Ready to Nationalize Trade Secret Law?

By Dennis Crouch

On the Congressional tees this fall sit a pair of trade secret reform bills with the joint purpose of creating a private cause of action at the federal level for trade secret misappropriation.

  • The Defend Trade Secrets Act of 2014 and
  • The Trade Secrets Protection Act of 2014

Unlike other major branches of intellectual property law, US trade secret rights are predominantly state-based. Thus, my trade secret rights here in Columbia, Missouri depend upon the trade secret law enacted by the Missouri legislature.  Thus, a cause of action for trade secret misappropriation within the state of Missouri would also be brought in a Missouri state court. To be clear, there is substantial uniformity amongst the states based upon the popularity of the Uniform Trade Secret Act (the law in Missouri) as well as cross-pollination of common law principles.

At the national level, we currently have the Economic Espionage Act of 1996 (EEA) that criminalized trade secret misappropriation (as well as conspiracy) that was either (1) done with knowledge or intent to benefit a foreign power (18 U.S.C. § 1831) or (2) related to interstate or international commerce and done with knowledge or intent to harm the trade secret owner. (18 U.S.C. § 1832).

To be clear, the current federal law is a criminal law and, as such, action may only be taken by the federal government (acting through the department of justice).

The proposed modification would largely reboot trade secret enforcement practice with the following addition to the EEA:

An owner of a trade secret may bring a civil action under this subsection if the person is aggrieved by a misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce.

The result of this addition is that essentially every trade secret misappropriation action will be enforceable by the injured party under federal trade secret law.

The proposals do not appear to create any preemption – thus, the federal causes of action would parallel the state-rights in much the same way as trademark and unfair competition laws.

In his testimony before Congress on the issue, Doug Norman explained that the variety of state laws overly confusing for multi-national powers such as his employer Eli Lilly.  David Kappos has also called for the nationalized trade secret enforcement – noting that “the lack of [federal] protection has led to a host of problems that threaten U.S. companies’ competitiveness at home and abroad.

A group of 31 law professors (who teach trade secret law) led by Professors Sharon Sandeen (Hamline) and David Levine (Elon) have countered with a letter explaining that adding this additional layer of potential civil action would be harmful to the balance inherent in the current state-based system. They write:

This deep body of state law creates its own benefits; as the general principles of US trade secret law are well-established and substantially uniform, there is a high level of predictability by and for US businesses and their attorneys. But because the Acts cannot entirely preempt state trade secret law … they will result in confusion, as well as less uniformity and predictability. As a result, the business community will suffer from decreased predictability in the law with … no corresponding benefits.

To be clear, the professors are not against trade secret protection, but instead recognize that the proposal will unsettle the law and may lead to overzealous protection in federal courts.

Further, the professors do not appear to be strongly against nationalized trade secret protection. And, that solution may well be a positive approach. In his essay on the topic earlier this year, David Almeling saw this progression as following a natural order:

Trade secrets are the only major type of intellectual property (i.e., copyrights, patents, trademarks, and trade secrets) not governed primarily by a federal statute. Copyrights and patents got theirs in the 1700s. Trademark got its in the 1800s. Now that we’re firmly in the information age, it’s time for trade secrets to join their peers.

So, the particular major issues here with the proposed law is that it is entirely lacking in details – what is meant in the Bill by the key terms “trade secret” and “misappropriation.”   The lack of details are problematic when coupled with the Supremacy Clause of the US Constitution.  Most trade-secret cases are linked to other state-law issues such as employment and contract law.  The new nationalized trade secret law would reign supreme over these other areas that have up-to-now been given equal weight.

13 thoughts on “Ready to Nationalize Trade Secret Law?

    1. Thanks HftDS – an aspect of Trade Secrets that I was not aware of.

      Reply
  1. I see one point in the call against the federal law in that the federal law is not being put into place to preempt state law – and in that manner, is in fact yet another layer atop of the different state laws.

    Would the group of professors mind then a federal law that does preempt state law?
    I find their position that a truly “unified” law exists now simply not credible – thus a federal law that preempts would give what theys suppose is in place (but is not actually in place).

    Reply
  2. I assume that neither bill repeals the criminal provision under 18 U.S.C. § 1832 or provides for waiving of criminal prosecution in lieu of a civil action. Do these bills specify what, if any, inferences are to be drawn from one or more defendants in the civil action asserting their 5th amendment rights against self-incrimination?

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  3. If Trade Secrets “join their peers,” which part of the Constitution will govern?

    I ask because there is a very real difference on timing: If, like trademarks (the Commerce Clause), the protection may be unlimited in time (assuming the mark holder is diligent and protects against the mark becoming ge neric). If, on the other hand, the patent clause is used, then “limited times” would need to be folded into the protection.

    This is not the first time that the notion of timing has intersected with patent law – as I have noted previously, there have been mistakes by some notable people in patent jurisprudence getting it wrong by confusing the protection that exists under state trade secret law – and its unlimited timing – and the protection that exists under actual patent law – which is necessarily ONLY for limited times.

    Reply
  4. At least the version of the House Bill I looked at would over rule the New York State Legislature. The Bill I looked at defined a Trade Secret in substantially the same way the Uniform Trade Secret Law does (a law that to date has not be adopted by the NY Legislature). In contrast, consistent with the Restatement of Torts (1st), NY law limits Trade Secrets to “things” that are continuously used by the person/entity asserting the Trade Secret.
    Thus, if adopted, acts that would not constitute a misappropriation of a trade secret under NY law would become actionable a a misappropriation.

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  5. Where is the evidence that any kind of change is needed?

    There is plenty of evidence of unintended consequences of federal legislation. Look out for the trade secret trolls, sure to come!

    Who knows what kind of crapola will ensue?

    Reply
    1. One should be a bit suspicious when the same cast of characters (Kappos of IBM/AIA), (Norman of Eli Lilly, Armitage, AIA) start proposing anything. The IPO and AIPLA were behind reexaminations, the Federal Circuit, TRIPPS (20-year from filing patent term), publication of patents applications, prior user rights, and the AIA. They want to improve things — for themselves, big international businesses.

      However, that does not mean that what they say does not have merit. It just means that they are not entirely honest in their arguments.

      Reply
      1. Lump yourself right in there Ned and your attempts at subverting the patent system with Prior User Rights.

        Pot, meet kettle.

        Reply
        1. Nedism coming home to roost: “It just means that they are not entirely honest in their arguments.

          Reply

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