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What the New Defense of Trade Secrets Act Means for Your Business

Daniel Mills, Trademark Attorney

Posted Thursday, May 12, 2016 by Daniel Mills

Yesterday, President Obama signed the Defense of Trade Secrets Act (DTSA) into law. The DTSA is actually part of an existing set of laws known as the Economic Espionage Act of 1996 and the Economic Espionage Penalty Enhancement Act of 2012. What the DTSA adds to the existing statute is, among other things, it creates a private civil cause of action that allows any injured party the standing to sue for substantial damages for misappropriation of a trade secret.

In addition to the ability to bring a suit, it provides a mechanism for court ordered seizure of materials or items to prevent unlawful dissemination of a trade secret. This is an extremely powerful tool that companies can use to seize a laptop from a dishonest employee, for example. However, with great power, comes great responsibility and the law creates and a narrow scope of such power. More on that later.

To begin, the DTSA creates a criminal cause of action for theft of a trade secret and provides an increased penalty. Section 1832 states:

(a) Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret,knowingly–

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.

(b) Any organization that commits any offense described in subsection (a) shall be fined not more than the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.

So for corporate offenders, the damages start at $5M and only go up. It is not hard to imagine a trade secret that is the result of millions of dollars in R&D. These cost would be added to the amount that is 3X the value of the stolen secret.

WHISTLE BLOWER PROTECTION

The DTSA grants immunity to an individual who discloses a trade secret in confidence to a Federal, State, or local government official and solely for the purpose of reporting or investigating a suspected violation of law. Furthermore, employers must provide notice to all employees of this immunity in any contract or agreement that governs the use of a trade secret or other confidential information. Under the DTSA an employee includes any individual performing work as a contractor or consultant for an employer. An employer can be considered in compliance with the new notice provision if there is a reference to a policy document rather than including the entire immunity provisions in each agreement. Nowhere in the statute is there an exception for small businesses. When does this apply – Now! The notice requirement will “apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.” Therefore, because President Obama singed this into law yesterday, as of May 12, 2016 employers must begin providing notice under the law.

EX PARTE SEIZURE OF PROPERTY

One of the most powerful (and controversial) sections of the law grant the ability to have the government seize “property necessary to prevent the propagation or dissemination of the trade secret.” In order to get such an order, the damaged party must first show that another less drastic remedy, such as injunction, would be “inadequate to achieve the purpose… because the party …would evade, avoid, or otherwise not comply with” the less drastic remedy. In addition to this requirement, the statue also mandates that without the seizure, “immediate and irreparable injury will occur”, and the harm to the person or entity seeking the seizure “outweighs the harm to the legitimate interests” of the alleged thief, and “substantially outweighs the harm to any third party” that might be harmed by the seizure. Finally, the person or entity seeking he seizure must not publicize the requested seizure.

IMPORTANT DEFINITIONS

Another key of the DTSA is the codified definitions it contains. First, it does not materially change the definition of a trade secret that has been part of the Uniform Trade Secrets Act that has been adopted by most states. Even though it is not different it bears repeating here for context.

“Trade Secret” means 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.(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, the public another person who can obtain economic value from the disclosure or use of the information.

“Misappropriation” means—(A) acquisition of a trade secret of another by a person who knows or has reason to know thatthe trade secret was acquired by improper means; or(B) disclosure or use of a trade secret of another without express or implied consent by a personwho—(i) used improper means to acquire knowledge of the trade secret;(ii) (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—(I) derived from or through a person who had used improper means to acquire the trade secret; (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or(iii) before a material change of the position of the person, knew or had reason to know that—(I) the trade secret was a trade secret; and(II) knowledge of the trade secret had been acquired by accident or mistake;

“Improper Means”(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and(B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

The application and interpretation will take years to mature and test. In fact, the DTSA requires that within two years the Federal Judicial Center shall develop best practices for the seizure of information, the storage of seized information, and the securing of seized information.

If you have a business, and you have any kind of advantage over your competition, then you have trade secrets worth protecting. At Ruttler Mills, we offer provide practical legal advice and tools to help you establish, maintain, and enforce protection of your trade secrets.

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What is Use in Commerce for Trademarks

Daniel Mills, Trademark Attorney

Posted Wednesday, May 4, 2016 by Daniel Mills

Anyone who has been through the trademark process or is considering it will eventually be faced with providing proof of Use in Commerce? But what exactly is Use in Commerce in trademark law. This post is meant to offer a guide to help sort it out.

First, what is commerce within the context of the law? The Lanham Act (which is the basis of trademark law in the US) defines commerce as “all commerce which may lawfully be regulated by Congress.” Although that does not include all commerce, in today’s Internet centered marketplace, suffice to say that if you have a website that sells your goods or services, then you are engaged in commerce that Congress regulates. If you engage interstate commerce, you qualify. If your goods are transported across state lines, you qualify.

But the more important question is Use in Commerce, so again, let’s turn to the Lanham Act:

The bona fide use of a mark in the ordinary course of trade, and not merely to reserve a right in a mark. For purposes of this chapter, a mark shall be deemed to be in use in commerce—(1) on goods when—(A) it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale, and (B) the goods are sold or transported in commerce, and (2) on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce with the services.

Let me break this down and translate.The Use has to be bona fide, in other words, it can’t be just a token offering to get through the registration process. Such token use has been used many times to get a registration, only to be the basis of a later cancellation. It is never worth it to build a structure on quicksand, so too it is never worth it to get a trademark registration based on false use. Eventually you will be sunk.

When it comes to determining what is use, it is helpful to separate goods from services, as in the definition from the Act. Showing use in commerce on goods is relatively straight forward. First, the mark has to be associated with the goods, the easiest way to do that is to:

  • Put the mark right on the goods

  • Put it on the packaging of the goods

  • Put it on point of sale displays, labels, or tags

  • If none of that is practical, then on documents that always accompany the goods

The second step is, and this is the important part, is then you have to sell or transport the goods in commerce. Without this second step, you have merely advertised the goods and that is never enough to satisfy the requirement.

When it comes to services, advertising is OK, but the service must actually be performed in commerce, or in interstate or foreign transactions. For example, if you are a dentist and you have a trademark for your service, then merely advertising the service is not enough, you actually have to perform the service that you are advertising. That may sound obvious or even silly, but a search through trademark cancellation proceedings will show that many trademark applicants have gotten this wrong.

This is one of the most common issues I get hired to sort out by the do-it-yourselfer. The sad fact of the matter is that is costs as much, and in some cases more, to fix the problem than it would have been to hire me to file the entire application it in the first place. So when thinking of doing it yourself, think of the time and expense associated with a mistake for which you will have no recourse. We offer simple, reasonable, flat fees for trademark applications and most other trademark work.

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Supreme Court Oral Arguments Cuozzo

Jim Ruttler, Patent Attorney

Posted Wednesday, April 27, 2016 by Jim Ruttler

On Monday, the U.S. Supreme Court heard oral arguments in Cuozzo. The issues being litigated include the standard for claim interpretation at IPR proceedings and whether decisions to institute IPR proceedings are appealable. These are important issues with respect to patent rights in the United States.

IPR proceedings (Inter Partes Review) are newly created proceedings for the Patent Office to review issued patents. The Patent Office tends to view these proceedings as an extension of examination whereas patent owners tend to view them as mini-court proceedings evaluating issued patents. This tension has resulted in differences with how patent claims should be interpreted. The Patent Office wants to use the standards used during examination, but patent owners want the standards used by the courts. The Patent Office standard is less favorable and results in patents being invalidated more easily whereas the court standard is more favorable and results in patents being more likely to be upheld.

The Supreme Court took the case at their discretion and so based just on this, it is likely that they will reverse in some respect the lower court’s decision to uphold the Patent Office’s interpretation. The Chief Justice John Roberts also seemed to be leaning heavily in the patent owner’s favor based on the fact that the IPR proceedings are supposed to streamline litigation - NOT make it more complicated.

The appeal of the Patent Office’s decision to institute or not is the second issue and one that is difficult to predict an outcome. The statute says no appeal, but that is contrary to administration law principles.

We should have a result in the next couple of months. Stay tuned.

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EPO vs. USPTO Examination

Jim Ruttler, Patent Attorney

Posted Sunday, April 24, 2016 by Jim Ruttler

The EPO has a number of important differences as compared to the US for patent examination.

The first is that examination is relatively compact. You get search results and then examination with limited opportunity to amend. Upon final rejection, there is no opportunity to request further examination. This is quite different from the U.S. where search and examination can continue virtually indefinitely until agreement is reached as to the scope of allowable subject matter.

The second is that search and examination is separate at the EPO. One examiner does the searching and then this body of art is handed over to the examiner group. No additional searching is conducted during examination. In the U.S., the same examiner does the searching and examination and the examiner continues to update the search throughout the process. This makes the EPO search results much more important than the initial USPTO search results.

The third major difference is that amendments are constrained at the EPO. You may amend after receiving the search results back, but once examination has begun the EPO can deny further amendments. In the US, of course, amendments can be liberally made throughout examination. Thus, the EPO rewards you for putting your best foot forward whereas the USPTO permits you to participate in ongoing negotiations and amendments.

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Euro-PCT Applications

Jim Ruttler, Patent Attorney

Posted Thursday, April 21, 2016 by Jim Ruttler

A patent application filed in the United States with the USPTO can serve as the basis for a later European patent application. That is, a later European patent application can be treated as if were filed on the earlier U.S. filing date if certain steps are taken.

The first is to file at least a provisional patent application in the United States fully disclosing your invention and including at least one claim, prior to any disclosures, offers for sale, or publications of your invention. Upon filing, it is possible to wait up to one year to file a PCT application with the World Intellectual Property Organization.

This PCT application undergoes a search, and optional non-binding examination, but it does not issue into a patent anywhere. Instead, within 30 months from the first filed application (e.g., the provisional in this case), the PCT application can be used to enter national stage with the European Patent Office. The EPO will examine the national stage application and determine whether to grant a patent on the invention. Importantly, the EPO will treat the national stage application as if it were filed on the U.S. provisional filing date (in this example).

Hence, disclosures and offers for sale and other inventions that occurred after the filing date of the provisional (again in this example) would not impact the patentability determination of the national stage application in Europe, even those the national stage application was not filed for years after the provisional application.

This procedure can be effective to obtain a Unitary European Patent, which will be enforceable across most of the EU via the new unified court system.

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