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By Sanjeev Kumar
Founding Attorney

What is the Defend Trade Secrets Act?

Now that Congress has passed the Defend Trade Secrets Act (DTSA), it will almost certainly be signed into law. This new legislation is innovative in that it will allow businesses to file claims under federal law against those who misappropriate their confidential information. This will be beneficial to U.S. companies in several ways.

Increasing the Value of Intellectual Property

In the modern world, informational assets have become more and more important in terms of defining a company’s value. While historically businesses relied on patents, copyrights, and trademarks to protect their status in the marketplace, these protective devices had their limitations. Patents, for example, have always required disclosure of the invention, not to mention that the patent system has always slow. It has been so slow, if fact, that in today’s fast-paced economy, products can become outdated before the patent is ever awarded. Even worse, during the past few years, the courts have restricted which technologies can be patented.

In response to obstacles of this sort, companies have been relying more heavily on confidentiality to protect their intellectual property (IP), not just their products and manufacturing techniques, but their private business information, such as client lists and prices. The advantage of the new law is that it protects any information that is valuable because it is secret, any information that, if known to other businesses, would damage its original owner competitive edge.

The Risks of Relying on Confidentiality

According to FBI estimates, U.S. businesses lose more than $13 billion in trade-secret-related losses annually. Companies can lose their competitive edge suddenly for any of the following reasons:

  • Deliberate malware attack
  • Employee departure to a competitor
  • Supplier gaining information under a confidentiality agreement
  • Employees inadvertently sharing too much information with colleagues
  • Employees logging onto unprotected networks while traveling

The DTSA provides federal protection by elevating the status of trade secrets and applying a single standard to all of them, thereby ensuring that companies have legal recourse to maintain their advantage. Owners whose trade secrets have been stolen will now be eligible not only to recover damages to cover their losses, but to prevent competitors from using their stolen information.

On an emergency basis, companies will even be able to have property seized to prevent trade secrets from being destroyed or removed from the country.

Benefits of the DTSA

Once this law takes effect, businesses will be able to work out their trade-secret strategies in terms of a coherent federal system, instead of trying to protect themselves under variable state laws. Having a uniform national standard will simplify the process and offer widespread, consistent protection of intellectual property.

Unfortunately, even with the new law in place, the stealing of IP will undoubtedly continue to be a common business crime.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.