As a business owner in the Land of Lincoln, you probably rely on many forms of intellectual property law to protect your company. These might include copyright, trademark, and patent law. Another important form of intellectual property is trade secrets. In Illinois, what laws protect your business's trade secrets?
Trade secrets often comprise customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge. In legal terms, information is more likely to be considered a trade secret if it is:
Perhaps the most common way for Illinois businesses to protect their trade secrets is by having employees sign nondisclosure agreements (NDAs), which are enforceable in this state (but not in all states). These NDAs are written contracts between employers and employees that attempt to prevent the employee from disclosing confidential information after leaving the company.
For example, if you own a computer chip manufacturing plant in Chicago, an NDA with an employee could prevent that person from disclosing your methods of production to a future employer for a certain period of time. The employee knows that disclosing your proprietary chip manufacturing process, or misappropriating it in some fashion, would enable your business to sue the employee for breach of the NDA.
Illinois is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Illinois’s trade secret law can be found at 765 I.L.C.S. 1065/1 et seq.
Illinois's statute defines a trade secret as "information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality."
Illinois’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under Illinois law, "misappropriation" means the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means, such as theft, bribery, misrepresentation, or breach of or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret, for example, an ex-employee who gives company secrets to a rival.
Illinois prohibits use of trade secrets by a company that has “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (versus actual knowledge). In other words, even if a Illinois company was unaware it possessed purloined trade secrets, it can still be prosecuted under Illinois law if it should have known.
Under Illinois law, a trade secret thief can be prevented from disclosure by court order, known as an injunction. This is true for both actual or threatened misappropriation. The injunction can last for as long as necessary to facilitate the "elimination of the commercial advantage that otherwise would be derived from the misappropriation." Under 765 I.L.C.S. 1065/3, if the court determines that it would be unreasonable to prohibit future of the trade secret by an infringer, the court can instead allow the infringer to continue using the trade secret "upon payment of a reasonable royalty" to the trade secret's owner.
Beyond obtaining an injunction, the victim of trade secret theft can also seek financial compensation. This will be based on measuring the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. Under 765 I.L.C.S. 1065/4, damages "can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss."
In egregious situations, a Illinois court can award punitive damages, up to twice the amount of any award. Attorney fees will also be awarded in situations where the court finds the infringement to have been willful and malicious.
According to 765 I.L.C.S. 1065/7, an action for misappropriation of a trade secret must be brought within five years "after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." The good news for many companies is that Illinois gives trade secret owners a longer period than most states to initiate litigation. However, it still behooves a potential plaintiff to find a lawyer to help sue relatively quickly. Remember that you will want witnesses to have a fresh recollection of the events, and you will also want to minimize the amount of time that your trade secret is being used by a third-party.
In addition to Illinois’s rules regarding trade secrets, certain federal rules also apply in Illinois. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner.
The Act also makes it a federal crime to receive, buy, or possess trade secret information knowing it to have been stolen. The Act’s definition of “trade secret” is similar to that of the Uniform Trade Secrets Act.
The penalties for a violation of this statute include a potential prison term of 15 years and fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.