By Adina Genn, Long Island Business News
You might not have the equivalent to Coca-Cola’s formula, but that doesn’t mean your company doesn’t have valuable trade secrets that give it a competitive edge.
Since President Barack Obama signed the Defend Trade Secrets Act into law in May 2016, experts say now is a good time to reassess a company’s “secret sauce” and direct competitors to best protect its advantage.
“A lot of companies don’t realize they have a trade secret,” said Eryn Truong, counsel to Campolo, Middleton & McCormick, a Ronkonkoma-based law firm. “They should be aware of and be active in protecting those secrets in employee agreements, manuals, policies and procedures that keep their trade secrets, secret.”
Experts say the new legislation has been a long time coming, and some say it provides a level of protection that’s been sorely needed, especially in a digital age where information can be easily transferred. American companies, for example, may lose as much $300 billion a year because of international intellectual property theft, the Commission on the Theft of American Intellectual Property reported in 2013. And companies may prefer the trade secret route over patenting, because they never have to reveal details behind their proprietary information, or worry about expiration dates.
Now, under the new law, companies gain the ability to bring suit in federal court – rather than state court – for damages resulting from stolen trade secrets. So for example, if a former employee left for another job with a company’s proprietary information, the firm could obtain a seizure order to get that information back, and compensation for damages.
“Prior to the DTSA, there was no ability to obtain double damages for willful violations,” Truong said. “Litigants were only able to get damages.”
However, if a party is wrongfully accused of trade secret misappropriation, he or she can obtain attorneys’ fees from the accuser, she pointed out.
“The law makes more uniform the ability to enforce trade secrets from state to state,” said Ronald Baron, a founding partner of Hoffman & Baron, a law firm with offices in Syosset.
In some instances, Baron noted, state courts might be more parochial while federal court judges are appointed on a national level. And in federal court, the civil procedural rules are clearer.
Truong added that cases tend to move faster in federal court.
The law applies to all industries and any instance where, for example, a company has itemized parts and vendors who make those parts, as well as a listing of customers and specification of any tailor-made requirements for those customers, Baron said.
Trade secrets protect “anything that gives you an advantage in the marketplace,” Baron said.
Already, companies with ties to Long Island have made headlines with regard to the new law. For example, in July, Panera Bread, which has numerous locations throughout Long Island, claimed the company’s former IT leader, Michael Nettles, was deploying its trade secrets in his new position at Papa Johns to set up a system to handle catering and small-order deliveries. Right now, Nettles is barred from working at Papa Johns. The court ordered an analysis of Nettles’ computer. And bolstering Panera’s trade secret argument is the confidentiality agreement, which Nettles had signed, that listed Poppa Johns as a competitor. Panera and Nettles reached an undisclosed settlement Oct. 11.
And in June, Henry Schein – the Melville-based distributor of dental, medical and veterinary supplies – went to court against Jennifer Cook, a former sales consultant, to prevent her from using trade secrets in her new role with a direct competitor in California. The company also sought to stop the former consultant from conducting business with the clients she dealt with at Henry Schein. The court found that Henry Schein would succeed on the merits of its DTSA claim, preventing her from revealing trade secrets information and breaching confidentiality commitments. But the court found that Henry Schein’s noncompete argument likely violated California business law.
The new law is an opportunity for companies to look at proprietary information in a new light.
“It’s important for companies to go through employment agreements with provisions that state employees can’t take information with them,” Baron said. “It’s a good idea to identify potential competitors that employees can’t go to, and to tighten up employment contracts to protect trade secrets and [employees] going to competitors.”
The new law does offer protection for whistle-blowers, allowing them to if necessary reveal trade secrets, confined to their attorneys, and in court, but any related court documents would be sealed, Baron said.
Put simply, anything that sets a business apart should be specified as a trade secret in an employee manual or a confidentiality agreement with those – including third parties, such as licensees and subcontractors – who have access to that information.
That document should state that “Everything here is confidential and considered to be proprietary,” Truong said. “Sometimes it’s just one thing – a customer list, how customer information is stored, a proprietary system…how [data is] tracked.
This kind of information can make a company unique compared to its competitors, Truong said, adding that firms may “not realize it’s proprietary.”