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The top 5 issues in trade secret litigation and how to address them
IP Insights
6 mins

The top 5 issues in trade secret litigation and how to address them

Table of Contents:

    Trade secrets are an essential element of business for companies around the world. Under US law, trade secrets can be protected and allow businesses to safeguard vital intellectual property (IP). Trade secret litigation enables businesses to defend their crucial business ideas, strategies, and inventions from counterfeiters, copycats and competitors. 

    Every year, there are many high profile trade secret litigation cases, such as the Starbucks Frappuccino lip-gloss case, that illustrate the issues with the process as well as the value of defending your trade secrets in court. 

    In this blog we’ll be discussing a number of topics, including: 

    • What is a trade secret?
    • What is trade secret litigation?
    • The top 5 issues in trade secret litigation and how to address them
    • Trade secret litigation strategies for success
    • Using Red Points to build a strong trade secret case

    What is a trade secret?

    A trade secret is any confidential information that provides businesses with an edge over their competitors. It is an intellectual property right that may be sold or licensed. 

    There are 3 main components to a trade secret in US law:

    1. The information itself.
    2. The economic value derived from that specific information not being generally known by others. 
    3. The reasonable efforts that have been taken to safeguard the information. 

    Trade secrets are different from patents because, unlike patents, as well as protecting inventions and innovations, trade secrets can also protect a variety of information such as data, software, recipes, and clients lists. While patents, copyright, and trade marks must be publicly disclosed, trade secrets are, by their very nature, kept confidential. 

    Trade secrets are common in the world of business. Many businesses rely heavily on the value of their trade secrets and use them to protect their intellectual property. When a person or a business violates a trade secret, the owner of a trade secret must act if they want to continue to protect their intellectual property. This action often comes in the form of trade secret litigation. 

    What is trade secret litigation?

    Trade secret litigation is the legal process of defending or contesting trade secrets in court. When a business believes a trade secret has been improperly taken, the owner of the trade secret can seek to protect it through legal action. 

    Commonly, the first step for an owner is to request a court ordered injunction to stop any further disclosure of their business’s intellectual property. The trade secret owner can also try to recover any financial loss via litigation. 

    In the US, each state has its one particular procedure for trade secret litigation. In general, for a business looking to protect their trade secrets, litigation timelines may look something like this: 

    1. Send a cease and desist letter
    2. Seek a court ordered preliminary injunction or restraint. 
    3. File a lawsuit for theft or misuse of trade secrets
    4. Discovery – the sharing of evidence relevant to the case
    5. Any further pre-trial hearings to determine the scope of inquiry and the nature of the alleged infringement. 
    6. Trial and/or some form of alternative dispute resolution like mediation, arbitration or negotiation. 
    7. Verdict/judgment.
    8. Recover or pay damages, enforce injunction, receive compensation. 

    In trade secret litigation evidence is key at every stage of the process. If you are party to any proceedings in a trade secret case you must prioritize the retention of all information to do with the trade secret. The strength of the evidence will almost always be the factor determining your success or failure in these cases. 

    The average cost of a trade secret litigation case

    Trade secret litigation can often be a lengthy and complex process. As a result the cost of trade secret litigation is quite high compared to other types of business litigation. The American Intellectual Property Law Association conducted a study which showed that the average cost of trade litigation cases involving financial risk between $10 million and $25 million was $4.1 million. 

    The value of these kinds of cases can also be attributed to the value of the trade secrets themselves – a business may lose their competitive advantage if one of their trade secrets is exposed or stolen. 

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    The top 5 issues in trade secret litigation and how to address them

    There are various strands of trade secret litigation that revolve around the various ways that trade secrets can be misused or stolen. To succeed in trade secret litigation it is important to know about the common issues you’ll come across and how to address them. 

    1. Misappropriation of trade secrets

    Misappropriation of trade secrets happens when a trade secret has been wrongfully taken. It can also occur if a trade secret is disclosed to a third party without the consent of the trade secret owner. This is the most common issue concerning trade secrets. 

    At first instance, you can address this issue by tightly protecting your trade secrets. Many companies use preventive measures such as non-disclosure agreements, the control of physical and electronic measures and thorough training. 

    2. Misappropriation by employees

    Employees have the greatest chance of accessing and using your business’s trade secrets. As a result they are also the individuals who, for whatever reason, are most likely to misappropriate your trade secret. 

    Companies often use preventative measures such as non-disclosure agreements to stop the misappropriation of trade secrets by employees. You can also conduct employee training and implement robust business procedures to lessen the likelihood of trade secret misuse.

    3. Misappropriation by competitors

    Competitors are the ones who are most likely to benefit if your trade secrets become known. Therefore, trade secret litigation cases are often held between competing businesses that are fighting over whether a trade secret has been stolen or misused. You address this issue by making trade secret protection a priority and continually improving internal compliance and secrecy measures. If these measures fail then litigation is usually the next step. 

    4. Misappropriation by partners or joint ventures

    Other than employees and competitors, businesses are also vulnerable to having their trade secrets misappropriated by partners, vendors and parties with whom they conduct joint ventures. To address this issue you have to ensure you protect your sensitive information with the most modern and reliable tech solutions. If misappropriation by your partners and vendors still occurs then you must gather all the evidence you need and pursue them via litigation. 

    5. Common defenses in trade secret litigation

    One of the key elements to consider before commencing trade secret litigation is whether the alleged infringing party has any legitimate defenses. Some of the common defenses include: 

    • When the information becomes sufficiently well known and the alleged trade secret is already in the public domain
    • The trade secret has been patented and is therefore accepted as public knowledge
    • When the trade secret owner has failed to take reasonable secrecy measures
    • When an alleged infringer can show that the trade secret was independently discovered as a result of their own efforts. 
    • When the statute of limitations has passed. 
    • When the alleged infringer reverse engineers the product, process or service. 

    Trade secret litigation strategies for success

    Trade secret litigation can be a daunting prospect for many businesses. Often, the best way to confront litigation of this kind is to prepare various strategies. 

    This gives you the best chance of success and allows you to have peace of mind even when your trade secrets aren’t being infringed. Here a few key trade secret litigation strategies you can follow:

    • Importance of proactive trade secret protection

    It is vital that you take proactive steps to safeguard your trade secrets. For some businesses this will mean engaging tech and legal solutions that prioritize the protection of your trade secrets. This strategy should also involve training all staff about the perils of sharing trade secrets. 

    • Choosing the right jurisdiction

    In the US, the trade secret litigation process differs between states. If possible, it is important to choose a legal jurisdiction that will be advantageous to your case. When considering this point have regard to rules relating to evidence, witnesses, limitation periods, juries and costs. 

    • Building a strong case through evidence collection

    The success or failure of your trade secret litigation will depend on the strength of the evidence before the judge or jury. One essential strategy in this kind of litigation is to build up a robust and detailed collection of evidence. Someone within your business should be assigned to this job or you should engage external assistance to ensure you have all the best evidence at your disposal before the trial begins.

    Using Red Points to build a strong trade secret case against counterfeiters

    Beyond your own internal processes, you can also rely on Red Points to aid your trade secret litigation strategies. Red Points will help you build strong trade secret cases by gathering detailed evidence, pursuing counterfeiters and putting you in the best position to commence litigation proceedings. 

    Historically, counterfeiters often infringe trade secret laws. They will also try to replicate your company’s products, packaging and marketing. In doing so they may use your trade secrets without permission. 

    Equally, counterfeits may intentionally obtain your trade secrets through theft or hacking. They may also violate your trade secrets in the way they manufacture or sell their fake products. The only way to combat this sort of dishonest business practice is to actively and vigilantly collect evidence and enforce  against them. 

    This is where Red Points can help. Red Points scans global marketplaces to find these counterfeiters. Once our automated crawlers identify counterfeit sellers we will start to collect all the data and evidence needed to start your trade secret litigation action. Then our partners will undertake legal action on your behalf to help you protect your trade secrets and recover any funds lost to infringers. 

    What’s Next

    Trade secret litigation can be a complex, lengthy and expensive process. But with Red Points it doesn’t have to be. Our Revenue Recovery Program will help target and bring to justice counterfeiters who may have misappropriated, unlawfully used and illegally distributed your trade secrets.

    Ultimately, all of the most significant issues within trade secret litigation can be handled effectively through attentive and effective preparation. By targeting infringers as early as possible and by gathering quality evidence you will stand the best chance of succeeding in your trade secret litigation.

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