New Federal Law Enacted to Protect Trade Secrets

SEMA News—July 2016

FROM THE HILL

By Ashley Ailsworth

New Federal Law Enacted to Protect Trade Secrets

The Defend Trade Secrets Act Adds Tool to Company IP Toolbox

  From the Hill
   

In an effort to counter intellectual property (IP) theft, President Obama signed into law a SEMA-supported bill that enables businesses to protect their trade secrets using federal law. Prior to the enactment of the Defend Trade Secrets Act, the only mechanism for companies to enforce valuable trade secret rights was through civil actions under state law. The absence of a uniform federal standard forced companies to navigate a patchwork of different state laws and courts to bring actions against entities that had stolen or otherwise misappropriated their proprietary trade secret information.

Sponsored by Senator Orin Hatch (R-UT), the bill passed the Senate with unanimous support before moving on to the House, which supported the bill by a wide margin of 410-2. Congress’ overwhelming bipartisan support for trade secret reform is a clear signal that state laws have not sufficiently protected businesses from trade secret theft. U.S. Representative Jerold Nadler (D-NY), a co-sponsor of the House bill, estimates the value of U.S. trade secrets stolen each year at $300 billion.

“Enacting this bill into law will help address the critical problem of trade secret theft, which stifles innovation and costs American companies billions of dollars annually,” said Senator Hatch. “I hope our success in acting to protect trade secrets will serve as a springboard for additional congressional action to safeguard other forms of intellectual property.”

Trade secrets are a frequently overlooked category of IP. Unlike patents and copyrights, trade secrets can be protected indefinitely if secrecy is maintained. Examples of trade secrets include confidential processes, manufacturing techniques, compilations of customer information, plans and formulas.

The Supreme Court recently noted the value of trade secrets in the context of licensing revenue. The court found against a company charging royalties for use of a patent after the patent had expired. In contrast, the court noted that royalties could be collected from use of a trade secret as long as it was protected.

SEMA PAC President’s Club Spotlight: Michael Essex

Michael EssexMichael Essex is a network advertising director for The Enthusiast Network (TEN), which is based in Los Angeles, California. Essex is a six-year member of the SEMA PAC President’s Club.

“Being a general manager at a very influential automotive media company, my number-one goal is to help small and large aftermarket businesses sell the products they are manufacturing and in turn create jobs,” Essex said. “The SEMA PAC puts me in a position to speak volumes to those points outside of my company and spread that mindset across the United States of America.”

For more information on SEMA PAC, contact SEMA PAC and Congressional Relations Manager Christian Robinson at 202-783-6007 x20 or christianr@sema.org.

 

Trade secret disputes often arise in the context of an unscrupulous competitor or an ex-employee attempting to use the company’s confidential information to their own advantage. Issues can also arise when exploring a business relationship with another company and exchanging sensitive information about business practices or product information. If the deal never materializes, the exchanged materials may nevertheless be improperly used by the other company. Data breaches and other intrusions into computing networks can also lead to theft of trade secrets.

While companies do not have to register their trade secrets with a government agency, efforts must be undertaken to preserve IP rights in a trade secret. Success on a claim based on theft of trade secrets, both at the state and federal levels, requires a showing that the material was subject to reasonable secrecy efforts. If a court determines that a company has not undertaken efforts that are reasonable under the circumstances to maintain secrecy, a trade secret claim will fail.

Examples of measures a company can take to protect information as a trade secret include using nondisclosure agreements when negotiating business deals, installing security measures on company computers, and requiring employees to sign agreements detailing rights and duties with respect to confidential company data.

Companies should regularly review their intellectual properties and mark/label confidential material as appropriate, while recognizing that the label may have limited effectiveness if used excessively or inappropriately.

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