A vital part of building and maintaining a business’ competitive advantage is the protection of its trade secrets – information that has “independent economic value” by being generally unknown and that the company takes reasonable steps to protect. Despite the need for all businesses to protect their most confidential information, and despite the existence of a “Uniform Trade Secrets Act,” there currently is no federal trade secrets statute. Instead, only state laws provide the vehicle for enforcing trade secret misappropriation claims and employee confidentiality obligations. While every state except New York and Massachusetts has adopted its own version of the Uniform Trade Secrets Act, those versions are hardly uniform, and a company’s ability to enforce and protect its valuable confidential information varies from state to state.
This patchwork of this “un-uniform” trade secret legislation may soon be a thing of the past. On January 28 2016, the U.S. Senate Judiciary Committee unanimously approved an amended version of the Defend Trade Secrets Act (the “DTSA”) (S. 1890), and the bill is now with the Senate for consideration.
The DTSA is a significant step toward a federal trade secret statute that creates a uniform federal standard for defining trade secrets, strengthens available remedies for aggrieved companies, provides consistent legal standards for enforcement, and gives businesses easier access to federal courts. In particular, the DTSA would create a private cause of action in federal court for any trade secret misappropriation that is related to a product or service that is used in, or is intended for use in, interstate or foreign commerce. Under the current version of the bill, businesses that hold trade secrets would be able to seek injunctive relief and monetary damages to preserve evidence, prevent disclosure of trade secrets, and address any economic harm from unlawful disclosures.
The fight for federal trade secret legislation is not new, nor has it been without controversy. In April 2014, two similar bills were introduced in both the House and Senate, but neither advanced this far. In fact, in the Summer of 2014, both bills received significant criticism, particularly in the form of a letter from a group of law professors urging Congress to reject the bills as “incomplete, ill-advised, and potentially dangerous.” A full copy of that letter can be found here.
However, by the time the current House (H.R. 3326) and Senate (S. 1890) bills were introduced on July 28, 2015, the level of criticism had seemingly waned. For example, the number of academics signing on to a letter opposing passage of the new bill dropped markedly from 31 in 2014 to just 2 professors in 2015. The 2015 letter can be found here.
In addition, the DTSA has gained increased bi-partisan support, leading many to believe that its chances of passage fare better than its 2014 predecessor. While there were concerns expressed during the Senate Judiciary Committee hearings, amendments limiting the availability of ex parte civil seizure, restrictive injunctions, exemplary damages and federal preemption issues, for example, have seemingly quieted critics. Stay tuned for updates from our Trade Secrets Practice Group – this could be the year that a federal trade secret statute cures the patchwork options of state-based protection schemes.
