The Passage of the Defend Trade Secrets Act of 2016

  • By Susan Burns
  • 02 Jul, 2016

It's a rare occasion that Congress actually agrees on something these days, but on April 27, 2016, the Defend Trade Secrets Act (DTSA) passed in the House and Senate by a sweeping majority. The bill is designed to prevent actual and threatened theft of business trade secrets, by allowing trade secret owners to bring a claim for misappropriation in federal court, as long as "the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." On May 11, President Obama signed the DTSA into law.

 

Prior to the passage of the DTSA, trade secret litigation used to be handled solely under state laws, many of which were modeled after the Uniform Trade Secrets Act of 1996 (UTSA). While this shared legislative model allowed for some uniformity, Congress wanted to address the differences that exist in specific statutory provisions and case law, from state to state. The DTSA does not pre-empt these state laws, but rather makes a new federal remedy available for trade secret owners bringing misappropriation claims.

What is a trade secret?

A trade secret is a formula, process, technique, program, method, design, instrument, or compilation of information by which a business can gain an economic advantage over its competitors by virtue of it a secret. It is legally protectable under state law, federal criminal law, and now, federal law under the DTSA.

While the precise language defining a trade secret differs from one jurisdiction to the next, in general, three factors are in common. First, the trade secret is not generally known to the public. Second, the economic benefit is derived from the fact that the trade secret is not generally known. Third, the trade secret is subject to reasonable measures to protect its secrecy.

The DTSA defines misappropriation as the disclosure or use of a trade secret that was acquired through "improper means," which include "theft, bribery, misrepresentation, breach...or espionage through electronic or other means."

How does the DTSA protect trade secrets?

A trade secret owner can seek injunctive relief, compensatory damages, recovery of attorneys' fess, and punitive damages equal to two times the amount of damage the misappropriation caused. This is similar to the UTSA. However, the DTSA introduces several new aspects to trade secret litigation.

Most significantly, trade secret owners can now bring a claim for misappropriation under federal law, and in federal court. Also, the new law allows for an 'ex parte' seizure order in "extraordinary circumstances." If certain conditions are met, the government can seize property before notifying the defendant, so as to avoid dissemination of trade secrets by the defendant.

The DTSA provides whistleblower immunity to an employee or contractor that discloses a trade secret to law enforcement because of a suspected violation of law. This information must be presented in a sealed court filing to local, state, or government officials.

 

In order to obtain monetary damages in trade secret legal proceedings, businesses need to provide notice of whistleblower immunity to their employees and contractors. This corporate notice requirement applies only for agreements made on or after May 11, the date the bill was signed into law. Misappropriation claims cannot be brought in federal court more than three years after the misappropriation occurred, or should have been discovered.

The law also seems to permit a party to bring an action against a foreign entity. Congress addressed concerns about a rise in trade secret theft by foreign hackers. Particularly, the law seems to respond to reports that the Chinese government is sponsoring cyber attacks against top U.S. companies.

 

The DTSA addresses emergent cyber-espionage threats to large, targeted companies, but also protects the interests and valuable information of smaller businesses. Educate your employees about the protection of your business' trade secrets, with knowledge of the new federal remedy that is available through the DTSA.


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By Susan Burns 26 Oct, 2017
P.S. There has been a lot of discussion on social media about my post on reading fine print  when installing apps, specifically focused on the Grammarly app. Some people have responded with the interpretation that Grammarly can only use your content to correct your grammar and not for anything else.

I disagree. This is not a correct interpretation, in my opinion.

Even though that interpretation may be based on a provision in the TOS that states you keep ownership of
your content, they still have an unlimited, perpetual, royalty-free right to use it. I won’t repeat the prior
post, but do urge you to read it .

Others have suggested that Grammarly’s TOS are typical of SaaS (software as a service) agreements and,
somehow, that makes it okay. The TOS may be similar, but the products aren’t. Grammarly, in my
experience, crawls through everything you type. Everything.

The other argument proposed by someone is that because this is typical SaaS language, they don’t really
mean that they are going to use your content. Really? Then say so in a clearly-drafted, user-friendly
contract a/k/a TOS.

I have not heard of someone successfully arguing in court that even though they agreed to a license of
their product, they didn’t think the person was really going to use it … and therefore, they shouldn’t be
allowed to use it. If you know of such a case, send it my way.

Again, legal ethics prohibit me from using the service. That aside, I don’t choose to give Grammarly
access to everything I type.

As one person put it, “everything ever typed on the computer, so while it runs in the background, it
gathers password, credit card data, shopping habits, text conversations from Facebook, messenger
services, anything you do... recorded and stored.”

Finally, my posts are my opinion and my legal analysis. I am not your lawyer. And, I am not telling you
what to do.

One of my major focus points with clients is clarity. Fabulous decisions come from clarity. Make a
decision that’s right for you.

I love a great discussion! Keep the comments coming.

MSB
By Susan Burns 24 Oct, 2017

Recently I was engaged in a Facebook exchange among a group of successful business women. Someone asked for opinions on using Grammarly—an app that is marketed as “A FREE, ACCURATE GRAMMAR CHECKER BUILT FOR EVERYONE.”  

The comments started rolling in: “love it!” “best thing I have used in a long time.” “Cuts my writing time significantly.” And more like that.

I actually had installed the free app a few weeks before to give it a test run. I found it to be a nuisance because that little app was popping up and sticking its grammar-nose in every single thing I wrote. My emails. My blog posts. My word documents. That spelled danger to me, and I immediately deleted it.

My curiosity piqued, I checked the Terms of Service (which, admittedly, I should have done first). Here is what I found:

By uploading or entering any User Content, you give Grammarly (and those it works with) a nonexclusive, worldwide, royalty-free and fully-paid, transferable and sublicensable, perpetual, and irrevocable license to copy, store and use your User Content (and, if you are an Authorized User, your Enterprise Subscriber’s User Content) in connection with the provision of the Software and the Services and to improve the algorithms underlying the Software and the Services. (emphasis added)

Here's what you need to know:

  • Grammarly, Inc. is a Delaware corporation. They include in the definition of “Grammarly” not only the corporation, but also all of its subsidiaries AND other affiliates.
  • The definition of “Software” is “the software.
  • The definition of “Services” is … wait for it … “services.” 
  • And, although it is poorly drafted, it seems to be attempting to include any future Software and Services provided by Grammarly, which you recall also means any subsidiary or affiliate.

What does this mean for you?

It means that if you install Grammarly, whether it’s a free service or a paid service, you are specifically giving an unlimited perpetual license to your content to Grammarly and any company they affiliate with and any of their subsidiaries basically for any service they provide now and decide to use in the future.

That means that if you use Grammarly, instead of your own brain or a copy editor, you are no longer the exclusive owner of your content. That means they can republish, provide to third party affiliates, and use your data and materials any way they see fit.

The bottom line is that Grammarly has access to—and the unlimited, forever—right to use your content. Period.

And, once you install Grammarly, it is everywhere . It pops up in every document you create. Every. Single. One. If you don’t believe me, try it yourself.

Of course, lawyers and other professionals with a confidentiality responsibility to their clients are ethically prohibited from using Grammarly. (And, I hope they read the fine print.) But even if you don’t have an ethical responsibility to keep information confidential, do you really want to give up the right to your content?

Think about it! And next time, read the fine print. … or call me, and I’ll read it for you.


‚Äč*This post has been updated here .

By Susan Burns 28 Feb, 2017

The driverless car industry is hot and super-competitive. That’s a given. Here’s what’s not hot if you are Waymo, the self-driving car business that was spun out of Google’s parent company:

By Susan Burns 19 Feb, 2017

Recently, there was a trademark spat between Adidas and Tesla. The story piqued my interest because   the big players make mistakes that are instructive for small businesses (only on a grander scale)—and because it illustrates the importance of brand identity and underscores why it’s smart to register your mark.

In a nutshell, here’s what happened: Tesla filed with the US Patent and Trademark Office (USPTO) to register its Model 3, three-bar logo as a trademark. If the registration had been for the purpose of using the mark on a car, there would not have been a problem. BUT, Tesla registered to use its three-bar “E” on clothing. Adidas, a company known for rigorous policing of its brand identity, challenged Tesla’s right to register the mark as confusingly similar to the Adidas three-bar logo. Tesla withdrew its application. Adidas protected its three-bar brand identity.
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