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Don’t Let a Careless Whisper Sink Your Business: Seven Things About the New Federal Trade Secrets Law

Tuesday, May 17th, 2016

Do you feel so unsure about the new federal trade secrets law? I wonder what 80’s pop star George Michael would say about it. Can you spot the prescient commentary in his song lyrics?

1. New Federal Intellectual Property Right. President Obama just signed into law federal protection for trade secrets. Previously, with small exceptions, trade secrets were protected only by state laws.

2. What’s a Trade Secret? Though it’s easy to pretend, I know you’re not a fool. You know it’s information a business takes reasonable efforts to keep confidential and that has value because it has been kept confidential.

The paradigm example is the formula for Coca-Cola. Almost every business has trade secrets potentially, such as customer lists and internal financial information.

Trade secret law protects those secrets ever from the careless whispers of a good friend. The trade secret owner can sue to protect that secrecy and to punish those who did wrong, so wrong, by misappropriating trade secrets.

3. Access to Federal Court. The new law enables businesses to go to federal court to protect their trade secrets.

Federal judges typically have a higher level of expertise in intellectual property matters.

Federal courts often move faster than state courts, especially in Virginia. Time can never mend a trade secret theft. Justice delayed means harm to owners of stolen trade secrets.

Federal court procedures often make it easier to decide the case without having to go all the way through trial.

On the flipside, federal court generally is more expensive than state court.

4. Ex Parte Seizure of Stolen Trade Secrets. The new law creates a remedy for trade secret theft that generally doesn’t exist under state laws: the ability of the trade secret owner to get an emergency court order to recover the trade secret material without informing the party that possesses (or took) the material of the court procedure. For the trade secret owner, such ignorance is kind.

This is controversial. The new law says this remedy should be granted only in “extraordinary circumstances.” We will have to wait and see whether courts commonly grant this emergency procedure.

5. Whistleblower Protection and Required Employee Notices. The law protects employees who make whistleblower claims against their employers when trade secrets are involved. It prevents employers from using trade-secret law to silence or punish these whistleblower claims.

Importantly, the law requires employers to give their employees notice in any written employment agreement that the employees have this whistleblower protection. The same requirement extends to a company’s contractors and consultants. Employers, don’t waste the chance that you’ve been given to protect yourself here.

The notice requirement applies only to contracts entered into or updated after May 11, 2016.

If the employer fails to include such written notice in its employment agreements, it loses the ability to recover punitive damages and attorneys’ fees if it wins a trade secret theft case against the former employee.

6. No De Facto Non-Compete. In some states, employers have used trade secret law to effectively impose a non-compete on employees who attempt to work for competitors. Even if you could have been so good together, sometimes employees want to go.

The new law states it shall not be used to prevent an employee from going to work for a competitor, although a court can issue an injunction to stop any threatened usage by a former employee of trade secret material when working for a new employer. This should help an employee who fears he’s never gonna dance again in a new job.

7. Helps Fill the Void Created by Patent Law. The availability of patent protection has been declining. Supreme Court decisions have nearly eliminated patent protection for many software and computer-related inventions, and for many life sciences discoveries.

Generally you have to choose between patent protection and trade secret protection. When you get a patent, your technology is published for the whole world to see, and to use after your patent expires.

Trade secret protection is the opposite. You have a property right in your trade secrets if you take reasonable efforts to keep them secret.

Instead of a business getting a patent on a new technology, it might try to protect that technology as a trade secret, if that technology is something that can be kept hidden, as opposed to something that is evident to a purchaser of the product or service. Maybe it’s better this way for some businesses.

Did you find the 11 song references?

Written on May 17, 2016

by John B. Farmer

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