Christopher Barry worked at Lutonix, Inc, based in New Hope, Minnesota.  He resigned his research and development position in 2015 to become the CEO of a start-up medical device company called Urotronic. On the day before leaving Lutonix, Barry downloaded a plethora of proprietary information onto his personal computer.  He later used that information for the benefit of his new employer Urotronic.

State and Federal Law Protect Trade Secrets

State and federal law provide remedies for those victimized by the misappropriation of trade secrets.  The Minnesota Uniform Trade Secrets Act defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Federal law, the Defend Trade Secrets Act of 2016, similarly protects against stealing trade secrets and provides civil and criminal remedies for those victimized by trade secret theft.  Federal law defines a trade secret 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.

Lessons Learned

The Barry case, while somewhat unique in that it was prosecuted as a criminal matter under federal law, presents several important lessons.  First, employers should ensure their trade secrets are carefully secured and monitored.  Only those employees with a need to have access to the trade secrets should have access.  Once a trade secret is lost, the economic harm to the company is seldom restored.

Second, employers should ensure that new hires are not violating any contractual or statutory obligations, such as non-competition agreements or misappropriation of trade secrets.  New employers who could benefit from such stolen information should be leery as well.  Barry’s new employer, Urotronic, was spared significant liability based on its alleged lack of knowledge of Barry’s misdeeds but the result could have been far more damaging had such knowledge been proven.

Third, employers should remember that not all proprietary or confidential information will be protected as a trade secret. Employers are well served to protect sensitive business information so it may be legally classified as a trade secret and accordingly be provided maximum protection under the law.  For all information that may not be deemed a trade secret under the law, employers should consider obtaining confidentiality and non-disclosure agreements with employees and contractors.

Last, companies with valuable intangible assets must remain vigilant about protecting and enforcing their intellectual property rights, including patents, copyright, trademarks and trade secrets.  Registration of protectable intellectual property provides owners with greater statutory protections and redress in the event of misappropriation or infringement.

Bottom Line

The Barry case is somewhat unusual in several respects.  For one thing, his wrongdoing was discovered, documented, prosecuted and acknowledged, resulting in his plea agreement.  Many cases of trade secret theft remain undetected and the former employers are therefore unable to prosecute or obtain restitution.

Employers therefore should safeguard their trade secrets and intellectual property, including registering their protectable interests.  The cost of failing to do so generally far outweighs the legal fees of obtaining statutory protections.

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How DTSA Differs From Minnesota Law

Until now, companies relied on state laws to defend and protect their trade secrets. The new DTSA does not preempt existing state trade secret laws; it merely supplements them.  The DTSA now affords companies the ability to bring a lawsuit in federal court and provides a more uniform legal framework on how to litigate trade secret claims across the country.

While the DTSA is a new law, it borrowed heavily from existing laws. The DTSA largely adopts Minnesota’s Uniform Trade Secrets Act’s definition of a trade secret; however, the key difference is under the DTSA, the trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.”

DTSA Gives Companies Additional Remedies

One notable aspect of the DTSA is the additional remedies it provides companies pursuing trade secret cases. For example, the DTSA allows a business to obtain an “ex parte” seizure order from a judge, meaning that the company can obtain the order without any input or defense from the alleged trade secret thief if the order is “necessary to prevent the propagation or dissemination of the trade secret.”  This is a valuable tool to help quickly recover, and/or prevent disclosure of, trade secrets before they are disclosed.

Companies and federal courts, however, have strict requirements about when a seizure order should be entered. If a company wrongfully obtains a seizure order, that company may subject itself to liability, including a counter lawsuit for wrongfully seizing property.

In addition to seizure orders, the DTSA allows a court to order an injunction to prevent actual or threatened misappropriation of trade secrets, and award a prevailing party actual and unjust enrichment damages, as well as exemplary damages up to two times the amount that would be otherwise awarded. The DTSA similarly allows for the award of attorneys’ fees if a trade secret is willfully and maliciously misappropriated.

Employee Protections

Employers beware: The DTSA provides protections for employees too. While the DTSA allows an injunction that limits the type of work an employee could perform if there is evidence of an actual threat of misappropriation, the DTSA will not prevent an employee from obtaining general employment.  Employees also have whistleblower protection that allows them to report alleged illegal activity and disclose trade secrets, if necessary, in retaliation lawsuits.

In order to recover monetary damages and attorneys’ fees from an employee who violates a DTSA violation, companies must first notify employees, consultants, and contractors about these rights in employment agreements or, alternatively, in a written policy as long as there is a cross reference to that policy in the employment agreement. Such notice is required in every situation where the company owns and seeks to protect a trade secret as defined under the DTSA and applies to  all employment, consulting, and contractor agreements entered into after the enactment of the DTSA on May 11, 2016.

Bottom Line

The DTSA is a new federal law that supplements state law. It provides employers and employees with additional rights and obligations.  The DTSA has broad application and applies to all companies engaged in interstate or foreign business transaction.  Future employment, consulting, and contractor agreements should be reviewed by legal counsel to confirm compliance with the DTSA.

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