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.