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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

New Federal Trade Secrets Legislation Proposed

Posted in Espionage, Practice & Procedure, Trade Secrets

By Jessica Mendelson and Robert Milligan

On July 17, 2012, Democratic senators Herb Kohl (Wisconsin), Sheldon Whitehouse (Rhode Island), and Chris Coons (Delaware) introduced legislation which they believe will aid American companies in effectively combating the theft of trade secrets. The proposed legislation, known as the Protecting American Trade Secrets and Innovation Act of 2012(“PATSIA”), will allow American companies dealing with economic espionage and trade secret theft to seek redress in federal courts, rather than having to file suit in individual state courts. A similar bill was introduced in October of 2011 as reported here.

The bill is intended to create one federal statute under which businesses could bring lawsuits in the federal courts, rather than requiring businesses to rely on a “patchwork” of state laws to seek redress. Under the current law, companies generally file lawsuits in individual state courts, requiring litigants to navigate the different laws of the fifty states. The proposed legislation would allow these companies to take advantage of the federal court system and its services, including nationwide service of process for subpoenas, discovery, and witness depositions. As a result, this law would make it far easier to prosecute trade secret theft cases.

The bill requires plaintiffs bringing a complaint in a civil action to “(A) describe with specificity the reason able measures taken to protect the secrecy of the alleged trade secrets in dispute; and ‘‘(B) include a sworn representation by the party asserting the claim that the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country.”

This language may provide a limitation on the number of actions brought in federal court but may be helpful to US companies who have rogue employees or suppliers who steal their trade secrets in the United States and go to foreign countries to produce competing products.

In civil actions, courts have the authority to issue seizure orders, injunctions, and damages, including attorneys’ fees and exemplary damages.

According to the drafters, the legislation is intended to protect American businesses from the theft of trade secrets. According to Senator Kohl, such a bill “ensures that companies have the most effective and efficient ways to combat trade secret theft and recoup their losses, helping them to maintain their global competitive edge.” Senator Coons, another sponsor of the bill echoes that sentiment: “When a company’s trade secrets are stolen, the company loses its competitive edge, and the jobs of its employees are threatened. We must do all we can to ensure that American innovators are able to protect themselves from economic espionage.” This new legislation would “establish a strong and uniform civil remedy” for trade secret misappropriation, and send a “clear signal that we will not sit idly by while American companies’ ideas are stolen.”

Prior to introducing PATSIA, Senator Kohl previously sponsored the Economic Espionage Penalty Enhancement Act of 2011, which proposed increased penalties for persons committing economic espionage. This legislation would have increased the maximum prison sentence for those found guilty of economic espionage from 15 to 20 years. The legislation was recently amended by the Senate Judiciary Committee, and is awaiting consideration from the entire Senate.

The House has also recently taken up the issue of economic espionage. This past month, Lamar Smith, the Chairman of the House Judiciary Committee, introduced a bipartisan Espionage Penalty Act, which increases the penalties for foreign espionage to deter foreign companies from stealing American trade secrets. The bill increases prison sentences for those found guilty of economic espionage, and allows for significant fines of convicted individuals and organizations.

Federal legislation on both trade secrets and economic espionage is far from settled, and we will continue to keep you apprised of future developments.