Trade Secret litigation severity way up! We’re not in Kansas anymore….
$1.8 Billion trade secret misappropriation cases, like the one recently settled between LG Energy and SK Innovation, are making headlines these days like only patent settlements used to. We expect this trend towards higher severity damages (which will lead to higher frequency as well) to continue as intellectual property (IP) attorneys seek to capitalize on both the venues offered via the US court system and the laws that are now in effect. The Defend Trade Secrets Acts (DTSA), which passed in 2016 and is a robust federal law providing trade secret protection, affords civil and criminal penalties, multiple damages, attorneys fees, and potentially ex parte seizure of misappropriated trade secret assets (TSAs).
Trade secrets are an often overlooked and misunderstood asset that most Board members and even senior executives don’t truly understand. They are valuable intangible assets that do not garner the same type of “registered” protection the other three categories of intellectual property receive, and therefore a company cannot ever truly know that an asset is a “trade secret” under the law until the case it litigated. If a company cannot establish the EONA proofs1 (Existence, Ownership, Notice to employees and others that it is considered a trade secret, and Access) then they most likely have no legal ability to pursue restraining orders, recover the asset, or receive damages following misappropriation. But now, we can insure these assets for their current value (assuming EONA and proper controls) just like you would insure your most valuable tangible property.
Today, trade secret litigation is often unsuccessful because the vast majority of companies do not have a formal Trade Secret Asset Risk Management (TSARM) process that allows for the identification and valuation of trade secret assets as the first two critical steps. We that the most companies tend to focus almost solely on those assets that are earmarked for a future patent (or other IP) protection, though a company’s TSAs can be far more valuable that its patents. In fact, many trade secrets such as business processes have patented technology within them.
Trade secret assets, in fact, can be assigned a Fair Market Value (FMV) (recommend you have this done by independent party). This should be high on your priority list for a whole host of reasons including the fiduciary duties of your Board. Monetization of these assets is a total game-changer for most companies! First, it increases the value of your company overnight, and second, it provides a mechanism to insure the value of these assets! Trade Secret insurance is the only way to guarantee any indemnity or other monetary relief following a misappropriation event because trade secret protection is ONLY a litigation right. In other words, since there is no “stamp” of approval or registered mark designating an asset as YOUR trade secret like there is with the other three types of intellectual property, insurance is an extremely valuable financial backstop that will pay the value of the misappropriated asset in the absence of litigation. The sting of expensive and lengthy trade secret litigation can be felt with devastating impact on companies of any size.
In addition, the TSAs and insurance proceeds can back these IP assets as collateral for lending purposes. Lastly, your company’s value will be improved dramatically for investment, divestiture or other transaction purposes. Investors should begin to look at the existence of this insurance and the TSARM process around these assets as a means of deploying their capitol in a more thoughtful and secure way.
Watch this space as the evolution of monetization, insurance, enforcement using blockchain as a tool develops. We are in need of more capacity providers so please contact us directly if you are interested!
References:
2. https://open.spotify.com/episode/2WxruLcn4UH1z62mxVruho?si=10ccf5b60f064cb6
