Trade Secret Enforcement

There is no central agency that enforces trade secrets. In most states, you must enforce your trade secret through a misappropriation (infringement) lawsuit brought within the statute of limitations. Most state laws are adaptations of the Uniform Trade Secrets Act (UTSA), a model law. However, even states that have not enacted a version of the UTSA have a common law tort cause of action that prohibits the improper acquisition or disclosure of trade secrets.

Under the UTSA, the statute of limitations to bring a misappropriation lawsuit is three years from the time a plaintiff discovers the misappropriation or should have discovered it in the exercise of reasonable care. However, many states have amended this model law when they adopted it, and the changes can include the statute of limitations. Therefore, it is important to seek legal counsel as soon as you become aware of the misappropriation. 

In order to win a trade secret misappropriation suit in most states, the trade secret owner will need to show that the information at issue qualifies as a trade secret. It must be secret information that confers a competitive advantage and was the subject of reasonable efforts to maintain its secrecy. Also, the defendant must have improperly acquired the information or improperly disclosed it. Improper acquisition methods include espionage, fraud, theft, and bribery. Improper disclosure usually occurs when the person disclosing or publishing the information has reason to know it was improperly acquired.

If you enforce your trade secret through a misappropriation lawsuit, you may be able to recover remedies. These can include injunctive relief against a defendant who has misappropriated your trade secret, monetary damages for the economic harm resulting from the misappropriation, including both your losses and a defendant’s profits, punitive damages if the defendant is found to have acted willfully or maliciously, and attorneys’ fees.

An injunction is an order that prevents further disclosure or use of the trade secrets. However, once a trade secret is disclosed, it is no longer secret, and an injunction may be insufficient to prevent losing trade secret protection. A better remedy may be monetary damages, which are intended to compensate for economic injuries that are suffered because of the misappropriation. A trade secret owner can recover for its own losses, as well as any profits made by the person or group that misappropriated the secret.

The Inevitable Disclosure Doctrine

Some companies enforce their trade secrets by requiring employees exposed to the secret to sign a nondisclosure agreement and noncompete agreement. Breaches of these agreements may give rise not only to a misappropriation claim but also to a breach of contract claim. Some courts have enjoined employees who have signed these agreements from working for competitors if working for the competitor would inevitably lead to disclosure of the trade secret.

Generally, the inevitable disclosure doctrine has been applied to very high-level employees who were among a tiny number of employees to whom the secret was disclosed. In many states, however, the inevitable disclosure doctrine does not apply because the doctrine unduly restrains employees from changing jobs.

Criminal Prosecution for Stealing Trade Secrets

Federal and some state laws criminalize trade secret misappropriation in some cases. The primary federal law that prohibits trade secret theft is the Economic Espionage Act of 1996. This statute allows the U.S. Attorney General to prosecute a person, organization, or company that intentionally steals, copies, or receives trade secrets.

Sentencing under the Economic Espionage Act can include imprisonment for up to 10 years. If a conviction is obtained against an individual, the defendant can be fined up to $500,000. If a conviction is obtained against a corporation, the fine may be up to $5 million. Corporate fines may be doubled if a theft is performed for a foreign government or agent, and the jail time can be up to 15 years in that case. Moreover, the government can seize and sell proceeds derived from the theft and property used to commit the theft.

Search Legal Web Resources