As a business owner in Virginia, there are many features of intellectual property law that could protect your company from someone copying what it does, or trading on its fine reputation. These include copyrights, trademarks, and patents. Another important form of intellectual property is trade secrets. In Virginia, what laws protect your business's trade secrets?
The trade secrets that a business is most interested in protecting often include customer lists, sensitive marketing information, non-patentable inventions, software, formulas and recipes, techniques, and processes—in short, information that gives a company a business edge.
Under the law, information is more likely to be considered a trade secret if it is:
A common way for a business to protect its trade secrets is by having its employees sign nondisclosure agreements (NDAs). These are written contracts between employers and employees that prevent the employee from disclosing confidential information after they leave.
For example, if you own a marketing firm, an NDA with an employee could prevent that person from disclosing your customer list to a future employer for a certain period of time. The employee knows that if he or she discloses the customer list, or misappropriates it in some fashion, your business will be able to sue for breach of the NDA.
Virginia is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Virginia’s trade secret law can be found at Va. Code. Ann. Secs. 59.1-336 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" used for business purposes.
Virginia’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under Virginia law, "misappropriation" refers to 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 spills company secrets to a business rival.
Virginia 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 Virginia company was unaware it possessed purloined trade secrets, it could still be prosecuted under Virginia law if it should have known.
Under Virginia law, a trade secret thief can be prevented from disclosure by court order, known as an injunction: "Actual or threatened misappropriation may be enjoined." This is true for both actual or threatened misappropriation.
The injunction may be terminated when the trade secret has ceased to exist, but the injunction may also be continued for an additional reasonable period of time in order to eliminate any 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 for no longer than the period of time for which use could have been prohibited. Exceptional circumstances can include a theft so serious that the court order would be meaningless.
A victim of trade secret theft can also seek financial compensation. According to the Virginia statute, "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 order words, the damages include the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a Virginia court can award punitive damages up to twice the amount of any award. Attorney fees will also be awarded in egregious (willful and malicious) situations or if a claim is brought in bad faith.
An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.
In addition to Virginia’s rules regarding trade secrets, certain federal rules also apply in Virginia. 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 sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.