Can You Keep a Secret? The Quiet Pursuit of a Federal Trade Secret Regime

Posted on by John M. Erbach in Intellectual Property and Information Technology

Congress is currently mulling new legislation designed to federalize (partially) trade secret law--the Defend Trade Secrets Act in the Senate and the Trade Secrets Protection Act in the House of Representatives. Have you heard about this? Probably not. It appears that only a small contingent of industry groups is pushing for the new law. Unlike patent reform, which has garnered significant media attention, trade secret reform has not attracted the same level of public discussion. Even the typically vocal proponents of patent reform based in Silicon Valley seem surprisingly quiet about the proposed legislation.

Trade secrets are one of several tools that businesses may use to protect their intellectual property. In a nutshell, a trade secret is a formula, process, device, or business information that is kept confidential and, as a result of that confidentiality, has independent economic value to its owner. Its owner must take reasonable measures to maintain the secrecy of its trade secrets. Unlike patents, copyrights, and trademarks, there is no nationwide registration regime for trade secrets (obviously--it wouldn't be a secret if registered). And, unlike other areas of intellectual property ruled by federal law, state law predominantly governs trade secrets. The federal Economic Espionage Actprohibits the theft of trade secrets at the federal level where a foreign entity might benefit from the theft. However, it provides no private right to enforce those laws. At the federal level, enforcement is left to the government, and those harmed by economic espionage may have to press civil claims under state trade secret laws, and are often limited to state courts.

While the proposed federal statute would duplicate trade secret protections already afforded under the Uniform Trade Secrets Act, which governs in 47 states, there are important differences. If your business owns trade secrets, here are a few things you should know about the current version of the proposed federal legislation:

  1. The law would create a federal, private civil action in federal court for theft or misappropriation of trade secrets where interstate or foreign commerce is involved.
  2. A party enforcing its rights could seek an ex parte (that is, without the defendant having an opportunity to be heard by the judge) order allowing the seizure and/or preservation of property used to steal or misappropriate the trade secret. For example, Acme Corporation could get a court order to seize a computer allegedly containing Acme trade secrets from Competitor Inc. before Competitor even knows it has been sued. Federal courts may already grant a "temporary restraining order" under similar circumstances, but the proposed legislation establishes its own set of standards and procedures to supplement those already available.
  3. Federal courts would be able to remedy trade secret theft by issuing injunctions and/or providing monetary relief. Where appropriate, monetary relief could include a "reasonable royalty" and/or treble (3 times) damages.
  4. State trade secret laws would not be preempted. In other words, a company bringing suit could allege both violation of federal and state law, with federal law intended to complement, rather than replace, state laws in this area.

Currently, it is not clear that a federal trade secrets act will ultimately pass. Consider that the highly-publicized patent reform legislation has stalled in Congress despite broad bi-partisan support from Silicon Valley. And, there are arguments against adopting a federal regime for trade secret protection, including that the proposed law will be mostly redundant of state law applicable in most states, and the potential abuse of the ex parteprocedures.

This proposed legislation is still in its infancy and it is far from certain to pass. In the meantime, businesses should be sure to protect their own trade secrets and to comply with existing trade secret laws. If in doubt about your rights and responsibilities in this area, you should seek counsel familiar with this area of law.

About the Author

John M. Erbach represents a wide variety of business entities and individuals in complex business and commercial litigation, including employment disputes, defense of consumer protection claims, and intellectual property litigation.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.