New Bill Would Create a Private Right of Action for Targets of Trade Secret Misappropriation under Federal Law

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Senators Chris Coons and Orrin Hatch introduced a new bill on April 29 that would amend the Economic Espionage Act of 1996 [1] (the "EEA") to create a Federal private right of action for victims of trade secret misappropriation. While Federal law has long provided protection for patents, copyrights and trademarks, trade secret protection is largely left up to the states despite previous efforts to bring harmonization at the Federal level. The bill, entitled the Defend Trade Secrets Act of 2014 (the "Act"), would be a welcome addition to trade secret enforcement rights for companies seeking consistent and stronger means of defending against trade secret theft, which results in estimated losses of $160 to $480 billion each year in the U.S. [2]

The Economic Espionage Act
The EEA criminalizes the theft of trade secrets, but does not currently provide a private right of action for civil suits. Specifically, the EEA criminalizes misappropriation of trade secrets to benefit a foreign government, instrumentality, or agent [3] as well as misappropriation of trade secrets "related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner" and with the intent to cause injury. [4] Despite the significant impact trade secret theft has on the economy, in 2013 the Department of Justice brought only twenty-five criminal cases under the EEA, [5] highlighting the importance of civil redress.

The Defend Trade Secrets Act of 2014 [6]
The Act proposes to amend the EEA by providing that "[a]n owner of a trade secret may bring a civil action … if the person is aggrieved by … a violation of section 1831(a) or 1832(a)" of the EEA, described above, or by "a misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce." The Act defines "misappropriation" broadly to generally encompass any acquisition of a trade secret through "improper means," mirroring the terminology used in the Uniform Trade Secrets Act [7] with the added clarification that "reverse engineering" and "independent derivation" are not considered "improper means."

Claims under the Act must be brought within five years of the "date on which the misappropriation is discovered or by exercise of reasonable diligence should have been discovered." The Act also permits the court to issue injunctions to prevent "actual or threatened" misappropriation and to require the defendant to take "affirmative actions … to protect a trade secret." In "exceptional circumstances" where the court determines that an injunction would be inequitable, it may also order the defendant to pay a reasonable royalty on continued use of the trade secret at issue "for not longer than the period of time for which use could have been prohibited." The court may also issue ex parte orders, if "necessary to prevent irreparable harm," providing for preservation of evidence or seizure of property used "to commit or facilitate the commission" of an alleged misappropriation or in connection with an injunction. The Act borrows procedural rules governing ex parte application and seizure orders from the Trademark Act of 1946. [8]

In a successful claim under the Act, the court may award damages for "actual loss caused by the misappropriation" – i.e., lost profits – and unjust enrichment (if not otherwise accounted for in calculating actual losses), or, "in lieu of damages measured by any other methods," the court may award damages based on a reasonable royalty calculation. While the Act does not expressly state when damages based on a reasonable royalty calculation would be assessed "in lieu of" other damages, Federal case law relating to patent damages could provide useful guidance, calling for damages based on a reasonable royalty calculation where the aggrieved party is unable to establish lost profits. [9] The Act also permits courts to award reasonable attorney's fees where claims or motions are made in bad faith, as well as treble damages and reasonable attorney's fees where a misappropriation is willful or malicious.

Considerations
While not the first attempt to harmonize trade secret protection under Federal law, the Act has, not surprisingly, received initial support from industry and practitioners alike. [10] Although all fifty states provide for private rights of action for trade secret theft – forty eight of which have enacted statutes based on the framework of the Uniform Trade Secrets Act [11] – there are nuances from state-to-state that the Act seeks to streamline in order to create a more consistent framework of private enforcement rights. The Act would also provide private litigants with direct access to Federal courts, which are generally viewed as more desirable venues for complex trade secret cases given the Federal court system's broad experience with intellectual property matters generally and its ability to work effectively across state and national borders. [12] Currently, in order to gain access to Federal courts in a civil case alleging trade secret misappropriation claims under state law, plaintiffs must rely on diversity jurisdiction or make related Federal claims, such as patent or copyright infringement.


1 - Economic Espionage Act of 1996, 18 U.S.C. §§ 1831-39 (2012).
2 - Press Release, Senators Coons, Hatch Introduce Bill to Combat Theft of Trade Secrets and Protect Jobs (April 29, 2014), available at http://www.coons.senate.gov/newsroom/releases/release/senators-coons-hatch-introduce-bill-to-combat-theft-of-trade-secrets-and-protect-jobs (last visited May 8, 2014).
3 - 18 U.S.C. § 1831(a).
4 - 18 U.S.C. § 1832(a).
5 - Press Release, Senators Coons, Hatch Introduce Bill to Combat Theft of Trade Secrets and Protect Jobs (April 29, 2014).
6 - Defend Trade Secrets Act of 2014, S. 2267, 113th Cong. § 2 (2014).
7 - See, UNIF. TRADE SECRETS ACT, §§ 1(1) – (2) (amended 1985).
8 - See, 15 U.S.C. 1116.
9 - See, e.g., Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).
10 - Press Release, Senators Coons, Hatch Introduce Bill to Combat Theft of Trade Secrets and Protect Jobs (April 29, 2014); Federal Trade Secrets Law Earns High Marks from Attnys, LAW360, http://www.law360.com/articles/533792/federal-trade-secrets-law-earns-high-marks-from-attys (last visited May 8, 2014).
11 - Legislative Fact Sheet - Trade Secrets Act, UNIFORM LAW COMMISSION, http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act (last visited May 8, 2014).
12 - Press Release, Senators Coons, Hatch Introduce Bill to Combat Theft of Trade Secrets and Protect Jobs (April 29, 2014).

Topics:  Copyright, Economic Espionage Act, Patents, Private Right of Action, Proposed Amendments, Trade Secrets, Trademarks

Published In: Civil Procedure Updates, Civil Remedies Updates, Intellectual Property Updates

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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