A significant new bill was recently introduced in Congress seeking to add a federal civil cause of action for trade secret theft.
On Tuesday, April 29, 2014, in a bipartisan effort, Senators Christopher Coons (D-Del) and Orrin Hatch (R-Utah), both members of the Senate Judiciary Committee, introduced the bill.
Senators Coons and Hatch’s bill, entitled the “Defend Trade Secrets Act of 2014,” authorizes a trade secret owner to bring a civil action for a violation of sections 1831(a) or 1832(a) of the Economic Espionage Act. It also permits an owner to bring an action for a “misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
“The intellectual property that drives the U.S. economy has never been more valuable, or more vulnerable,” Coons said in the written statement. “This bipartisan bill will empower American companies to protect their jobs by legally confronting those who steal their trade secrets. It will finally give trade secrets the same legal protections that other forms of critical intellectual property already enjoy.”
According to the Senators’ news release, an estimated $160 to $480 billion dollars are lost to trade secret theft in the United States each year. In today’s electronic age, they observe that trade secrets can be stolen with a few keystrokes and increasingly, they are stolen at the direction of a foreign government or for the benefit of a foreign competitor. The bill seeks to combat the loss of intellectual property and jobs by providing the private sector with access to the federal courts to protect its intellectual capital.
According to the news release, the Economic Espionage Act as presently constituted is insufficient as the Department of Justice brought only 25 criminal trade secret theft cases last year. According to the Senators, the federal courts are better suited to working across state and national boundaries to facilitate discovery, effectuate service on parties, and to prevent a party from leaving the country.
Senators Coons and Hatch have also identified three main objectives that the legislation would accomplish. First, it will harmonize U.S. law by building on the Economic Espionage Act to create a uniform standard to allow companies to craft one set of non-disclosure policies on a fifty state basis. Second, it provides for injunctions and damages to protect companies whose trade secrets are stolen. Third, it is consistent with the approach taken to protecting other forms of intellectual property which are already covered by federal law.
The bill provides for ex parte orders for the preservation of evidence and seizure. Based upon an affidavit or verified complaint, the court may, should it find that the order is necessary to prevent irreparable harm, provide orders for: 1) the preservation of evidence, including the copying of electronic storage medium that contain the trade secret; 2) injunctive relief to prevent any actual or threatened trade secret violation; and 3) permit affirmative actions to be taken to protect a trade secret.
The bill authorizes the court to issue an order providing for the seizure of any property used, in any manner or port, to commit or facilitate the commission of trade secret theft, similar to the seizure procedures used to protect against trademark infringement under the Lanham Act.
The bill also provides for robust remedies, including injunctive relief, damages, unjust enrichment, a reasonable royalty in certain instances, and exemplary damages in an amount not more than three times actual damages. It also provides for attorneys’ fees if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or a trade secret is willfully and maliciously misappropriated. The statute of limitations is five years after the date on which the misappropriation is discovered, or by exercise of reasonable diligence should have been discovered.
Lastly, the bill does not preempt any other provision of law.
Among the noticeable benefits for plaintiffs under the proposed legislation are: 1) access to federal court for trade secret theft; 2) seizure and preservation orders; 3) greater exemplary damages than provided under the UTSA; 3) a longer statute of limitations than provided under the UTSA; 4) no express trade secret identification requirement; and 5) arguably, no preemption of common law claims.
As currently drafted, the bill may still face some challenges in obtaining effective service of process and personal jurisdiction over foreign bad actors, as the Department of Justice has recently faced such challenges in criminal actions brought under the Economic Espionage Act.
The bill represents Senator Coons’ third attempt at introducing trade secret legislation to create a private civil cause of action after submitting similar bills in 2012 and 2011. Proponents of the legislation can only hope that the third time is a charm. The ABA Intellectual Property Section previously passed a resolution supporting the creation of a civil cause of action for trade secret theft in federal court.
Why is this recent legislation different? The Defend Trade Secrets Acts appears to have removed the “nationwide service of process” and “sworn declaration of misappropriation” provisions, which were some of the mechanisms provided in the 2012 bill to establish standing under the statute. Instead, the statutory language authorizing a private civil cause of action mirrors the language under the Economic Espionage Act, including the recent amendments under the Theft of Trade Secrets Clarification Act.
The bill has won the support of the National Association of Manufacturers, the U.S. Chamber of Commerce, BSA/ The Software Alliance, and companies including 3M, Abbott, AdvaMed, Boston Scientific, Caterpillar, Corning, DuPont, GE, Eli Lilly, Medtronic, Micron, Microsoft, Monsanto, Philips, P&G, and United Technologies.
Rep. Zoe Lofgren (D-Calif.) also introduced last year in the House of Representatives the Private Right of Action Against Theft of Trade Secrets Act, which would create a federal civil claim for trade secret theft. The bill, however, was much more limited than Senator Coons’ proposed 2011 and 2012 bills and the most recent bill.
Another bill seeking to add a federal cause of action for trade secret theft was also introduced by Sen. Jeff Flake (R-Ariz.) entitled the “ Future of American Innovation and Research Act” (FAIR), S. 1770, in November 2013.
FAIR differs from the Defend Trade Secrets Act because it does not amend the Economic Espionage Act. FAIR is also focused on combating foreign trade secret misappropriation (i.e., misappropriation occurring outside the U.S. or for the benefit of a foreign person or entity). FAIR also allows plaintiffs to obtain an ex parte seizure order, which is more restrictive than the Defend Trade Secret Act’s seizure order. It provides that any seized property will be held by a U.S. Marshall or other federal officer appointed by the court pending further hearings/objections by the defendant.
On May 13, 2014, the Senate Judiciary Subcommittee on Crime and Terrorism will have a hearing on trade secret theft entitled “Economic Espionage and Trade Secret Theft: Are Our Laws Adequate for Today’s Threats?”
We will keep you apprised of any further material developments.