What The New Trade Secrets Law Means For U.S. Companies

Two weeks ago, Congress passed the Defend Trade Secrets Act (DTSA), all but guaranteeing its passage into law. The legislation allows businesses—for the first time—to file claims under federal law against those who misappropriate their confidential information. Here's what that means for the future of business, and a few steps companies can take right away to prepare.

THE (GROWING) VALUE OF INFORMATION

More and more, information assets are what defines a company's competitive value. Historically, businesses relied on the other forms of intellectual property protection—patent, copyright, and trademark—to safeguard their positions in the marketplace. But those protections have limits. Patents require disclosure of the invention, and the patent system is slow.

In many fast-moving markets, products become obsolete before a patent is awarded. And in the past few years, the courts have narrowed what technologies can be patented, making it much harder to get patents on software and business methods, and invalidating thousands of previously issued patents.

Partly as a result of these trends, businesses have come to rely more on confidentiality to protect the value of their innovations. And "trade secrets," as the impending law defines them, encompass a wide range of confidential business information—not just product designs and manufacturing techniques, but also strategic information like client lists and pricing strategies. In general terms, the new law protects any information that derives its value from being secret and is not known to others who might benefit from its use.

But relying on secrecy comes with serious risks—like losing your competitive advantage suddenly and unpredictably. The FBI estimates that U.S. businesses suffer more than $13 billion in trade-secret–related losses every year. That includes when information is deliberately taken, for instance through a malicious system attack, when an employee leaves for a competitor, or when a supplier obtains valuable technology under a confidentiality agreement.

But it's more often lost inadvertently, through employees who share too much with their colleagues—or even simply by logging onto unprotected networks while traveling.