The momentum for federal trade secrets legislation appears to be growing with last week’s introduction of the “Defend Trade Secrets Act of 2015” in both chambers of Congress. The bill, H.R. 3326 in the House and S. 1890 in the Senate, would create a uniform federal civil action for trade secret misappropriation, which is currently litigated exclusively in state courts and subject to the States’ various laws. Such a uniform federal civil action seeks to eliminate the splits of authority on trade secret law among the States and the resulting uncertainty about enforcement of trade secrets. While this is not Congress’ first attempt at civil federal trade secret law, the stakes here are high: it has been reported that publicly traded U.S. companies maintain a combined $5 trillion in trade-secret-related assets, with the annual economic loss attributable to trade secret theft estimated to be between $167 and $503 billion. These staggering numbers, combined with a recent surge in cyber-attacks and trade secret theft, have lawmakers considering the issue anew.
The “Defend Trade Secrets Act of 2015” has its origins in last year’s co-pending Senate and House bills, S. 2267 and H.R. 5233, each introduced with broad bipartisan support. Like those earlier bills, the “Defend Trade Secrets Act of 2015” is intended to amend Section 1836 of the Economic Espionage Act by creating a separate subsection under which private parties may seek civil actions for trade secret misappropriation.
The most notable provision of the bill allows for an ex parte seizure application by the trade secret owner. If successful, a seizure order would allow for the actual seizure of an accused misappropriator’s property as necessary to prevent “the propagation or dissemination” of the trade secret owner’s trade secrets. But the bar for obtaining such an order is high. A trade secret owner would need to make a four-part showing similar to that for a preliminary injunction: (1) a likelihood of success on the merits, (2) that the owner will suffer an immediate and irreparable harm absent a seizure, (3) that the harm suffered from denying the application would outweigh any harm to the legitimate interests of the alleged misappropriator, and (4) that there is a risk that evidence be destroyed. The trade secret owner must also identify the items to be seized with reasonable particularity and must refrain from publicizing the requested seizure. Moreover, if a temporary restraining order would be adequate to protect the trade secret owner’s interests, no seizure order may issue. This is a marked difference from the prior Senate version of the bill, which had no such prohibition.
The bill also provides several remedies for trade secrets owners, including actual losses, unjust enrichment, reasonable royalties, and injunctive relief. In cases of willful or malicious misappropriation, the bill permits an award of treble damages. Where there is willful misappropriation or a claim for misappropriation is brought in bad faith, attorney’s fees are available. The statute of limitations for bringing an action would be five years from the date on which the misappropriation was discovered or by the exercise of reasonable diligence should have been discovered.
The bill has now been referred to the House Committee on the Judiciary. In recent years, the Obama administration has also addressed the mounting trade secrets theft issue. In its 2013 report, entitled “Administration Strategy on Mitigating the Theft of U.S. Trade Secrets,” the administration announced action items directed to stifling trade secret theft by way of (1) diplomatic anti-theft efforts, (2) development of corporate best practices, (3) increased criminal investigations and prosecutions, (4) federal legislation, and (5) public awareness campaigns on the detrimental effects of trade secrets theft.
Given the current climate of cyber-attacks and trade secrets theft, the issue will likely be taken up for a vote this year. If signed into law, proponents of the bill argue that the new federal regime would be a significant step towards creating a stronger, harmonized, and more predictable trade secrets regime. Only time will tell if this is correct and, if so, what the effect of existing state-law-based precedent may be in terms of interpreting the same or similar federal statutory language.