Trade Secret Law

Trade Secret is an important form of intellectual property that sometimes intersect with other areas of intellectual property such as copyright or patent. It is in your best interest to choose which type of protection best suits your intellectual property. All of the below content is information purposes only. The intent is to give very basic outline of the trade secret law. Please contact us by email or phone for appointment to discuss anything related to your trade secret.

Several states adopted Uniform Trade Secret Act (UTSA), which is a uniform act promulgated for adoption by various states. The UTSA definition of the trade secret which is adopted by most of the states is given below:

Trade secret means “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

 

The Federal Economic Espionage Act of 1996 (EEA), a criminal statute defines the term “trade secret [which] means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—
(a) the owner thereof has taken reasonable measures to keep such information secret; and
(b) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public…”18 U.S.C. §1839 (3).

 

Defend Trade Secret Act of 2016 (DTSA): This act provides federal protection to trade secrets in the form of civil remedy. DTSA effective date is May 11, 2016. This is important because it provides parties to litigation more access to the following:

(i) Federal jurisdiction;

(ii) National discovery;

(iii) Civil seizure to stop further dissemination of trade secret;

(iv) Need not worry varying statute of limitations in different states;

(v) Whistle blower immunity protection for employees who disclose about any improper conduct related to trade secrets to authorities, attorney etc.

DTSA will not preempt state trade secret laws and do not create exclusive jurisdiction in the federal courts. There is “no cause of action until there is disclosure or misappropriate of a trade secret.”

 

Misappropriation under DTSA is defined as an

“1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
2. Disclosure or use of a trade secret of another without express or implied consent by a person who—

    A. used improper means to acquire knowledge of the trade secret;
    B. at the time of disclosure or use, knew or had reason to know…
    C. before a material change of the position of the person, knew or had reason….”

 

Preemption issues with Copyrights & Computer Fraud and Abuse Act (CFAA)

Sometimes federal statutes such as Copyright law and Computer Fraud and Abuse Act (CFAA) may preempt state causes of action. That may cause some problems depending on the type of protection you may want to your intellectual property. Explicitly 17 U.S.C. § 301 (of the copyright statute) provides conditions for federal copyright preemption of other state laws when certain conditions are met.

Whenever there is an issue of federal preemption on issues related to copyright where there is some protection available under state law, then we need to consider the following two (2) part test:

“1. [Whether the] work in which the right is asserted must come within the subject matter of copyright, [and then we need to consider]
2. [Whether] the right that the author seeks to protect … [is] equivalent to any of the exclusive rights within the general scope of copyright.” Ritchie v. Williams, 395 F.3d 283 (6th Cir., 2005).

 

Few years back, Fifth (5th) circuit court of appeals dealt with issue of UTSA adopted state trade secret law and software code related copyright matter, which has federal protection. GlobeRanger Corp. v. Software AG United States of America, Inc.,836 F.3d 477 (5th Cir., 2016). 

The court analyzed the issue under the two part test laid out in Ritchie and other 5th circuit cases, and noted that  “[T]he right it seeks to vindicate under Texas trade secret law is not equivalent to the anti-copying principle of federal copyright law because the state law prevents acquisition ‘through a breach of a confidential relationship or … improper means.’ Tewari De–Ox Sys., Inc. v.Mountain States/Rosen, L.L.C. , 637 F.3d 604, 610 (5th Cir. 2011).” GlobeRanger Corp. v. Software AG United States of America, Inc.,836 F.3d 477 (5th Cir., 2016).

Computer Fraud and Abuse Act (CFAA): This federal act was enacted to provide penalty for unauthorized access of a computer (hacking), and accessing private confidential information stored on a computer of others with out prior approval. Sometimes confidential information stored on a computer can be a trade secret, which is protected under the state law. In that case, we again need to apply the two (2) part test for preemption purposes. It also depends on which circuit law applies to your state.