Federalizing Trade Secret Law – A Good Thing or Not?

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The Defend Trade Secrets Act

This past May, the Defend Trade Secrets Act (“DTSA”) was signed into law by President Obama. This was the culminating reality of a long effort by members of both political parties to ensure that full federal protection is provided for business trade secrets and intellectual property.

Due to recent dramatic changes in patent law in the United States, more and more technology companies are relying on trade secrets and proprietary internal processes to increase company valuation and market share. Prior to the federal effort, the protection of trade secrets was governed by a patchwork of state laws around the country, including states that adopted the Uniform Trade Secrets Act (“UTSA”).

But, even these congruent state laws were found still to be inadequate to protect against foreign theft and cyber-hacking of valuable company secrets and confidential information. To address these issues, Congress enacted the DTSA, which extends the protections of the 1996 Economic Espionage Act.

Some legal experts believe that this is the most expansive effort on the part of the federal government to protect property rights since the 1946 passage of the Lanham Act, which provides protection for trademarks. Under the DTSA, companies can file a federal cause of action for misappropriation of their trade secrets.

Prior to DTSA, the only civil protection for trade secrets happened at the state level. However, passage of the DTSA does not subvert existing state protections, but will work alongside them. That said, the federal law does provide for ex parte seizures before commencement of any suit. This powerful tool for plaintiff companies departs from the UTSA and state law.

Considering the fact that there are already federal protections for trademarks, copyrights and patents, a federal initiative to protect trade secrets seems to be a logical next step.

So what does this mean for companies?

  • It means that companies are provided with broader access to the federal court system. This will enable companies to pursue misappropriation claims in federal court.
  • It means companies should update their existing trade secret and intellectual property policies and employee confidentiality agreements to take advantage of the various statutory remedies under the DTSA.
  • It means that violators can face stiff recourse and penalties and those plaintiffs who satisfy the strict requirements of DTSA can utilize law enforcement to seize stolen information without advanced notice to the defendant.
  • It means there will be civil and criminal immunity to whistleblowers that report violations of law requiring the disclosure of company trade secrets under certain circumstances.

If you have questions about how the DTSA applies to you or your company, please contact us or visit our website at www.jvllp.com.

Series LLC Formation

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Some states have authorized the use of Series LLCs and Texas has joined those ranks. What is a Series LLC and how is it different that the traditional LLC, though?

In short, a Series LLC allows for the formation of multiple sub-LLCs within the structure of a single LLC. In other words, each series of sub-LLCs can be formed under one umbrella LLC, but they are each treated as an individual LLC. The benefit of this is found primarily in the reduction of cost. The Texas Secretary of State charges a $300 filing fee to form a traditional LLC, corporation or Series LLC. However, the Texas SOS does not charge for each new series (which are essentially new LLCs). This means that essentially, the benefit of multiple, separate LLCs is available for the just the initial cost of the formation of a Series LLC.

Additionally, this means that as long as they are operated properly, debts, liabilities, obligations and expenses incurred under a sub-LLC (“series”) are not enforceable against the assets of the Series LLC and vice versa. This new authorization provides insulation of the assets of one series from the liabilities and obligations of the Series LLC.

Finally, each sub-LLC, known as a “series”, maintains the ability to own assets, borrow money, incorporate different ownership/management structures, operate with different business purposes and handle its own legal issues. In short, each series acts and functions as a unique business entity with all the rights and legal protections of a traditional LLC, but for a lower initial cost.

Contact us to find out if a Series LLC is the right choice for you and your business.