Tuesday, May 24, 2016

Defend Trade Secrets Act of 2015 - Protection Goes Federal

As most of you know, franchise systems have secrets - trade secrets that is! Those "secret sauce" things or special procedures that make the essence of the product or service ... well special and secret. 
When handled properly, franchisors and other trade secret owners have been able to protect those secrets under state law. Now with the adoption of the Defend Trade Secrets Act of 2015 on May 11, 2016, that protection has gone federal. Departing franchisees who "go rogue" and take the secrets with them could be explaining their actions to a federal judge.
According to the Congressional summary that explains the law: "This bill amends the federal criminal code to create a private civil cause of action for trade secret misappropriation.
Specifically, the bill authorizes a trade secret owner to file a civil action in a U.S. district court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. It establishes remedies, such as an injunction and damages. The statute of limitation is set at five years from the date of discovery of the misappropriation.
A trade secret owner may apply for and a court may grant a seizure order to prevent dissemination of the trade secret if the court makes specific findings, including that an immediate and irreparable injury will occur if seizure is not ordered. A court must take custody of the seized materials and hold a seizure hearing within seven days."
Of course, because they operate nationwide or world-wide, franchisors will be able to take advantage of the new law, adding to their arsenal of legal protections. Terminated and abandoning franchisees (and their employees) must be even more vigilant in guarding the secrets that they were given.
Reviewing the Defend Trade Secrets Act of 2015 is important for anyone involved in franchising.

1 comment:

  1. Jim, if I understand this correctly, this law makes a federal case out of what used to be more a state by state action.