US Senate Backs Bill Allowing Federal Courts To Handle Trade Secret Cases

The “Defend Trade Secrets Act of 2016” cleared the Senate unanimously on 4 April. The measure amends the Economic Espionage Act of 1996 to create a private civil cause of action for trade secret misappropriation. The bill now heads to the House, where passage appears likely, according to IP lawyers.

The bill, S 1890, is available here.

In a 4 April policy statement, the Obama Administration said it “strongly supports” passage of the DTSA and places “high priority on mitigating and combating the theft of trade secrets.”

If enacted, the bill will authorise trade secret owners to sue in US district courts (rather than only in state courts) for relief for trade secret misappropriation relating to products or services in interstate or foreign commerce, a congressional summary says.

A trade secret owner may apply for a seizure order to prevent dissemination of the trade secret if the court makes specific findings, including that an immediate and irreparable injury will occur without seizure. The court must take custody of the seized materials and hold a hearing within seven days. Any party harmed by the seizure order may ask to dissolve or modify it, and can also 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 bill includes a new section that beefs up 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, Seyfarth Shaw attorney Robert Milligan, who co-chairs the firm’s trade secrets, computer fraud and non-competes practice group, noted in a 5 April law blog posting.

In addition, trade secret owners may take their concerns about protecting their secrets to criminal court, he noted. DTSA also amends the Racketeer Influenced and Corrupt Organizations statute to make violation of the Economic Espionage Act a predicate act.

Better for Silicon Valley and Foreign Companies

The DTSA will benefit US and non-US companies, a veteran patent attorney said.

Silicon Valley businesses are “constantly innovating, producing valuable information that in its inception is always protected by secrecy, even if some of it is later patented,” said intellectual property and cybersecurity lawyer James Pooley, formerly World Intellectual Property Organization deputy director general for patents.

The main problem the DTSA addresses is the lack of a uniform set of standards and rules for trade secret disputes that take place across state and national borders, he said.

“As the economy globalizes and digitizes more and more,” said Pooley, “it will be helpful, in interstate or international cases particularly, to be able to go to federal court, where there are uniform rules and discovery procedures, and where judges are more familiar with complex issues of jurisdiction over foreign actors.”

Similarly, foreign companies doing business in the US “will find it more efficient, and probably less expensive, to enforce their trade secrets here, because they can deal with one court system and set of rules instead of fifty,” Pooley told Intellectual Property Watch. It’s possible, “although speculative,” however, that non-US businesses might find themselves sued for misappropriation more often because the federal court system will be viewed as better at handling such cases, he said. “But outcomes overall should be more reliable for both sides, for the same reason,” he added.

Companies will want to ensure that they are adequately protecting their trade secrets so they can avail themselves of the new law and that, in return, they treat others’ trade secrets appropriately so they don’t find themselves sued, Milligan told Intellectual Property Watch.

House Approval Likely

Milligan and Pooley agreed that House approval is likely. There is “strong bi-partisan support for a similar version” of the act in the House, Milligan wrote. He said he doesn’t expect any sticking points but believes that the legislation’s whistleblower immunity provision is “unnecessary and was a last minute add on.” Pooley said he and most others he has spoken to believe that the House of Representatives will pass the bill, “if only because industry is so enthusiastically and uniformly behind it.”

There was concern last year that the bill in both houses would be held up in favour of more patent reform legislation, but the Senate appears to have resolved the issue by moving the DTSA ahead, Pooley said. Several amendments introduced after a December 2015 congressional hearing substantially improved the measure, he said. “So while no one can ever predict the future in politics … things look very favorable for early and positive action,” Pooley emailed.

Meanwhile, the European Parliament on 13 April will debate a compromise agreement with the Council on an EU trade secrets directive and will vote on it the next day. The draft agenda is here.

Milligan said he is closely following the EU directive. Like the US federal bill, “the goal is to harmonize trade secret law so that there are minimum base line standards in the US and in the EU,” he emailed. The directive is different because it’s based on how the EU is organised, but if adopted, it will require EU countries to set basic floor protections for trade secrets, he said.