Publication: AIPLA Biotech Buzz
Many international R&D collaborations involve trade secrets. If there is a disagreement arising from potential trade secret disclosure or misappropriation, then enforcement of trade secret rights may be necessary. Enforcement is not straightforward.
The collaboration agreement may require arbitration, which is can be problematic in a time sensitive situation where the trade secret owner may prefer to go straight to court, for example, to seek an injunction to stop breach of the agreement and protect its trade secret. The agreement may also set out the choice of law and jurisdiction. In some cases, the jurisdiction may be exclusive. In other situations, a trade secret owner has to pick its venue, and may initiate concurrent litigation in more than one jurisdiction (eg. in the home venue and in the location of the defendant commercial partner). In the U.S., there may even be litigation in more than one venue, such as in state court and the International Trade Commission ("ITC"). This occurred in a trade secret situation involving two U.S. companies, Fitbit and Jawbone, when Jawbone brought a trade secret case at the ITC (it lost), and also in San Francisco County Superior Court. There are special challenges to starting a case in the home venue against an international business partner. The defendant must be properly served with the court proceeding, and may not be a foreign defendant that can successfully claim sovereign immunity. The plaintiff may also have to fend off challenges to choice of law and jurisdiction clauses, and allegations that the home venue is not the appropriate court forum (forum non conveniens). Every barrier that a defendant can throw up costs a plantiff time that is critical to protect and enforce its trade secret rights. It is also quite possible that a foreign defendant will totally ignore the court proceeding. If a judgment is received, there may be difficulty with enforcement in a foreign country. These types of difficulties are part of the reason why some plaintiffs may consider starting concurrent litigation in more than one jurisdiction.
When entering a collaboration agreement, an ounce of prevention is worth a pound of cure. Trade secrets should be clearly identified and provable by the owner. They should only be disclosed under strong contractual confidentiality terms, and with practical protective measures (physical and electronic). The owner should also be very familiar with trade secret laws in the country where the commercial partner is located. A few examples follow.
The U.S. is ahead of many nations in developing trade secrets legislation. Almost all states have signed onto a version of the Uniform Trade Secrets Act that sets standards and civil remedies for trade secrets. The U.S. Electronic Espionage Act of 1996 ("EEA") also provides criminal sanctions against trade secret misappropriation. The Defend Trade Secrets Act of 2016("DTSA") created federal standards and remedies that typically align with the uniform state statutes. The DTSA also provided additional rules and extended the powers under the EEA. Among other benefits, the DTSA should simplify service, discovery and enforcement for plaintiffs where facts and issues span multiple states.
North of the border, in Canada, trade secret remedies are primarily still found in common law, not statute. There can be variability in trade secret laws between provinces, but trade secret rights can still be effectively enforced. For example, the Supreme Court of Canada awarded damages in a case where a former Canadian distributor of Cadbury-Schweppes (a US company) made a competing consumer beverage by improperly using trade secrets. There was no confidentiality clause in the distribution agreement, but the trade secret rights were still recognized and enforceable.
Much of Canadian trade secret law is derived from U.K. common law, and trade secret rights are comparably enforceable in the U.K. under its common law. Many European countries agreed upon a Trade Secrets Directive in July 2016, which requires individual European countries to pass certain basic standards and remedies for trade secrets within two years. For example, there is a definition of "trade secrets" and a list of exceptions.
China has an unfair competition statute and certain regulations that both deal with trade secrets, providing a definition of a trade secret, basic standards and remedies. There are challenges with enforcing a trade secret in Chinese courts. The trade secret owner bears the burden of proof of misappropriation. However, there is no discovery in China, so establishing that proof can be difficult. There can be additional challenges if the defendant is a state-owned enterprise. Trade secret misappropriation is a crime in China. A court can issue up to three or seven years in jail for misappropriation of trade secrets that causes serious monetary damage.
While there has been a lot of harmonization in IP laws for patents, trademarks and copyrights, is clear that there is a lot of variability between countries in trade secret laws. Trade secrets must therefore be managed and shared carefully with partners, having a clear understanding of the contract terms and legal landscape.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
