Federal Trade Secret Law On The Way

While the three traditional pillars of intellectual property law — copyright, trademarks, and patents — are protected by federal law (although copyright and trademark do have some state law analogues), trade secret law has always been solely in the domain of state law. However, yesterday President Obama signed into law the Defend Trade Secrets Act, which would finally create a federal law protecting trade secrets. 

A trade secret is usually some sort of information, process, or know-how that gives a company a competitive advantage — think the formula for Coca-Cola, one of the most famous and longest-running trade secrets. Trade secrets are like patents, except where the information, process, or know-how must be published in a patent, trade secrets derive their value from the fact that they are not publicly known; moreover, whereas a patent expires and its information enters the public domain, trade secrets can exist as long as they can be kept secret (of course, that means once the secret’s out, trade secret protection is lost forever).

The law protects trade secrets by allowing trade secret holders to sue a party that steals, or misappropriates, a trade secret for monetary damages (and to continue to keep the information secret if has not been publicly released). However, companies have had to resort to state courts to bring such lawsuits, and with large multinational corporations increasingly relying on trade secrets, state courts are seen as an inadequate forum to settle such large companies’ disputes over trade secrets. Accordingly, the Defend Trade Secrets Act creates a federal civil cause of action for misappropriation of trade secrets. 

The impact of the Defend Trade Secrets Act may be minimal on startups and small businesses, which are often too small to put into place the protections and procedures for the safekeeping of trade secrets (because in a small company everyone generally has a need to know everything, which can make it difficult to compartmentalize and secure information) — startups often tend to focus their IP strategies on the traditional categories of copyright, trademark, and patents. But for those startups and small businesses for whom trade secrets are an integral part of their IP strategy, the Defend Trade Secrets Act gives an avenue to access the federal courts — which often move quicker than state courts and typically have judges more well-versed in IP law.

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