A new line of defense

Recently passed law gives companies another way to protect trade secrets

Posted on Jan 16, 2017 :: Back Office Operations
Posted by , Insight on Manufacturing Staff Writer

A RECENT MANITOWOC CO. legal victory underscores the importance of a new law giving companies an additional way to protect their trade secrets.

The crane manufacturing company announced in October the U.S. Court of Appeals for the Federal Circuit ruled in its favor in a lawsuit against its competitor, international company Sany Heavy Industries.

The case involves trade secrets related to Manitowoc Co.’s variable positioning counterweight system. The trade secrets were found to have been improperly obtained through a confidentiality breach that occurred when a former Manitowoc Co. vice president went to work for Sany.

The ruling affirmed the United States International Trade Commission’s April final determination and cease and desist order. After investigation, the commission found that “at least one Sany crane product infringed one of Manitowoc’s patents and that six trade secrets of Manitowoc were both protectable as trade secrets and misappropriated,” according to Manitowoc Co.’s press release.

In the past, trade secrets were strictly a state law issue, says Stephen Jensen, president and senior patent attorney of Appleton-based Northwind Intellectual Property Law. Wisconsin adopted the Uniform Trade Secrets Act in 1985, and that law provides both civil and criminal penalties.

Signed into law on May 11, 2016 with large bipartisan support, the Defend Trade Secrets Act (DTSA) applies to actions on or after that date and expands the Economic Espionage Act of 1996 to include private causes of action, according to Northwind IP Law.

“Regardless of the Defend Trade Secrets Act, Manitowoc’s position was to vigorously protect its intellectual property from the Sany litigation,” says Ion Warner, vice president of marketing and investor relations for Manitowoc Co.

Companies formerly had little recourse in defending trade secrets, says Jensen. “They had to notify the state attorney general and hope for the best.”

The federal Economic Espionage Act made theft of a trade secret a federal crime, and only the U.S. attorney general could bring action, which could result in a fine of up to $5 million and prison sentences of up to 10 years, a Northwind IP Law presentation states.

The new law allows companies to take cases to federal court, where in the past they couldn’t, Jensen says.

“The significance (of the law) is that it federalizes trade secret theft,” Jensen says.

The DTSA increases the fine for violations to $5 million or three times the value of the trade secret. In addition, it allows for “draconian measures” under extreme circumstances, Jensen says. Those measures could include injunctions and money damages. If the offense is deemed willful or malicious, it can call for enhanced damages of up to two times the money damages amount and attorney’s fees, according to Northwind IP Law.

In the case of “extraordinary” circumstances, courts can order civil seizure without advance notice. This gives the alleged trade secret theft victim the right to obtain a court order directing law enforcement officials to seize misappropriated property from the alleged wrongdoer, Jensen explains. The law, he says, makes it difficult to obtain such an order, however, and it would only be issued in the most extreme cases.

“The purpose of this part of the law is to give the victim of a trade secret theft an avenue for retrieving the stolen property from a person or entity that would be likely to destroy or hide the property if they were given advance notice, for example, if the wrongdoer first received a summons and complaint about the dispute,” Jensen says.

Jensen says that the DTSA does not supersede state law. Rather, “it’s an additional arrow in the quiver,” he says.

The DTSA also provides whistleblower protection, giving immunity to those who disclose a trade secret to an attorney or government official to report a suspected violation of law, says Jensen. In light of this, companies need to update any agreement they enter into with employees and contractors, he says.

Employers must provide employees, which include those performing work as a consultant or contractor, a special “notice requirement,” according to Northwind IP Law. This informs employees of the whistleblower immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”

It’s vital for companies to make these changes, Jensen says. “If you do not update those agreements to refer to this whistleblower immunity, some of the aspects of this new law would not be available to you.”

If the employer fails to provide whistleblower notice, it is not eligible to receive enhanced damages and attorney’s fees in a case against the employee, contractor or consultant, according to Northwind IP Law.

Thus, the law firm advises that employers should ensure all agreements that involve confidential information, including employment, consulting and development agreements, should now include the whistleblower notice.