Will the U.S. Enact a Federal Trade Secret Law? (Part 4 of Trade Secret Series)February 2, 2016

In this Filewrapper® series relating to all things trade secrets, we have previously posted on the role and value of trade secrets (available here), described how the value of trade secrets are commonly assessed (available here), and provided an overview on the current protection schemes available for trade secrets in the U.S. (available here). In this fourth posting in the series, a discussion on the current federal trade secret legislation is provided with information on how enforcement and maintaining protection of trade secrets may be enhanced in the event the legislation becomes law of the land.

Should there be a federal trade secret law? This is a straightforward question that has been dividing Congress for years. Supports favor the outlook of operating under a single, national standard for trade secret misappropriation along with transparent procedural rules in order to provide predictability and ease of use. The cause continues to gain momentum. On January 27th, Senators Hatch (R-Utah) and Coons (D-Delaware) issued an op-ed in The Hill (available here) setting forth strong rationale for having a federal cause of action for trade secret misappropriation. The op-ed outlined an exemplary case of trade secret theft experienced by DuPont – the chemical company who invented Kevlar body armor. The Senators explained:

“a rogue employee leaked the manufacturing process of Kevlar to a rival company in South Korea, costing DuPont nearly $1 billion in economic losses. In an instant, the company’s comparative advantage—which it had earned after investing thousands of man-hours and millions of dollars—disappeared. Lacking a federal private right of action, DuPont executives were fortunate that the FBI was able to conduct a successful criminal investigation under the Economic Espionage Act. But the FBI lacks the resources to investigate the tens of thousand or more thefts that take place each year.‚¬

Such rationale is starting to sound redundant – as it is consistent with what many in industry (such as Microsoft, General Electric and others) having been voicing in support of a federal statute. In sum, proponents of a federal trade secret act highlight that it would enable trade secret owners to more effectively protect and enforce their rights by effectively streamlining procedural and jurisdictional issues.

As previously reported on Filewrapper® (available here), legislation is pending and referred to as the Defend Trade Secrets Act of 2015 (DTSA) – now the DTSA of 2016.  DTSA would amend the Economic Espionage Act (“EEA‚¬) providing trade secret plaintiffs opportunity to file civil claims for misappropriation directly in federal court.

Last week, the Senate Judiciary Committee voted in favor (by a voice vote) of the passage of the amended Defend Trade Secrets Act of 2016 (“DTSA‚¬). This means a floor vote in the Senate is the next step for the DTSA; however we do not yet know the date when the DTSA will be taken to a floor vote. After a floor vote the DTSA would need to be presented in the House of Representatives. You may recall that the House considered their version of the DTSA last summer (July) and has amassed a large number of cosponsors (107 at the time of this posting). However, there remain differences between the House and Senate versions of the DTSA, and we do not yet know whether the recent Senate amendments would be incorporated by the House. Regardless of the differences, it appears that there remains significant bipartisan support (and momentum) in both Houses.

Various provisions in the recent Senate amendments to the DTSA are outlined here:

  • Various amendments to harmonize the existing (albeit inconsistently adopted) Uniform Trade Secrets Act (“UTSA‚¬)
  • Decrease in the statute of limitations from five to three years.
  • Further restrictions to seizures of trade secrets; for example, prohibiting copies to be made of seized property, and other requirements for law enforcement taking action on such seizures
  • Assurances that injunctions will not unreasonably restrain employee mobility
  • Providing immunity – or an exception for whistleblowers – who disclose confidential information in order to report a crime to a government official, directly or indirectly, or to an attorney.
  • Increase in penalties for a trade secret misappropriation from $5,000,000 to the greater of $5,000,000 or 3 times the value of the trade secrets. However, there was also a decrease in exemplary damages from three times to two times the amount of actual damages.

The DTSA is not without opposition. Thus far opposition has predominately arisen in academic circles. For example, previously a group of law professors authored a letter opposing trade secret legislation (See letterhere). In sum, opposition largely focuses on the assertion that state laws are not unduly lacking in uniformity, and the caution that a federal statute would be used for anti-competitive purposes by industry and likely result in a decrease in access to information and collaboration along with causing decrease in mobility of skilled workers.

Stay tuned for upcoming Filewrapper® posts on the topic of trade secrets and how you should best protect them in the current environment.

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