Last week we explained what trade secrets are and how businesses should protect them. Now we’ll address what to do if your trade secrets are misappropriated and how to avoid misappropriating others’ trade secrets.
Applicable Laws
Both state and federal laws provide remedies for those whose trade secrets are misappropriated (wrongfully taken or used).
State laws typically allow trade-secret owners to obtain damages and injunctive relief (both discussed in more detail below) for trade secret misappropriation.
The federal Defend Trade Secrets Act of 2016, which is similar to most state laws, allows an injured business to file suit in federal court when the trade secret at issue “is related to a product or service used in” interstate or foreign commerce.
The Economic Espionage Act of 1996 criminalizes some trade secret misappropriation. It defines the term “economic espionage” as the misappropriation of trade secrets with the intent or knowledge that “the offense will benefit any foreign government, foreign instrumentality, or foreign agent.”
Monetary Remedies
If someone misappropriates your trade secret, you might be eligible for damages, which can be calculated a number of ways, depending in part on the specific law you sue under.
You might be awarded a judgment that covers the amount of money you lost, the “unjust enrichment” the defendant received through misappropriation of your trade secret, a reasonable royalty for use of the misappropriated trade secret, and/or “exemplary” damages of twice the amount of actual damages, attorney fees, or a combination of these.
• Actual Loss: This typically includes lost profits due to lost sales, price erosion, and loss in value of the misappropriated trade secret.
• Unjust Enrichment: This refers to the defendant’s net profits that are attributable to use of the misappropriated trade secret.
• Reasonable Royalty: This figure is the royalty amount, as determined by the court, that you and the defendant would – hypothetically – have negotiated at the time the misappropriation began for the defendant’s use of the trade secret at issue for the period of time the defendant used it.
• Exemplary Damages: These types of damages may be awarded if the defendant’s conduct is willful, malicious, or in bad faith. This could involve up to double the amount of the award otherwise available to you, as well as reimbursement of your attorneys’ fees.
Injunctive Relief
In addition to, or instead of, damages, a court might issue an “injunction” prohibiting the use (or further use) of misappropriated trade secrets by the defendant.
How to Avoid Misappropriating Trade Secrets
If you’ve misappropriated someone else’s trade secrets, you might be liable for damages, and the court might order you to stop using the misappropriated trade secrets. Obviously, then, it’s in your best interest to avoid misappropriating others’ trade secrets.
You might think that’s easy – just don’t do it – but if you have employees, use independent contractors, receive products or services from other businesses, or engage in joint ventures, this is likely to be a lot more difficult than you might think.
This is because a business can be liable for trade secret misappropriation even if the owners and managers don’t know about the trade secret misappropriation. This might happen, for example, if a new employee or independent contractor uses trade secrets learned while working for a previous employer in order to perform work for your business.
When you hire someone, whether as an employee or as an independent contractor, you should make sure that person knows that they’re prohibited from using trade secrets of any previous employer or other third party while working for you.
This notification should be in writing, ideally in a contract that person signs, but at a minimum, in a written policy. It’s a good idea to discuss the issue with new employees as well, because they might not understand what trade secrets are or what types of information they’re forbidden from using.
For example, many people don’t know that using information they remember, as opposed to information on a piece of paper or in an electronic file they took, might be trade secret appropriation.
Always be particularly careful when hiring someone who worked for a competitor, since your competitor may assume your new employee or independent contractor is sharing its secrets with your company and/or using them to perform work for your company.
If at all possible, have these types of employees and independent contractors work on projects significantly different from those performed for their previous employers to reduce the likelihood of real or perceived misappropriation.
You should also educate your managers about trade secret law. Make sure they know they should never hire someone in an effort to acquire trade secrets and that they should never pressure anyone to use or disclose someone else’s trade secrets.
Your business’s contracts with suppliers should contain clauses stating that the suppliers have not used and will not use any third party’s trade secrets (or other intellectual property) without appropriate authorization and that if they do, they will take responsibility for that by “indemnifying” your business for all related damages.
The same type of clause should be included in joint-venture and other collaboration agreements.
Please feel free to contact us if you’re interested in obtaining more information about how to protect your trade secrets or avoid misappropriating those of others.
Photo by Blue Coat Photos, used under a Creative Commons license
