Legal protection of confidential information, trade secrets & inventions in France vs. the US

Legal protection of a company’s confidential information and trade secrets

The employee’s general duty of loyalty to the employer during the employment contract under the French Labor Code encompasses the duty of confidentiality. The French Labor Code also protects employers’ manufacturing secrets and provides for sanctions for unlawful disclosure. The French Intellectual Property Code and various EU and international agreements also protect intellectual property.

However, the inclusion of a confidentially clause in an employment contract is nonetheless useful:

• It reinforces the general statutory obligation of confidentiality
• It defines the scope and the nature of the confidential information
• It defines the sanctions for not respecting the obligation, which can include dismissal.

The obligation of confidentiality applies for as long as the information retains its confidential nature.

ZEDRA: Patricia, above is a short summary of the legal framework of protection of an employer’s intellectual property rights in France. Could you please explain the legal framework in the US and in Massachusetts?

Patricia Washienko: A company’s proprietary and confidential information and trade secrets are protected in several ways in the United States: by federal statutes, state statutes, common law, and contract. The federal Defend Trade Secrets Act, the Economic Espionage Act, and the Computer Fraud and Abuse Act all provide extremely robust protections to employers. State statutes and common law, however, also provide further protections including criminal penalties, as do contractual agreements.

The Defend Trade Secrets Act and the Economic Espionage Act both make it a crime to misappropriate trade secrets. The term “trade secrets” has been interpreted broadly to include not only inventions and discoveries, but also customer lists and certain proprietary information (e.g., pricing, strategic business plans and marketing information); misappropriation thereof gives rise to a private cause of action. The remedies are injunctive relief and monetary damages for all ensuing losses, including the following:

• The disgorgement of any profits/revenue to the company from whom the information was taken.
• “Royalty payments” for losses resulting from future misuse of information incorporated into products.
• The recovery of attorneys’ fees and costs associated with the litigation of the matter.

In addition, the Computer Fraud and Abuse Act provides that the costs associated with investigating and remedying computer breaches and hacks (whether or not such breaches led to the theft of proprietary and confidential information and trade secrets) are also recoverable.

State law governing trade secrets – and misappropriation thereof – originally developed on a state-by-state basis. In 1979, however, the Uniform Trade Secrets Act (UTSA) was promulgated and, to date, 48 states have adopted it. (Only New York and North Carolina have not done so, although North Carolina’s law is similar to UTSA.) Massachusetts adopted the UTSA on October 1, 2018. Massachusetts provides other statutory protections, as well: for example, General Laws chapter 93, section 42 allows a judge to impose up to double damages for a violation of the statute. Although not widely used, another statute, General Laws chapter 266, section 30(4), makes the theft of trade secrets a crime and provides that a person convicted can be punished by up to five years imprisonment or, instead, a fine of not more than twenty-five thousand dollars and imprisonment for not more than two years.

Employment agreements mandating confidentiality of proprietary and confidential information are enforceable, so long as they meet the general requirements of a contract. Note, however, that even if otherwise enforceable, a court will not enforce a non-disclosure agreement if it creates a risk to public health and safety.

Most contracts containing confidentiality and non-disclosure provisions specify that an employer may, in addition to seeking recovery for financial losses, seek injunctive relief. These are routinely enforced, if the circumstances warrant enforcement.

ZEDRA: Although New York has not adopted the USTA, there remains robust protection of trade secrets in that State. New York does not have a statute governing trade secrets, as a result, protection of trade secrets is based solely on the common law. New York Courts and the USTA differ in how a trade secret is defined and what it takes to qualify as a trade secret, but are similar on the standard concerning the efforts necessary to protect a trade secret and broadly similar in what constitutes misappropriation of a trade secret. The USTA and New York Courts have some differences in remedies (injunctive relief and damages) and awarding payment of legal fees. Confidentiality or non-disclosure clauses or agreements are considered “reasonable precautions” for maintaining secrecy under New York law.

Employer ownership of inventions

French statutory law provides that for inventions made in the course of the employee’s duties and pursuant to an employment contract, the inventions belong to employer, but the employer must pay the employee additional compensation. An exception is when computer software is prepared by an employee for an employer; the employee retains ownership and only economic rights are transferred to employer. French statutory law further provides that for inventions made outside the course of the employee’s duties, but which still relate to employer’s business, intellectual property (IP) rights can be assigned to the employer for a fair price. The employee must immediately declare the invention to the employer and suggest a classification (inside or outside the scope of the employee’s duties).

ZEDRA: Patricia, above is a short summary of the legal framework surrounding employer ownership of inventions in France. Could you please explain the legal framework in the US and in Massachusetts?

Patricia Washienko: In the US, the general rule is that inventors own their own inventions. However, a company may take ownership of employee inventions if:

• there is a signed contract transferring inventions to the company, or
• the inventor was expressly “hired to invent” something.

Most sophisticated employers therefore require employees to sign “Assignment of Invention” covenants which, as the name suggests, requires the employee, in advance, to assign any and all work-related inventions to the employer. Many employers also require the employee to assign non-work-related inventions to the employer if the invention was developed with any resources provided by the company: even use of the company computer off-hours. These agreements require the employee to identify, at the outset, any inventions s/he has already developed; to the extent an employee fails to “carve-out” a prior-existing invention, the company can assert ownership of the work. There is no requirement that an employer pay additional compensation for these works.

A written “work for hire” is a work that is subject to copyright under federal law and that is created by an employee as part of his or her job. According to copyright law in the United States and certain other copyright jurisdictions, if a work is “made for hire”, the employer—not the employee—is considered the legal author.

For more information on US legal protections for companies, please contact Raphaël De Roubin.

Disclaimer: The information in this article is provided for general information purposes only. No statement herein should be construed, interpreted or relied upon as legal advice, or is it intended to be a substitute for legal counsel. No reader of this article should act or refrain from acting on the basis of any information included in or accessible through this newsletter without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.