Trade secrets: now more enforceable— and more important

When Bloomberg released its list of the 10 biggest intellectual property verdicts of 2011, the most noteworthy thing about it may have been that the jury award total was twice that of 2010.  The second-most noteworthy: the two largest verdicts weren't for patent infringement but trade secret misappropriation.

Trade secrets' spot atop the 2011 list highlights its growing importance in businesses' intellectual property portfolios.  Companies are increasingly aware of the value of their trade secrets and are willing to sue to protect them, says Eric Akira Tate, co-chair of Morrison & Foerster's Employment and Labor Practice Group.

And as trade secret law develops, the remedies for trade secret theft are becoming more robust, adds Daniel Westman, managing partner for Morrison & Foerster's Northern Virginia office.  Westman says both the top suits from 2011 follow a familiar pattern:  American manufacturers accused ex-employees of stealing trade secrets for use by their foreign competitors.  Tate notes that the scenario has become more common because employees are more mobile and technology has made it easier to steal company secrets.

But that same technology has also made it easier to catch thieves, says Tate.  Trade secret thieves may leave behind evidence in text messages or in an online chat.  Or they may make the mistake of hooking their smartphone to their work computer and inadvertently downloading identifiable information.

"There's always a gotcha," says Tate.  "A company is going to be more likely to sue because they can prove pretty definitively that the ex-employee committed the theft."

The surge in trade secret litigation is expected to continue.  In fact, American trade secret protection appears to be growing teeth.  In October, the federal circuit ruled that the International Trade Commission could block imports of products made using the misappropriated trade secrets of a U.S. company.  The decision gives U.S. companies a way to enforce their trade secret rights against foreign manufacturers that try to sell their goods in the U.S., says Westman.

Also last fall, U.S. Senators Herb Kohl and Christopher Coons introduced legislation that would amend the 1996 Economic Espionage Act—a criminal statute—to give companies the ability to go to federal court to stop trade secret misappropriation and collect damages.  Unlike patent infringement suits, private claims of trade secret misappropriation have to be filed in state courts—where outcomes are less predictable.  The legislation wasn't passed last year, but it has sparked significant discussion about the need for a federal trade secret law.

Trade secrets even got a bit of a boost in last year's America Invents Act, which allows companies accused of patent infringement to, under limited circumstances, claim as a defense that they were practicing the invention as a trade secret.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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