United States: Senate Judiciary Committee Issues Report In Support Of Defend Trade Secrets Act

The Senate Judiciary Committee recently released Senate Report 114-220 regarding the Defend Trade Secrets Act of 2016 ("DTSA"). A background on and recent developments of the DTSA are discussed more fully on our blog.

The Judiciary's most recent report, authored by Senator Chuck Grassley (R-IA), recommended that the recently amended version of S. 1890 pass.

The Report was separated into seven subparts, which discussed the (1) background and purpose of the DTSA; (2) the history of the bill and committee consideration; (3) a section-by-section summary of the bill; (4) a congressional budget office cost estimate; (5) a regulatory impact evaluation; (6) concluding remarks; and (7) changes to existing law that the bill would effect.  The most noteworthy sections are discussed below.

Background and Purpose of the DTSA

The Report began by noting the importance of the legal protection of trade secrets, as well as the "economically damaging" effect on their theft. The Report illustrated this damage by comparing the economic loss to the American economy caused by trade secret theft ($300 billion) to the total annual level of U.S. exports to Asia, and by noting that 2.1 million U.S. jobs are lost each year due to such theft. Trade secret theft, the Report acknowledged, is becoming harder to pinpoint as technological advances promulgate. In this regard, the Report recognized the lack of civil remedy at the federal level for trade secret theft, and described how the DTSA would amend the Economic Espionage Act of 1996 ("EEA") to provide for not only a federal criminal remedy, but also for a federal civil remedy for trade secret misappropriation. The DTSA would provide victims of trade secret theft equitable remedies as well as damages awards. Equitable remedies under the DTSA include expedited relief in the form of an ex parte seizure, but only in extreme circumstances so as to prevent further dissemination of trade secret information and/or for the preservation of evidence.

The ex parte seizure provision has met some adversity.  However, the Report sought to mitigate any opposition by recalling that the DTSA balances the seizure provision with the rights of defendants and third parties by: (1) minimizing interruption to business operations of third parties; (2) protecting seized property from disclosure; and (3) setting a hearing date as soon as practicable.

History of the Bill and Committee Consideration

The Report next delineated the history of the DTSA, which includes past bills S. 3389, the Protecting American Trade Secrets and Innovation Act of 2012 (introduced by Senators Kohl, Coons, and Whitehouse), and S. 2267, the Defend Trade Secrets Act of 2014 (introduced by Senators Coons and Hatch).  Next, the Report referenced the Committee hearing that occurred on December 2, 2015 (about which we blogged and held a Live Tweet), which featured intellectual property counsel from E.I. DuPont de Nemours and Company and Corning, Incorporated, as well as an expert on trade secret law, and a professor specializing in trade secret academia.  Previous to the December hearing, the Senate Judiciary Committee's Subcommittee on Crime and Terrorism held a hearing in May 2014, entitled ''Economic Espionage and Trade Secret Theft: Are Our Laws Adequate for Today's Threats?," which featured testimony from an FBI representative, the Vice President of Intellectual Property Management at the Boeing Company, the President and CEO for the Center for Responsible Enterprise and Trade, the President of Marlin Steel Wire Products, and the Vice President and General Patent Counsel for Eli Lilly and Company.

More recently, in January 2016, Senators Hatch and Coons presented two "groups" of amendments to the DTSA (blogged here), taking into consideration suggestions from other members of the Judiciary Committee.  As such, it unanimously adopted both groups of amendments.

The first group of amendments: (1) made it so only a trade secret owner could bring a civil action for misappropriation; (2) changed the statute of limitations from five years to three years; (3) re-defined "trade secret" and "improper means;" (4) clarified that ex parte seizures may only be instituted in "extraordinary circumstances" and placed further limitations on the seizures; (5) clarified the appropriate scope of injunctions relating to employment to ensure that court orders are not contrary to applicable state laws; and (6) added language expressing Congress' notion of the importance of balancing the interests of all parties when issuing an ex parte seizure, and "instructing the Federal Judicial Center to develop best practices for the execution of seizures and the storage of seized information."

The second group of amendments sought to provide protection to "whistleblowers who disclose trade secrets to law enforcement in confidence for the purpose of reporting or investigating a suspected violation of law," and the "confidential disclosure of a trade secret in a lawsuit, including an anti-retaliation proceeding."

Section-by-Section Summary of the Bill

Much of the substance of the section-by-section summary portion of the Report appears above.  That said, below appears a list of additional points of interest presented by section of the bill:

  • Section 2 of the bill describes federal jurisdiction for theft of trade secrets. Importantly, it describes the ex parte seizure orders and their scope.  A portion of the summary is reproduced and discussed below:

    • Ex parte seizures will only issue upon a showing that the prerequisites for the issuance of such are present. In other words, a seizure will only issue if an injunction under the rules of civil procedure would be adequate, such as when there is evidence that a defendant is a flight risk or will immediately share the trade secret with third parties.  The Report lists further requirements a party must show in order for a seizure order to issue:

(1) a temporary restraining order issued pursuant to Federal Rule of Civil Procedure 65(b) would be inadequate because the party to which the order would be issued would evade, avoid, or otherwise not comply with it;

(2) immediate and irreparable injury will occur if the seizure is not ordered;

(3) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom the seizure is ordered and substantially outweighs the harm to any third parties;

(4) the applicant is likely to succeed in showing that the person against whom the seizure is ordered misappropriated the trade secret by improper means, or conspired to misappropriate the trade secret by improper means, and is in actual possession of it and any property to be seized;

(5) the applicant describes with reasonable particularity the matter to be seized and, to the extent reasonable, identifies the location where the matter is to be seized;

(6) the person against whom the seizure would be ordered, or those working in concert with that person, would destroy, move, hide, or otherwise make such matter inaccessible if the applicant were to provide that person notice; and

(7) the applicant has not publicized the requested seizure.

The Report hypothesized that courts would require a party seeking a seizure order to describe the trade secret at issue with "sufficient particularity," especially in light of the "actual possession" requirement, which aids in protecting third parties from succumbing to the seizure order (like Internet service providers).

  • Remedies

    • Equitable remedies are provided for in the bill, but if found appropriate, the bill allows a court to require "affirmative actions to be taken to protect the trade secret" and may "condition future use of the trade secret upon payment of a reasonable royalty" for a determined amount of time.
    • Additional state law remedies are available under the Uniform Trade Secrets Act ("UTSA") of a particular jurisdiction as well as under the DTSA. As such, the DTSA does not preempt state law with regard to remedies, and, with particular regard to equitable remedies, is "intended to coexist with... applicable State law governing when an injunction should issue in a trade secret misappropriation matter."
    • Exemplary damages and attorney's fees are available as well.
  • Definitions; Rule of construction; Conforming amendments

    • "Misappropriation" is defined as it is under Section 1(2) of the UTSA; and
    • "Improper Means" is defined as it is under Section 1(1) of the UTSA
  • Section 3 of the bill discusses the enforcement of trade secret theft. It sets a maximum penalty for violation of the bill to be "the greater of $5,000,00 or three times the value of the stolen trade secret" to the owner of the trade secret.  Such amount includes "expenses for research and design and other costs."  Section 3 also amends 18 U.S.C.§ 1961(1) to include portions of the DTSA as "predicate offenses for the Racketeer Influenced and Corrupt Organizations (RICO) Act.
  • Section 4 of the bill discusses report on theft of trade secrets occurring abroad and requires the filing of a report by the U.S. Attorney General on several issues, including the "scope and breadth of trade secret theft from United States companies occurring outside the United States" (emphasis added).

It remains to be seen whether the Senate's Report will have any effect on the House's bill, H.R. 3326, which currently has 126 co-sponsors, but does not contain some of the changes made to the Senate bill by the Judiciary Committee.  Stay tuned for further updates and please join us for our complimentary webinar on the Defend Trade Secrets Act and European Directive to harmonize EU trade secret laws on March 29th.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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