New Federal Trade Secret Protections on the Horizon?

12 May 2014 Dashboard Insights Blog

Conspicuously absent in the quiver of arrows available to a business looking to take action against someone who has misappropriated or is threatening to misappropriate its trade secrets is a federal cause of action for misappropriation. While the Economic Espionage Act has been used in prosecutions for trade secret misappropriation (including within the automotive industry), it does not provide private parties with a civil cause of action.

Some legislators are out to change that. Introduced by Senators Chris Coons (D-DE) and Orrin Hatch (R-UT), the Defend Trade Secrets Act would amend the Economic Espionage Act to add a federal, civil cause of action for trade secret misappropriation. The proposed amendment would permit the owner of a trade secret to bring a civil action for violations of the Economic Espionage Act, or for other 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 remedies available largely track the remedies in the Uniform Trade Secrets Act (adopted by the vast majority of states at this point), and are quite broad, allowing a court to enter an award of both damages and, to the extent that profits from the misappropriated trade secret exceed damages to the plaintiff, disgorgement of those profits. Like the Uniform Trade Secrets Act, exemplary damages would be available for willful or malicious misappropriation—although treble damages would be available, unlike the double damages available under the Uniform Trade Secrets Act. And as with the Uniform Trade Secrets Act, injunctive relief would also be available.

Where the remedies in the Defend Trade Secrets Act depart from the remedies generally available under state law is the preliminary relief it would make available. While courts have generally had the power to enjoin a claimed misappropriation at the outset of a case, the Defend Trade Secrets Act (like the Lanham Act’s provisions for civil enforcement of trademark protection) explicitly provides that plaintiffs can ask the court at the beginning of the case, without notice to the defendant, to seize property used to commit a violation of the Act. One scenario where this could arise would be a plaintiff business filing suit against a current or former employee, and seeking a court order seeking seizure of the employee’s laptop to preserve evidence, before the employee knows he or she is being sued and can delete evidence.

The adoption of a federal act would also likely have the effect of harmonizing trade secret protection. While the Uniform Trade Secrets Act—as the name suggests—was intended to make the state law of trade secrets more uniform, alterations made by state legislatures and differing interpretations by state courts have balkanized certain aspects of trade secrets law.

Also of note is that as introduced, the Defend Trade Secrets Act provides for a five-year statute of limitations, while the Uniform Trade Secrets Act provides a three-year statute of limitations. As adopted by the 48 states that have done so to date, statutes of limitations range from two to five years—the Defend Trade Secrets Act would again provide uniformity to the statute of limitations for bringing a trade secret misappropriation claim.

Ultimately, the Defend Trade Secrets Act may not be likely to pass—this is, after all, far from the first time that legislation has been proposed to federalize trade secret protection (for example, Senator Coons introduced the Protecting American Trade Secrets and Innovation Act of 2012, which failed to make it out of committee), and there have long been calls for a federal Trade Secrets Act.  But the growing tide of support for such a law (Senator Coons claims endorsements by 3M, Caterpillar, DuPont, GE, and many other corporations) and the current administration’s stated commitment to combating trade secret theft, as well as the major changes that the Defend Trade Secrets Act would bring to trade secret protection, make it worth monitoring.

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