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US Courts Offer Robust Protection of Trade Secrets, But the Contractual Protection Must be Clear

One of the most important decisions facing a European SME establishing a US subsidiary is who should manage a business at least 5000 kilometres away. Ideally the person would be an owner of both the parent and subsidiary, with obvious loyalty to both. As this is not often possible, a trusted employee of the parent or a locally recruited American employee is usually the most convenient choice. In either event, the company entrusts to someone other than an owner sensitive trade secrets, including client lists, technology and other valuable information that gives the company a competitive advantage. Protecting this information with properly drafted employment and IP agreements becomes vital.

Fortunately, American courts have a reputation for robust protection of trade secrets and enforcement of contractual trade secret protection. That reputation was bolstered in 2016 with the Congress’ adoption of the Defend Trade Secrets Act (DTSA), a federal version of the States’ Uniform Trade Secrets Act. Damages, injunction, attorney’s fees and exemplary damages are all included in the remedies afforded by these laws. The act came none too soon, with employers facing increased employee mobility as well as the dangers of technological advances, making it possible to place almost all SME records on a single USB stick.

For European companies relying on American employees and managers to run their US subsidiaries, the dangers are particularly acute. Well over ¾ of trade secret violation claims are against employees or business partners, upon whom the European parent company may be relying. While the best protection against trade secret theft and misappropriation is vigilant supervision and excellent employee relations, this is not always possible across the Atlantic and in any event can never take the place of a clear and comprehensive contractual protection.

A properly drafted contract must be tailored to the particular business of the employer, based on employer’s unique competitive advantage, be harmonized with termination, suspension, garden leave, indemnification and other rights of the parties and provide the legal and factual basis for provisions protecting trade secrets. Even then, successful enforcement is by no means guaranteed. While the record on Trade Secret litigation is relatively successful, still only about 2/3 of cases that make it to trial obtain a financial award and the rate of successful preliminary injunctions is in the low single digits. Arguably, the greatest protection afforded by a contract is the degree to which it dissuades a breach in the first place.

At Truecourse, we’ll examine and address your needs for trade secret protection as part of our comprehensive service to enter the US market fully prepared for Doing Business in the USA. Working with experts in cross border tax, insurance, immigration, payroll, employment benefits and currency exchange, we’ll help ensure that you are fully prepared for doing business in America.