As we have noted over the past several months, trade secrets will finally obtain additional protection under federal law. Yesterday, April 27, 2016, the House of Representatives passed the Defend Trade Secrets Act of 2016, S. 1890, without amendment. The bipartisan bill passed with a vote of 410-2, sending the bill to the White House for President Barack Obama’s promised signature.

As the White House stated on April 4th of this year:

“The Administration has placed high priority on mitigating and combating the theft of trade secrets, as exemplified in the Administration’s Joint Strategic Plan on Intellectual Property Enforcement, the Administration’s Strategy on Mitigating the Theft of U.S. Trade Secrets, and Executive Order 13694 authorizing sanctions on those who perpetrate cyber-enabled trade secret theft. S. 1890 would provide important protection to the Nation’s businesses and industries, including through the establishment of a Federal civil cause of action for trade secret misappropriation which would effectively build upon current Federal law and various State laws that have largely adopted the Uniform Trade Secrets Act. As such, the Administration strongly supports the Defend Trade Secrets Act of 2016 ….” See Statement of Administration Policy (4/4/16).

As we have explained, the bill would not preempt the state laws, such as the Uniform Trade Secrets Act, which has been adopted with modifications by 48 states and the District of Columbia.  Like the federal Lanham Act, the Defend Trade Secrets Act will co-exist with state-level trade secrets law.

Notably, one of the new features of the federal trade secrets law will be the “Civil Seizure” mechanism by providing federal judges with, among other things, the ability to “appoint a special master to locate and isolate the misappropriated trade secret information and to facilitate the return of unrelated property and data to the person from whom the property was seized.” Additionally, in addition to other unique hallmarks of this federal legislation, the maximum criminal fines for misappropriating a trade secret will now be increased from $5,000,000, to “the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization.”

A federal civil cause of action for trade secrets misappropriation appears to be quickly becoming reality. Following the lead of the Senate, on Wednesday, April 20, the U.S. House Judiciary Committee approved the Defend Trade Secrets Act of 2015, S. 1890, without amendment. The bipartisan bill will now head to the full House of Representatives for a vote this Wednesday, April 27. The bill is widely expected to pass the House, as a prior House version, H.R. 3326, had more than 150 co-sponsors there. What’s more, the President has already signaled that he will sign the bill should it ever make its way to the Oval Office. We will follow up with any further developments.

Today, the European Parliament approved a Directive that seeks to simplify and harmonize the law on trade secrets throughout the European Union with a vast majority (503 in favor, 131 against and 18 abstentions). The Directive was first proposed in 2013. Although the initial proposal was deliberately kept ‘low profile,’ it was the subject of heated debates up until today’s vote. Certain members of parliament indeed invoked the ‘Panama Papers’ and requested that the vote be suspended until the European Commission would have prepared its proposal specifically dealing with whistleblowers. The vote now goes to the EU Council. As this typically is but a formality, it is likely that the Council will approve the Directive as it reads today. If it does, EU member states will have roughly two years to replace their current patchwork of trade secret law and implement the Directive into national law.

The Directive’s stated intent is to “enhance the competitiveness of European businesses and research bodies” and to “improve the conditions/framework for the development and exploitation of innovation and for knowledge transfer” within the EU. Continue Reading European Parliament Votes for Simple Cross-Border Trade Secret Law

Capitol Dome

On Monday April 4, after remarks from the bill’s sponsors Orrin Hatch (R) Utah and Christopher Coons (D) Delaware, the Senate voted 87-0 in favor of the Defend Trade Secrets Act of 2015, S. 1890. As we have previously reported, the Act will create a federal civil cause of action for trade secrets misappropriation, which includes an ex parte seizure provision. The next hurdle for the creation of a federal civil action for trade secrets misappropriation, which as Senator Hatch pointed out is the only intellectual property tort for which there is not a federal remedy, is the House of Representatives. If the House passes its version of the bill, H.R. 3326, President Obama is expected to sign the bill into law.

Tort claims of trade secret theft, fraud, unfair competition, tortious interference with contract, and civil conspiracy can fall within the scope of an overly broad arbitration clause. Medversant Technologies, LLC v Leverage Health Solutions, LLC, et al., 114 F. Supp. 3d 290 (E.D. Pa. 2015). In this case, the district court looked “not to the labels or legal theories attached to the claims,” but rather “focused on the factual underpinnings of the claim” when assessing whether these claims fell within the scope of the arbitration clause of a business development and marketing consulting agreement.  Id. (citing CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 , 173 (3d Cir.2014)).

In this case, the plaintiff (“Medversant”) hired the defendant (“Leverage”) to provide Continue Reading Beware of a Broad Arbitration Clause

Last week the United States Senate unanimously approved legislation that would create a private right of action in federal court for trade secret theft. We reported on this legislation — The Defend Trade Secrets Act of 2015 – last summer, and explained how it would modify the Economic Espionage Act (EEA), 18 USC Chapter 90. See The Growing Momentum for Federal Trade Secrets Legislation

Continue Reading U.S. Senate OKs Federal Trade Secret Bill

On January 22, 2016, the FAR Council proposed a new rule implementing section 743 of the 2015 Consolidated and Further Continuing Appropriations Act, which prohibits federal dollars from going to companies that require employees to sign restrictive confidentiality agreements that could limit the ability of employees to report suspected fraud and abuse to the government. As described in a post, the proposed rule comes at a time of increased scrutiny from government agencies on the use of confidentiality agreements, and several agencies have issued class deviations in order to implement the requirements of the 2015 act pending the issuance of the final FAR rule.

Click here to read this full blog post at Crowell’s Government Contracts Legal Forum.

Santa’s 10 considerations for maintaining trade secrets at the North Pole:

  1. Restrict access to facility by choosing remote location.
  2. Make the Elves sign Confidentiality Agreements as part of the hiring process.
  3. Have robust exit interviews with all departing elves, reminding them of their obligations to keep “reindeer games” secrets.
  4. Insist that gift wrapping specialists with prior experience at competitors like the Three Kings or Saint-Nicholas are properly screened/briefed.
  5. Further restrict access to gift development/storage facilities with candy cane key fobs.
  6. Share secret reindeer feed formula on a “need to know” basis.
  7. Social media policy (what elves shouldn’t discuss/photograph), if only not to spoil the surprise.
  8. No single elf should know the entire process for packing the sled — divide this information into describe segments and share each among many elves.
  9. Never disclose your secret for still fitting down chimneys despite eating millions of cookies on one night.
  10. Good intentions for the new year are fine, but put them on paper.

Note that this reflects good practices, but each situation and company is different and this is not intended to provide legal advice to any particular situation.

On Wednesday November 2, the Senate Judiciary Committee held a hearing on the pending Defend Trade Secrets Act of 2015, S. 1890. We have previously reported on the Act, which will create a federal civil cause of action for trade secret misappropriation, which includes an ex parte seizure provision.

The hearing began with Chairman Grassley making opening comments about the importance of trade secrets protection and meeting the increased threats of misappropriation in this global and mobile world. Each of the four witnesses then gave opening statements, followed by a question and answer period in which several members of the Committee took part. The witnesses included DuPont’s Chief IP Counsel Karen Cochran, Corning’s Chief IP Counsel Tom Beall, and Professor Sharon Sandeen (who opposes the Act). There were several notable moments at the hearing:

  • Ms. Cochran, holding up a Kevlar® bulletproof vest, explained that DuPont’s experience in the Kolon case (in which Crowell & Moring represented DuPont) helped inform DuPont of the need for the Act. Specifically, she explained, (i) the need for assured access to federal courts in technology based trade secret cases and (ii) the need for access to the court to immediately halt the further dissemination of trade secrets and evidence destruction.

Continue Reading DuPont, Corning, and Others Speak Out in Support of Defend Trade Secrets Act at Senate Judiciary Committee Hearing

Capitol Buidling 1
[via Flickr user Glyn Lowe Photoworks]
On Monday November 30, the House demonstrated its resolve to fight high-tech crime such as trade secret theft by passing the Strengthening State and Local Cyber Crime Fighting Act (H.R. 3490). The Act formally establishes the National Computer Forensics Institute, which is located in Hoover, Alabama and has been operating since 2008. Under the Act, the Institute will:

  • Educate law enforcement officers, prosecutors, and judges on (i) cyber and electronic crimes; (ii) methods for investigating such crimes, including forensically examining computers and mobile devices; and (iii) prosecutorial and judicial challenges related to such crimes and forensic examinations; and
  • Train law enforcement officers to (i) investigate cyber and electronic crimes; (ii) forensically examine computers and mobile devices; and (iii) respond to network intrusions.

Continue Reading Keeping Up with Cybercriminals: House Passes Bill to Formally Establish National Computer Forensics Institute