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"Where a lot of the debate has happened is not around whether or not there should be a federal remedy – there is pretty much universal agreement on that" – Aaron Cooper, of counsel at Covington & Burling |
Last week the Trade Secrets Protection Act of 2014 was introduced in the House of Representatives by Representative George Holding, and co-sponsored by Representatives Jerrold Nadler, Howard Coble, John Conyers, Steve Chabot, and Hakeem Jeffries. This is companion legislation to the Defend Trade Secrets Act that was introduced in the Senate in April by Senators Chris Coons and Orrin Hatch.
Unlike other forms of intellectual property, there is no federal civil remedy to protect trade secrets at the moment. Instead, companies must rely on federal criminal statutes and an array of state laws. Forty-eight states have adopted the Uniform Trade Secrets Act, which provide a civil course of action in a state court for a party whose trade secrets have been stolen.
State remedies were fine when a typical trade secrets theft would be a disgruntled former employee taking a customer list to a rival. But state laws are becoming increasingly ill-suited to the task. In the digital age, vast amount of files can be be accessed and downloaded within seconds, making it increasingly difficult to protect against theft.
Aaron Cooper, of counsel at Covington & Burling, which represents a coalition of firms advocating for a federal civil remedy for trade secret misappropriation, told Managing IP that time is a much bigger factor in trade secret misappropriation these days.
“In more recent years companies have said most of our trade secrets thefts these days are not the customer list where somebody is breaking into my house. They are almost always interstate internal types of theft where state remedies are not as effective as federal remedies,” he said.
The same, but different
The House and Senate bills are similar. They would both update the Economic Espionage Act to add federal civil actions in addition to the existing criminal statutes and state laws. There are some differences, however. Cooper some concerns were raised after the Senate bill was introduced. More companies paid attention to the issue and identified worries about unintended consequences.
“Where a lot of the debate has happened is not around whether or not there should be a federal remedy – there is pretty much universal agreement on that,” said Cooper. “It is how can we make sure we allow companies to quickly act in order to stop the trade secret being disseminated while making sure we are protecting innocent third parties that might have information on the thumb drive and also making sure a plaintiff can’t game the system by trying to seize something where they are really just looking for a competitive advantage.”
Those with concerns wanted to ensure there are enough protections written into the ability to get a seizure so that it would only be used to get an injunction an extreme situation. They were at pains to avoid the bill being used to seize a rival’s server, for example.
“That certainly is not the intent of the Coons-Hatch bill,” said Cooper. “I don’t think that would have been possible under the bill, but those were certainly the concerns that were being raised.”
An example of a change between the Senate and House bills was that the Senate bill had a provision outlining the requirements for getting an ex parte order for preservation of evidence and seizure that merely referenced those in section 34(d) of the Trademark Act of 1946. This worried some companies because they thought the requirements may not be paid attention to unless they were actually listed in the bill.
As a result, the House bill lists out the requirements, such as proving immediate and irreparable injury if a seizure is not ordered, showing the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered, or proving that the person against whom seizure would be ordered would destroy or hide the trade secrets. The party asking for a seizure must also post a bond for payment of damages if the seizure is revealed to have been wrongful or excessive.
“A real chance of passing”
This made companies much more comfortable with the bill, as can be seen by a coalition of 44 companies writing a letter of support for the bill. The trade secret reform has broad support from companies such as Boeing, caterpillar, Dell, Eli Lilly, General Electric, IBM, Medtronic, Microsoft, Monsanto, Nike, Pfizer and Qualcomm .
It is a tough time to be trying to pass legislation, however, with this Congress the least productive in history and midterm elections coming up. Optimism at the end of 2013 about the possibility of patent reform being passed faded quickly this year. But Cooper – who was heavily involved in getting the America Invents Act passed in his previous role as chief counsel for IP and antitrust law in the Senate Judiciary Committee – believes trade secrets is a less divisive issue.
“The reason I am spending a lot of time on this is because I think this is a bill that can turn into a law this Congress,” he said. “That is largely because the importance of trade secrets protection is there for companies that are on all sides of other types of IP issues.”
Cooper said that improving the US provisions for trade secrets will also help internationally. Trade secrets protection varies widely globally. China already has a good trade secrets law but does not apply it when a state-owned enterprise is involved. A European directive is being discussed to harmonise the trade secret protection but standard on the continent vary a lot at the moment.
“So if we have a really strong federal trade secret law here in the US it will be easier for trade representatives to advocate similar standards in for instance Europe and better enforcement in countries that have trade secret laws but don’t really apply them,” said Cooper. “The situation in the US now doesn’t have the same influence as saying we have what is really the gold standard of protection for trade secrets.”
With Congress in recess for August, there will be no immediate action on trade secrets legislation. But Cooper is confident that the houses will be able to take up the bills in September and move them through committee and on to be voted on. He noted that there is the effort to produce trade secret legislation has been bipartisan and bicameral.
“This bill has the ability for leaders on both sides of the aisle, especially on IP issues, to come together and get stuff done,” he said. “It is not one house versus the other or one party versus the other. They really tried to work here on a consensus project and as a result I think it has a real chance of passing this Congress.”
