By David S. Almeling
Last month, President Obama signed into law the America Invents Act, enacting the most significant reform to patent law in a half-century. Last week, Senators Herb Kohl and Christopher Coons introduced an amendment to the Currency Exchange Rate Oversight Reform Act (the "amendment"), which would, for the first time, provide a federal right of civil action for trade secret owners. In a press release announcing the amendment, Senator Coons stated it "would allow for a single, uniform, nationwide cause of action instead of the patchwork of state laws now in place, and would elevate trade-secret intellectual property on the same level as copyright, trademark and patent violations."
Although it's a step in the right direction, the amendment falls short. This article summarizes the amendment and explains why it's not a complete solution to the problems it seeks to solve.
Our State-Based Trade Secret Regime
Unlike trademarks, copyrights, and patents, trade secrets are not governed primarily by federal statute. Each state retains its own autonomous trade secret law. The inevitable result is that trade secret law differs from state to state. For example:
- Forty-six states have enacted some or all of the Uniform Trade Secrets Act ("UTSA"). Those states aren't a unified bunch, though, as state legislatures made modifications to the UTSA and state courts adopted various interpretations of even the same provisions. The four states that don't follow the UTSA — Massachusetts, New Jersey, New York, and Texas — rely instead on the 1939 Restatement of Torts and other sources.
- Some states, such as Illinois, embrace the inevitable-disclosure doctrine, under which a court can enjoin an employee from working for a new company when that employee had access to her former employer's trade secrets and has responsibilities at the new employer that make it inevitable that she would disclose those trade secrets. Other states, such as California, reject the doctrine. Many states haven't decided one way or another.
- Most states have a statute of limitations that lasts three years (e.g., California). Other states have statutes as short as two years (e.g., Texas) and as long as five (e.g., Illinois).
With these interstate discrepancies comes a host of problems. A case's outcome may depend on the state in which suit is brought; the result in Kansas City, Missouri, may be different from the result across the river in Kansas City, Kansas. Another problem is the additional burden on plaintiffs and defendants, who must research which jurisdiction's laws are most favorable to their case, and on courts, which must decide between the competing laws. Such differences also create uncertainty, and thus cost, about which court will decide the dispute and what law that court will apply. Such differences impose further costs on trade secret owners who operate in multiple states, as they must protect trade secrets in a way that complies with the laws of each state.
The amendment would amend the federal Economic Espionage Act ("EEA"), which criminalizes certain types of trade secret misappropriation, to include a right of civil action for anyone "aggrieved by a violation of section 1832(a)." Section 1832(a) is one of the two types of conduct prohibited under the EEA, and it applies to misappropriating trade secrets related to or included in a product that is produced for or placed in interstate commerce knowing or intending that the misappropriation will injure the trade secret owner.
This new right of action would be limited to trade secret owners who provide a "sworn representation . . . that the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country."
The amendment provides various forms of relief, including injunctive relief, damages, exemplary damages, and reasonable royalties. Significantly, the amendment also authorizes a court to issue a seizure order for property "used or intended to be used . . . to commit or facilitate the commission of the violation alleged in the civil action."
The amendment would not preempt any other law: "Nothing in the amendments made by this section shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law."
The Amendment is Limited
Among the amendment's limitations:
- It doesn't "preempt any other provision of law." Translation: the amendment doesn't replace the current state-based regime, but instead adds a new law to the mix.
- It applies only to one of the two categories of misappropriation prohibited by the EEA, and that category does not include many forms of misappropriation.
- It applies only to trade secrets that are "related to or included in a product" — a subset of all trade secrets, which broadly include any information that is secret, derives economic value from that secrecy, and is the subject of reasonable measures to maintain its secrecy.
- It applies only if the case involves either the need for nationwide service of process or the misappropriation of trade secrets from the U.S. to another country. Only a small percentage of cases fall into those categories.
- By amending the EEA, the amendment incorporates the EEA's substantive requirements, including intent, that are in addition to the usual elements necessary to establish a prima facie case of trade secret misappropriation.
I spoke with a member of Senator Kohl's staff, who said that one purpose of the amendment is to expand the current framework of the EEA by providing a limited federal right of civil action. That is a laudable first step, but the amendment won't fix the patchwork problem because the only way to eliminate differences among states is to preempt state laws.
So if the amendment won't work, what law will? One that provides a private right of action for all types of trade secret misappropriation and that preempts inconsistent state law. One, quite simply, that replaces the current state-based trade secret regime with a federal one.
David Almeling is a counsel with O'Melveny & Myers in the firm's San Francisco office. This article does not purport to represent the views of O'Melveny or its clients.