November 19, 2014

Federal Trade Secrets Legislation:

What Is It? Will It Pass? What Does It Mean for Employers?

Theft of trade secrets is a constant concern for many employers. Congress has listened, and over the course of this year, it has been moving forward with federal legislation aimed at protecting trade secrets. 

What's In the Bill?

Earlier this year, legislation was introduced in both the Senate and House of Representatives aimed at providing uniform, nationwide protection for trade secrets under federal law. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) sponsored the Senate bill, called the Defend Trade Secrets Act (S. 2267). In the House, Representatives George Holding (R-NC) and Jerry Nadler (D-NY) co-sponsored H.R. 5233, the Trade Secrets Protection Act of 2014.

These two bills are similar, and the primary feature of each is to create a federal civil cause of action for trade secret misappropriation. Both bills substantially track the Uniform Trade Secrets Act (UTSA) which has been adopted by a majority of states, some with minor modifications. 

One significant area in which the bills depart from the UTSA is by providing for ex parte seizure orders. Under the House version, a federal court may issue an ex parte order to seize property "necessary to preserve evidence" or to "prevent dissemination of the trade secret" if the plaintiff can show the following things "clearly … from specific facts":

  • Injunctive relief under Fed. R. Civ. P. 65 is inadequate.
  • The plaintiff will suffer "immediate and irreparable injury."
  • The harm to the plaintiff outweighs the harm to both the defendant and any third parties who may be affected by the order.
  • The plaintiff is likely to show both misappropriation, and that the defendant is in possession of the trade secret.
  • A particular description of the subject of the seizure and its location.
  • The defendant would move, hide or destroy the materials if he/she/it received notice.
  • The plaintiff has not "publicized" the requested seizure.

The House bill limits any ex parte seizure order by requiring the court to minimize disruption to the defendant; issue specific factual and legal findings; hold a hearing within seven days; and order the plaintiff to post an appropriate bond. 

Where Does It Stand?

On September 17, 2014, the House Judiciary Committee approved the House bill. The lone amendment was submitted by Rep. Holding, the sponsor of the bill, and added language aimed at clarifying the seizure provision and addressing the liability of website operators for content provided by third parties. The Senate bill has been referred to the Senate Judiciary Committee, but no legislative markup has occurred.

The sponsors of the Trade Secrets Protection Act are pushing for full House passage later this year. In response to a request for comment, Rep. Holding, stated: "The theft of trade secrets costs American businesses billions of dollars and countless jobs each year. I urge my colleagues in Congress to support this bill, which will help American businesses, both large and small, combat this constant threat that stifles innovation and inhibits job creation."  

Is It Likely to Pass?

Unlike previous attempts at federal trade secret legislation, these bills have wide support on both sides of the aisle—but whether they will reach the president's desk remains to be seen. In the House, there appears to be little opposition to the bill among members. In addition, the legislation enjoys broad support from members of the business community, including Microsoft, 3M, GE, DuPont, Eli Lilly and the U.S. Chamber of Commerce. 

The Honorable Mary Bono, former United States congresswoman and current Senior Vice President at FaegreBD Consulting, is cautiously optimistic about the bill's chances: "This is the kind of bill that should be easy for Congress to get behind," Bono said. "Members of Congress and their constituents in the business community recognize that cybersecurity is a key public policy issue and the damage caused by trade secret theft is real and substantial."     

What Does This Mean for Employers?

If the federal legislation passes, it will provide more legal options for employers pursuing trade secret misappropriation claims. The potential for ex parte seizure orders in appropriate cases would give employers an avenue for relief that goes well beyond what is currently obtainable in most UTSA jurisdictions. Indeed, even the potential for such ex parte seizures may serve as a deterrent to former employee misappropriators and competitors. In addition, a uniform body of federal trade secret case law may help to smooth over many of the state law variations in interpreting the UTSA. It is worth noting, however, that neither the Senate nor the House bill pre-empts state law. Thus, plaintiffs may retain the option to proceed in state court. 

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