Enhancing Legal Defense of Trade Secrets

Thomas A. Hemphill
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Posted: Dec 16, 2015 3:49 PM
Enhancing Legal Defense of Trade Secrets

For the second consecutive Congress, expanding protections for trade secrets of U.S. businesses has emerged as an important issue in both chambers. Identical bills were offered in the U.S. House of Representatives and the U.S. Senate titled the Defend Trade Secrets Act of 2015 (DTSA). The bills were referred to the Committee on the Judiciary in both chambers.

Just like other similar bills presented before the previous Congress, DTSA enjoys bipartisan support. Sen. Orrin Hatch (R-UT) sponsored the bill in the Senate, and it was co-sponsored by five Senate Republicans and five Senate Democrats. Rep. Doug Collins (R-GA) sponsored DTSA in the House, along with 18 total Republican and Democrat cosponsors.

The proposed legislation would provide expanded federal jurisdiction over trade secret thefts, which are defined by the World Intellectual Property Organization as “any confidential business information which provides an enterprise a competitive edge.” DTSA would create a federal civil cause of action for aggrieved commercial parties whose trade secrets have been misappropriated.

Supporters say the proposal would create a harmonized, uniform system of trade secret protections for U.S. companies and would provide legal protections similar to those currently available to owners of other forms of intellectual property (IP), including copyrights, patents, and trademarks. These new legal protections could help companies avoid commercial injuries and could prevent employment loss occurring as a result of the theft of strategic proprietary knowledge.

The constant threat of foreign companies stealing trade secrets from U.S. companies, especially with the emergence of cyberespionage, is undermining the nation’s economic competitiveness. In its 2015 Annual Member Survey, the National Alliance for Jobs and Innovation, an organization of manufacturers, associations, academics, and other businesses committed to ending unfair competition and the theft of intellectual property, reports trade secrets, at 74 percent, tops the list as the most important form of IP, followed by patents (67 percent), trademarks (58 percent), and copyrights (33 percent).

The model Uniform Trade Secrets Act (UTSA), published in 1979 by the Uniform Law Commission and amended in 1985 by the National Conference of Commissioners of Uniform State Laws, has been adopted (with only minor variations) by 48 states, the District of Columbia, Puerto Rico, and the Virgin Islands. Only two states, Massachusetts and New York, remain holdouts, protecting trade secrets of companies within their political boundaries through the civil application of unique state statutes that have a common law foundation.

Under UTSA, when trade secrets are misappropriated across state lines, they must be litigated in each state’s court system. Fortunately, with nearly the entire nation having adopted UTSA, some of the financial expense and time necessary for litigating multiple cases is reduced, but it is far from eliminated.

Nevertheless, a less expensive method of enjoining those accused of misappropriating trade secrets has been found: Companies plead themselves into federal court by asserting their claims of trade secret misappropriation under the Computer Fraud and Abuse Act (CFAA). However, both the Fourth and the Ninth Federal Circuit Courts have recently interpreted CFAA much more narrowly. They found certain often-asserted claims, such as a departing employee e-mailing trade secrets to a personal e-mail account or downloading proprietary information to an external drive, do not fall under the auspices of CFAA, as the employee is authorized in some manner by the employer.

In addition, the Ninth Circuit interprets CFAA as being limited to what the court views as true “hacking” activity, thus curtailing employers’ ability to use CFAA in its federal court to seek remediation for theft of trade secrets by departing employees. Whether other federal courts will adopt the Fourth or Ninth Circuit’s judicial interpretation remains unknown, but where CFAA is not applicable, federal civil remedies for trade secret misappropriation are virtually nonexistent.

Before moving forward with this new trade secret legislation, lawmakers should evaluate the results of the America Invents Act of 2011, which focused on patent assertion entities, including “patent trolls,” to see whether any successful aspects of this legislation could be applied to trade secrets and private causes of action.

Allowing a federal-level private cause of action in most of these cases, although not solving the problem of international cyber-industrial espionage, would provide a company initiated civil option to seek legal redress when such alleged trade secret misappropriation is interstate or international in nature. Firms would not be solely dependent on the Economic Espionage Act and the fickle use of criminal investigative and legal resources by the U.S. Department of Justice. This civil legal recourse, available for copyright, patents, and trademark infringement, should be similarly available in cases of theft of trade secrets.