Guest Post by David S. Almeling, a partner in the San Francisco office of O’Melveny & Myers LLP. Almeling specializes in patent and trade secret litigation.
It’s been an exciting month for trade secret law. Senators Christopher Coons (D-Delaware) and Orrin Hatch (R-Utah) introduced the Defend Trade Secrets Act, a bill that would, for the first time, provide a federal right of civil action for trade secret theft. And the Judiciary Committee held a hearing during which speakers expressed support for the DTSA, including Eli Lilly’s VP and General Patent Counsel, Douglas Norman, who stated that the DTSA “will establish the gold standard for national trade secret laws globally.”
The DTSA is a game changer. If enacted, it would constitute the most dramatic rethinking of trade secret law since 1979, when the National Conference of Commissioners on Uniform State Laws approved a model statute called the Uniform Trade Secrets Act. Since then, 48 states have adopted the UTSA in some form, replacing their common-law regimes with statutory ones.
The DTSA isn’t perfect — I’ll explain why in a moment — but it’s the best bill of its kind introduced to date, and it should be enacted.
The DTSA authorizes a trade secret owner to bring a civil cause of action in federal court for either (1) a violation of the Economic Espionage Act, which criminalized certain types of trade secret misappropriation, or (2) 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 DTSA’s definition of misappropriation tracks closely the UTSA’s definition.
The DTSA would also:
Grant courts the power to issue ex parte orders “for the preservation of evidence” and “for the seizure of any property used…to commit” the alleged misappropriation. This is similar to the relief available under the Lanham Act for counterfeit goods.
Allow courts to award injunctions; damages for actual loss or unjust enrichment; a reasonable royalty “in lieu of damages”; exemplary damages up to treble the amount of compensatory damages, as opposed to the UTSA, which permits courts to award only double damages; and attorneys’ fees.
Establish a five-year statute of limitations, two years longer than the UTSA’s provision.
Decline to preempt any other law.
The DTSA is not the first bill in recent years to propose a federal cause of action for trade secret theft.
Other recent efforts include: Senator Coons’s prior bills in 2011 and 2012; the proposal by Rep. Zoe Lofgren, the Silicon Valley–based Democrat, to enact PRATSA (Private Right of Action Against Theft of Trade Secrets Act of 2013); and the 2013 introduction of FAIR (Future of American Innovation and Research Act) by Republican Senator Jeff Flake of Arizona. These attempts all failed, never making it out of committee.
The reasons they fell short varied; I won’t rehash them here. But the DTSA is the most comprehensive bill to date, as it addresses a broad swath of trade secret theft and encompasses a robust range of remedies.
The DTSA is better than the current system — one in which each state has its own autonomous civil trade secret law. Today, 48 states have enacted some form of the UTSA, with New Jersey (in 2012) and Texas (in 2013) being the latest adherents. New York and Massachusetts are the only remaining holdouts.
Despite the UTSA’s widespread adoption, the “U” — Uniform — hasn’t lived up to its name. State legislatures often modify the UTSA. And even if every state enacted the same UTSA, there would still be a patchwork because state courts often issue different interpretations of the same UTSA provision.
Trade secret owners, employees, and others in the knowledge economy incur the costs of this state-by-state approach. Facing different laws in different states, they are left to deal with the resulting complications that come with attempts to comply with each state’s laws. And once a dispute arises, these differences also impose costs on courts and litigants, who wage needless battles over forum shopping and choice of law. A federal statute would eliminate these differences and achieve other benefits, such as easing nationwide service of process and discovery.
I’m not alone in my support of a federal trade secret statute generally and the DTSA specifically. Senator Coons’s April 29, 2014 press release notes that the DTSA has the backing of the National Association of Manufacturers, the U.S. Chamber of Commerce, and dozens of companies, including 3M, GE, Microsoft, and P&G. The AIPLA’s Trade Secret Law Committee recently voted to endorse the DTSA (disclaimer: I was one of the voting members). And other organizations, including the ABA’s IP Section and the Commission on the Theft of American Intellectual Property, announced support for some form of a federal trade secrets act in 2013.
Where the DTSA stumbles is in its promise not to “preempt any other provision of law.” This causes two problems.
First, the need for the DTSA stems in part from state-by-state variations in trade secret laws and the transactional and substantive problems that such variations impose. The DTSA leaves those variations in place. Worse, the DTSA adds another law to the already cluttered landscape of 48 UTSA states (with their variations), two non-UTSA states, the federal Economic Espionage Act, and a federal common trade secret law.
Second, the DTSA opens a backdoor to common-law and other causes of action that are precluded in most states. The UTSA “displaces tort, restitutionary, and other laws…providing civil remedies for misappropriation of a trade secret.” The DTSA doesn’t displace anything.
Under the DTSA, trade secret plaintiffs would have the option of pursuing their claim in state or federal court and, if they choose federal court, the additional option of asserting duplicative causes of actions that aren’t available in state courts.
Why I Still Endorse the DTSA
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.
True, the DTSA is only a partial step toward uniformity, as it leaves the current state-law regime in place and doesn’t preempt overlapping causes of action. But in the absence of a complete transition from a state-based trade secret regime to a federal one, the DTSA is an important step in the right direction.
This post by David S. Almeling does not purport to represent the views of O’Melveny or its clients.