The last time the United States passed groundbreaking federal intellectual property (IP) law, the country was balancing between the end of World War II and the beginning of the Cold War. The transistor was the breakthrough device at a time when cell phones and the Internet were merely daydreams. This month, a new federal trade secret law was passed to protect the innovations that give companies competitive advantages in our modern borderless, digital-driven environment.
The US Congress passed the Defend Trade Secrets Act of 2016 (DTSA) with a landslide vote in April, paving the way for some of the most significant reforms in decades (since the passage of the Lanham Act of 1946 that protects trademarks). The DTSA, which amends the criminal provisions of the Economic Espionage Act (EEA), would for the first time allow businesses to sue for trade secret theft and pursue damages directly in federal court as a civil remedy. US President Barack Obama signed the bill into law on May 11, 2016.
“During the debate, Congress recognized the significant role of trade secrets to the US economy and national security and the need to provide stronger remedies,” said Morgan Lewis partner Mark Krotoski, who served as an adviser to congressional aides during the legislative process. He added that the legislation addresses several challenges under prior state laws in providing meaningful remedies following trade secret theft. “We remained optimistic that the bipartisan legislation would pass, but we didn’t anticipate that it would pass with virtually unanimous support, with only two no votes at a time when Congress has been polarized on other matters. The overwhelming bipartisan support is another confirmation of the necessity for trade secret reform at this time.”
Mark worked closely with congressional aides as an adviser during consideration of the legislation, addressing the impact of the new civil provisions under the EEA framework. He provided a statement that was submitted into the Senate Judiciary Committee hearing record by Senator Chris Coons (D-DE), who introduced the bipartisan legislation along with Senator Orrin Hatch (R-Utah). Mark also coordinated the drafting of a letter (which was also included into the hearing record) signed by 20 trade secret trial lawyers in support of the legislation. Read more about our involvement and support in the DTSA legislative process.
Mark, whose background and practice places him in the vanguard of prosecution of cybercrime and data security cases, has prosecuted a variety of foreign economic espionage and trade secret cases under the EEA. Before joining Morgan Lewis, his career included several years as national coordinator of the Computer Hacking/Intellectual Property program in Washington, DC. In that role, Mark served as a leader on US Department of Justice (DOJ) cybercrime and criminal IP enforcement efforts. He is the only prosecutor to be involved in the successful prosecution of two foreign economic espionage cases involving the theft of trade secrets to benefit a foreign government. He also led and prosecuted a wide variety of computer intrusion, trade secret, economic espionage, fraud, and other white collar cases. At the DOJ, he led the design of the first trade secret and economic espionage seminar for prosecutors and agents.
Today Mark splits his time between our Silicon Valley and Washington, DC, offices and also spends time in San Francisco. He has written and coauthored a variety of articles on the DTSA and trade secret issues along with Morgan Lewis associates since 2014. Mark collaborates with our deep bench of IP and labor and employment lawyers who service clients, including those in the financial services, pharmaceutical, retail, energy, and technology industries, to modify, design, and implement effective trade secret policies and practices, review and draft nondisclosure and related agreements, and investigate and litigate trade secret case issues.
Mark, who advises clients on the civil and criminal aspects of trade secret, foreign economic espionage, fraud, and cybersecurity cases, as well as on government investigations, took a moment to discuss the DTSA, what it means for US and global clients, and what companies should address to ensure that they take advantage of full protection under the new law.
Does the DTSA affect companies of a particular size or industry more than others?
We believe the DTSA is company-size neutral. The law, which represents the most significant expansion and modernization of trade secret law in the United States in decades, helps small startups as well as medium and large companies. It really will foster trade secret innovation by providing meaningful remedies because it addresses a number of issues that trade secret owners commonly encountered under current laws that were previously based solely on state law. Trade secret owners now have the same access to federal courts long enjoyed by the holders of copyrights, patents, and trademarks.
What is unique about the law?
The legislation provides a new ex parte seizure provision in appropriate and limited circumstances. It allows authorities to recover stolen trade secrets pending a full court hearing. Trade secret theft cases are often highly reactive; you’re trying to catch up with all of the facts on what happened. The ability to seize trade secrets before they are destroyed, before they are transferred, before they are disclosed to others, before someone gets on an airplane, is one of the key components of this new law, and it was a matter of some sensitivity. Our team brought the practitioner’s perspective to the discussion about how to make sure the final provision is reasonable and balanced to ensure this is brought only in extraordinary circumstances.
Was that a protection that was unavailable at the state level?
This is a new remedy. Seizure of stolen trade secrets is not available under any state law. The seized trade secrets can be brought into the custody of the court. Within seven days, the court has to have a hearing with everybody there. It allows the court to recover the trade secrets, and in many of these cases, the trade secrets may never be recovered.
Another very interesting part of this law is it does not preempt state law. Most states have laws under the Uniform Trade Secrets Act. The DTSA allows the trade secret owner to decide whether to seek remedies under state or federal law. If you have a local misappropriation that doesn’t cross state lines, maybe the best remedy is using state law. However, once the trade secret leaves the state or the jurisdiction, then the federal court process under the DTSA will provide effective tools. One of the key benefits is the choice that trade secret owners will have.
What does the new law mean for non-US businesses?
The new law applies to trade secrets that are “related to a product or service used in, or intended for use in, interstate or foreign commerce.” Any trade secret owner, company or individual that satisfies this jurisdictional requirement will have protection under this law.
What questions should clients be asking now?
There is a provision that requires notice of new whistleblower and immunity protections for any contract that is updated or entered into after the date of the new legislation. Trade secret owners will need to look closely at their contracts to comply with that part of the law.
The second thing is that trade secret owners should always make sure they have reasonable measures in place to protect their trade secrets. Owners sometimes do not have full awareness about whether they have adequate protection for their trade secrets. With this new law, in addition to seeing if they can benefit from these new rights and protections, companies should also assess the effectiveness of their trade secret protections, because if you don’t meet that standard, you may not have a remedy under this new law. Trade secret owners’ protection measures often aren’t as strong as they think they are.
What are the team’s capabilities in this area?
We often help clients on a trade secret theft that may warrant a criminal prosecution in addition to civil remedies. My background is handling criminal cases, and now I also help evaluate and investigate trade secret theft to provide guidance about whether it’s an appropriate case for criminal or civil prosecution. We’ve also brought cases to the US Attorney on behalf of clients, assisting in evaluating if a case would be appropriate and presenting to the DOJ for consideration.
What do you recommend that clients ask about when seeking legal counsel?
Having had the experience of handling these cases, I would urge companies to ask their lawyer about the specific experience they have had in handling different trade secret cases and how they would approach a trade secret theft. Morgan Lewis can assist companies with identifying relevant factors to consider under the new law and assessing whether they’d want to seek a federal or state remedy. We’re developing a multi-factor checklist to help clients walk through the process. And, of course, clients should always feel free to call us directly.