Trade Secrets

4 Reasons Entrepreneurs Need to Know About the New Trade Secrets Law

4 Reasons Entrepreneurs Need to Know About the New Trade Secrets Law
Image credit: Paul McGee | Getty Images

On April 27, 2016 Congress passed the Defend Trade Secrets Act (“DTSA”) which President Obama will soon sign into law.

Why should you care?  Because it will have a broad effect on your business even if you do not realize it. Here are 4 reasons why.

1. Your most valuable asset.

You own trade secrets and they are probably the most valuable assets your company owns. That customer list, your business plans, your software code and search algorithms, or other business information that has potential economic value are potentially trade secrets. “Potentially” because the key word here is “secret.” Leave your customer list lying around or tell everyone about your business plans, it is not a secret any more. In order for something to be protected as a trade secret you need to try and keep it a secret, by requiring others to sign non-disclosure agreements, having limited access to the information, make sure the information is password protected and/or encrypted, keep it in safe, etc.

Related: The One Question All Businesses Must Ask About Protecting Trade Secrets

2. You can get back what you lost.

Now it is easier to get the information back. Let’s say for your best salesman ran off with your customer list. Before, you would have to file an action in State Court and while that matter takes years to be resolved, your former salesman is using your customer list to benefit your competitor. The DTSA allows for something called “ex parte seizure.” This means you can file an action in court without telling the other side and using the appropriate governmental policing agency (usually the U.S. Marshalls service) seize the information back, in the form of computer hard drives, thumb drives, cloud storage, etc. before the former employees can take any action to destroy the information or hide it.

Related: The Balancing Act: Sharing Data Versus Guarding Trade Secrets

3. The law helps the other team, too.

Your competitors can use the DTSA against you. For example, if you decide to hire your competitor’s best salesman, your competitor may be able to convince a judge that the salesman has trade secrets and that your computers or other key assets that the salesman has access to be seized and removed from your property. The DTSA does have numerous safeguards to avoid such abuses, but that doesn’t mean that in the competitive nature of business that the DTSA won’t be used as a sword as well as a shield.

Related: Is Your Company's Data Safe in the Cloud? (Infographic)

4. Money, money, money.

Lawsuits cost money and in order to use the DTSA you are going to have to hire lawyers and file a lawsuit.  This seems like an enormous expense.  The good thing is that if you win you can recover the money you spent in the form of attorney’s fees, an award of damages, and an award of exemplary damages in the amount of two times the amount of damages an attorney’s fees if its shown that the misappropriation was willful and malicious.  Also, if you are sued by a competitor or a former employee and you win and can show that there was bad faith in bringing the lawsuit the side that brought the lawsuit has to pay your attorney’s fees.

The DTSA will have an effect on your business.  The best thing to do is to be prepared and educate yourself.  Even with the DTSA, once a trade secret is stolen or revealed, it may be too late to undo the harm.  If you have not thought about this issue and your business is growing, one of your business goals for this year should be to take the necessary steps to protect your trade secrets and prevent the potential for loss or theft.  The DTSA is a new law, and even before the DTSA was implemented, trade secret law was not uniform and varied from state to state.  Therefore, it is recommended that you contact experienced outside trade secret counsel to help you put appropriate policies in place.