Trade Secrets Protection Continues to be a High Priority for Lawmakers: House Judiciary Committee Approves Bill Creating a Federal Civil Remedy for the Misappropriation of Trade Secrets
Recognizing that “[t]rade secrets are an increasingly important form of intellectual property that have become more vulnerable to theft,”
Trade secrets are generally defined as commercially valuable information that is not generally known or readily ascertainable to the public, but which is subject to reasonable measures to maintain confidentiality. Trade secrets may include scientific formulas or algorithms, strategic plans and business information, and manufacturing techniques or processes.
Each of the 50 states has its own trade secrets law, although 48 states have adopted some version of the Uniform Trade Secrets Act (“UTSA”). The UTSA aimed to codify and harmonize standards regarding the misappropriation of trade secrets, but because of the state-by-state differences in trade secrets laws (and the judicial interpretations of the same), and concerns about forum-shopping and choice-of-law issues, legislators and commentators have recommended that Congress consider amending the EEA to provide a federal private right of action for trade secret theft.
The Current Scope of the Economic Espionage Act
The current federal statutory framework under the EEA provides for criminal prosecution and penalties for trade secret theft.
Generally, Section 1832 of the EEA criminalizes the knowing misappropriation of trade secrets, as well as attempts and conspiracies to misappropriate trade secrets.
These developments demonstrate the commitment of policymakers and law enforcement personnel to strengthening penalties, enhancing deterrence, and protecting key intellectual property assets. Many lawmakers and commentators, however, believe that federal criminal law alone is insufficient. They argue, for example, that trade secrets laws may vary from state-to-state and that federal civil law is likely to be better suited to facilitate discovery across state and national boundaries and to serve defendants or witnesses.
The Trade Secrets Protection Act
Because trade secrets protection is currently accomplished through a patchwork system of federal criminal laws and state civil statutes, the House and Senate have considered bills that would create a federal civil cause of action for the misappropriation of trade secrets, including for products or services that are used in, or intended for use in, interstate or foreign commerce. The Bill—introduced by Congressman George Holding (R-NC) in the House as the Trade Secrets Protection Act—has received bipartisan support. In proposing the Bill, Ranking Member John Conyers (D-MI) commented that “[t]rade secrets are fundamental to the success of any business” and that the Bill would “create a civil cause of action and allow companies to enforce their rights in federal court[.]”
The Bill adopts the protections of the UTSA such as, for example, rendering unlawful the acquisition, disclosure, or use of trade secrets and defining potential remedies to include injunctive relief, damages, and attorneys’ fees. The Bill permits litigants to seek reasonable royalties and exemplary damages of up to three times the economic damages. The Bill further extends the relevant statute of limitations to five years (as is the case for most federal offenses). Moreover, the Bill creates ex parte seizure rights, meaning litigants may seek an order seizing property necessary to preserve evidence or to prevent the dissemination of trade secrets that are the subject of the action. Given its bipartisan support, on September 17, 2014, the House Judiciary Committee approved the Bill by voice vote.
The Defend Trade Secrets Act (S. 2267)—introduced in the Senate by Senators Chris Coons (D-DE) and Orrin Hatch (R-UT)—is a companion to the Bill and is materially similar to the House version. Senators Coons and Hatch have touted their proposed bill as critical to protecting American intellectual property. It has been endorsed by the National Association of Manufacturers, the U.S. Chamber of Commerce, and several companies. On May 13, 2014, the Senate Judiciary Committee held a hearing on the bill, but it has not yet been put to a vote.
The protection of trade secrets continues to be a high priority for law and policymakers, law enforcement personnel, and the Administration. Within the past couple of years, Congress has passed legislation in connection with criminal trade secrets offenses, such as the Enhancement Act and the Clarification Act.
The House has taken a critical step by approving the Bill, which would permit individuals or corporations to pursue trade secret claims in federal court under state or federal law. Commentators have suggested that, if the Bill becomes law, it would (i) build on the EEA by creating a uniform standard for trade secret misappropriation cases, and (ii) ensure consistency among the various types of intellectual property, like copyrights, patents, and trademarks, each of which is covered by federal law.
The Senate has not yet voted on its proposed trade secrets legislation. But, it will be important to continue to monitor these developments going forward.
Litigation partner Thomas P. O’Brien, and associates Daniel Prince and Bridget A. Gordon contributed to this alert.
If you have any questions concerning these developing issues, please do not hesitate to contact any of the following Paul Hastings lawyers:
Walter E. Jospin
Mark D. Pollack
Samuel W. Cooper
Joshua G. Hamilton
Thomas P. O’Brien
William F. Sullivan
Thomas A. Zaccaro
Kenneth M. Breen
Maria E. Douvas
Palmina M. Fava
Douglas H. Flaum
Gary F. Giampetruzzi
Barry G. Sher
John P. Nowak
Peter M. Stone
Kirby D. Behre
Amy K. Carpenter-Holmes
Morgan J. Miller
Michael L. Spafford