The District of Columbia is a city filled with many secrets, and some of those secrets may be essential to your business. Many Washington, D.C. companies rely on trade secrets, such as customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other knowledge to give them a business edge. How does D.C. law help to safeguard such trade secrets?
In legal terms, information is likely to be considered a trade secret if it is:
Before even considering applicable laws, many D.C. 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 Foggy Bottom. 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.
The District of Columbia is one of the many jurisdictions that have adopted the Uniform Trade Secrets Act (UTSA). The District of Columbia’s trade secret law can be found at D.C. Code Secs. 36-401 et seq.
D.C.'s Code defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (A) Derives actual or potential independent economic value, from not being generally known to, and not being readily ascertainable by, proper means by another who can obtain economic value from its disclosure or use; and (B) Is the subject of reasonable efforts to maintain its secrecy."
The District of Columbia’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under D.C. 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, breach 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 reveals company secrets to a rival.
The District of Columbia 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 the District of Columbia company was unaware it possessed purloined trade secrets, it could still be prosecuted under the District of Columbia law if it should have known.
Under District of Columbia 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 may be continued for as long as necessary "in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation."
In exceptional circumstances, an injunction may condition future use of the trade secret on payment of a reasonable royalty to the trade secret's owner.
A victim of trade secret theft can also seek financial compensation. The amount 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 D.C. Code Sec. 36-403, financial damages "may include both the actual loss caused by the misappropriation and the unjust enrichment caused by the misappropriation that is not taken into account in computing actual loss."
In egregious situations, a the District of Columbia court can award punitive damages up to twice the amount of any award. Attorney fees can also be awarded in situations where the court finds the infringement to have been willful and malicious.
Pursuant to D.C. Code Sec. 36-406, an action to recover for trade secret infringement must be brought within three years "after the misappropriation is discovered or, by the exercise of reasonable diligence, should have been discovered."
This means that if you believe that your D.C. business is the victim of trade secret theft, you should retain a lawyer relatively quickly to file litigation, so that you do not risk being barred by the statute of limitations.
In addition to the District of Columbia’s rules regarding trade secrets, certain federal rules also apply in the District of Columbia. 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.