Intellectual Property Data Breach: How to Protect Your Trade Secrets

External attackers who target a company's intellectual property typically use spear phishing attacks designed to compromise employee credentials with access to source code repositories or proprietary technology databases, exploitation of unpatched software vulnerabilities, and deployment of persistent malware that enables large-volume data exfiltration without detection. The legal response to a cyber intrusion requires immediate coordination between the company's information security team and its legal counsel, because the way in which the company collects and preserves evidence of the intrusion will determine whether that evidence is admissible in subsequent civil or criminal proceedings under the Computer Fraud and Abuse Act and applicable state computer crime statutes.

Cybersecurity and cybersecurity legal consulting counsel can advise on the specific cyber intrusion and external attack legal obligations and develop the cyber intrusion response, proprietary system protection, and cybersecurity legal strategy.

Insider threats to intellectual property are among the most damaging and most difficult to detect, because the insider already has legitimate access to the proprietary information she is stealing and can exfiltrate it through channels difficult to distinguish from ordinary business activity, such as copying files to a personal device, sending attachments to a personal email account, or accessing and memorizing confidential documents before departing to a competitor. The company's ability to pursue legal remedies against insider theft depends heavily on whether it has documented the steps it took to maintain the secrecy of the misappropriated information and whether it has the digital forensic evidence necessary to prove what the departing employee took and when.

Employee misconduct and breach of confidentiality counsel can advise on the specific employee misconduct and insider data theft legal obligations and develop the insider threat detection, employee misconduct response, and confidentiality breach defense strategy.

A trade secret loses its protected status if it becomes generally known or readily ascertainable to the public, and an intellectual property data breach that results in the widespread disclosure of a company's proprietary technology, algorithms, formulas, or business processes can permanently eliminate the trade secret protection that the company has invested years and significant resources to maintain, leaving the company unable to obtain injunctive relief against competitors who subsequently use the disclosed information even if those competitors had no involvement in the original breach. The misappropriation of trade secrets can cause competitive harm that is difficult to quantify and may be irreversible, particularly when the misappropriated information gives a competitor a significant head start in developing a competing product.

Trade secret misappropriation and defend trade secrets act counsel can advise on the specific trade secret protection loss and competitive advantage harm requirements and develop the trade secret protection, misappropriation assessment, and competitive harm defense strategy.

An individual who misappropriates trade secrets in violation of the Defend Trade Secrets Act or the Computer Fraud and Abuse Act faces civil liability ( including actual damages, unjust enrichment, and exemplary damages of up to two times the actual damages awarded for willful misappropriation under the DTSA ) and potential criminal prosecution under the Economic Espionage Act, which provides for fines of up to five million dollars and imprisonment of up to ten years for individuals who steal trade secrets for their own commercial benefit. Organizations that receive or use misappropriated trade secrets may also face civil liability as secondary misappropriators even if they did not participate in the original theft.

Corporate crime and cybercrime counsel can advise on the specific civil liability and criminal exposure risks arising from intellectual property data breaches and develop the civil liability defense and criminal exposure risk management strategy.

Data breach litigation and cybersecurity class action counsel can advise on the specific IP data breach liability and remedies legal framework and develop the comprehensive breach liability defense, damages assessment, and IP enforcement strategy.

The Defend Trade Secrets Act provides trade secret owners with a federal cause of action for misappropriation and authorizes federal courts to award actual damages, unjust enrichment, and exemplary damages of up to two times the actual damages for willful and malicious misappropriation, and a company that pursues a DTSA claim must demonstrate that it took reasonable measures to maintain the secrecy of the information ( such as requiring employees to sign non-disclosure agreements, restricting access to trade secret information on a need-to-know basis, and maintaining physical and electronic security measures ) because this is a mandatory element of the trade secret claim under both the DTSA and the Uniform Trade Secrets Act. A company filing a DTSA claim must also identify the trade secrets at issue with reasonable particularity to distinguish them from general industry knowledge and publicly available information.

Trade secrets litigation and intellectual property registration counsel can advise on the specific trade secret misappropriation claim requirements and develop the DTSA and UTSA trade secret misappropriation claim filing and litigation strategy.

Emergency injunctive relief is the most time-sensitive remedy available to a company that has suffered an intellectual property data breach, because a temporary restraining order or preliminary injunction can prevent the misappropriating party from using or further disclosing the stolen information while the litigation proceeds, and the window for obtaining meaningful emergency relief closes quickly once the information has been disseminated or incorporated into the defendant's products or operations. The DTSA also authorizes courts to issue ex parte seizure orders in extraordinary circumstances where the defendant would destroy, move, hide, or otherwise make the property inaccessible if given advance notice, and these orders can be particularly powerful when the misappropriated information is stored on a defendant's devices or servers.

Injunctive relief and injunction proceedings counsel can advise on the specific injunction requirements and emergency injunctive relief obligations and develop the injunction filing, disclosure prevention, and injunctive relief enforcement strategy.

The first and most critical step in any intellectual property breach investigation is the immediate preservation of all potentially relevant digital evidence, including server logs, access records, email archives, file transfer histories, and endpoint activity logs, because this evidence is volatile and can be overwritten, deleted, or corrupted within hours of the breach if not preserved through a timely litigation hold and forensic imaging. The company's legal counsel should retain a qualified digital forensics firm immediately upon discovering the breach to conduct a forensic investigation of the affected systems, identify the scope of the unauthorized access, determine what information was accessed or exfiltrated, and produce a forensic report that will support the company's legal claims in subsequent enforcement proceedings.

Evidence preservation and copyright litigation counsel can advise on the specific evidence preservation and breach origin investigation requirements and develop the digital forensics, evidence preservation, and breach investigation strategy.

After completing the forensic investigation, the company should assess the full range of available legal remedies, including civil claims for trade secret misappropriation under the DTSA and applicable state law, civil claims under the Computer Fraud and Abuse Act for unauthorized access to the company's computer systems, claims for breach of contract against employees or contractors who violated non-disclosure agreements, claims for copyright infringement if the stolen materials included copyrighted source code or other protected expression, and referral of the matter to federal or state law enforcement agencies for criminal investigation and prosecution where appropriate. The company should also assess whether it has notification obligations to its customers, investors, or regulatory authorities as a result of the breach.

Business litigation and compensatory damages counsel can advise on the specific IP litigation and regulatory enforcement requirements and develop the IP rights enforcement, litigation strategy, and monetary damages recovery plan.