The Defend Trade Secrets Act: Do You Want to Know a Secret?

“Do You Want to Know a Secret?” was a 1963 top 10 hit by the Beatles about a romantic secret. Intellectual property law also deals with secrets, but of a different nature – trade secrets. We have previously written about trade secrets in IP law, but have not surveyed the statutes that relate to trade secrets.

Until last year, trade secret law was pretty much a state law matter. A new federal trade secret law, The Defend Trade Secrets Act (DTSA) went into effect May 2016. The DTSA received a fair amount of press, but since 2016 became ground zero for “fake news,” we thought a truthful review of the present state of statutory trade secret law might be useful. Both state (Minnesota) and federal statutes exist, providing causes of action and defenses.

When Did It All Start?

Trade secret law originated from state common law in the United States. An employee’s duty to protect an employer’s trade secrets was first articulated by the Massachusetts Supreme Court almost 150 years ago, in Peabody v. Norfolk (1868). Trade secret law existed solely under common law in the United States until 1979, when the Uniform Trade Secrets Act (UTSA) was published by the Uniform Law Commission. Every state except New York and Massachusetts has now adopted the UTSA, with Minnesota being one of the first.

So What’s a Trade Secret?

Statutorily, federal and Minnesota law both follow the lead of the UTSA, which essentially defines a trade secret as (1) information (pretty much of any kind) (2) that 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 that information’s disclosure or use, and (3) is the subject of reasonable efforts to maintain its secrecy.

Trade Secrets are Property

Trade secrets have long been recognized as property and as such, trade secrets can be misappropriated or ruined. Misappropriation is the taking of the secret for one’s own use or selling the trade secret to another. Ruining a trade secret can simply be the act of telling the rest of the world about it. In both cases, the owner’s property value in the trade secret is diminished.

Minnesota Law

Minnesota has statutes that provide for criminal and civil remedies for trade secret misappropriation:

  • Minn. Stat. § 325C.01 et seq. (civil cause of action).
  • Minn. Stat. § 609.52 (criminal theft statute).

Federal Law

Prior to the DTSA, federal law did address trade secret theft, but only via two criminal statutes. The first relates to knowingly providing unauthorized or stolen trade secrets to “any foreign government, foreign instrumentality, or foreign agent.” The second relates to “converting” a trade secret included in a product that is produced for or placed in interstate commerce with the intent or knowledge to injure an owner of the trade secret. Both of these statutes were enacted as part of The Economic Espionage Act of 1996 (18 U.S.C. §§ 1831, 1832). However, a private party had no standing under these federal statutes to bring a civil cause of action for trade secret misappropriation. Under federal law, all such a party could do to address trade secret theft was to try to convince a federal district attorney to bring criminal action.

The Defend Trade Secrets Act to the Rescue!

The DTSA created a federal civil cause of action for trade secret misappropriation. An important feature of the DTSA is that it does not preempt state law, so an aggrieved party has the choice of bringing an action under state law or under federal law (or both).

The DTSA also provides a safe harbor for whistle-blowers in situations where trade secrets may need to be disclosed in order to expose a violation of law. This is not the only statute that provides protection to whistle-blowers. There are various federal statutes and Minnesota statutes (e.g., Minn. Stat. § 181.932) that prohibit retaliation or discharge by a company against an employee for certain activities.

The DTSA whistleblower immunity is for the limited situation in which the employee knows of certain trade secrets, but due to an overreaching employment confidentiality agreement, the employee will be penalized if the information is disclosed, for example, in the course of a securities law violation investigation.

The DTSA remedies for companies suing former employees for trade secret misappropriation include punitive damages and attorneys’ fees. However, in order for a company to be eligible for an award of such damages and fees, it must provide notice of the immunity in any employee agreement that “governs the use of a trade secret or other confidential information.” (18 U.S.C. § 1833(b)).

Secrets? Espionage? 1960s Pop Chart Hits?

We bring it all together with the Johnny Rivers classic: “Secret Agent Man” (1966). Check it out on YouTube. Z. Peter Sawicki and James L. Young

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