Many Iowa companies rely on various forms of proprietary information as a core part of their business. They want to protect trade secrets like their customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other knowledge that gives them a business edge. How does Iowa law help to safeguard such trade secrets?
In legal terms, information is more likely to be considered a trade secret if it is:
Before even considering applicable statutes, many Iowa businesses will attempt to protect their trade secrets by the use of nondisclosure agreements (NDAs). NDAs are essentially private contracts in which the employee promises not to disclose certain information learned while working for the current (or eventually, prior) employer to any future employer.
For example, imagine that you own a data security firm in Iowa City. You have developed certain methods of data mining that give you a competitive advantage, allowing your company to collect more data from the Web than other, similar businesses. You require that your employees sign an NDA, so that if they leave for a competitor, they are contractually obligated to not share the information about data mining that they learned while working for you.
If you believe that an employee has violated the obligations described under the NDA, you can sue for breach. This threat of litigation is often enough to prevent employees from stealing trade secrets.
Iowa is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA), a model law that aims to create uniformity across jurisdictions. Iowa’s trade secret law can be found at Iowa Code 990 90 Acts, ch. 1201 Section 550.1 et.seq.
The statute defines a trade secret as "information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process that is both of the following: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
Iowa’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under Iowa law, "misappropriation" means the acquisition of a trade secret by someone who knows or has reason to know that it 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 spills company secrets to a rival.
Iowa 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 Iowa company was unaware it possessed purloined trade secrets, it can still be prosecuted under Iowa law if it should have known.
Under Iowa 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 purpose of the injunction is to "eliminate a commercial advantage that otherwise would be derived from the misappropriation."
In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty to the trade secret owner. Exceptional circumstances ay occur when a theft is so significant that a court order would be meaningless in providing relief.
A victim of trade secret theft can also seek financial compensation. The amount will be based on measuring either the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. As it's stated in Iowa Code 990 90 Acts, ch. 1201 Section 550.4, damages "may include the actual loss caused by the misappropriation, and the unjust enrichment caused by the misappropriation which is not taken into account in computing the actual loss."
In egregious situations, a Iowa court can award punitive damages up to twice the amount of any award. Attorney fees will also be awarded where the trade secret infringement is found to be willful and malicious.
Under Iowa Code 990 90 Acts, Ch. 1201 Section 550.8, an action for trade secret misappropriation must be brought "within three years after the misappropriation is discovered or should have been discovered by the exercise of reasonable diligence." Consequently, if you believe that a trade secret was stolen from your company, you should act diligently to retain an attorney to initiate litigation.
In addition to Iowa’s rules regarding trade secrets, certain federal rules also apply in Iowa. 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.