The Increasing Importance of Trade Secrets Law in the United States

Traditionally, American law has favored patent law over trade secret law on the basis that publication of inventions was good for the economy. Indeed at one time there was a concern that since Congress had
not enacted a trade secret law, there could be no protection for trade secrets since any attempt by the states to protect trade secrets would be preempted by the patent law. These concerns were put to rest by the Supreme Court’s decision in Kewanee Oil Co. v. Bicron 1 where the court held that since trade secret laws provided significantly weaker protection than patent law, state trade secret laws were not preempted by the federal patent law. Until 2016, trade secret protection was largely a matter for state law and often under appreciated by users.[1] However, changes in patent law effected by the America Invents Act in 2012 included provisions that reduced the commercial risks that a business would run by trying to keep inventions as trade secrets rather than patenting them including repeal of a provision that meant that there was a risk that a patent could be invalidated if the owner had concealed the invention prior to the filing of the patent application beyond what was necessary for its development and creation of a new defense to allegations of patent infringement that the alleged infringer had made commercial use of the invention before the filing of the application for the patent in question. Since then the availability of patent protection for many types of inventions that had for a while been protectable while the test for patent eligibility was whether the invention produced a  “useful concrete and tangible result”[2] has been considerably reduced following Supreme Court decisions in Bilski v. Kappos[3] and Alice v. CLS Bank[4] Following these decisions the Patent Office has made it difficult to obtain patent protection for basic economic practices (e.g. hedging, insurance, financial transactions, marketing), mathematical concepts (e.g. algorithms, special relations, geometry), mental activities, interpersonal interactions or relationships (e.g. conversing, dating), teaching concepts, human behavior (e.g. exercising, wearing clothing, following rules or instructions) and instructing how business should be conducted. Such factors have considerably increased interest in trade secret protection.
 
One consequence of this has been the adoption of the federal Defend Trade Secrets Act signed by President Obama on 11 May 2016.  The Defend Trade Secrets Act has four main features:
 
1) creation of a civil right of action in federal district courts for those who have suffered misappropriation of a trade secret related to a product or service used in or intended for use in interstate or foreign commerce;
2) creation of a new right of civil seizure whereby in extraordinary circumstances a court may grant an ex parte application providing for seizure of property necessary to prevent the propagation or dissemination of a trade secret;
3) increasing the maximum fine under the Economic Espionage Act (a prior federal law criminalising certain types of trade secret theft) from $5 million to the greater of $5 million [U1] and three times the value of the stolen trade secret; and
4) providing some protection for whistle blowers who disclose trade secrets and limiting remedies against employees who disclose trade secrets unless they have been advised of such immunity should they in fact act as whistle blowers..  
 
In order to qualify for protection, the owner of the trade secret must have taken reasonable measures to keep such information secret; and the information in question must derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information.[5]  This means that to preserve the right to bring an action for misappropriation of a trade secret, the owner should make sure that all relevant personnel are bound by confidentiality agreements, probably including provisions allowing the owner of the secret to check their computers and require assurances that the employee will not take with him or her any trade secret material or use any trade secrets learned on the job in his or her new job when the employee changes jobs. As noted above, however, such agreements should also set out the relevant whistle blower immunity provisions. It also means that the owner of the secret must have taken reasonable steps to maintain the physical security of the secret, for example maintenance of source code in password-protected computers having effective passwords, with periodic changes of password or if in tangible form maintained in a safe.
 
The Defend Trade Secrets Act explicitly leaves prior state laws in place but the federal law’s provision for ex parte civil seizure and the more rigorous discovery normally available in federal courts make use of the new law an attractive option in many cases and it is to be expected that case law on its application will develop quickly.
 

John Richards is Of Counsel and resident in the New York Office of Ladas & Parry and has more than four decades of patent experience.

John specializes in chemical and biochemical patent matters including drafting and prosecution of patent applications in these fields in the United States, Europe and abroad. John handled the global patenting and licensing for the groundbreaking Alzheimer’s Disease drug known as
Razadyne in the U.S and Reminyl internationally.

John can be contacted on (212) 708-1915 or by email at Jrichards@ladas.com