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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Obama Administration’s Request for Public Comment on Trade Secrets Law Underscores Importance for Companies to Protect Their Proprietary Assets Now

Posted in Computer Fraud and Abuse Act, Data Theft, Espionage, Legislation, Trade Secrets

Trade secrets and cybersecurity are on the national agenda.

Responsible corporate leaders are closely following the issue and must be concerned about the adequacy of their protections and the fallout should there be a breach.

“There are only two categories of companies affected by trade secret theft: those that know they’ve been compromised and those that don’t know it yet,” Attorney General Eric Holder  recently said.

With the Obama Administration’s recent plan to combat increasing trade secret theft at home and abroad and an alarming new study concerning data theft, there has never been a time where companies’ trade secret information are subject to greater risks and their security protections are subject to greater scrutiny.

This reality coupled with the ease with which information can be shared or stolen in this digital age requires that prudent companies employ effective strategies to combat trade secret theft.

The aptly entitled global study “What’s Yours Is Mine: How Employees Are Putting Your Intellectual Property At Risk”  found that over fifty percent of the departing employees surveyed retained their former company’s confidential information and forty percent plan to use it in their new job. Most employees surveyed do not believe using confidential information taken from a previous employer is wrong and most also indicated that their organization does not take action when employees take confidential information. Further over sixty-five percent indicated that their organization does not take steps to ensure that employees do not use confidential competitive information from third parties. Over fifty percent of those surveyed in the United States believe that they should have a right to re-use source code for another company. A large percentage of employees surveyed admitted to transferring company confidential information to personal email, personal devices, or through file sharing applications.

According to recent government reports, the theft of trade secrets from U.S. corporations impacts national security, undermines U.S. global competitiveness, diminishes U.S. export prospects, and puts American jobs at risk. Trade secrets play a crucial role in maintaining America’s global competitiveness. The federal government has recently indicated that it wants to ensure that our laws are as effective as possible to address the threat to companies’ trade secrets.

The Obama Administration is presently reviewing applicable federal law related to enforcement against economic espionage and trade secret theft. This review is pursuant to its plan entitled ”Administration Strategy on Mitigating the Theft of U.S. Trade Secrets“ issued on February 20, 2013.

Tthe U.S. Intellectual Property Enforcement Coordinator has recently requested public comment on what legislative changes should be in place to enhance enforcement against, or reduce the risk of, the misappropriation of trade secrets.

Submissions must be received on or before April 22, 2013.

While some may believe that no changes are necessary, among some of the suggestions that some companies are considering are supporting a federal civil cause of action for trade secret theft, clarifying that the Computer Fraud and Abuse Act applies to employee data theft, enhancing the penalties for violations of the Economic Espionage Act, clarifying the service requirements in EEA actions brought against foreign actors, and providing U.S. Customs with greater clarity concerning its ability to seize products containing misappropriated trade secrets.

I recently played a leading role in the ABA IP Section’s passage of a resolution supporting a federal civil cause of action for trade secret theft when certain circumstances are present and certain specified requirements.

The resolution calls for a general framework with a federal civil cause of action for trade secret theft including:

• A definition of trade secret that is comprehensible and expansive versus restrictive and overly technical;

• The availability of remedies that is similar to the Uniform Trade Secrets Act, including injunctive relief, royalty damages, attorneys’ fees, and exemplary damages;

• A comprehensible definition of what requirements must be met to trigger exclusive federal jurisdiction, which includes, at a minimum, claims involving the theft of trade secrets by or for the benefit of foreign governments, companies, or individuals;

• A seizure order provision that adequately addresses how seized information should be stored or protected, who will gather it, and who will have access to it; and

• A provision addressing the interplay between state trade secret claims brought under the UTSA adopted by the vast majority of states and common law claims when an action is brought under the proposed legislation which does not interfere with the pursuit of those claims under applicable state law.

If you are interested in making a submission by April 22nd, please contact your Seyfarth attorney. 

Additionally, in light of this serious and growing threat, you may also consider evaluating your company’s existing trade secret protections and updating your protections as needed. 

We have found that a comprehensive Trade Secret Audit is an effective way to protect a company’s trade secrets and provide some piece of mind in this challenging environment. According to the Obama Administration’s plan, best practices “should encompass a holistic approach to protect trade secrets from theft via a wide array of vulnerabilities” and the plan singled out areas for companies to focus in the development of best practices in research and development, human resources, and information and physical security policies.

A customized Trade Secret Audit helps your company in identifying valuable information assets and evaluating the strengths and weaknesses of your company’s protections. Corrective measures, if needed, are then implented to  help ensure your company’s assets are adequately protected, including assisting with effectively managing and protecting computer-stored data. The Trade Secret Audit assesses whether your company has adequate agreements and policies in place to ensure maximum protection and effective employee education and training programs in place.  Audit members also work with IT security along with trusted IT specialists to assess the vulnerabilities of your computer network from insiders and outsiders.  

A Trade Secret Audit provides your company with a thorough, proactive assessment of your company’s information assets, as well as provides an assessment with recommendations for more effective processes.  The cost of losing trade secrets and other intellectual property can be immense and an audit can help your company protect valuable assets, reduce exposure for trade secret theft claims, and maximize effectiveness in pursuing offensive claims, as well as keep your company up to date with emerging threats.  For more information on a Trade Secret Audit, please see our webinar entitled the Anatomy of a Trade Secret Audit and Trade Secret Protection Best Practices: Hiring Competitors’ Employees and Protecting the Company When Competitors Hire Yours.