Imagine you are the CEO of a technology company and a competitor just got hold of your most valuable source code. If they access your code you will lose your competitive advantage, profits will dwindle, and you will be out of business by the end of the year.
What do you do?
Thanks to a new law, you can ask a federal judge to seize your competitor’s property – including servers, desktops, and mobile devices – to prevent them from profiting off of your source code.
In May, President Obama signed the “Defend Trade Secrets Act of 2016” (the “Act”) after it passed Congress with overwhelming support, cruising through the Senate 87-0 and the House 410-2. This law is the first to create uniform federal trade secret protection and gives trade secret owners an arsenal of legal tools to fend off violators.
A “trade secret,” at its most basic level, is information. Information qualifies as a trade secret when its owner reasonably attempts to keep it secret and the information derives some value from its secrecy. Trade secrets include all types of secret and valuable information; almost all businesses own at least one trade secret. A few examples include formulas, processes, customer lists, and codes.
The Act is not totally “new,” but rather amends two federal laws already in place. These amendments allow trade secret owners to sue, individually, in federal court to protect their rights. Previously, only the United States Attorney General could prosecute claims of trade secret misappropriation at the federal level.
The Act places a mighty weapon in the hands of trade secret owners as it permits a court to immediately seize the property of a violator before a hearing or a trial, which can be time consuming and often allow the violator to secret away profits. Even though a court may only order this type of seizure in “extraordinary circumstances,” it is a powerful weapon against those who are trying to make a quick buck off your trade secret. This “shoot first ask questions later” seizure provision could become the most impactful change the Act makes to current law. It signals that the federal government recognizes the vital importance of information, and its protection, in our digital age.
Additionally, trade secret owners can obtain an injunction to prevent any actual or threatened misappropriation of their trade secret, including any accidental or mistaken disclosure of the trade secret, as well as recover damages for any actual loss suffered. Under the Act, a violator may be required to disgorge any money gained from the misappropriation even if the use or disclosure was an accident. The Act also permits forced judicial royalties or license fees for the use of the trade secret. Lastly if the trade secret is misappropriated “willfully and maliciously,” the court may award double damages plus a reasonable attorney’s fee to the prevailing party.
Perhaps the most significant immediate benefit is that the Act brings economic espionage and trade secret theft under the RICO umbrella. RICO, or the Racketeer Influenced and Corrupt Organizations Act, is the federal law that was designed to provide civil remedies for those injured by organized criminal activities. Thanks to the Act, businesses can now wield a RICO claim to protect their trade secrets. Economic espionage and trade secret theft are now “racketeering activities” for the purposes of RICO, which means that if a person or business engages in them, or even conspires to engage in them, they will be subject to one of the law’s most devastating civil penalties. Persons guilty of a RICO violation can be required to pay triple damages and reimburse the plaintiff for the cost of bringing the suit, which includes paying the plaintiff’s attorneys’ fees.
At Wentzel Law, we take a collaborative and individualized approach to help all of our clients achieve their goals. We regularly represent businesses of all types in courts across the country and provide the advantages of a dedicated in-house legal department through our outside general counsel services. Please contact us to learn more about how we can best serve you and your business.