United States: Federal Trade Secrets Act Gains Momentum

On April 4, 2016, the US Senate unanimously passed the Defend Trade Secrets Act of 2016, S. 1890 (DTSA), which amends the Economic Espionage Act, 18 USC Section 1831 et seq. The broadly supported bill is intended to provide trade secrets owners with federal legal protections on par with the federal rights granted to owners of trademarks, copyrights and patents. For the first time, the DTSA would establish a uniform national trade secret protection standard, including the right to file trade secret suits in federal court. The bill now heads to the House of Representatives for further consideration, where a similar, identically titled bill was previously introduced.

Currently, trade secrets are primarily protected according to state law. A limited existing federal protection for trade secrets is codified in the Economic Espionage Act, which currently covers only criminal theft by foreign nationals. This limited protection fails to cover many instances of misappropriation, and is only enforceable by the US Department of Justice.

Under the DTSA, trade secret lawsuits involving only local products or services would be filed in state court, but federal courts would have jurisdiction over trade secret cases involving products or services "used in, or intended for use in, interstate or foreign commerce."¹ The DTSA would create a uniform standard for what constitutes trade secret theft and give companies the right to recover damages and to obtain injunctions preventing dissemination of stolen trade secrets.²

Further, in "extraordinary" circumstances, federal courts could order a seizure of property to help prevent dissemination of the trade secret and avoid immediate harm to the trade secret's owner.³ The bill sets forth the grounds for a seizure order, including a showing of misappropriation by "improper means," which is defined to exclude reverse engineering, independent derivation or any other lawful means of acquisition.⁴

The DTSA provides a trade secret owner with three years from when misappropriation is discovered, or should have been discovered, to file suit.⁵ Civil damages for misappropriation may be awarded based on actual loss, unjust enrichment or a reasonable royalty calculation.⁶ Exemplary damages in an amount not more than two times the actual loss, and reasonable attorneys' fees, may be awarded where the trade secret was willfully and maliciously misappropriated. The maximum penalty under the Economic Espionage Act is also revised to be "the greater of either $5,000,000 or 3 times the value of the stolen trade secret," including design and research expenses and other costs.⁷ The bill also includes limited exceptions for liability, such as for disclosures to law enforcement officials related to discussions of possible violations of law, and sealed disclosures to a court as part of anti-retaliation litigation.⁸

As with certain state trade secrets acts, if a claim of misappropriation is made in bad faith, the defendant may be awarded its reasonable attorneys' fees.⁹

If the bill passes the House, the result would be a uniform legal framework across all federal courts, resulting in greater consistency and deterrent effects given the seizure and prevailing party remedies incorporated into the bill. In this era in which computer hacking and other cyber-related crimes are becoming more and more common, a federal trade secrets act is likely to be widely supported by many companies. The White House has already expressed that it "strongly supports" the legislation.¹⁰

Footnotes

1 S. 1890, Sec. 2.(a), amending 18 USC Sec. 1836(b)(1).

2 Id., Sec. 2.(a), amending 18 USC Sec. 1836(b)(3).

3 1890, Sec. 2.(a), amending 18 USC Sec. 1836(b)(2).

4 Id.,1890, Sec. 2.(a), amending 18 USC Sec. 1839.

5 Id., 1890, Sec. 2.(a), amending 18 USC Sec. 1836(d).

6 Id., 1890, Sec. 2.(a), amending 18 USC Sec. 1836(b)(3)(B).

7 Id., 1890, Sec. 3.(a)(1), amending 18 USC Sec. 1832(b).

8 See id.,1890, Sec. 7.(a)(3), amending 18 USC Sec. 1833(b).

9 See id. 1890, Sec. 2.(a), amending 18 USC Sec. 1836(b)(3)(B).

10 April 4, 2016, Statement of Administration Policy ("Effective protection of trade secrets promotes innovation that is the engine of the Nation's economy and minimizes threats to American businesses, the U.S. economy, and national security interests.").

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