See You in Federal Court: Congress Creates Federal Civil Action for Trade Secret Misappropriation

US Gov building 000004688650Medium[1]Congressional efforts to create a federal remedy to protect company trade secrets have been underway for several years. Last week, S. 1890 - Defend Trade Secrets Act of 2016, which would amend the Economic Espionage Act of 1996 to create federal civil jurisdiction over the theft of trade secrets, was sent by Congress to the President for consideration. The Bill was introduced last year and was passed by an overwhelming majority of both the Senate and House in April 2016: by Senate vote (87-0) on April 4 and by House vote (410-2), without changes, on April 27. The Bill was presented to the White House on April 29 for consideration. We highlight key provisions of the pending Act, which will supplement the state and other remedies already available to companies. The Act is not meant to preempt state or other trade secret misappropriation law.

Federal Civil Action, No Preemption of State Law: Under the Defend Trade Secrets Act, an owner of a trade secret that is misappropriated may bring a civil action in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. The lawsuit must be brought within 3 years after the date on which the misappropriation is discovered or should have been discovered (by the exercise of reasonable diligence). A continuing misappropriation is considered to give rise to only a single claim.

The Act is not meant to deprive companies of the state and other remedies currently available to them for trade secret misappropriation. The Economic Espionage Act of 1996 explicitly states in 18 U.S.C. § 1838. Construction with other laws:

This chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5 (commonly known as the Freedom of Information Act).

The Defend Trade Secrets Act will not alter this rule of construction, stating: “Nothing in the amendments made by this section shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law.”

Ex Parte Seizure of Trade Secrets and Property: In extraordinary circumstances, the Act gives the court authority to seize property necessary to prevent the propagation or dissemination of the trade secret at issue based on an ex parte application supported by affidavit or verified complaint. Several criteria must be met for this extraordinary measure to be used, including: other methods provided under the Federal Rules of Civil Procedure would be ineffective in ensuring compliance; the matter to be seized would be destroyed, moved, hidden or otherwise made inaccessible to the court by the person subject to the seizure order; and the person requesting seizure has not publicized the request.

The Act requires the Court to protect the person subject to the seizure from publicity about the seizure. A seizure hearing must be held, at which time the person applying for seizure must prove the facts and conclusions of law supporting the seizure order. In the event of wrongful seizure, the person subject to the seizure has a cause of action against the person who applied for seizure.

Available Remedies for Trade Secret Theft: The Act provides a variety of remedies to prevent misappropriation and to compensate an owner of trade secrets for damages resulting from misappropriation. These remedies include:

  • Injunctions to prevent actual or threatened misappropriation within limits based on the potential impact on the employment opportunities of the person subject to the injunction;
  • Injunctions to require actions to protect the trade secrets at issue;
  • Orders conditioning future use of the trade secrets at issue on payment of a royalty for no longer than the period of time for which such use could have been prohibited;
  • Damages for actual losses caused by misappropriation;
  • Damages for unjust enrichment caused by misappropriation;
  • Damages measured by imposition of liability for a reasonable royalty for the unauthorized disclosure or use of the trade secret; and
  • Exemplary damages for willful or malicious misappropriation.

The Act also provides for attorneys’ fees to either party that prevails if misappropriation was willful or malicious, if a bad faith claim of misappropriation is made, or if a motion to terminate injunction is made/opposed in bad faith.

Congressional Report on Trade Secret Theft Outside of U.S.: The Department of Justice is required to submit an initial report one year after enactment of the Act to the House and Senate Judiciary Committees regarding the scope of theft of trade secrets from U.S. Companies that occurs outside of the U.S., the extent to which foreign governments or actors are responsible, and the threat posed by such theft. The report also must analyze opportunities for U.S. companies to protect against misappropriation of their trade secrets and several other issues related to federal and foreign government efforts to protect U.S. companies’ trade secrets abroad. The report must be submitted every two years after the initial report.

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