Employees inevitably gain access to valuable trade secrets during their time working for a company. But what happens when they move on? Former employees can pose a serious threat by joining a competitor and sharing valuable trade secrets with their new employer. This article explores some of the legal avenues available to employers in the event their trade secrets are stolen.
Have Stolen Trade Secrets?
Our intellectual property attorneys can help your company recover its trade secrets and seek legal action against the individual who misappropriated them. Call 303-688-0944 to schedule a free case assessment to assess your litigation options.
How to Fight Misappropriated Trade Secrets
When a former employee steals your trade secrets, it is known as misappropriation. And when it happens, your priority should be preventing further unauthorized use or disclosure of this information. Our trade secret attorneys have a number of legal tools at their disposal to right the wrongs committed by an ex-employee who is trying to illegally benefit from misappropriating your trade secrets.
Send a Cease-and-Desist Letter
Depending on the circumstances of your case, your attorney may recommend sending a cease-and-desist letter to the former employee.
These letters typically remind former employees of their contractual obligations to the employer and advise them to stop all conduct that violates those responsibilities. If appropriate, a cease-and-desist letter can also demand the return of information, documents, or data.
Demand letters can be a more affordable alternative to filing a lawsuit or a precursor to one.
It is crucial that you can substantiate allegations of trade secret misappropriation before sending a cease-and-desist letter. If not, you could be vulnerable to a tortious interference claim by your former employee or their new employer.
File a Lawsuit
While cease-and-desist letters are very effective at getting someone to comply with your demands, you may have to resort to a lawsuit. Filing a lawsuit can help you recover your stolen trade secrets and even obtain damages.
Which Court to File Your Lawsuit
Until recently, employers seeking redress for stolen trade secrets could rely only on state courts. Most states, including Colorado, have adopted some version of the UTSA. However, these laws still tend to differ across state lines — both in text and application.
The Defend Trade Secrets Act, which was passed in 2016, allows an owner of a misappropriated trade secret to sue in federal court. Importantly, the DTSA only applies if the trade secret is related to a product that is used in or intended for use in interstate or foreign commerce.
The DTSA claim can be combined with any applicable state law claims under statutes or common law, including for:
- misappropriation of trade secrets
- breach of a confidentiality or non-competition agreement
- unfair competition
Under both the DTSA and the Colorado Uniform Trade Secrets Act, you must bring action no later than three years after the date that the misappropriation either was discovered or should have been discovered with reasonable diligence.
The DTSA provides you with a new federal cause of action. It does not preempt existing state trade secret laws. State laws may provide slightly different relief than the DTSA. You might want to consider bringing concurrent state and federal trade secret claims.
Seek Injunctive Relief
In most cases, employers will ask the court to issue an injunction. An injunction orders someone to stop (or in some cases start) doing something.
In your case, an injunction could be useful in preserving evidence and preventing future disclosure of your trade secrets.
However, injunctions may not prevent a person from getting a job. Additionally, any conditions placed on the employment relationship must be based on evidence of threatened misappropriation — not merely on the information the person knows.
The Colorado statute on injunctive relief states that:
Temporary and final injunctions including affirmative acts may be granted on such equitable terms as the court deems reasonable to prevent or restrain actual or threatened misappropriation of a trade secret.
Federal Court Injunctions
When filing an injunction in federal court, employers must prove four elements.
First, you must demonstrate that the lawsuit is likely to succeed on merit.
Next — and arguably most important — you must demonstrate that your business is likely to suffer irreparable harm that cannot be compensated with monetary damages after the fact.
This harm must also outweigh any potential harm the employee might suffer under the injunction.
Finally, the injunction cannot be against the public interest.
Request Monetary Damages
In addition to injunctive relief, several types of damages are typically available for trade secret misappropriation.
Sometimes damages in trade secret misappropriation cases can depend on future events or sales. This makes it difficult to quantify the harm suffered by the employer.
In these cases, the damages caused by stolen trade secrets may be measured by the imposition of liability for a reasonable royalty for the employee’s unauthorized disclosure or use of a trade secret.
You can generally request compensatory damages that result from the misappropriation of trade secrets.
Under Section 3 of the Uniform Trade Secrets Act, damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not included when computing your actual loss.
Under Colorado law, unjust enrichment means the employee benefitted at the plaintiff’s expense under unjust circumstances.
In the event of willful and malicious misappropriation, the court may award exemplary damages.
Nearly all state laws, including Colorado, follow the UTSA and permit exemplary damages limited to twice the underlying award.
Litigation is an expensive endeavor. Attorney fees can often be a barrier to filing a lawsuit. However, in addition to damages, you can sometimes recover your attorneys’ fees if the trade secret misappropriation is willful and malicious.
Title 7, Article 74 of the Colorado Uniform Trade Secrets Act reads:
If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney fees to the prevailing party.
Seizure of Property
Unlike the UTSA, the DTSA also permits the court to issue an ex parte seizure order. This allows courts to take property without the owner’s consent. Ex parte seizure orders are designed to preemptively prevent harm while litigation is ongoing.
The DTSA includes protections designed to prevent abuse of this powerful remedy. Ex parte seizure orders are allowed only under extraordinary circumstances.
Were Your Trade Secrets Misappropriated?
While there is some consistency on how trade secret misappropriation cases are handled, the court’s decision will largely depend on the facts specific to your case.
A trade secret attorney can help you recover your company’s trade secrets and recoup maximum damages. Call 303-688-0944 for a free case assessment today.