International Harmonization of Trade Secret Rights and Remedies

by Bradley Arant Boult Cummings LLP
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Bradley Arant Boult Cummings LLP

In a recently unprecedented bipartisan effort the United States enacted the Defend Trade Secrets Act (DTSA) on May 11, 2016. What many in the US do not know is that less than 30 days later the EU passed European Union Directive (EU) 2016/943, on the Protection of Trade Secrets (EU 943) on June 8.

Coincidence or Collaboration? The two new corresponding trade secrets laws have far more in common than in differences, and based upon available information appear to represent another steady and methodical effort to harmonize international intellectual property rights.

DTSA is an amendment of Economic Espionage Act (EEA), which established US federal criminal enforcement for foreign economic espionage activities. As an amendment to EEA, DTSA creates the first private federal trade secret civil action in US history. In doing so, DTSA provides a nationwide service and enforcement for trade secret violations, with extraterritorial implications. DTSA has several unique requirements and remedies from existing law.

Similar to DTSA, EU 943 creates the first private common trade secret action applicable in all EU member states. In doing so, EU 943 provides common EU wide trade secret protections and enforcement rights. Like DTSA, EU 943 also has clear extraterritorial implications. Also like DTSA, EU 943 has unique requirements and remedies. Both laws have significant implications to technology, contracting and employment practices.

History of International Harmonization of Trade Secrets

International harmonization of intellectual property rights, and in particular trade secret protection, began in 1984 with World Trade Organization, Trade-Related Intellectual Property Agreement (TRIPs). DTSA / EU 943 can both arguably trace their roots to Section 7, Article 39 of TRIPs on the Protection of “Undisclosed Information,” which was the first international effort to uniformly define and evoke protection for trade secrets. In 2014, the International Chamber of Commerce (ICC) published a white paper titled “Trade Secrets: Tools for Innovation and Collaboration”. The ICC white paper delineated most of the considerations and protections ultimately enacted in DTSA and EU 943. Recommendations and support from the ICC white paper have been heavily cited in both US and EU legislative materials in support of passage of DTSA and EU 943, including but not limited to the U.S. Congressional Research Service and EU Directive 2016/943 Preamble annotations.

Technology, Business and Politics Since the WTO

So what prompted the apparent collaboration and resulting harmonization of trade secret protection since the WTO? The need for international harmonization of trade secrets has been driven by changes in international trade and the products involved in such. At the time of the WTO, trade was focused principally on goods, business was country centric and politics was focused on physical imports / exports. The pace and nature of international trade changed dramatically since 1984, with technology being both the driver and product instigating such changes. More recently, cloud-based systems have resulted in virtual imports / exports. Business is global and politics grapples with how to even track on-line international trade. The result is global harmonization of business, before harmonization of the laws intended to address such. Apparently, the lack of a US wide federal trade secrets law was raised in both the TPP and TTIP trade agreement negotiations by other countries, which arguably helped advance bipartisan support for the rapid passage of DTSA.

Extraterritorial Enforcement

In response to the globalization of business and resulting IP threats, the US congress included specific language in DTSA to permit extraterritorial enforcement of US trade secret rights. The first indication of such intent is in Section 5 of Sense of Congress, which references to… “theft within the U.S. and around the world, and harm wherever it occurs…”. Section 2(b)(1) includes references “…for use in, interstate or foreign commerce”, Section 4 adds “…occurring outside of the United States...”, “… sponsored by foreign governments or instrumentalities, or foreign agents…”. All of which seem intended to assure the ability of extraterritorial enforcement in the International Trade Commission via 337 proceedings, see Tianrui Group v. ITC, 661 F. 3d 1322 (Fed. Cir. 2011).

EU 943 International Considerations

The EU also made it clear that they intended to protect member state innovations from external threats. EU Directives include a preamble which set out the support and basis for the directive. Directive 943 includes multiple references to extraterritorial protections. Preamble, Section (3) provides “…cross-border cooperation is particularly important in increasing levels of business research and development…” Preamble, Section (4) notes “…Recent developments, such as globalization …. contribute to increasing risk….”. Preamble, Section (28) explains “Considering the global nature of trade, it is also necessary that such measures include the prohibition of the importation of those goods …”. Chapter II, Article 4, 5 of the Directive references “… or the importation, export or storage of infringing goods…” Chapter III, Article 10, 1.(b) again notes the “… “… or the importation, export or storage of infringing goods…” and Chapter III, Article 12, 1.(b) similarly makes reference to “… or the importation, export or storage of infringing goods…”.

Commonalities of DTSA and EU 943

As noted, DTSA and EU 943 have more in common than different. The commonalities include the definition of a trade secret, prohibited uses, ex parte seizures, injunctive relief, confidential proceedings, award of actual losses, unjust enrichment or a reasonable royalty, damages for willful or malicious misappropriation, and attorney fees and costs for bad faith. Both DTSA and EU 943 also include common limitations, including exclusions for reverse engineering or independent creation, exclusions for regulatory and whistleblower disclosures, limitations on employment injunctions and no pre-emption of other laws or remedies.

Some of the most unique common provisions are requirements for confidential proceedings, ex parte relief, remedies available for extraterritorial threats, limitations on publicity, exemptions for whistleblowers, as well as limits on injunctions otherwise in conflict with state/member law regarding restraint of profession, trade or business.

The one primary current difference relates to a limitation in EU 943 protecting EU labor/ employment practices including protection of collective bargaining agreements, employment contracts and the mobility of employees. Interestingly, on October 25, 2016, the White House issued a directive for the reform of US non-compete and employment laws to better protect against generic employment contracts and restrictions on the mobility of employees.

Cross-border Considerations

Based upon the harmonization between the US and the EU, multinational companies and businesses engaged in multinational businesses should begin assessing the impact and implication of such to their international operations. In doing so, they should consider that they are subject to dual enforcement, but conversely have the ability to enforce in multiple jurisdictions. They need to harmonize their policies, procedures and practices, particularly with regard to international development, cross-border staffing and performance, delivery and payment, and choice of law and forum.

In assessing international harmonization, businesses engaged in cross-border sales or operations need to engage in operational planning and threat assessment. Cross-border operational planning should include review and likely revisions of employee handbook and code, employee confidentiality and proprietary rights agreements, non-disclosure and confidentiality agreements, teaming and development agreement confidentiality provisions – with whistleblower exceptions, marking and/or tracking of confidential materials, physical and cyber security of confidential materials and evaluation of overall IP strategy, relative to trade secrets, patents, copyrights and trademarks.

Preparations for cross-border threats should include advance understanding of business and operations. Response to cross-border anti-competitive threats will require a clear understanding of critical trade secrets, key employees, competitors and activities, available legal resources, probable damages and desirable recourse, and possible jurisdictions. When enforcing trade secrets internationally, one will need to consider forum selection, enforceability, location for protection and/or recovery, cost & time relative to durable value/loss, location of illegal acts, location of resulting injury and location of recoverable damages.

Conclusion

International Harmonization - Coincidence or Collaboration? It does matter, the two new US and EU trade secrets laws require anyone engaged in cross-border business to prepare for such and harmonize their practices accordingly.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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