Congress passes Defend Trade Secrets Act providing federal jurisdiction for trade secret misappropriation



April 27, 2016

Trade Secrets Alert

Author(s): Jennifer Hayes, Robert A. Weikert

Today, the U.S. House of Representatives passed the Defend Trade Secrets Act, which was approved by the Senate without opposition earlier in April. President Barack Obama’s administration has expressed strong support for the bill and thus the President is expected to sign it, which will allow a federal civil lawsuit to be brought for trade secret misappropriation and provide new federal remedies for trade secret theft.

The Defend Trade Secrets Act amends the Economic Espionage Act to provide federal jurisdiction for the theft of trade secrets. As set forth in the Defend Trade Secrets Act, federal jurisdiction over trade secret misappropriation is necessary because (1) trade secret theft occurs in the United States and around the world; and (2) trade secret theft, wherever it occurs, harms the companies that own the trade secrets as well as the employees of the companies. Theft of intellectual property, including trade secrets, is estimated to cost American firms more than $300 billion a year according to a 2013 report by the Commission on the Theft of American Intellectual Property. The Defend Trade Secrets Act defines “misappropriation” consistently with the Uniform Trade Secrets Act, which is the basis of most state trade secret protections. The Defend Trade Secrets Act also provides for similar remedies, including injunctive relief, compensatory and exemplary damages and the recovery of attorneys’ fees in the event of willful or malicious misappropriation.

The Defend Trade Secrets Act provides a new remedy of civil seizure of property necessary to prevent the propagation or dissemination of the trade secret upon a showing of immediate or irreparable harm.

The statute of limitations for bringing a federal civil action for trade secret misappropriation is three years.

The Defend Trade Secrets Act also provides “whistleblower” protections for employees who confidentially disclose trade secrets to attorneys or government agencies for the purpose of reporting or investigating a suspected violation of law.

The Defend Trade Secrets Act also requires the attorney general, in consultation with the Intellectual Property Enforcement coordinator, the United States Patent Office director, and the heads of other appropriate agencies, to submit a report to the committees on the judiciary of the House of Representatives and the Senate, make it publicly available on the website of the Department of Justice and disseminate it to the public. The report will first be disseminated one year after the enactment of the bill and biannually thereafter. The report will provide a review of the scope and breadth of the theft of the trade secrets of United States companies occurring outside of the United States; the extent to which theft of trade secrets occurring outside of the United States is sponsored by foreign governments, foreign instrumentalities or foreign agents; the threat posed by theft of trade secrets occurring outside of the United States; the ability and limitations of trade secret owners to prevent the misappropriation of trade secrets outside of the United States, to enforce any judgment against foreign entities for theft of trade secrets and to prevent imports based on theft of trade secrets overseas; a breakdown of the trade secret protections afforded United States companies by each country that is a trading partner of the United States and enforcement efforts available and undertaken in each such country, including a list identifying specific countries where trade secret theft, laws or enforcement is a significant problem for United States companies; instances of the Federal Government working with foreign countries to investigate, arrest and prosecute entities and individuals involved in the theft of trade secrets outside of the United States; specific progress made under trade agreements and treaties, including any new remedies enacted by foreign countries, to protect against theft of trade secrets of United States companies outside of the United States; and recommendations of legislative and executive branch actions that may be undertaken to (A) reduce the threat of an economic impact caused by the theft of the trade secrets of United States companies occurring outside of the United States; (B) educate United States companies regarding the threats to their trade secrets when taken outside of the United States; (C) provide assistance to United States companies to reduce the risk of loss of their trade secrets when taken outside of the United States; and (D) provide a mechanism for United States companies to confidentially or anonymously report the theft of trade secrets occurring outside of the United States.

The Defend Trade Secrets Act will provide new avenues to American companies for trade secret misappropriation that cross state lines and beyond the nation’s borders. Companies should continue to inventory their trade secrets and take reasonable and adequate measures to protect those trade secrets. Company policies that address the protection and use of trade secrets should be implemented (if not already being done) to help enforce trade secret rights. Nixon Peabody’s trade secret team is available to advise companies about the reasonable measures they should be taking to protect their trade secrets and advise companies about enforcement options when they believe trade secret theft has occurred.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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