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

Update on the Senate Judiciary Committee’s Hearing on the Protection of Trade Secrets

Posted in Legislation, Trade Secrets

keyposterlarge1-225x300Earlier today, the Senate Judiciary Committee held a hearing regarding the protection of trade secrets through the creation of a federal civil cause of action, which would allow trade secret victims to sue for trade secret misappropriation in federal court.

Senator Chuck Grassley opened the hearing, outlining the importance of protecting the “lesser known but increasingly important form of intellectual property:” trade secrets.  Grassley emphasized the hefty financial losses U.S. companies have faced due to the theft of their trade secrets.  He noted that the total value of trade secrets in the U.S. is approximately $5 trillion with annual losses owing to trade secret theft amounting to over $3 billion. Senator Patrick Leahy dovetailed off of Grassley’s comments, voicing his support for the protection of trade secrets; especially protection for small businesses, like those in his home state of Vermont, with valuable trade secrets.

After the introductory statements, the four witnesses that appeared at the hearing were announced: Karen Cochran, Chief IP Counsel at E.I. DuPont de Nemours and Co.; Tom Beall, VP and Chief IP Counsel at Corning Corp.; James Pooley, Principal at James Pooley, PLC; and Professor Sharon Sandeen, Hamline University School of Law.  Professor Sandeen was the only witness  in opposition to the adoption of a uniform, federal trade secret law, namely, the DTSA.

Cochran voiced DuPont’s support of the DTSA, especially in light of trade secret theft it recently faced with regard to its Kevlar products.  We discussed this case in our latest trade secret law update.  Cochran noted two benefits to adoption of the DTSA: 1) victims of trade secret theft would have access to federal courts; and 2) future trade secret dissemination and/or destruction would be curbed.

Beall testified that one of its most successful products has been unprotected under patent law for many years, but its trade secrets help keep its version of the product at the top of the market.  He also voiced Corning’s support of the DTSA based on the fact that state trade secret laws are not harmonized, litigating in many different states actually increases litigation costs, and service of process on a trade secret thief is difficult, if not impossible at times.

Professor Sandeen stated the DTSA would cause more problems than it would solve.  She said the DTSA, especially its seizure provision, would open the door to abuse and hikes in litigation costs.

The final witness, Pooley, who rather vehemently disagreed with the opposition’s point of view, stated that because the DTSA’s proposed narrow application, risk of litigation abuse would be low because restraining orders and injunctions are normally difficult to win.  Pooley also acknowledged that despite the adoption of the Uniform Trade Secrets Act (UTSA) by 48 states, each state has its own variations, which affects time and monetary costs in terms of obtaining required orders and serving out-of-state defendants.  Moreover, Pooley noted that small businesses would not be at risk of harm under the DTSA as opposers to the bill have argued, but instead would benefit because they, too, need recourse in dealing with theft of its trade secrets nationwide.

Some questions the various senators posed throughout the hearing inquired into the alleged existence of “trade secret trolls,” application of the DTSA domestically and abroad, and risk of harm of the ex-parte seizure provision of the DTSA.  Sandeen argued that there is indeed a “trade secret troll” threat in abusive litigation tactics; and that those ready and willing to litigate over misappropriation of trade secrets in federal court are essentially “trolls” in a manner similar to patent trolls.  However, Pooley disagreed, noting the differences between protections available under patent law versus trade secret law.  Those in support of the DTSA cited the increase in international cyber theft, and noted that state courts do not have jurisdiction over foreign culprits as the law currently stands.  Though, it bears noting, that the supporters recognized that the DTSA would not necessarily address this rampant international cyber espionage.

Beall cited a real-life example that happened to Corning in which an individual fled the country with company trade secrets, but Corning was unable to prosecute under state trade secret law due to jurisdictional issues.  Had a federal cause of action been in place, Beall implied, Corning would have been able to restrain the individual from leaving the country, and would have been able to retain its trade secrets.

Besides the supporters appearing at the hearing today, the bill is also supported by a robust industry coalition that includes Adobe, AdvaMed, the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization (BIO), The Boeing Company, Boston Scientific, BSA | The Software Alliance (BSA), Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Illinois Tool Works Inc., Intel, The Intellectual Property Owners Association (IPO), International Fragrance Association, North America, Johnson & Johnson, Medtronic, Micron, National Alliance for Jobs and Innovation (NAJI), National Association of Manufacturers (NAM), NIKE, Pfizer, Philips, The Procter & Gamble Company, SAS, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation.  This coalition wrote a letter today to Senators Coons, Flake, and Hatch saying:

Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.

Supporters of the DTSA voiced concern over the loss of proprietary information, especially abroad, and noted how a federal cause of action would give them, as well as all U.S. companies with trade secrets, easy access to federal court to address the theft.

Senator Hatch believes a vote on the DTSA should happen immediately.  “Both Republicans and Democrats can agree that this bill is a win for American property rights and innovation,” Hatch said.  “Why wouldn’t we move this bill now?”  Senator Coons echoed Hatch, saying “[w]e need this bill now more than ever as more and more American companies are losing jobs and revenue because they lack the ability to defend their trade secrets under federal civil law.”  Currently, the DTSA has 92 co-sponsors in the House and 15 in the Senate.  Given the wide support from industry leaders as well as bipartisan members of the Judiciary Committee, there appears to be a chance that the DTSA will be voted on this year.