Protecting Trade Secrets Via Federal Law

Almost every business — even small businesses — have trade secrets that should be legally protected. California law protects a business’ trade secrets, such as a client list, under the California Uniform Trade Secrets Act (“CUTSA”). See Cal. Civ. Code §§ 3426, et. seq.

There is also a federal version of the law passed in 2016 called the “Defend Trade Secrets Act.” See 18 U.S.C. § 1831 et seq. If you think that a competitor or an employee has stolen one or more of your trade secrets, you can bring a lawsuit under either statute. This article gives a brief discussion of the federal act.

The definition of “trade secret” is similar under both the California and federal versions of the trade secrets act. In general, a “trade secret” is information that has two aspects – it is not “generally known” or easily obtained by the general public, and it must be commercially valuable by virtue of the information not being generally known to the public. Under California law, a great many things can be considered a trade secret under this definition. To have legal protections, trade secrets must have third component: There must be “reasonable measures” taken by your business to keep the “trade secrets” secret

Beyond the similarity in how the two statutes define “trade secrets,” the federal Defend Trade Secrets Act provides significant additional sanctions including:

• Punitive or exemplary damages (if proper notice is given)
• Judges are allowed under the federal act to quickly order the seizure of an item containing allegedly stolen trade secrets — like a computer or flash drive or laptop
• Allowing an action against a person or entity who receives the trade secret
• Allowing a private right to enforce the Economic Espionage Act — 18 U.S.C. § 1831, 1832 and 1836

The fourth item is interesting because the Economic Espionage Act is a criminal statute. The first part of the Economic Espionage Act, section 1831, deals with espionage that is intended to benefit a foreign government. The second part of the Act, section 1832, however, makes it a crime to steal trade secrets with the intent to harm the owner or to provide economic benefit to someone other than the owner of the trade secret. Since misappropriation of trade secrets almost always is done with an intent to benefit someone or entity other than the owner, a violation of section 1832 is generally easy to show.

San Diego Corporation Law: Complying With the Federal Act’s Disclosure Requirement

If you have nondisclosure agreements (“NDAs”) with employees, consultants, and independent contractors, you should have those NDAs reviewed by a good San Diego corporate lawyer to ensure compliance with the Defend Trade Secrets Act. The Act requires certain notice language to be inserted into NDAs and provides a short list of “safe harbors” where disclosure is allowed. These “safe harbors” allow an employee and others to disclose — in confidence — trade secret information to government officials “… solely for the purpose of reporting or investigating a suspected violation of the law,” to attorneys for same purpose, to a court if filed under seal and to one’s own personal attorney in a retaliation case. See 18 U.S.C. § 1833.

The “safe harbors” specifically preclude punishments and lawsuits under both the federal and state statutes. The federal act requires that an NDA provide notice of the immunities provided by section 1833. No particular language is mandated for this notice. Failure to provide the notice eliminates the ability of the owner of the trade secret to seek punitive damages for trade secret theft.

Contact San Diego Corporate Law

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides legal services related to business intellectual property, private securities offerings/sales, the sale/purchase of a business, and mergers and acquisitions. Mr. Leonard can also assist with setting up a new corporate entity, annual corporate maintenance, and can help review and draft business contracts. Mr. Leonard can be reached at (858) 483-9200 or via email.

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