Uncle Sam Wants You to Protect Trade Secrets (Maybe)

16 June 2014 Labor & Employment Law Perspectives Blog

As business in the United States has increasingly focused on technology development, and as companies are looking to gain market advantages by developing processes and methods intended to increase their competitive position, preservation of trade secrets has become increasingly important. The U.S. Government has not failed to understand this; in recent years it has passed legislation giving federal prosecutors the ability to pursue criminal charges against individuals who engage in economic espionage. However, if a business cannot get a federal prosecutor interested in its specific concerns about trade secret misappropriation, or if the company needs immediate injunctive relief to stop a trade secret theft and has monetary damages it needs to pursue, the company is generally left to navigate state court systems with uncertain results because of the absence of a nationwide system capable of addressing trade secret issues across the country. However, there may be reason to believe change is on the way.

Continuing the recent federal focus on trade secret issues, Republican Orrin Hatch and Democratic Chris Coons recently introduced in the Senate the Defend Trade Secrets Act of 2014. The point of the bill is simple: it seeks to create federal jurisdiction over claims of trade secret theft and would allow any “owner of a trade secret” – in other words, a business – to bring a private civil action in federal court. Importantly, the bill also creates remedies available for such claims, including immediate injunctive relief, monetary damages, and attorney’s fees in the case of bad faith actions (either against the side seeking trade secret protections without a legitimate basis to do so or against someone who has willfully and maliciously taken a trade secret). The bill further contains provisions allowing for the immediate seizure of evidence or property containing the trade secret to protect against continued disclosure or other misappropriation.

The initial reaction from businesses to the bill’s introduction has been positive, which is not surprising given that the U.S. Chamber of Commerce and the National Association of Manufacturers strongly supported its introduction. If the bill ultimately becomes law, it might seem that any time a trade secret issue relating to a good or service in interstate commerce surfaces, the likely reaction will be to run to federal court. However, it remains to be seen whether that would be the correct strategic decision. Many experienced litigators believe it is more difficult to obtain emergency injunctive relief – often critical in trade secret matters – from a federal court than from a state court. Also, most states have adopted some version of the Uniform Trade Secrets Act and have some history with the statute that can be helpful to companies needing immediate court action.

On the other hand, a national civil remedy available in what is traditionally viewed as a “better” court system could be a true game changer, particularly where the bill’s evidence preservation and seizure provisions demonstrate an obvious focus on federal courts immediately intervening where appropriate. Of course, until the Defend Trade Secrets Act – or some amended version of it – becomes law, all of this is simply speculation. But in light of the potential upside for businesses and the possibly new avenue for companies to seek protection for the valuable assets, the potential passage of the Defend Trade Secrets Act is something that should be worth watching.

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