If your company has been sued for trade secret misappropriation, you are not without options. Trade secret litigation can move quickly and carry high stakes, including reputational harm, operational disruption, and substantial monetary damages. This brief guide introduces the basics of trade secret law and outlines what to expect as you begin your defense.
Understanding Trade Secret Litigation
Trade secret disputes can stem from a range of circumstances, such as former employees joining competitors, breakdowns in vendor relationships, corporate transactions, or improper access to internal systems. These cases may be brought in state court or federal court or, in rare cases, pursued as criminal prosecutions by the U.S. Department of Justice.
A key driver of federal trade secret litigation has been the Defend Trade Secrets Act (DTSA), enacted in 2016. Before the DTSA, most trade secret claims were brought under state laws. The DTSA created a federal civil cause of action for trade secret misappropriation, allowing companies to bring cases in federal court and seek remedies like injunctions, damages, and, in some cases, punitive damages and attorneys’ fees.
What Is a Trade Secret Misappropriation Claim?
At its core, a trade secret misappropriation case involves an allegation that someone wrongfully acquired, used, or disclosed a trade secret. At a general level, a trade secret is information that (1) derives independent economic value from not being generally known and (2) is subject to reasonable efforts to maintain its secrecy.
Examples of trade secrets can include proprietary formulas, manufacturing processes, customer lists, software code, and more. Plaintiffs must show that the defendant misappropriated the secret, meaning that the defendant (1) acquired the secret through improper means (such as theft, breach of a confidentiality obligation, or computer intrusion) or (2) improperly disclosed or used the secret.
Key Defense Strategies
Successfully defending against a trade secret claim requires careful, strategic planning. While every case is unique, there are several core steps and potential defenses that experienced counsel will consider:
- Assessing Exposure: The first step is to understand the scope of the allegations, identify any real risks, and preserve relevant evidence. This early analysis is critical to making informed strategic decisions.
- Exploring Early Resolution: In some cases, early negotiations or mediation may offer a path to resolve the dispute quickly, minimizing cost and disruption.
- Mounting a Defense: If the case proceeds, common defenses include the following:
- The alleged information is not a trade secret (e.g., it was publicly known or readily ascertainable)
- The defendant independently developed the information
- The information was lawfully acquired, such as from a third party with the right to disclose it
- The plaintiff failed to take reasonable steps to protect secrecy
- Statute of limitations bars the claim
- Going on the Offensive: In appropriate cases, the defendant may assert counterclaims. For example, claims for breach of contract, unfair competition, defamation, or tortious interference.
How a Federal Trade Secret Case Unfolds
Once a plaintiff files a complaint in federal court under the DTSA, the typical sequence of events includes the following:
- Plaintiff Serves the Complaint: A defendant is not obligated to respond or participate in the litigation until the plaintiff formally serves the defendant with the complaint and summons.
- Answer or Motion to Dismiss: Once service is completed, the defendant typically has 21 days to respond to the complaint, by filing either an answer or a motion to dismiss. Failing to respond in time can result in a default judgment, so it is critical for defendants to act promptly once they become aware of the lawsuit. In many cases, courts will grant a reasonable extension of time to respond if requested.
- Early Motions: The plaintiff may seek a temporary restraining order (TRO) or preliminary injunction (PI) to prevent ongoing use or disclosure of the alleged trade secret.
- Discovery Phase: The two sides exchange documents and take depositions.
- Summary Judgment: Either party may ask the court to resolve the case before trial based on the undisputed facts.
- Trial: If unresolved, the case may proceed to trial before a judge or jury.
While timelines can vary based on the jurisdiction and complexity of the case, it is not uncommon for trade secret actions in federal court to take at least 24 months to reach trial.
Potential Damages
If a defendant is found liable, potential damages under the DTSA can include:
- Actual damages, such as the plaintiff’s lost profits
- Unjust enrichment damages, for any gain improperly obtained
- In some cases, reasonable royalties in lieu of other measures
- Exemplary damages (up to double damages) for willful and malicious misappropriation
- Attorneys’ fees, also for willful and malicious conduct
These damages can be significant, which is why mounting a robust defense early is essential.
Why Experienced Counsel Matters
Trade secret cases are rarely straightforward. They often turn on nuanced legal standards and highly technical evidence. Successfully defending against a misappropriation claim requires counsel with experience navigating the unique challenges that intellectual property disputes present.
At Venable LLP, we have a deep bench of intellectual property litigators who have represented Fortune 500 companies, universities, and growing businesses in high-stakes matters across a range of industries. We are committed to providing top-tier legal representation backed by our technical knowledge and a practical understanding of what matters most to our clients.
Please reach out to Zachary L. Garrett or John D. Murnane if you need legal support.