The Defend Trade Secrets Act (DTSA) was recently signed into law by President Obama. The Act is an update and extension to the Economic Espionage Act of 1996, adding civil action as a remedy process for the misappropriation of a trade secret “related to a product or service used in, or intended for use in, interstate or foreign commerce.”
Effectively, every Internet based transaction is affected by this law.
Prior to the DTSA, trade secret misappropriation fell under the classification of criminal actions at the federal level. However, civil actions we dealt with on an uneven basis under state law. Being ruled by state law made no sense if one understands how the Internet operates.
Trade Secrets v. Patent Protection
It is quite common for people to get “trade secret” and “patent protection” confused. They are completely different both in application, and purpose. Let’s compare the two at their basest / simplest levels:
Patents: When you file for patent protection, there is a process. In the course of the process the inventor discloses how and what they are doing, how it is original, and how it is applied. When the patent is issued, the document is in the public domain. Anyone can read the patent, and learn how the process / system works.
Trade Secrets: Trade secrets are used by companies to keep their internal processes and systems secret. Sometimes these could be patented, but sometimes they are not original enough, or unique enough, to withstand diligence of a patent process or challenge. Unlike Patents, there’s no disclosure process in the trade secrets model. In fact, any disclosure is anathema to the process. If the secret gets out, anyone can copy it. A simple example is Google’s search ranking algorithms; they’re a secret. Colonel Sanders’ chicken seasoning: trade secret. Coca-Cola recipe: trade secret.
Why File a Patent?
A lot of entrepreneurs think filing a patent is part of a process to protect them from anyone copying what they are doing. ** It’s not.** What the patent process does do is defend your rights to perform the actions / process / system associated to your creation. It also certifies that you are the first to develop the original thought behind that process, (you’re the creator!), and it’s supposed to provide you the exclusive right to perform those acts / processes defined.
Having a patent does not prevent anyone else from stealing your ideas; it’s up to you to seek remedy for those violations, however remedy required disclosure. How often do thieves gloat to your face?
The application of those patent rights is complicated, and subject to lengthy, costly court battles, and without clear and absolute proof, the outcome is far from certain. Just look to the recent Oracle V Google challenge as an example!
Today, the process is also especially challenging if the other party’s processes are protected by trade secrets.
How Trade Secrets can Contravene Patents
The problem for patent holders and the justice system is for a patent violation to be identified, the violation needs to be disclosed and documented. Again, how many thieves will document how they stole from you?
Under the trade secrets framework, companies never have to disclose how they actually do things. This leaves a gap in the law. As a result, it has been impossible to prove a violation if the process was kept a secret. Both parties may know that there is only one way to get from A to B, but proving it is the challenge.
If this seems like circular logic, you’re correct. This difficulty holds especially true with IT systems.
How the Act Can Affect the Challenge Process
Under the previous legal construct, if an employee signed the appropriate non-disclosure agreements with a company that precluded them for disclosing any private “trade-secret” information about the company processes, and they later learned that one or more of those processes intentionally or unintentionally violated the rights of others, they often were in a form of a catch-22 position. If they disclosed that a company’s trade secret process violated the rights of another party, but to disclose that violation meant disclosing other “trade secrets” they could be placing themselves in jeopardy by coming forward. This placed people in an untenable position.
The DTS Act provides immunity for the individuals who disclose secrets for the purpose of reporting a suspected violation of law, in specific cases. We recommend readers who suspect that a trade secret violation is occurring take it upon themselves to learn more by consulting the Act and an attorney for counsel.
For companies, the legislative changes require some short-term activity. If any of your processes are ones you deem to be “trade secrets,” or if there is ever any reason for your business to use a Non Disclosure Agreement of any form, you probably need to review, and update your terms and conditions relative to the new legislation. Updating relevant company policies on a regular basis is recommended as a best practice, but the changes brought forward by the Act means the time is now for anything dealing with proprietary information or practices.
The simplest way to avoid a problem is not to violate anyone else’s rights. It is really scuzzy to take credit for the work of others.