Authored by John F. Hornick and Griffith B. Price Jr.
In the realm of intellectual property laws, trade secrets stand alone: They are not protected by a federal civil statute. Most states have enacted variations of the Uniform Trade Secrets Act, but a few states—New York, for example—hold to the Restatement 2d of Torts, a predecessor of the UTSA, and decided cases as their principal sources of trade secret law.
Even though Congress passed the Economic Espionage Act of 19961 to criminalize certain conduct involving the theft of trade secrets, a federal civil claim remains out of reach. Last year, Sens. Christopher Coons, D-Del., and Herb Kohl, D-Wis., tried to make a federal civil claim a reality when they proposed an amendment to the EEA. That effort failed.2
EEA limitations have made U.S. industry "the equivalent of a giant cookie jar, permitting foreign agents and unscrupulous competitors to steal American know-how with a low probability of detection or prosecution."3 Dissatisfied with the limitations of the EEA, practitioners and academics have spent much of the last two decades calling for a federal civil trade secret statute.4
These calls have articulated the need to harmonize state trade secret laws,5 to meet American obligations under the North American Free Trade Agreement6 and the World Trade Organization's agreement on trade-related aspects of intellectual property rights and the General Agreement on Tariffs and Trade,7 to assist small-business owners who use trade secrets,8 and to provide federal question jurisdiction for trade secret claims.
The Economic Espionage Act of 1996
Before the Economic Espionage Act of 1996,9 federal criminal trade secret protection relied on a patchwork of laws. The federal government relied on the National Stolen Property Act, mail fraud statutes and wire fraud statutes to prosecute trade secret thefts.10 When Congress passed the EEA in 1996, criminal trade secret theft was directly addressed by a federal statute for the first time. Congress passed the EEA to protect national economic security by preventing economic espionage of U.S. companies' trade secrets by foreign agents.11
The EEA protects trade secrets in two ways: It prohibits economic espionage by foreign agents, governments or instrumentalities (18 U.S.C. § 1831), and it prohibits theft of trade secrets (18 U.S.C. § 1832). Sections 1831 and 1832 prohibit any person or entity from stealing, making unauthorized copies, or buying trade secrets with the knowledge that the information they seek to acquire is a protected trade secret.
Significantly, U.S. criminal jurisdiction even extends to violations that occur outside of the United States.12 EEA remedies for the theft include fines, imprisonment or both, and the EEA requires federal courts to order the convicted person to forfeit any property used in connection with acquiring the trade secret or gained from the proceeds of the trade secret.
The EEA is a powerful tool to fight trade secret theft. Yet, some argue that the EEA is inadequate: It does not provide a private civil claim.13 Trade secret plaintiffs therefore continue to patch together private civil claims to prosecute trade secret misappropriation in federal court,14 often relying on the Computer Fraud and Abuse Act if there is no diversity jurisdiction.15
The CFAA sometimes provides a workable solution because the misappropriating party often uses a computer to steal trade secrets.16 The CFAA's reach over trade secret misappropriation has its limits, however, and some courts have refused to extend the CFAA's private civil claim to pure trade secret cases.17
Amending the EEA
Although it ultimately ended in defeat, Sens. Coons' and Kohl's S.A. 729, introduced on Oct. 5, 2011, proposed the most recent amendments to the EEA. S.A.729, which closely mirrored amendments proposed by academic commentators,18 would have created a federal private civil claim.
Analysis of the Proposed Amendments
S.A.729's amendments were limited to 18 U.S.C. § 1836—broadening the section title from "Civil proceedings to enjoin violations" to "Civil proceedings." In § 1836, S.A.729 clarifies the actions a court may take in response to the attorney general's civil action for injunctive relief and creates a private claim for "[a]ny person aggrieved by a violation of section 1832(a) [trade secret theft]." Amended § 1836 would have required all private civil complaints to include a statement that the dispute involves a "substantial need for nationwide service of process" or misappropriation of trade secrets from the United States to another country.19
The private civil action remedies include ex parte seizure of evidence, injunctive relief, attorneys' fees, and various damages. S.A.729 would have required clear and convincing evidence before a court could issue an ex part seizure order. Injunctive relief would have remained intact in the S.A.729. S.A.729 would have awarded reasonable attorneys' fees if a misappropriation claim is made in bad faith, if a motion to terminate an injunction is made or opposed in bad faith, or if a trade secret is willfully and maliciously misappropriated.
Damages would have been allowed for actual loss caused resulting from trade secret misappropriation and for unjust enrichment from trade secret misappropriation, and exemplary damages would have been allowed if the trade secret was willfully or maliciously misappropriated.
How Close Did We Get?
In drafting S.A.729, Sens. Coons and Kohl addressed many of the calls to reform the EEA. They argued that the federal civil private claim would allow businesses to protect their intellectual property more easily, without determining their rights on a state-by-state basis.20
The claim would increase judicial efficiency by allowing courts to consolidate multiple adverse parties over which a state court would not have jurisdiction.21 The claim would also harmonize dissimilar state trade secret laws. The sponsors also argued that the claim would bring America closer to meeting its obligations under NAFTA and TRIPS/GATT.22
The EEA took the first step toward creating a comprehensive federal trade secret question jurisdiction. When and if the second step to create a civil claim will occur is dependent on further congressional action. S.A.729 did not pass the Senate's expectations for a civil claim, but the proposed amendment may be a harbinger of future amendments to the EEA.
1 18 U.S.C. §§ 1831–39 (2006).
2 Sens. Coons and Kohl proposed S.A.729 to S.1619, the Currency Exchange Rate Oversight Reform Act of 2011, which amended the EEA to include a federal civil trade secret claim. On Oct. 11, 2011, the Senate passed S.1619 without amendment and without considering S.A.729. As of Jan. 9, 2012, S.1619 is held at the desk in the House of Representatives.
3 R. Mark Halligan, Protection of U.S. Trade Secret Assets: Critical Amendments to the Economic Espionage Act of 1996, 7 J. Marshall Rev. Intell. Prop. L. 656, 656 (2008).
4 See id. at 671 ("[T]he U.S. recognized the important national interest in the protection of trade secret assets with the passage of the EEA in 1996; we are long overdue for the enactment of a federal trade secrets statute."); Christopher Rebel J. Pace, The Case for a Federal Trade Secretes Act, 8 Harv. J.L. & Tech. 427 (1995); David S. Almeling, Four Reasons to Enact a Federal Trade Secrets Act, 19 Fordham Intell. Prop. & Media Ent. L.J. 769 (2009).
5 See Pace, supra note 4, at 443 (observing that "despite this universal recognition and near-universal origin of trade secrets protection, states vary widely in their treatment of trade secret misappropriation.").
6 North American Free Trade Agreement art. 1711(1), Dec. 17, 1992, 32 I.L.M. 605, 675.
7 General Agreement on Tariffs and Trade, Agreement on Trade-Related Aspects of Intellectual Property Rights art. 39(2), Apr. 15, 1994, 33 I.L.M. 1125, 1212.
8 See Almeling, supra note 4, at 786–88 (recognizing that small businesses disproportionately rely on trade secret laws to protect their innovation).
9 18 U.S.C. §§ 1831–39 (2006).
10 18 U.S.C. §§ 2314–15 (1994) (NSPA); Federal Mail Fraud Act, 18 U.S.C. § 1341 (mail fraud); id. § 1343 (wire fraud).
11 H.R. Rep. No. 104-788, at 4 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4022–23.
12 18 U.S.C. § 1837 (2006). The U.S. International Trade Commission also has jurisdiction over importation of products made with trade secrets stolen abroad. See, e.g., Tianrui Grp. Co v. ITC, 661 F.3d 1322, 1332 (Fed. Cir. 2011) (upholding the ITC's jurisdiction to enter exclusion orders against importation of goods made with misappropriated trade secrets in foreign countries).
13 See Halligan, supra note 3; Pace, supra note 4; Almeling, supra note 4.
14 See, e.g., Pac. Aerospace & Elecs. Inc. v. Taylor, 295 F. Supp. 2d 1188 (E.D. Wash. 2003); Shurgard Storage Ctrs. Inc. v. Safeguard Self Storage Inc., 119 F. Supp. 2d 1121 (W.D. Wash. 2000).
15 18 U.S.C. § 1030 (2006).
16 Richard F. O'Malley Jr. et al., Trade Secrets Online, in Intellectual Property Law in Cyberspace 607, 627 (G. Peter Albert Jr. & Am. Intellectual Prop. Law Ass'n eds., 2d ed. 2011).
17 Garelli Wong & Associates Inc. v. Nichols, 551 F. Supp. 2d 1188 (N.D. Ill. 2008); O'Malley, supra note 16, at 631–32.
18 See Halligan, supra note 3, at 677–681 (Appendix A: Proposed Amendments to the Economic Espionage Act to Add a Civil Cause of Action for Trade Secret Theft).
19 Id. at 678, 680.
20 See Pace, supra note 4, at 446–47 ("[The] nearly boundless feature of trade secrets causes serious problems for a company trying to protect its trade secrets because it becomes nearly impossible for the company to know in advance of a misappropriation which state's law will govern . . . [which] partially undermines the very purpose of the trade secret remedy.").
21 See Halligan, supra note 3, at 668 (believing the procedural advantage of nationwide service of process "without more [ ] merits . . . amendments to the EEA").
22 See id. at 671 (noting that America's lack of federal trade secret standards prevents it from meeting the obligations in NAFTA and TRIPS/GATT); Pace, supra note 4, at 450–54 (noting the NAFTA and TRIPS/GATT obligations that America does not meet when there is no federal civil trade secret claim).
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.