Measure Allowing Federal Courts To Handle Trade Secrets Claims Clears US Congress

Legislation authorising federal courts to hear cases involving theft of trade secrets passed the US House of Representatives on 27 April and is now headed for an expected signature by President Barack Obama. Final enactment of the “Defend Trade Secrets Act of 2016” (DTSA), along with the 14 April adoption by the European Parliament of the EU Trade Secrets Directive, boosts protections on both sides of the Atlantic but not uniformly, intellectual property lawyers said.

The US bill, S.1890, is available here. The bill previously passed the US Senate.

Under the DTSA, trade secret holders will be able to sue in US district courts rather than only in state courts for relief from trade secret misappropriation relating to products or services in interstate or foreign commerce, the bill says.

Trade secret owners may apply for a seizure order to prevent dissemination of the trade secret if the court makes specific findings such as that immediate and irreparable injury will occur without seizure. The court must take custody of the seized materials and hold a hearing within seven days. The act allows parties harmed by a seizure order to ask to have it dissolved or modified, as well as to seek relief against the applicant from wrongful or excessive seizure.

The Department of Justice must report biannually to Congress on trade secret theft outside the US. The act also strengthens the criminal penalties for violation of 18 United States Code §1832 from $5,000,000 to the greater of $5,000,000 or three times the value of the stolen trade secrets to the organisation, including the costs of reproducing the trade secrets.

The measure grants immunity from criminal or civil liability for disclosure of a trade secret made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; solely for the purpose of reporting or investigating a suspected law violation; or which is made in a complaint or other document filed in a lawsuit if the filing is made under seal.

Trade secrets are a critical element in many companies’ overall business strategy, “valuable only when that ‘secret sauce’ doesn’t get into the wrong hands,” said Under Secretary of Commerce for Intellectual Property Michelle Lee. Giving entrepreneurs a civil action in federal court for misappropriation will provide a more uniform way to take action and stronger tools to prevent trade secrets from leaving the US, she said. The US Chamber of Commerce and American Intellectual Property Law Association urged Obama to sign off on the legislation quickly.

Protections Not Equivalent…

Passage of the US law and EU directive means that “the environment for trade secret protection has improved in both places, but that protection remains much more robust in the US than in Europe,” said intellectual property and cybersecurity lawyer James Pooley, formerly World Intellectual Property Organization deputy director general for patents.

The DTSA gives trade secret owners the option of filing their claims in the federal system, with a completely harmonised set of standards and rules governing the process, including discovery of witnesses and records, said Pooley.

The trade secrets directive, however, while a major step toward harmonization, mainly deals with definitions and the processes for keeping information secret in court proceedings, he said. It doesn’t provide any criminal penalties, nor does it “effectively deal with what may be the most significant issue for trade secret owners, which is how to get access to the information that you need to inform your case.”

The directive leaves that information primarily in the hands of the accused, and without some sort of discovery, the “trade secret owner is left in the dark to an extent,” he told Intellectual Property Watch. That situation is largely due to the European civil law system, which does not provide for discovery, but over time there will have to be some “creative solution to this shortcoming,” he said.

The other major problem is that the EU law contains “vague and apparently broad exceptions,” Pooley said. A comparison of the two laws’ whistleblower protections, for instance, shows that in the US, immunity is limited to reporting to a law enforcement official in confidence, whereas in Europe, any disclosure in the public interest is acceptable, he said. While whistleblower provisions are very important, the directive’s approach could lead to inappropriate disclosure of legitimate trade secrets, he said.

The EU directive “is a real step forward, but there is some distance to go, in my view, before trade secret protection on both sides of the Atlantic is equivalent,” Pooley added.

…but Together Offer  “Some Level of Comfort”

The DTSA and Trade Secrets Directive work together at a high level by providing protections for trade secret owners in the US and Europe, said Seyfarth Shaw attorney Robert Milligan, co-chair of the firm’s trade secrets, computer fraud and non-competes practice group.

While specific provisions EU member states may adopt to implement the directive are likely to differ from the DTSA, both instruments “at least set a floor on protection of these valuable assets,” he told Intellectual Property Watch. That gives trade secret owners “some level of comfort” that they will have some recourse in both territories if their trade secrets are “misappropriated by rogues, such as disillusioned employees, opportunistic business partners, hackers, or terrorists,” he emailed.

“The landscape has changed significantly” on both sides of the Atlantic, said Milligan. US federal courts will now be open to trade secret owners, likely resulting in a more unified body of case law interpreting the DTSA rather than the current patchwork of law, he said. Europe will still have variations on trade secret safeguards, but owners will have some confidence that there are at least protections in place, he said.

“Companies on both sides of the pond should ensure that they have appropriate non-disclosure agreements with employees and business partners in place to protect their proprietary information,” Milligan added.

The improved trade secret systems in Europe and the US will give enterprises more confidence in exchanging knowledge within their firms and with their partners, said General Electric Senior Counsel IP & Trade Thaddeus Burns. “As more regions adopt stronger trade secret protection, research and supply chain activities can more easily be located where they are most efficient, which lowers development cost and ultimately accelerates the pace of technology diffusion.”

 

Image Credits: US House of Representatives