Nationalizing Trade Secret Law

by Dennis Crouch

Defend Trade Secrets Act: The House Judiciary Committee is moving forward with the Defend Trade Secrets Act (DTSA) with a discussion of the bill (H.R. 3326) and its Senate companion (S. 1890) that was unanimously passed by the U.S. Senate.  The House and Senate versions were originally identical, but a set of amendments were added to the Senate version before its passage that both improved the language and reduced some potential negative impact of injunctive-relief associated with employee mobility. [See Pooley].  There is a strong possibility that the Senate version will be accepted by the House and passed with overwhelming majority.  Rep. Goodlatte (R-VA) is pushing the Bill through the Judiciary Committee (of which he is Chair).  Ranking Member Conyers (D-MI) is one of 155 co-sponsors of the legislation.  The Intellectual Property Owners Association (IPO) has announced its “strong support” for the bill.

Nationalizing Contract Law?: It is interesting that congress is moving forward so quickly with nationalizing the traditional state-law claim of trade secret misappropriation.  Most trade secret cases involve an underlying breach of contract between the parties.  The current bill would implicitly have courts rely upon local contract law to determine the scope of rights of the parties before then determining whether a federal claim of trade secret misappropriation exists.

 

Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

29 thoughts on “Nationalizing Trade Secret Law

  1. Irresponsible to pass this bill without analyzing how it could be used with high-tech workers, e.g., Google employees in CA.

    1. Irresponsible to pass this bill without analyzing…

      I am more than certain that certain sections (those enabled by the “voice” of Citizen’s United) have analyzed the effects of these changes.

  2. Today’s opinion in IN RE: MAN MACHINE INTERFACE TECHS. LLC
    link to cafc.uscourts.gov
    is interesting for two points: 1) claim construction; and 2) the standard of review of facts decided by the PTO. The case involved a reexamination of an issued patent. Claims were held invalid.

    Re: 1, using BRI, the PTO construed the claim to read on the prior art that the specification specifically criticized and of which the present invention was intended to be an improvement. The court reversed. “The broadest reasonable interpretation of the claim term cannot be so broad as to include a configuration expressly disclaimed in the specification.” Id. at 6.

    While I agree with that holding, it was the principle argument we made on appeal in In re Morris that the patent office was construing the claim the read on the prior art that we described as being the problem for which the claimed invention was a solution. Even so, the Morris court upheld the broadest reasonable interpretation in that case.

    Obviously, the Federal Circuit either does not follow its prior cases, or ignores that when to make no sense. Regardless, the present case fully vindicates the position we argued on appeal in Morris.

    Regarding point two: the court held that the review of a determination of facts underlying claim construction was for “substantial evidence.” Notice that? When a court decides, the review is for error.

    The PTO is adjudicating the validity of an issued patent in this case. There is no justification for such a level of deference. Simply one more reason we need to get the PTO out of deciding the validity of issued patents.

    1. As I previously noted (as politely as possible), you simply botched the In re Morris case Ned.

      Your recollection may provide more than what the written record provides, but that written record shows that your thrust was badly aimed.

          1. Of course we argued poorly, that is the only possible explanation for the PTO win.

            Yeah, sure.

            Now, what specifically about our argument was unavailing?

  3. A major concern among some people with the “Defend Trade Secrets Act” is whether it could reduce state law employee protections, especially in California. It seems to me that could be easily fixed by simple adding the following to the House Bill or at least the Congressional Record:

    Nothing in this Act is intended to overrule any state laws or state court decisions relating to employment or non-compete agreements.

    1. But would that work, Paul?

      If there is an additional (read that as separate) Federal cause of action, the state law will not be “technically” over-ruled.

      The problem here is the attempted “NOT” creating a federal preemption, but still adding a separate federal level with its own separate actions which may conflict with state by state permutations.

      You just cannot add a layer and say, in effect, “never mind.”

      Either you have the separate and additional federal cause of action or you do not.

      1. Anon, note in response your own comment at 1 below.

        Alex, I am not one of the concerned CA technical employees worried about being able to change jobs or whatever. I have no idea how legitimate any of their concerns are. [I do know that some large companies have had different employment agreements for CA employees than for employees in other states, presumably for a reason.] I am simply suggesting that this kind of language might make this legislation even easier to get enacted.

        1. Paul,

          My note below at 1 does not help you in response to my post at 2.1.

          Read 2.1 again please – note the presence of an additional federal cause of action that can be brought quite separate from a state cause of action does NOT get “canceled out” by the state law.

      2. “anon” You just cannot add a layer and say, in effect, “never mind.”

        I don’t see where Paul or anyone else is suggesting that the law be read to state “never mind.”

        What Paul is suggesting is language that makes it clear that there is no preemption of the state laws. You might think that it’s already crystal clear. Or you might not. But if you thought it was already crystal clear, one might expect you to have worded your observation in comment 1 as a statement rather than a question …

        I hope that helps you understand the discussion.

        1. Oh, how typical is Malcolm here, pretending it is I that needs to understand the discussion when it is he that “does not see.”

          The lack of preemption of state law means nothing if you have an available alternative cause of action that is not available at state law.

          one might expect you to have worded your observation in comment 1 as a statement rather than a question

          Or one might recognize the question as leading to and inviting a conversation.

          But hey, if the one is one such as you that does not want conversation in the first place, then I can see why you “cannot see” that.

            1. Lol – you having conversation with anyone not an “echo” would be “gross” (for you).

              That’s just how you roll.

              But we both know that already, eh pumpkin?

    2. Paul, can you remind us what protections California gives employees that other states (i assume) do not?

      California already has the uniform trade secrets act enacted. What other statute /judicial doctrine do they have w.r.t. employees?

      W.r.t to anon’s interpretation, I agree it is creating a federal cause of action (in addition to whatever state cause of action can be plead in diversity or pendent jurisdiction), but I believe the important point is that state contract law will define the initial rights for those employee/employer trade secret claims (as Dennis noted, are the usual versus the outright trade secret espionage kind of issue).

      Paul, is your point that a state may legislate or decide (by interpretation of contract law or otherwise) that trade secret protection is not important (and get rid of it) – to that extent, federal law will preempt and create an independent cause of action for actions.

      If, rather, your point is that employee protections in California will be impacted, I want to hear how.

      1. Bringing an case based on inevitable use and disclosure wrt a California employee is considered “bad faith” litigation and can and probably will result in an award of attorneys fees against the plaintiff:

        “In a 25-page well-reasoned statement of decision, the trial court found that the action was brought in bad faith based on a theory of “inevitable disclosure,” a doctrine not recognized by California courts because it contravenes a strong public policy of employee mobility that permits ex-employees to start new entrepreneurial endeavors. (See Continental Car-Na-Var Corp. v. Moseley (1944) 24 Cal.2d 104, 110 [148 P.2d 9]; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal.Rptr.2d 277].) Appellants were ordered to pay $1,352,000 in attorney fees and $289,216.78 in costs. (§ 3426.4.)

        FLIR Systems, Inc. v. Parrish, 174 Cal. App. 4th 1270, 1274, 95 Cal. Rptr. 3d 307 (Ct. App. 2009).

        1. Throw that out Ned, as the (possible) point here is that such may no longer be the case of there is a NEW and additional Federal cause of action apart from – and able to be brought separably – from ANY state action.

          Can you say “Trojan Horse“…?

        2. Thanks, Ned.

          It sounds like an independent federal cause of action could (if poorly written) seriously undermine the California non-recognition of the inevitable disclosure doctrine (which I agree with California – the employer should show a threat that a trade secret is in danger and not merely presume eventual disclosure).

          But, that is a wholly appropriate separate policy choice for Congress (as long as, I assume, they rely on the full extent of the commerce clause) – c’est la vie.

          1. alex s, the proverbial S will hit the fan the first time a California employee is sued in Federal Court based on inevitable use and disclosure and that case is not instantly dismissed with sanctions awarded to the employee and his attorneys.

      2. is your point that a state may legislate or decide (by interpretation of contract law or otherwise) that trade secret protection is not important (and get rid of it) – to that extent, federal law will preempt

        If the state gets rid of its trade secret protection laws, there is nothing to pre-empt.

        1. You are correct in the pure preemption sense (nothing to preempt because nothing is there; federal cause of action is separate).

          I meant rather as betwixt the two sovereigns, the federal law will still ensure a minimum floor of trade secret protection even within a given state that chooses not to afford those minimum standards of protection. It’s just a different type of preemption.

        2. MM, backwards.

          California has a strong public policy against restraining employees from competing with their former employers. Thus proof of actual or threatened as opposed to “inevitable” is required. To the extent that the new act interferes with California law and its strongly public policy, it must not prevail.

          That being said, the question arises is where does Congress get the authority to protect trade secrets at the Federal level? I would presume, the Commerce clause. But that should not be extendable purely intrastate commerce should it?

          1. the question arises is where does Congress get the authority to protect trade secrets at the Federal level?

            Let’s ask Roscoe Filburn…
            See link to en.wikipedia.org

            Or maybe just “call it” a “tax,” a la Obamacare…

            Or recognize the Federal implications with the sua sponte “right” of Prior User Rights…

            (I think that you need to ask a different question)

  4. Not sure the word “nationalizing” is the best descriptor….

    The latest does not remove any state laws or otherwise preempt the various hodge poodge of state laws, does it?

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