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Will Trade Secrets Finally Get Federal Civil Protection?

On April 29, 2014, Senators Christopher Coons (D-Del.) and Orrin Hatch (R-Utah), both members of the Senate Judiciary Committee, introduced the Defend Trade Secrets Act (S. 2267), a proposed amendment to the Economic Espionage Act of 1996, which made trade secret theft a federal crime.  This bipartisan legislation would enhance trade secret protection by creating a federal private right of action for the misappropriation of trade secrets related to products or services used in interstate or international commerce.

Trade secrets constitute a critical form of intellectual property.  They include confidential and proprietary formulas, designs, instruments, business practices, manufacturing processes, industrial techniques, advertising strategies, and compilations of information in the form of customer lists and customer profiles.  Patents, trademarks, and copyrights are all protected by federal civil law, but there is currently no federal civil remedy for trade secret misappropriation. The Defend Trade Secrets Act would create such a remedy.

The proposed legislation provides for injunctions both to prevent actual or threatened misappropriation and to require that affirmative actions be taken to protect trade secrets.  It also provides for damages for actual loss and unjust enrichment caused by the misappropriation, or for a reasonable royalty in lieu of damages.  And it provides for the award of treble damages and reasonable attorney’s fees in the event of wilful or malicious misappropriation.

Perhaps most importantly, however, the proposed legislation would provide trade secret owners with the ability to obtain civil ex parte orders to preserve evidence by making copies of electronic storage mediums containing the trade secrets, and to seize any property used to commit or to facilitate the commission of the misappropriation.  This will make it easier for trade secret owners both to prevent the irreparable harm that would be caused by the unauthorized use and dissemination of their confidential information and to prove that the alleged misappropriation took place.

In creating a federal civil remedy for trade secret misappropriation, the Defend Trade Secrets Act would also allow trade secret owners that engage in interstate commerce or that are located in more than one state to craft a uniform set of non-disclosure policies that apply nationally.  In turn, this would allow them to develop uniform internal mechanisms to maintain the confidentiality of their valuable proprietary information, thereby making it easier and more efficient for them to ensure those mechanisms are in place and working properly.

Unlike previous failed attempts to enhance federal trade secret protection, the Defend Trade Secrets Act has both bipartisan congressional support and broad support from the business community, including from leading American companies and organizations like General Electric, DuPont, Philips, the National Association of Manufacturers, and the U.S. Chamber of Commerce.  As such, it stands a pretty good chance of becoming law.


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Sandra Badin