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

Senate Judiciary Committee Votes in Favor of Passage of an Amended Defend Trade Secrets Act

Posted in Legislation, Trade Secrets

keyposterlarge1-225x300Earlier today, the Senate Judiciary Committee held a voice vote in favor of the passage of the now amended Defend Trade Secrets Act of 2016 (“DTSA”). At this point, the Committee has not yet revealed when the current version of the DTSA will make it to a floor vote, nor has it been announced when and if the House will consider the issue.  The House’s version of the DTSA was introduced late last July, and now has 107 cosponsors. It remains to be seen whether the House version will include the Senate’s amendments.

Below are some highlights from the Senate’s amended version of the DTSA:

  • The section limiting injunctive relief has been fortified insofar as a court shall not grant such relief if it would prevent a person from entering into an employment relationship. Under the new language, a court could place conditions on that employment relationship only upon a showing through evidence of “threatened misappropriation and not merely on the information the person knows.” This language was likely added to guard against “inevitable disclosure” based upon the statute.
  • The statute of limitations has decreased from five to three years.
  • The Senate has added an immunity provision to protect individuals from criminal or civil liability for disclosing a trade secret if it is made in confidence to a government official, directly or indirectly, or to an attorney, and it is made for the purpose of reporting a violation of law. Moreover, the amended language places an affirmative duty on employers to provide employees notice of the new immunity provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer will be in compliance with the notice requirement if the employer provides a “cross-reference” to a policy given to the relevant employees that lays out the reporting policy for suspected violations of law. Should an employer not comply with the above, the employer may not recover exemplary damages or attorney fees in an action against an employee to whom no notice was ever provided. Curiously the definition of employee is drafted broadly to include contractor and consultant work done by an individual for an employer.
  • New language further restricting the ex parte seizure ordered now appears in the Senate’s DTSA. This language now prohibits copies to be made of the seized property, and requires that the ex parte order provide more specific instructions for law enforcement officers performing the seizure, such as when the seizure can take place and whether force may be used to access locked areas.
  • A new section was added “Trade Secret Theft Enforcement,” which increases the 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 also amends the RICO statute to add a violation of the Economic Espionage Act as a predicate act.
  • Exemplary damages have been lowered from three times to two times the amount of actual damages.

What’s Next

  • Now that the Senate Judiciary Committee has amended the DTSA and voted (by voice vote) in favor of its passage, the DTSA is poised for presentment on the Senate floor, and potential later for presentment in the House. Even before the amendments, the DTSA enjoyed bipartisan support in both houses, as well as widespread support from companies like DuPont, General Electric, and Microsoft, to name but a few. Stay tuned for further coverage.
  • These amendments came just a day after Senators Orrin Hatch (R-Utah) and Chris Coons (D-Delaware) co-authored an article emphasizing the importance of having a federal cause of action for trade secret misappropriation available. The Senators highlighted the difficulties trade secret owners face in protecting their rights, such as appealing to state courts or federal prosecutors, which creates costly and complicated procedural and jurisdictional issues. Moreover, the Senators noted the limited resources the United States Department of Justice has to prosecute trade secrets cases. Without enough resources, trade secret misappropriators can cross state lines, and even destroy evidence of their legal violations, much to the detriment of U.S. businesses and individuals. As the Senators point out in their article, the Senate’s version of the DTSA provides business owners the ability to seek court orders (only upon an appropriate showing of trade secret ownership, theft, and lack of harm to third parties upon the issuance of such an order) to stop further theft of their trade secrets, not at all a means to seize information for anti-competitive purposes.