U.S. Senate Passes Bill Creating A Civil Cause Action in Federal Court for Trade Secret Misappropriation

by Seyfarth Shaw LLP
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The U.S. Senate passed on a unanimous 87-0 vote the Defend Trade Secrets Act of 2016 late Monday.

The bill will create a civil cause of action in federal court for trade secret misappropriation and provide remedies that are not available in state court trade secret actions.

Like patents, trademarks, and copyrights, trade secret owners may seek redress for intellectual property theft based on a federal statutory right in federal court should the bill become law. Additionally, the bill provides for the availability of orders that will allow trade secret owners to have law enforcement seize stolen trade secrets without notice to the misappropriator upon a sufficient showing to the federal court.

The Obama Administration has indicated that it supports the Act. In a statement issued Monday, the Executive Office of the President stated that it “strongly supports” the legislation and its “more uniform, reliable, and predictable way to protect … valuable trade secrets.”

Attention will now shift to the House where there is strong bi-partisan support for a similar version of the Act. The House bill, sponsored by Reps. Doug Collins (R-Ga.) and Jerrold Nadler (D-N.Y.) presently has 128 sponsors.

Senators Orrin Hatch (R-Utah) and Chris Coons (D-Del.), the leading sponsors of the Senate bill, have indicated that the bill will harmonize federal law and give businesses more consistent legal protections when their trade secrets are stolen.

In their op-ed piece in Politco, Hatch and Coons stated that, “[m]aintaining the status quo is woefully insufficient to safeguard against misappropriation in today’s fast-paced innovation economy.”

The Senators added:

Trade secrets are the lifeblood of the American economy. Virtually all companies depend on trade secrets to protect their most valuable information and processes. The medical device industry, for example, dedicates enormous resources to the research and development of life-saving products; much of that investment is shielded as trade secrets. Businesses that provide IT infrastructure and data storage—the backbone of the innovation economy—get their competitive edge from proprietary designs and software principally defended by trade secret law. In today’s knowledge- and service-based economy, trade secrets are indispensable to protecting confidential, intangible assets. According to some estimates, trade secrets are worth $5 trillion to the U.S. economy, on par with patents. The loss from their misappropriation is substantial—between $160 billion and $480 billion annually.

The bill amends the Economic Espionage Act of 1996 to create a private civil cause of action for trade secret misappropriation.

Specifically, the bill authorizes a trade secret owner to file a civil action in a U.S. district court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. It establishes remedies, such as an injunction, damages, attorneys’ fees and exemplary damages. The statute of limitation is set at three years from the date of discovery of the misappropriation.

A trade secret owner may apply for and a court may grant 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 if seizure is not ordered. A court must take custody of the seized materials and hold a seizure hearing within seven days. Any party harmed by the order may move to dissolve or modify the order and may also seek relief against the applicant of the seizure order for wrongful or excessive seizure.

The Department of Justice must submit to Congress and publish a biannual report on trade secret theft outside the United States.

The bill expresses the sense of Congress that: (1) trade secret theft occurs in the United States and around the world, (2) trade secret theft harms owner companies and their employees, and (3) the Economic Espionage Act of 1996 applies broadly to protect trade secrets from theft.

A new section was also added entitled “Trade Secret Theft Enforcement,” which increases the criminal penalties for a violation of 18 U.S.C. §1832 from $5,000,000 to the greater of $5,000,000  or 3 times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets. It also adds a provision that allows trade secret owners to be heard in criminal court concerning the need to protect their trade secrets.  It amends the RICO statute to add a violation of the Economic Espionage Act as a predicate act.

We recently conducted a webinar on the Act entitled New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive on Trade Secrets which is now available as a podcast and webinar recording. The webinar provides the fundamentals as well as updates concerning the Defend Trade Secrets Act and the proposed EU Trade Secrets Directive.

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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