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Why consult with a South Carolina trade secret lawyer?
Trade secret law in the United States is designed to protect businesses’ confidential and proprietary information, which gives them a competitive edge in the marketplace by virtue of such information not being generally known to the public. This guide outlines the relevant provisions under South Carolina law and federal law regarding trade secrets, covering applicable statutes, regulations, and key legal principles.
I. Trade Secret Law Under Federal Law
Federal law concerning trade secrets is primarily governed by the Defend Trade Secrets Act (DTSA), a law passed in 2016 to provide a national framework for the protection of trade secrets. Prior to the DTSA, trade secret protection was governed largely by state law.
A. The Defend Trade Secrets Act (DTSA) of 2016
Enacted: May 11, 2016.
Statute: 18 U.S.C. § 1831 et seq.
The DTSA provides a civil cause of action for the misappropriation of trade secrets, allowing plaintiffs to file lawsuits in federal court. It supplements state trade secret laws, particularly in cases where interstate or international theft occurs.
Key Provisions of DTSA:
Definition of Trade Secret:
The DTSA adopts the Uniform Trade Secrets Act (UTSA) definition of a trade secret. A trade secret is defined as information that:
Derives independent economic value from not being generally known to, or readily ascertainable by, others who can obtain economic value from its disclosure or use and is subject to reasonable efforts to maintain its secrecy.
Misappropriation:
The DTSA defines “misappropriation” as the acquisition, use, or disclosure of a trade secret by improper means, including theft, bribery, or espionage.
Extraterritorial Reach:
The DTSA allows for federal jurisdiction and permits actions to be brought against defendants who misappropriate trade secrets even if the actions occurred outside the United States, provided there is sufficient connection to interstate commerce.
Remedies Available Under DTSA:
Injunctive Relief: A court can issue an injunction to prevent the defendant from continuing to misappropriate the trade secrets.
Damages: Plaintiffs can seek actual damages (including the actual loss caused by the misappropriation) or unjust enrichment resulting from the misappropriation.
Exemplary Damages and Attorney’s Fees: If the misappropriation is found to be willful and malicious, the court may award up to twice the actual damages and attorney’s fees.
Whistleblower Protections:
The DTSA includes protections for whistleblowers who disclose trade secrets to government authorities or their attorneys in order to report violations of the law. Employers must inform employees about these protections in employment agreements to be eligible for certain remedies (like exemplary damages and attorney fees).
II. Trade Secret Law Under South Carolina Law
South Carolina adopts the provisions of the Uniform Trade Secrets Act (UTSA) under its state law. The UTSA was adopted to standardize trade secret protections and provides a framework for both civil actions and injunctions related to trade secrets.
A. The South Carolina Trade Secrets Act (SCTSA)
Enacted: 1990 (aligned with the UTSA).
Statute: S.C. Code Ann. § 39-8-10 et seq.
The SCTSA is based on the Uniform Trade Secrets Act (UTSA), which has been adopted by a majority of U.S. states, including South Carolina. It defines trade secrets, addresses misappropriation, and provides remedies for the violation of trade secrets.
Key Provisions of SCTSA:
Definition of Trade Secret:
A trade secret is defined similarly to the DTSA as information that derives economic value from not being generally known and is subject to reasonable efforts to maintain its secrecy. Specifically, the DTSA states:
A “trade secret” means information, including, but not limited to, a formula, pattern, compilation, program, device, method, technique, product, system, or process, design, prototype, procedure, or code that: (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by the public or any other person 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.
Businesses should take proactive steps to protect their trade secrets from misappropriation by employees, subcontractors, agents, and others. They can do this by relying on the language of the Act or by using more specific trade secret nondisclosure provisions.
What are the Differences between Statutory and Common-Law Trade Secret Protections?
Where employees are concerned, a state’s trade secrets act can be especially useful. Unlike a covenant not to compete, which the law requires parties to reasonably restrict in time and geography, the law generally protects a trade secret until someone voluntarily discloses it or another party discovers it through proper means.
An employer may also rely on common-law rules where an employer and employee enter into a private agreement with respect to the creation and use of trade secrets. Where a written agreement exists, an employer and employee may expressly agree that an employee will assign all his or her creative output, include all trade secrets, to the employer, and that the employee will maintain all such trade secrets in confidence.
In the absence of a written non-disclosure agreement, under common law:
For example, if an employer specifically hires an employee to conduct research and development and provides time and resources for that purpose, courts generally find an implied agreement. As a result, any trade secrets the employee develops within the scope of employment belong to the employer, and the employee has a duty not to disclose or use them independently.
If an employee creates a trade secret during the course of employment but was not hired to conduct research and development, the employee generally retains ownership of the trade secret. However, if the employee uses the employer’s work time, facilities or supplies to develop the trade secret, the employer may have a “shop right” in it. A shop right is a nonexclusive license to use the employee’s trade secret.
Misappropriation:
Misappropriation occurs when a person improperly acquires, discloses, or uses a trade secret without consent. The SCTSA recognizes “improper means” of acquiring trade secrets, such as theft, bribery, or espionage.
Injunctive Relief:
The SCTSA provides for injunctive relief to prevent the further misappropriation of trade secrets. Courts can issue temporary restraining orders (TROs) or preliminary injunctions to stop the defendant from using or disclosing the trade secret.
Damages:
Actual damages: The plaintiff may recover the actual loss caused by the misappropriation of the trade secret.
Unjust enrichment: The plaintiff may also recover damages based on any unjust enrichment the defendant has received from the misappropriation.
Punitive damages: In cases where the misappropriation is willful and malicious, the court may award punitive damages.
Statute of Limitations:
Under the SCTSA, a trade secret owner has three years from the date of the misappropriation (or when the misappropriation should have been discovered) to file a lawsuit.
Trade Secret Immunity for Whistleblowers:
Similar to the DTSA, South Carolina law offers immunity to individuals who disclose trade secrets to government agencies or attorneys for the purpose of reporting illegal activities.
III. Key Differences Between Federal and South Carolina Trade Secret Laws
Although South Carolina law is largely aligned with federal law (particularly under the UTSA and the DTSA), there are some key differences:
Jurisdiction and Venue:
The DTSA provides a federal cause of action that can be pursued in federal court, while the SCTSA requires that cases be pursued in state court unless federal jurisdiction exists.
Damages and Fees:
Under the DTSA, the plaintiff can seek double damages and attorney’s fees if the misappropriation is found to be willful or malicious. The SCTSA also allows for punitive damages, but these may vary in amounts based on the court’s discretion.
Whistleblower Notice Requirement:
The DTSA requires employers to notify employees of whistleblower immunity provisions in order to be eligible for enhanced damages (such as punitive damages and attorney fees). There is no such explicit requirement under the SCTSA.
IV. Protecting Trade Secrets in South Carolina:
Best Practices for Businesses:
Businesses in South Carolina can take several steps to protect their trade secrets effectively. These measures also comply with both state and federal law.
Identify Trade Secrets:
Clearly identify which business information qualifies as a trade secret. This could include customer lists, pricing strategies, marketing plans, software code, and manufacturing processes.
Use Non-Disclosure Agreements (NDAs):
Ensure that employees, contractors, and business partners sign NDAs to maintain the confidentiality of sensitive information. This is especially critical for those with access to trade secrets.
Implement Internal Policies:
Establish and enforce strict internal policies to limit access to trade secrets and ensure employees know the importance of maintaining confidentiality.
Limit Disclosure:
Limit the disclosure of trade secrets to only those individuals or entities that have a need to know. Avoid sharing sensitive information via unsecured channels.
Monitor and Enforce Rights:
Regularly monitor for potential misappropriation of trade secrets, and be prepared to take swift legal action if a trade secret is compromised.
V. Legal Recourse and Enforcement of Trade Secret Rights
In both South Carolina and under federal law, businesses have several legal tools to protect their trade secrets:
Civil Litigation:
Trade secret owners can file lawsuits in state or federal courts depending on the jurisdiction and nature of the case. Courts can issue injunctive relief to stop the continued use or disclosure of trade secrets.
Criminal Prosecution:
Under federal law (18 U.S.C. § 1831), criminal penalties can be imposed for theft of trade secrets, including fines and imprisonment.
Alternative Dispute Resolution:
Many businesses use mediation or arbitration to resolve trade secret disputes, especially if they wish to avoid prolonged litigation.
Conclusion
Trade secret protection is an essential part of intellectual property law, safeguarding the proprietary information that gives businesses a competitive advantage. Both South Carolina and federal law offer robust protections under the Defend Trade Secrets Act and the Uniform Trade Secrets Act. Businesses in South Carolina must be proactive in identifying, protecting, and enforcing their trade secrets in order to maintain their competitive edge and mitigate the risks of misappropriation.
By understanding these legal frameworks and adopting best practices, businesses can better secure their trade secrets and take full advantage of the legal protections available to them.