Defend Trade Secrets Act good for Wisconsin business

Just when everyone thought bipartisanship was dead and buried, the U.S. Congress surprised us. Members of both parties recently voted overwhelmingly to approve the Defend Trade Secrets Act, and last month President Barack Obama signed the bill into law. It is the most important piece of intellectual property legislation that Congress has passed in several years.

Trade secrets, along with patents, copyrights, and trademarks, are one of the four cornerstones of intellectual property. As the name suggests, a trade secret is information that has value because it is unknown to business competitors. The classic example is the formula for Coca-Cola, which has been locked in a vault for more than 80 years and is known to only a select few of the company’s employees.

As sophisticated technology companies have become the driver of U.S. economic growth, trade secrets have become an increasingly vital part of our nation’s economy — and an increasing target for unscrupulous competitors both here and abroad. The Senate Judiciary Committee reported that the annual cost of trade secret theft might be as high as $480 billion.

The magnitude of the threat posed to Wisconsin’s businesses by trade secret theft was recently highlighted when Middleton-based Epic Systems Corporation, one of the nation’s largest suppliers of electronic health records software, won a $940 million jury verdict against Tata Consulting Services, a subsidiary of one of the largest conglomerates in India, for allegedly copying thousands of documents detailing the development of Epic’s proprietary software and database systems.

Despite its significance to businesses and the economy, U.S. trade secret law has been a sometimes inconsistent patchwork of individual state statutes, often enforced by state courts more accustomed to dealing with car accidents and convenience store robberies than computer code and corporate theft.

Congress has now acted to bring much needed uniformity and new enforcement tools to this important area of the law. The Defend Trade Secrets Act (DTSA) passed the U.S. Senate by a vote of 87–0 and the House of Representatives by a vote of 410–2. All members of Wisconsin’s Congressional delegation voted in favor of the measure.

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Although state governments retain the ability to enact and enforce their own trade secrets laws, DTSA will provide a consistent set of minimum legal standards that apply to companies and individuals throughout the U.S. DTSA also allows a court to enter an emergency order to seize property, such as computers, necessary to prevent the dissemination of misappropriated trade secrets. Defendants found to have “willfully and maliciously” misappropriated trade secrets may now be subject to treble damages. And all lawsuits will be subject to a uniform three-year statute of limitations.

To provide balance, the law also contains important protections to prevent abuse by overzealous litigants. DTSA prohibits courts from preventing employees from working for competitors due to an employee’s knowledge of trade secrets and instead requires that conditions on employment be tailored to the threatened misappropriation. Parties making bad faith allegations of trade secret theft may be required to pay their opponent’s attorney fees.

Perhaps most important, DTSA provides trade secret owners with the right to bring their claims in federal courts. Federal courts, which are accustomed to hearing patent and copyright claims involving sophisticated technology and science, generally will be better equipped to sort through the complicated issues associated with the trade secrets of today’s businesses.

In this current atmosphere of polarized politics, the passage of DTSA is a refreshing piece good news for U.S. businesses.

Jeffrey Simmons is an attorney and partner in Foley & Lardner LLP’s Madison office whose practice focuses on intellectual property matters.

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