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

by White & Case LLP
Contact

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).

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.

© White & Case LLP | Attorney Advertising

Written by:

White & Case LLP
Contact
more
less

White & Case LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.