Trade Secret Litigation: Everything You Need to Know
Trade secret litigation is a type of lawsuit that occurs when a trade secret is stolen or used without permission. 3 min read
Trade secret litigation is a type of lawsuit that occurs when a trade secret is stolen or used without permission. In the digital age, these lawsuits are becoming more and more common.
The Digital Age and Trade Secret Litigation
For over 200 years, courts in the United States have recognized the ability of corporations to protect trade secrets. In most cases, trade secrets are used to secure valuable intellectual property, such as the ingredients necessary to create a popular soda such as Coca-Cola. While it's always been possible to legally protect trade secrets, pursuing a federal civil case for trade secret theft was not possible until 2016, which is when the Defend Trade Secrets Act (DTSA) was passed by Congress.
Congress decided common law and state protections were no longer adequate to protect trade secrets several reasons. Some of the motivations for passing the DTSA include:
- Increased mobility of employees.
- Improved technology.
- Ineffective patent protections.
Because trade secret cases are now able to be tried federally, it is likely that trade secret litigation will become much more common. Two primary reasons that trade secret theft has become more common in the 21st century have been determined.
First and foremost, employees are now more mobile than they have been at any other point in history. Changing jobs regularly has become common practice, especially in the tech industry. In addition, when changing jobs, employees now frequently seek a position with a competitor of their former employer. When an employee leaves their job, it's possible they can take important information with them. While this information can be knowledge that the employee has retained in their mind, it can also be files and documents that are crucial to the company.
Second, it is now much easier to store documents in electronic form. Information that would have once taken up rooms filled with file cabinets can now be stored on a small USB drive. Also, thanks to the ability to transfer files using email or other services, an employee leaving a company is even riskier when it comes to protecting trade secrets. Because many companies have policies related to destroying files and emails, it's possible that evidence of trade secret theft will be erased unintentionally.
It's estimated that the overwhelming majority of trade secret misappropriation involves a company employee or partner. Trade secret theft happens almost every day, causing instances of trade secret litigation to skyrocket. Another reason that trade secret litigation is now so common is that a 2014 Supreme Court decision limited patent protection for both business methods and software.
Because of this decision, companies are no longer confident that they can protect their intellectual property using patents, causing them to shield their IP as trade secrets.
Acquiring trade secrets is also much more affordable than obtaining a patent, which is very attractive to most companies. Patent litigation can be very complicated, which is another motivation for companies to acquire trade secrets instead of patents.
TC Heartland LLC vs Kraft Foods Groups Brands LLC was a Supreme Court case decided in 2017. The decision in this case significantly limited the venues where a company could file patent litigation. Prior to this decision, a company could sue for patent infringement in any location where the infringement happened. After the decision, patent litigation was only available in the location where the defendant had a physical business or had incorporated.
Popularity of Trade Secret Litigation
Trade litigation has become extremely common at both the state and federal level. Mostly, trade secret litigation involves new technology that can be transported with minimal effort. These cases can also be focused on software and technological knowledge. Trade secret litigation is very attractive to companies as plaintiffs tend to have a much higher success rate than they do in patent litigation. In the year after the DTSA was passed, hundreds of federal cases were filed. While a good portion of these cases were dismissed, many made it to the courtroom.
Protecting Trade Secrets
One of the most important factors in protecting your company's intellectual property is actually understanding what your trade secrets are and who in your company has access to these secrets. You also need to identify where your secrets are located and how valuable they are to your company. If an employee breaches one of your secrets and you decide to sue, you will need to identify exactly which secret has been stolen and how damage the theft causes to your company.
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