If enacted, the legislation would represent the most significant trade secret reform in many years.
Major federal trade secret legislation is receiving strong bipartisan support and consideration in the US Congress. The legislation would modernize and strengthen trade secret law and address a number of problems commonly encountered under current law. If enacted, the legislation would represent the most significant trade secret reform in many years.
As the latest development, on January 28, the US Senate Committee on the Judiciary (Senate Judiciary Committee) reported out the Defend Trade Secrets Act of 2016 (DTSA), S. 1890, on a unanimous voice vote. The Senate is expected to consider the reform measure next. Similar bipartisan legislation, H.R. 3326, has been introduced in the US House of Representatives.
Trade secrets take many forms and represent a tremendous value to the US economy. Trade secrets touch nearly every sector of the economy, including the technology, financial institution, health, manufacturing, automobile, agriculture, and military industries, among many others. Trade secrets can include commercial information, such as “financial, business, scientific, technical, economic, or engineering information.” Some trade secret examples include prototypes, plans, processes, codes, designs, methods, and techniques.
Trade secret theft can be devastating on many levels. Theft can destroy the value of a trade secret and competitive advantages for a trade secret owner. It can result in lost jobs and harm to a company or industry. The cost of trade secret theft has been estimated to be “from one to three percent of the Gross Domestic Product (GDP) of the United States and other advanced industrial economies.”
When trade secrets are stolen by insiders, hackers, or competitors, obtaining meaningful relief under current law can be challenging, particularly when the trade secrets are removed to other jurisdictions or outside the United States. Unlike other forms of intellectual property, trade secret owners are currently limited to state law remedies after trade secrets are misappropriated. Currently, 47 states have enacted some form of the Uniform Trade Secrets Act (UTSA). These state-based remedies may be effective for the misappropriation of a local trade secret. However, under state law, efforts to obtain remedies for stolen trade secrets taken to other jurisdictions can be cumbersome, costly, and ineffective. For example, the process to obtain a deposition of a witness in another state can require multiple court orders and delay. Instead, in federal court, parties have nationwide subpoena service power.
Although preserving the option for a trade secret owner to use state law remedies, DTSA would modernize and enhance trade secret protection laws and provide more uniform protection for trade secret owners. DTSA amends the Economic Espionage Act of 1996 (EEA), which provides for federal criminal penalties for trade secret misappropriation and foreign economic espionage and adds new federal civil protections.
Some of the key features of the legislation include the following:
The federal court process would be more efficient and effective to obtain witness depositions and discovery, particularly when a trade secret has already been or may be transported across state lines. Federal civil remedies are already available for other forms of intellectual property, including copyrights, trademarks, and patents. The legislation provides the same federal options for trade secrets.
The ex parte seizure order is subject to several restrictions, including requirements that (1) there be no other adequate equitable relief available, (2) the court has determined that the applicant is likely to be able to show that the target of the seizure misappropriated and has “actual possession” of the trade secret, and (3) the trade secret is in danger of being destroyed or removed.
DTSA provides protections to the target of a seizure order, including requirements that the court is responsible for keeping a trade secret confidential after it has been seized, the court must schedule a hearing within seven days after the seizure order was issued, and the target of the seizure order has a civil remedy for damages in the instance of a wrongful or excessive seizure.
Growing Bipartisan Support and Increasing Chances of Enactment
Currently, the trade secret reform legislation is supported by a bipartisan group of 31 senators and 109 representatives. Legislative support is building on earlier efforts. In December 2015, the Senate Judiciary Committee held the hearing Protecting Trade Secrets: the Impact of Trade Secret Theft on American Competitiveness and Potential Solutions to Remedy This Harm.
In the prior Congress, an earlier version of the DTSA was reported out of the US House Committee on the Judiciary on September 17, 2014. Further action on the legislation was not taken because the congressional session ended. Although it is difficult to predict when the legislation will move forward, given the increasing bipartisan support, momentum is building on the legislation and the chances of enactment are increasing.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Mark L. Krotoski
Jeffry S. Mann
Greta L. Burkholder
 S. 1890 was introduced by Senator Orrin Hatch (R-UT) and Senator Chris Coons (D-DE). S. 1890, 114th Cong., 1st Sess. (2015), available at https://www.congress.gov/114/bills/s1890/BILLS-114s1890is.pdf. During the Senate Judiciary Committee mark-up hearing on January 28, 2016, the authors offered an amendment in the nature of a substitute, which was unanimously accepted. S. 1890, 114th Cong., 2d Sess. (2016), available at https://www.congress.gov/114/bills/s1890/BILLS-114s1890rs.xml .
 H.R. 3326 was introduced by Congressman Doug Collins (R-GA) and Congressman Jerrold Nadler (D-NY). H.R. 3326, 114th Cong., 1st Sess. (2015), available at https://www.congress.gov/114/bills/hr3326/BILLS-114hr3326ih.pdf.
 For recent examples, see Trade Secret Examples Based on Recent Criminal and Civil Cases, available at https://www.morganlewis.com/~/media/files/publication/practice%20resource/supplemental%20info/protecting%20trade%20secrets/lpg_tradesecrets_appendixb.ashx.
 See, e.g., Economic Espionage Act, 18 U.S.C. § 1839(3) (defining trade secrets); see also Uniform Trade Secret Act § 1(4) (same), available at http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf.
 Economic Impact of Trade Secret Theft: A Framework For Companies To Safeguard Trade Secrets And Mitigate Potential Threats, 3 (Feb. 2014), available at https://create.org/wp-content/uploads/2014/07/CREATe.org-PwC-Trade-Secret-Theft-FINAL-Feb-2014_01.pdf.
/a> For the UTSA, see http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf. For UTSA jurisdictions, see http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade Secrets Act.
 Fed. R. Civ. P. 45(b)(2) (“A subpoena may be served at any place within the United States”).
 S. 1890, § 2 (proposed § 1836(b)(1)).
 Id. (proposed § 1836(b)(2)).
 Id. (proposed § 1836(b)(2)(A)(i)).
 Id. (proposed § 1836(b)(2)(E)).
 Id. (proposed § 1836(b)(3)(A)(i)(I)).
 Id. (proposed § 1836(b)(3)(A)).
 Id. (proposed § 1836(d)).
 Id. § 7 (proposed § 1833(b)); see also amendment as offered, available at http://www.judiciary.senate.gov/imo/media/doc/Leahy-Grassley1%20-%20ALB16037.pdf.
 S. 1890, § 3 (proposed § 1835(b)).
 Id. § 2 (proposed § 1836(b)(2)(D)(i)).
 Id. (proposed § 1836(b)(2)(D)(ii)).
 Id. (proposed § 1836(b)(2)(H)).
 Id. § 3(a) (amending § 1832(b)).
 Id. § 3(b).
 Id. § 4.
 Id. § 6(a).
 For further analysis of the trade secret reform legislation, see Statement of Mark Krotoski Submitted to the US Senate Judiciary Committee for the Hearing on “Protecting Trade Secrets: The Impact of Trade Secret Theft on American Competitiveness and Potential Solutions to Remedy This Harm” (Dec. 2, 2015), available at https://www.morganlewis.com/pubs/protecting-trade-secrets.
 See H.R. 5233, 113th Cong., 2d Sess. (July 29, 2014), available at http://www.gpo.gov/fdsys/pkg/BILLS-113hr5233ih/pdf/BILLS-113hr5233ih.pdf.
 See Committee Markup Transcript of: H.R. 5233, the “Trade Secrets Protection Act of 2014” (Sept. 17, 2014), available at http://judiciary.house.gov/_cache/files/4d029f1e-fbf3-40e1-acdd-e555b464c984/09.17.14-markup-transcript.pdf; see also Press Release: Judiciary Committee Approves Trade Secrets Legislation (Sept. 17, 2014), available at http://judiciary.house.gov/index.cfm/press-releases?ContentRecord_id=316CB38D-2FE7-462A-8FCC-71205AEE2152.