Making a Federal Case Out of Trade Secret Misappropriation
NEWSFLASH-Congress may actually do something.
There is talk of a bipartisan (you read that right, BIPARTISAN) bill to provide redress for trade secret theft in federal courts. Today trade secrets are the poor relations of patent, copyright and trademark, which all enjoy federal protection, but that may soon change.
Trade Secrets Sound Cool, Do I Have One?
A trade secret is confidential/proprietary information that (1) has economic value because it is not generally known and (2) is the subject of reasonable efforts to keep confidential/proprietary. KFC’s 11 herbs and spices, Coca Cola’s formula or perhaps your customer list (assuming you took reasonable steps and the list has economic value) are prime examples of trade secrets. On the other hand, if your competitor can hire a Gen-Xer or Gen-Yer to obtain the same information on Google, it’s not a trade secret.
Current Trade Secret Protection
Trade secret law evolved from the common law, law created over time by judges’ decisions, which was then codified by a group of intellectual property lawyers into the Uniform Trade Secrets Act (the “UTSA”). The UTSA has been adopted, at least in some form, by 48 states. Apparently New York and Massachusetts are holding out for a sweeter deal. For example, in California, a state where you can’t throw a cat without hitting a trade secret, the UTSA begins at section 3426 of the Civil Code. Today, there is no federal cause of action for trade secret theft, and victims are generally required to litigate in state court.
The Proposed Federal Trade Secret Legislation
The proposed federal “Defend Trade Secrets Act” would expand the Economic Espionage Act, set forth in 18 U.S.C. § 1831, to create a federal cause of action for trade secret theft. The Defend Trade Secrets Act generally mirrors existing state law under the UTSA, but the proposed federal law is limited to trade secret theft relating to “a product or service used in, or intended for use in, interstate of foreign commerce.” As with most state trade secret statutes, a victim can seek ex parte injunctions (emergency Court orders preventing the destruction, dissemination or use of alleged trade secrets, requiring the return of such information and, in some instances, prohibiting a former employee with such information from working for a competitor). It also authorizes awards of treble damages and/or attorneys’ fees for willful or malicious misappropriation. Under the proposed Defend Trade Secrets Act, the statute of limitations (deadline for filing a lawsuit) is five years, which is longer than the three-year deadline in California and many of the states that have adopted the UTSA.
Why Should I Care?
If the 48 civilized states have adopted the UTSA and the remedies are similar, why do we need a federal Defend Trade Secrets Act? First, if your trade secrets are stolen and the thief is using them in multiple states, you’ll have any easier time litigating the entire case in one federal court compared to suing in multiple state courts, which may have different rules and standards and might well require you to deploy a platoon of lawyers. Second, federal courts apply federal rules, which in many cases are more efficient than state rules. For instance, in federal court the parties are required to voluntarily exchange key documents and information at the outset of a case. Whereas in state court, parties usually must serve discovery requesting such documents and information and actually obtaining these can be like pulling teeth. Third, in many jurisdictions, federal courts are less impacted than state courts, so litigants are likely to get more attention and get relief sooner. Finally, the Defense of Trade Secrets Act may provide a good reason to ignore the idiom “don’t make a federal case out of it.” If you’re looking to protect your trade secrets, you might prefer to drag the thief in front of a federal judge, appointed for life and approved by the Senate, whom the thief might find little more intimidating than facing a local state judge, whose reelection signs can be seen on lawns and billboards every four years.
In most cases, those looking to protect their trade secret rights will benefit from the proposed Defense of Trade Secrets Act.