Senate Passes Bill 87-0 to Create Federal Trade Secret Law

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By Tony Dutra

April 4 — The Senate passed a bill April 4 that would allow businesses—for the first time—to sue in federal court for trade secret theft and potentially seize property used to facilitate the theft.

The Defend Trade Secrets Act of 2015, S. 1890 (DTSA), by Sen. Orrin G. Hatch (R-Utah), is strongly backed by large companies and, specifically, the high-tech community. Sponsors of the bill, which passed 87-0, are hoping for quick House action.

“I urge the House to pass this bill now so the president can sign it into law as soon as possible,” Sen. Chris Coons (D-Del.), who cosponsored the bill, said in a statement.

Trade secrets fall under the purview of state law. Most states have adopted some form of the Uniform Trade Secrets Act (UTSA), a model law that provides a framework for trade secret protection.

The only federal trade secrets law is the Economic Espionage Act (EEA), a criminal statute. However, charges under the EEA must be brought by the U.S. government, which has brought only about 10 cases each year. Businesses can also pursue remedies under various other federal laws, such as the Computer Fraud and Abuse Act, depending on the specifics of their cases.

Trade secrets “are the only form of U.S. intellectual property where the owner does not have access to a federal civil remedy for misuse or misappropriation,” Hatch said in a statement. “As a result, billions of dollars each year are lost to trade secret theft, which stifles innovation by deterring companies from investing in research and development.”

If enacted, the DTSA would create a new federal private right of action for theft of a trade secret, which includes customer lists, formulas, algorithms, software codes, unique designs, industrial techniques and manufacturing processes. The measure would not preempt state laws, giving victims the option of seeking civil remedies for trade secret theft in federal or state court.

“I’m thrilled the Senate came together in a bipartisan way to pass our bill that will finally give trade secrets the same legal protections that other forms of critical intellectual property enjoy,” Coons said in a statement after the vote. “It’s a long overdue update that will empower American companies to protect their jobs in the 21st century.”

The White House issued a statement before the vote saying it “strongly supports the Defend Trade Secrets Act of 2016 and looks forward to working with the Congress on this important piece of legislation as it moves through the legislative process.”

House Action Coming?

H.R. 3326, the comparable House bill, has 127 sponsors, but the House Judiciary Committee has not yet announced a hearing or markup session.

“Protecting American intellectual property from criminal theft by foreign agents remains a priority for the House Judiciary Committee,” said Jessica Collins, a spokeswoman for Chairman Robert W. Goodlatte (R-Va.).

The House bill was identical to the original Senate version, but the Senate Judiciary Committee adopted changes, including placing more restrictions on the seizure provisions. Because the House was less bullish in allowing seizure in similar legislation two years ago, the Senate committee's changes are likely to improve the bill's chances for House passage.

Before the Senate vote, Hatch said he would work with Goodlatte to see the bill passed into law.

Mashup of UTSA, EEA

The EEA made trade secret theft a federal crime but did not provide for civil jurisdiction in federal court. In general, S. 1890 and H.R. 3326 shoehorn language from the UTSA into the statutory structure of the EEA, 18 U.S.C. Chapter 90.

The UTSA has been adopted in 47 states and the District of Columbia, with UTSA bills under consideration in Massachusetts and New York. Only North Carolina is holding out.

Despite the virtually identical language in the state statutes, large companies complain that state courts have developed different standards.

“Although the differences between state laws and the UTSA are generally relatively minor, they can prove case-dispositive,” according to the Senate Judiciary Committee's report on S. 1890.

There are also limits to what state laws can accomplish in the area of trade secrets, said the Intellectual Property Owners Association in a statement. “State trade secret laws are not well-suited to respond to the movement of trade secrets across state and international borders or to act swiftly to preserve evidence and protect trade secrets from being further divulged,” it said.

Two Controversial Issues

The most controversial aspect of the bill would allow a trade secret owner to request government seizure of any property that was used to help facilitate the suspected misappropriation.

The committee insisted in its report that courts will authorize seizure only in “extraordinary circumstances,” but critics were skeptical. If it's going to be used so infrequently, 31 law professors said in a Nov. 7 letter to the legislators, “Why create a new remedy that is fraught with potential for abuse?”

The committee added more limits to the seizure provisions in its Jan. 28 markup of S. 1890 . The changes were enough to sway Sens. Patrick J. Leahy (D-Vt.) and Sheldon Whitehouse (D-R.I.), who praised their colleagues for addressing concerns they had expressed in a Dec. 2 hearing.

The markup also addressed an “employee mobility” complaint that the bill's original language made it more difficult for an employee to take a new job.

As introduced, both the Senate and House bills contained language that arguably would allow a company to prevent an employee from moving to a competitor because of trade secrets the employee knows—the “inevitable disclosure” doctrine that only a few states have adopted.

The Senate Judiciary Committee changed the relevant text, which now would require a company to provide “evidence of threatened misappropriation and not merely on the information the person knows.”

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek in Washington at mwilczek@bna.com

For More Information

Text of bill at http://src.bna.com/dNG.

Committee report at http://src.bna.com/dNH.