by Dennis Crouch

I am always amazed how gridlock is pushed aside to implement intellectual property laws. In a unanimous vote yesterday, the Senate passed the Defend Trade Secret Act (DTSA, S. 1890) that would create a federal cause of action for trade secret misappropriation and provides for damages and injunctive relief (including a seizure order to prevent dissemination). Neither Senators Ted Cruz nor Bernie Sanders voted. The identical bill H.R. 3326 is pending in the House of Representatives and includes 127 co-sponsors (mostly Republican). President Obama has announced his support as well.

From Senator Hatch:

Trade secrets–such as customer lists, formulas, algorithms, software codes, unique designs, industrial techniques, and manufacturing processes–are an essential form of intellectual property. Other forms of intellectual property, such as patents, copyrights, and trademarks, are covered by Federal civil law. Trade secrets, by contrast, are the only form of U.S. intellectual property where the owner does not have access to a Federal civil remedy for misuse or misappropriation. As a result, billions of dollars each year are lost to trade secret theft, which stifles innovation by deterring companies from investing in research and development. Currently, the only Federal vehicle for trade secret protection is the 1996 Economic Espionage Act, which makes trade secret theft by foreign nationals a criminal offense. But this remedy criminalizes only a small subset of trade secret theft and relies on the thinly stretched resources of the Department of Justice to investigate and prosecute such offenses. . . . State laws today are perhaps even more variable in their treatment of trade secrets than they were at the time the Uniform Trade Secrets Act was proposed in 1979. This next mixed bag of differing legal regimes forces victims of trade secret theft to wade through a quagmire of procedural hurdles in order to recover their losses. . . . Put simply, State law is designed for intrastate litigation and offers limited practical recourse to victims of interstate trade secret theft–the contrast between intrastate and interstate. Maintaining the status quo is woefully insufficient to safeguard against misappropriation. U.S. companies must be able to protect their trade secrets in Federal court.

Most trade secret cases involve former employees who take knowledge with them as they move to a new venture. The bill apparently includes minor safeguards for whistle-blowing employees and bar a court from preventing a person from moving to a new job. However, as far as I know, no employee groups have supported the Bill.

More info:

Misappropriation is defined as “(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (B) disclosure or use of a trade secret of another without express or implied consent by a person who–(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was–(I) derived from or through a person who had used improper means to acquire the trade secret; (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or (iii) before a material change of the position of the person, knew or had reason to know that–(I) the trade secret was a trade secret; and (II) knowledge of the trade secret had been acquired by accident or mistake.”

Improper means “(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition.”

Effective Date: The amendments shall apply with respect to any misappropriation of a trade secret for which any act occurs on or after the date of the enactment of this Act.

Not Intellectual Property: The new trade secrecy law “shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress.” Thus, for example, the bankruptcy IP exception 365(n) would not apply to licenses of trade secret information.