Trade secret litigation 101

The value of trade secrets and the associated benefits should be considered in commercial activities. Intellectual property is a valuable asset that businesses own and protect. They are also often targeted by inappropriate corporate actions, such as theft and espionage. These pieces of intellectual property are often not adequately protected and need to be understood and get the attention they need. Trade secret litigation is a growing niche in the law.

We will examine some of the most important aspects of trade secret litigation. This includes its scope, magnitude, and distinctions between trade secrets and other forms of intellectual property.

Trade secrets: the nuts and bolts

The definition of a trade secret varies by jurisdiction. However, some examples include marketing strategies, customer and supplier data, new business models, and other confidential information that one would want to keep private from their competitors.

Trade secret litigation takes many forms. In most cases, private trade litigation is handled in civil court. However, some instances exist when stealing protected information can be prosecuted as a crime. The Economic Espionage Act of 1997 states that stealing trade secrets is a federal and state crime. The act also covers acts of receiving and copying trade secrets.

Individuals convicted of violating the Economic Espionage Act may face a fine of up to $500,000 and 10 years in prison. Corporate entities that violate the act can face penalties as high as $5 million. The government may also seize stolen property and secrets.

The fiscal impact can be significant. In a recent trend report, federal cases dealing with trade secret disputes in 2020 resulted in an astounding $3 billion in damages. Each of the five highest awards in the study exceeded $100 million. In the survey, 68% were found to be in favor of plaintiffs.

The litigation was also more complex and nuanced than one would expect. Nearly half of the cases included multiple types of secrets in the complaint. Information technology, healthcare, and consumer discretionary are among the industries that have seen increased litigation.

When developing a strategy to protect valuable intellectual property, such as trade secrets, several vital elements must be considered. We will examine a trade secret and how these elements overlap and interact with different pieces of legislation.

What are the three components of a secret trade?

To be a trade secret, a piece of intellectual property must satisfy three United States Patent and Trademark Office criteria. These three elements include:

The information must be “actually or potentially independent economic value” by being not widely known.

It must be valuable to others who are not “legitimately able” to obtain it.

The information must be kept secret by “reasonable effort.”

All three elements are required to initiate a trade secret lawsuit. The intellectual property will only be considered a trade secret if all three parts are included.

What laws govern trade secrets?

As mentioned above, the Economic Espionage Act of 1996 is one of the most critical legislation governing trade secret litigation. It is not the only legislation that can be used to protect trade secrets. The Protect Trade Secrets Act of 2016 is critical in determining trade secret litigation.

According to the USPTO, this act criminalizes the theft of trade secrets under two distinct circumstances. Economic espionage is committed when a trade secret has been stolen with the intention or knowledge that it will be used to benefit a foreign government, foreign instrument, or foreign agent.

Second, if “the theft is related to a product, service, or other item used or intended to be used in interstate or international commerce to the benefit of someone else than its owner, with the intent or knowledge that the crime will injure the owner of this trade secret,” then it falls under the law.

The Defend Trade Secrets Act of 2016 amended the 1996 Act to add a private cause of action for misappropriating secrets. To achieve this, intellectual property holders who protect such secrets could establish “a uniform, reliable, predictable way” of doing so legally. The law also does not preempt any other rules relevant to the case, giving owners a second avenue for pursuing such litigation at federal or state levels.

To protect trade secrets in the United States, courts have several tools at their disposal. They can order misappropriations to stop, protect the secret from public exposure and, in extreme cases, seize it.

Depending on the jurisdiction, there are several possible outcomes for a trade secret lawsuit. These outcomes include compensation for court costs, attorney’s fees, permanent injunctions, and damages.

Claim for misappropriation of trade secrets

Attorneys considering legal action in response to allegations of improperly propagated intellectual property must consider three key elements. According to the Legal Information Institute, these elements are:

The secret must be classified as a trade secret.

Holders of the subject matter are required to prove that “reasonable precautions” were taken to prevent disclosure.

The information must be “misappropriated” or “wrongfully taken” by the holder.

It is also important to remember that trade secrets can be acquired legally. If, for example, the secrets were achieved through reverse engineering, independent discoveries, or an accidental release due to the owner’s failure to protect the property, then the allegations could not proceed. Individuals who can recreate or duplicate intellectual property or get information about it that was never appropriately protected in the first instance would not be breaking any laws.

What happens if a trade secret has been compromised?

The owner of a secret trade must make several decisions when it is wrongfully taken. As a first step in a dispute over a trade secret, many owners request an injunction from a court to prevent any further disclosures of their intellectual property. Owners of trade secrets can also take legal action to recover financial losses as a result.

Each state has its unique procedures for resolving trade secret disputes. In Texas, for example, a plaintiff may file a preliminary order under the Uniform Trade Secrets Act. A preliminary injunction is issued if the plaintiff can prove that the defendant owns the intellectual property and can use it.

These breaches can be punished differently depending on the state in which they occurred and whether or not secrets were used for interstate or international commerce. If they contain those elements, the Economic Espionage Act mentioned above will be considered when determining a remedy.

How long does it take to prosecute a trade secret?

A trade secret lawsuit can be expensive and lengthy. In a report published in 2019, the American Intellectual Property Law Association estimated that the median cost of litigating cases with financial risk between 10 million and 25 million dollars was $ 4.1 million. The cost of litigating issues with financial risk between $10 million and $25 million was $4.1 million.

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