Will We See Federal Trade Secret Legislation Passed This Year?

In January of this year, we noted that trade secret protection has lately been on the minds of lawmakers in Washington, and that federal trade secret legislation was very close to being enacted.  While nothing is pending at the moment, we can expect renewed efforts similar to two bills that were introduced in Congress last year – one each in the Senate and House.  In anticipation of such efforts, we thought it would be useful to review what happened in 2014.

The Senate got the ball rolling last year with Senate Bill 2267, better known as the “Defend Trade Secrets Act of 2014.”  Sponsor Chris Coons (D-Del.) introduced the bill to the Senate Judiciary Subcommittee in April 2014.  It was co-sponsored by Senator Orrin Hatch (R-Utah), chairman of the Senate Republican High-Tech Task Force.

A few months later, the House of Representatives followed with H.R. 5233, titled the “Trade Secrets Protection Act of 2014.”  The original sponsor, Representative George Holding (R-NC), was later joined by 23 co-sponsors from both parties.

A primary stated purpose of federal trade secret legislation has been to bring trade secrets into line with other forms of intellectual property that already are protected by federal civil law.  According to proponents, such legislation would enhance protections under the Economic Espionage Act by creating a uniform standard for preventing trade secret misappropriation. Currently, companies can only enforce their trade secret rights through state laws based on the Uniform Trade Secrets Act (UTSA).  The bills’ supporters argue that because those laws differ from state to state (despite their purported “Uniform”-ity), U.S. companies cannot institute nationwide nondisclosure policies.  They also assert that a federal statute would give companies the advantages of being able to litigate in federal court, including having claims heard by judges who have resolved complex intellectual property cases.

Critics have countered that as the UTSA is already the law in 47 states, state trade secret law is well-established and substantively uniform.  They argue that the passage of federal legislation would actually undermine this uniformity, not promote it as the bills’ supporters contend.  Moreover, critics pointed out that neither bill as written would have preempted state trade secret laws, so a federal statute would not have helped companies deal with the variations in those laws.

In an open letter to Congress last August opposing the legislation, 31 university professors echoed these concerns and added several others.  For one, they posited that both bills, if passed, would be subject to abuse by companies seeking to disrupt their competitors’ businesses.  They also argued that the bills contained jurisdictional limits (described further below) that would have weakened uniformity in trade secret laws and forced litigants to identify their trade secrets early in litigation, enlarging the risk of accidental disclosures.

The House and Senate bills were similar to each other but not identical.  Some of the issues they addressed can be summarized as follows:

  • Scope:  To address concerns related to Congress’s power under the Commerce Clause, each bill contained a jurisdictional clause limiting its scope to trade secrets “related to a product or service used in or intended for use in, interstate or foreign commerce.”  This limited scope fed critics’ fears about weakened uniformity, as described above.
  • Provisional and Equitable Relief:  Each bill would have authorized federal courts to issue preservation-of-evidence orders on an ex parte basis, grant injunctions to prevent actual or threatened misappropriation, and order the ex parte seizure of any property used to facilitate trade secret misappropriation.  The House bill alone would have conditioned the issuance of a seizure order on the applicant’s posting of a bond (meant to cover an award of damages to the defendant in case of wrongful or excessive seizure) and authorized courts to prohibit publicizing the seizure order and/or the seizure itself.
  • Monetary Remedies:  Each bill proposed civil monetary remedies including damages for actual loss and unjust enrichment and/or a reasonable royalty.
  • Willful Misappropriation:  Each bill would have instituted remedies for willful and malicious violations, including exemplary damages (not to exceed three times any compensatory damages awarded) and reasonable attorney’s fees.  This would have been an enhancement over the laws in many states that limit punitive damages to twice actual damages.
  • Statute of Limitations:  Each bill proposed a five-year statute of limitations to commence an action, which would have started to run when the misappropriation was discovered or should have been discovered.  This compares to a three-year statute of limitations under the UTSA.

Although neither bill progressed very far in 2014—the Senate bill died in the Judiciary Committee, while the House bill made it out of the Judiciary Committee but did not see a vote by the full House—the effort to enact a federal trade secret law is expected to continue in 2015 as both bills received bipartisan support and no major opposition was encountered.  We will be sure to keep you updated on any progress in 2015.