On April 4, 2016, the Senate unanimously passed a bill to amend 18 U.S.C. § 1836 to create a federal private cause of action for trade secret misappropriation and misuse. See S. 1890, 114th Cong. (2d Sess. 2016). The proposed “Defend Trade Secrets Act of 2016” (the “Bill”) would transform Section 1836, which currently criminalizes trade secret misappropriation and economic espionage, to provide remedies for trade secret misappropriation related to any product or service involved in interstate or foreign commerce. The new Bill would also allow the “civil seizure” of any misappropriated trade secret matter on an ex partebasis.
Theft or misappropriation of trade secrets is currently protected under a patchwork of state laws, not all of which are uniform. According to Utah Senator Orrin Hatch, the purpose of the Bill is to prevent valuable business information not currently protectable as intellectual property under federal patent, copyright, or trademark law from misuse in the wrong hands. Sen. Hatch stated that the Bill was designed to cover information ranging in scope from customer lists and industrial techniques, to software code and food recipes. Congress noted in the Bill that “trade secret theft, wherever it occurs, harms the companies that own the trade secrets and the employees of the companies.” The White House also released a statement supporting the Bill’s enactment and claimed the Bill “would establish a Federal civil private cause of action for trade secret theft that would provide businesses with a more uniform, reliable, and predictable way to protect their valuable trade secrets anywhere in the country.”
The Bill entitles those damaged by interstate or foreign misappropriation or misuse of trade secrets to both injunctive and monetary relief. Money damages include actual loss, unjust enrichment, or even a reasonable royalty rate, and in cases of willful and malicious misappropriation, punitive damages up to two times the award are available. Additionally, an employee may be enjoined from entering into any employment relationship in circumstances where a former employer may be harmed based on the employee’s knowledge.
In extraordinary circumstances, a private cause of action for civil seizure would be available upon ex parteapplication based upon affidavit or the verified complaint of a party to prevent the trade secret’s release or dissemination. The showing a party must make to obtain this relief is almost identical to that for ex parteapplications under the Lanham Act provision for civil seizures. These factors include no other adequate remedy at law to prevent the harm, the person against whom the order is directed having possession of the trade secret, and the applicant not having publicized its request for seizure. However, what is unique about civil seizure under the Bill is that although similar in theory to the Lanham Act procedure, in practice the civil seizure of trade secrets would be quite different and likely more invasive. Civil seizure under the Lanham Act generally involves the straightforward seizure of a vendor selling counterfeit products, whereby the infringing products are easy to identify and easy to recover at their place of sale or manufacture. In contrast, undoubtedly many of the trade secrets subject to seizure will be stored electronically, or may be located within one’s personal files or at a private residence, and not readily identifiable. Therefore, even though both the Lanham Act and the Bill would require the same showing, the application of civil seizures pursuant to the Bill will likely prove more complicated than civil seizures pursuant to the Lanham Act.
A moving party must post bond adequate to cover damages should the person whose property was seized be entitled to recovery for wrongful or excessive seizure. In addition, if any claim of misappropriation under the Bill is made in bad faith, the prevailing party may seek to recover its attorneys’ fees.
Dykema will continue to monitor the progress of the Defend Trade Secrets Act of 2016 as it awaits House approval.