Intellectual property (2023): Trade secrets (Part Two)

Within the U.S., trade secrets generally encompass a company's proprietary information that is not generally known to its competitors, and which provides the company with a competitive advantage.

Although trade secrets law evolved under state common law, prior to 1974, the question of whether patent law preempted state trade secrets law had been unanswered. In 1974, the United States Supreme Court issued the landmark decision, Kewanee Oil Company v Bicron Corporation, which resolved the question in favor of allowing the states to freely develop their own trade secret laws.

State law.

In 1979, several U.S. states adopted the Uniform Trade Secrets Act (UTSA), which was further amended in 1985, with approximately 47 states having adopted some variation of it as the basis for trade secret law. Another significant development is the Economic Espionage Act (EEA) of 1996 (18 U.S.C. §§ 1831–1839), which makes the theft or misappropriation of a trade secret a federal crime.

This law contains two provisions criminalizing two sorts of activity.

18 U.S.C. § 1831(a), criminalizes the theft of trade secrets to benefit foreign powers.

18 U.S.C. § 1832, criminalizes their theft for commercial or economic purposes.

The statutory penalties are different for the two offenses. The EEA was extended in 2016 to allow companies to file civil suits in federal court.

Federal law.

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA), 18 U.S.C. §§ 1839, which for the first time created a federal cause of action for misappropriation of trade secrets. The DTSA provides for both a private right of action for damages and injunction and a civil action for injunction brought by the Attorney General.

The statute followed state laws on liability in significant part, defining trade secrets in the same way as the Uniform Trade Secrets Act as,

"all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information."

However, the law contains several important differences from prior law.

Because it is a federal law, trade secret cases can be prosecuted in federal courts with concomitant procedural advantages.

It provides for the unusual remedy of preliminary seizure of "property necessary to prevent the propagation or dissemination of the trade secret," 18 U.S.C. §1836.

It provides for remedies to include royalties in appropriate cases and exemplary damages up to two times the actual damages in cases of "willful and malicious" appropriation, 18 U.S.C. §1836(b)(3).

The DTSA also clarifies that a United States resident (including a company) can be liable for misappropriation that takes place outside the United States, and any person can be liable as long as an act in furtherance of the misappropriation takes place in the United States, 18 U.S.C. §1837. The DTSA provides the courts with broad injunctive powers. 18 U.S.C. §1836(b)(3).

The DTSA does not preempt or supplant state laws, but provides an additional cause of action. Because states vary significantly in their approach to the "inevitable disclosure" doctrine, its use has limited, if any, application under the DTSA, 18 U.S.C.§1836(b)(3)(A).