The next level of trade secret protection

The COVID-19 crisis has and will continue to change how business is conducted. New risks often emerge during crisis, and risk surrounding the protection of trade secrets might be one that catches a business off guard, and could potentially destroy the value invested in trade secret development. The legal protection of trade secrets depends on whether a business has taken reasonable measures to keep the information secret. Some situations businesses now find themselves in, including a workforce quickly and unexpectedly working remotely, create a risk that may leave them open to exposure.

Understandably, the protection of trade secrets may not rank first on the list of management priorities in the current environment, but when the situation “turns the corner” and businesses again begin to operate normally, steps taken now to protect trade secrets will provide companies with yet another tool to assist in the recovery.

Trade secrets overview

Historically, trade secrets were protected under state statutes, although the laws differed from state to state, both in terms of how the laws are written, as well as how they were applied. These difference included difference in the definition of what constituted a trade secret, and the remedies available for trade secret misappropriation.(1)

While state statutes remain in place, in 2016 President Obama signed into law the Federal Defend Trade Secrets Act of 2016 (the “DTSA”), which allows for federal causes of action involving the misappropriation of trade secrets related to products and services used in or intended for use in interstate or foreign commerce.(2) Under the DTSA, trade secrets are defined as:

“all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”(3)

As evidenced by the definition set forth above, protection of a trade secret is subject to “reasonable measures” undertaken to keep the information secret in order to support its economic value, and help to enforce trade secret rights in court.

Next level protection

Most companies have measures in place to protect trade secrets, but many of these measures have not been stress tested environments where a significant portion of the workforce is working remotely or large scale layoffs and furloughs are taking place. As such, the following represents some of the protective measures that may be worth considering to ensure trade secrets continue to receive appropriate protection.

• Evaluation of the inventory of trade secrets currently in place, identification of the existing protections, and any gaps that may exist.
• Implementation and enforcement of policies surrounding the use of confidential and trade secret information by employees when using a home or public Wi-Fi network.
• Implementation and enforcement of policies related to employee use of personal email and messaging services to transmit confidential and trade secret information.
• Implementation and enforcement of policies regarding what can be retained on personal devices such as mobile phones, tablet devices, personal computers, flash drives, external hard drives, file sharing sites and cloud storage sites.
• Continued maintenance of access controls to internal electronic systems and physical locations where trade secret information is retained and stored.
• Consideration of the strength of the security protocols around the use of videoconferencing and other communication platforms.
• Implementation and enforcement of policies with respect to information that can be printed or otherwise disseminated outside of the employer’s physical location(s).
• Making the return of confidential data and trade secret information part of the employee separation process when employment is terminated. This step should include wiping any company specific data and information from the personal devices used by employees in the course of conducting business on behalf of the employer.
• Including as part of the employee separation process reminders regarding employment policies surrounding the protection of trade secrets. This may include the review and enforcement (if required) of employment agreement provisions surrounding the protection of trade secrets.
• Continued review and implementation of provisions in third-party agreements involving the sharing and protection of trade secrets information, particularly if performance under those agreements is suspended or terminated as a result of the new environment.
• Providing awareness training to employees regarding the protection of trade secrets and confidential information, including the policies that the organization has developed, and the rationale behind implementation.

This is not an exhaustive list of all of the protective measures that should be put into place to protect trade secrets, and the measures that may be applicable to one business may not be applicable to another. However, overall awareness of the continued application of these protective measures should be a priority for the board and senior management, and can help to ensure that trade secrets receive the appropriate protection during these unprecedented times.

Connect with your Baker Tilly Global Forensics and Litigation Services professional to discuss your situation and how you can help protect your organization.

(1) Explaining the Defend Trade Secrets Act, https://www.americanbar.org/groups/business_law/publications/blt/2016/09/03_cohen/

(2) Id.

(3) Id.