Federal Trade Secrets Protection — Finally Something Both Parties Can Agree On

In recent months, two bipartisan bills have been introduced in Congress providing for a Federal civil remedy for trade secret misappropriation — the Defend Trade Secrets Act , introduced in the Senate in April, and the Trade Secrets Protection Act, introduced in the House in July.   These companion bills are substantively similar in that they both amend the Economic Espionage Act of 1996 to establish a private right of action for a trade secret violation.  So far, the House bill is moving faster, having been approved on September 17, 2014, by the House Judiciary Committee and presumably moving toward a full House vote in the near future (or at least that’s what I learned on School House Rock).

The significance of these bills is that they finally extend Federal civil protection and regulation to trade secrets, currently the only category of intellectual property not so covered (copyrights, trademarks, and patents already have Federal protection).  The practical effect of these bills, if passed, will not be as game-changing as the casual observer might think, however.   The Uniform Trade Secrets Act (the “UTSA”) was first published in 1979, amended in 1985, and has been adopted by 47 states in some form, so civil remedies currently exist for trade secret theft and are similar to that offered in these two Federal bills.  Moreover, trade secret claims arising under state law often wind up in Federal Court based on diversity jurisdiction, so the access to Federal Courts is not as big of a deal as the bill sponsors might make it out to be.

Despite the similarities to the existing body of state statutes, however, the new bills, if passed, would certainly provide a new, improved hammer with which companies can pound unfair competitors and deceitful former employees. Some advantages of the proposed bills over the current state statutes based on the UTSA include the following:

  • Strong statement that trade secret protection is an important U.S. public policy;
  • Uniformity in trade secret law across the country;
  • Direct access to Federal Courts, regardless of the location of the parties or amount in controversy;
  • Longer statute of limitations;
  • Increased recoverable damages; and
  • Procedures for ex parte seizure of evidence.

BURR POINT: Rare bipartisan support, similar bills in both the House and Senate, and a quick and favorable reporting out of the House Judiciary point to Federal trade secrets legislation being something that this hamstrung Congress might actually be able to pass.

A Short Primer on Tennessee’s Trade Secrets Law

In recent postings, we have discussed cases involving claims that a former employee wrongfully used the employer’s confidential information and trade secrets.  In TNA Entertainment, LLC v. Wittenstein and World Wrestling Entertainment, Inc., Davidson County Chancery Court, Docket No. 12-746-III, the employer alleged that its former employee used confidential information concerning wrestling talent to gain an unfair competitive advantage.  In Veit v. Event Logistics, Inc., Davidson County Chancery Court Docket No. 12-945-III, the former employee sued her former employer to determine whether her skills as an events coordinator and the identity of customers of event planning services were trade secrets under a separation agreement.

These cases are based on the principle that an employee has a general duty to not disclose confidential information or trade secrets belonging to her former employer.  In many cases, this general duty is memorialized by a written agreement which may include a non-compete agreement, though a contract is not required to protect trade secrets.  If the former employee violates her general duty and contractual obligations, the former employer may seek damages against her.

In Tennessee, the protection of trade secrets has been codified in the Uniform Trade Secrets Act (“UTSA”) found at Tenn. Code Ann. §§ 47-25-1701 et seq.  Under the UTSA, an employer may sue a former employee for the misappropriation and disclosure of trade secrets.

A “trade secret” is information in any form which gives a business a competitive advantage over other businesses which do not have that information.  Trade secrets include technical and nontechnical information, financial data, patterns, compilations, programs, devices, methods, techniques, processes, or plans that have economic value due to the fact that they are secret.  Confidential information is often treated as trade secrets.  One of the best known examples of a trade secret is the formula for Coke.  In TNA Entertainment, LLC, the trade secret at issue was contractual information related to wrestling talent.  In Veit, the trade secrets at issue were event coordinating skills and customer information.

An employee violates the UTSA when he discloses his employer’s trade secrets which he acquired by improper means (theft, bribery, or misrepresentation) or in violation of his duty to maintain its secrecy.  A new employer may also violate the UTSA if it uses the former employer’s trade secret which was improperly acquired or disclosed by the former employee.  Such an allegation was made in TNA Entertainment, LLC.

The UTSA gives an employer broad remedies if its former employee and the new employer acquires and uses its trade secrets.  These include injunctive relief, a court order requiring the return of and prohibiting the use of the former employer’s trade secrets.  In some cases, the court may award the former employer its actual damages and damages for unjust enrichment received by the defendants.  Punitive damages up to twice the award for actual damages and unjust enrichment along with attorney fees may be awarded in cases of willful and malicious misappropriation of trade secrets.

Tennessee law recognizes the need for fair competition in the marketplace.  However, it also recognizes and prohibits unfair competition arising out of the wrongful acquisition and use of trade secrets.  If you would like additional information on trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.