In the digital age in which we live and work and conduct business, the protection of trade secrets has become a pressing concern for companies operating across all sectors of the global economy and in jurisdictions around the world. Whether it’s proprietary algorithms, client lists, product formulas or specialized manufacturing processes, trade secrets are often the foundation of your company’s competitive advantage. However, when a trade secret is compromised—either through accidental disclosure, employee theft or corporate espionage—litigation should be considered an essential tool to protect your valuable property rights and seek immediate remedies to stop the offending parties from further wrong doing. Below is what your company’s management team needs to know about the value of trade secret litigation, and how to best position your company to succeed in these types of cases. Call the intellectual property attorneys at Finkel Law Group if you would like legal advice any of your trade secret issues.
Understand the Definition of a Trade Secret
It’s essential to have a clear understanding of exactly what qualifies as a trade secret among all the commercially valuable information acquired and maintained by your company. Generally, a trade secret is information that meets the following characteristics:
(1) derives independent economic value from not being generally known to the public or other persons who can obtain economic value from its disclosure or use, and
(2) is subject to efforts that are reasonable under the circumstances to maintain its secrecy.
Trade secrets can and frequently do include formulas, business strategies, manufacturing processes, and even customer lists. If you find that your company is in the position of having to file a lawsuit to protect against the disclosure of its trade secrets, you must be able to prove with evidence to a court’s satisfaction that the information you claim as a trade secret meets these aforementioned criteria. They must possess the requisite economic value, and your company must have taken all reasonably required steps to protect the information from disclosure.
Establish Reasonable Measures of Protection for Your Trade Secrets
For courts to consider something a trade secret, you must prove that you took adequate steps to keep it confidential. This includes implementing policies such as limiting access to sensitive information, using non-disclosure agreements (NDAs), and enforcing digital security measures. In litigation, failing to show that you safeguarded your trade secret can severely weaken your case. Preparing appropriate legal documentation demonstrating your company employs these protection methods will strengthen your legal position and demonstrate to the court that your company took active steps to protect its trade secrets.
Recognize the Common Causes of Trade Secret Misappropriation
Trade secret theft often originates within the company itself, typically when a former employee or business partner discloses confidential information to a competitor. Misappropriation may occur in various forms, including:
- Employee Departure: Employees leaving for competitors or starting their own ventures may take confidential information with them, intentionally or otherwise.
- Corporate Espionage: Competitors may attempt to obtain your trade secrets through hacking or other illegal activities.
- Third-Party Disclosure: Contractors, suppliers, or other third parties may inadvertently share or misuse confidential information.
Identifying how a trade secret was compromised helps build a clear narrative in litigation and is crucial for demonstrating misappropriation, and securing an injunction to prevent the activity from continuing.
Evaluate the Legal Forums Available for Conducting Litigation
Trade secret litigation can be pursued in both federal and state court, depending on the specific issues of the case and the importance of selecting the right venue for the particular lawsuit. The Defend Trade Secrets Act (DTSA) provides federal protection for trade secrets and allows businesses to file claims in federal court. Additionally, California’s Uniform Trade Secrets Act (UTSA) enables companies to commence trade secret litigation in state court.
The DTSA offers certain advantages, such as nationwide jurisdiction and the ability to request seizure of misappropriated trade secrets in extreme cases. Deciding between federal or state court often depends on the nature of the trade secret, the scope of misappropriation, the particular judge you may find yourself in front of in federal or state court, and other important strategic considerations best discussed with experienced trade secret counsel.
Prepare for Discovery Challenges
Discovery is a critical stage in any litigation, especially in trade secret cases where sensitive information is at the heart of the dispute. In these cases, you must request and a court should grant a protective order to ensure trade secrets remain confidential throughout the litigation process. Businesses should be prepared to manage discovery carefully, balancing the need to provide evidence with the risk of further exposure. Preparing clear, organized documentation of your trade secrets, internal policies, and measures taken to protect them will ease the discovery process. At the same time, you may also need to request protective measures to prevent your trade secrets from becoming part of the public record during litigation.
Understand the Remedies Available to You in a Trade Secret Case
Successful trade secret litigation can result in several types of remedies. Common forms include:
- Injunctions: Courts may issue an injunction to prevent the defendant from further using or disclosing the trade secret, and where the court issues an injunction settlement can soon follow.
- Monetary Damages: You may be awarded compensatory damages for actual losses suffered and, in some cases, punitive damages if the misappropriation was willful or malicious.
- Attorney’s Fees: In cases of malicious theft or bad faith litigation, courts may require the defendant to pay the plaintiff’s reasonable attorneys’ fees and costs of suit.
Discussing with your attorney early in the litigation the objectives you wish to achieve and the types of remedies available to your company that you wish to pursue will help set realistic expectations for the outcome of the lawsuit, guide the formulation of your litigation strategy, and inform settlement discussions.
Exploring Settlement Options is a Good Way to Resolve a Lawsuit
While litigation may seem like the best way to protect a trade secret, it can be costly, time-consuming, and risk further exposure of the trade secret. Settlement is often a viable alternative to launching a public lawsuit that allows both parties to resolve the issues in dispute outside of court in private. Settlement agreements may include payment of compensation for damages suffered, return of all trade secrets stolen by the defendants, prohibitions on any future use of the stolen trade secrets, and commitments to destroy or return any of the stolen trade secrets. If a settlement through early mediation can achieve your company’s business goals without the risks associated with commencing a lawsuit, it may be worth considering as a primary strategy to resolving the dispute
Protecting Your Business During and After Litigation
Winning a trade secret case is only part of the battle. It’s crucial that your company continue to safeguard your trade secrets moving forward to avoid future litigation. After the lawsuit is resolved, reassess your trade secret protection strategies. What went wrong? Implement new or updated security measures, conduct additional employee training, audit your management practices regularly, and consider dismissing employees (and managers) who cannot or will not get with the program. Proactively strengthening your trade secret protection efforts should deter future misappropriations, and send a strong signal to employees and competitors alike that protecting your company’s trade secrets is among the company’s highest priorities and a fundamental part of its culture.
How Finkel Law Group Can Help Your Business
When your company’s prevention methods fall short, trade secret litigation is a powerful tool to confront and remedy the problems created by the theft or misuse of your company’s confidential business information. By understanding the litigation process and preparing to engage in a lawsuit with solid business operational and legal strategies, your company can effectively navigate the complexities of launching and favorably resolving a trade secret dispute. Whether pursuing resolution through a court case or negotiating a settlement in pre-litigation mediation, the attorneys at Finkel Law Group can help your company protect your valuable trade secrets, and maintain your company’s competitive edge in an increasingly aggressive business environment.
About Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has close to 30 years of experience helping our clients navigate intellectual property disputes in California and across the United States, including trade secret litigation and settlements. When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with such matters, please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our intellectual property attorneys.