patent space have reversed the patentability of certain types of subject matter to protect corporate assets. What once was considered the patent-eligible subject matter might not be anymore.
For example, courts have recently labeled patents related to software and business methods as “abstract ideas” and therefore constitute patent-ineligible subject matter. Thus, more companies are expected to protect certain business assets through established trade secret practices instead of patenting due to recent patent litigation changes.
Patent protection requires registration and is applicable only for a predetermined amount of time, possibly up to 20 years. Trade secret protection lasts indefinitely and doesn’t require registration.
Since trade secret laws cast a bigger net and last longer, many companies may feel safer opting for trade secret protection versus patent protection.
Avoiding Trade Secret Litigation
Business owners may want to consider several areas of trade secret protection. Will their information receive protection under the current state and federal trade secret laws? What types of information do they need to protect? Why must information be kept secret? What can they do to decrease the chances of litigation?
When it comes to trade secret litigation, the adage, “An ounce of prevention is worth a pound of cure,” may ring true. It may be more desirable to take steps to protect trade secrets instead of dealing with the fallout after they have been exposed.
Here are some proactive steps that business owners may want to consider taking right now:
- Disclose trade secrets exclusively on a need-to-know basis
- Make confidentiality expectations clear when a secret is disclosed
- Keep documents secure
- Use measures for protecting trade secrets distinct from protecting other company information
- Ensure robust physical and electronic security
- Conduct employee trainings on confidentiality
By working with an intellectual property attorney with experience in trade secret protection, companies could be in a better position to avoid litigation. If they need to turn to litigation, their lawyer can guide them through the process.
If a party misappropriates a trade secret, the business might be able to pursue an injunction and damages.
Ellie Lockwood is a preeminent female commercial and business litigation attorney in the Denver Metro area with experience in commercial litigation and business disputes, intellectual property litigation, and environmental and natural resource litigation. She is the commercial litigation practice group leader for Snell & Wilmer L.L.P.’s Denver office, and an instant resource to business owners and other legal professionals on risk mitigation strategies throughout the Mountain West.