[Senate Report 114-220]
[From the U.S. Government Publishing Office]
Calendar No. 355
114th Congress } { Report
SENATE
2d Session } { 114-220
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DEFEND TRADE SECRETS ACT OF 2016
_______
March 7, 2016.--Ordered to be printed
_______
Mr. Grassley, from the Committee on the Judiciary,
submitted the following
R E P O R T
[To accompany S. 1890]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to which was referred the
bill (S. 1890), to amend chapter 90 of title 18, United States
Code, to provide Federal jurisdiction for the theft of trade
secrets, and for other purposes, having considered the same,
reports favorably thereon, with an amendment, and recommends
that the bill, as amended, do pass.
CONTENTS
Page
I. Background and Purpose of the Defend Trade Secrets Act of 2016...1
II. History of the Bill and Committee Consideration..................4
III. Section-by-Section Summary of the Bill...........................5
IV. Congressional Budget Office Cost Estimate.......................13
V. Regulatory Impact Evaluation....................................14
VI. Conclusion......................................................14
VII. Changes to Existing Law Made by the Bill, as Reported...........15
I. Background and Purpose of the Defend Trade Secrets Act
Trade secrets are a form of intellectual property that
allow for the legal protection of commercially valuable,
proprietary information and make up an increasingly important
part of American companies' intellectual property portfolios.
Comprising all types of financial, scientific, technical,
engineering, or other forms of information, trade secrets are
an integral part of the operation, competitive advantage, and
financial success of many U.S.-based companies.
The growing importance of trade secrets as a form of
intellectual property makes their theft a particularly
economically damaging crime. In a recent report, the Commission
on the Theft of American Intellectual Property estimated that
annual losses to the American economy caused by trade secret
theft are over $300 billion, comparable to the current annual
level of U.S. exports to Asia.\1\ This same report found that
trade secret theft has led to the loss of 2.1 million American
jobs each year and that the illegal theft of intellectual
property is undermining the means and incentive for
entrepreneurs to innovate. This in turn is slowing the
development of new inventions and industries that could raise
the prosperity and quality of life for everyone.\2\ In another
study, PricewaterhouseCoopers LLP and the Center for
Responsible Enterprise and Trade found that the annual cost of
trade secret theft may be as high as $480 billion.\3\
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\1\The IP Commission, The Report of the Commission on the Theft of
American Intellectual Property (May 2013), available at http://
www.ipcommission.org/report/IP_Commission_Report_052213.pdf.
\2\Report of the Commission of the Theft of American Intellectual
Property, at 1, 10 (May 2013), available at http://
www.ipcommission.org/report/IP_Commission_Report_052213.pdf.
\3\Richard A. Hertling & Aaron Cooper, Trade Secret Theft: The Need
for a Federal Civil Remedy, The National Law Review (June 25, 2014),
available at http://www.natlawreview.com/ article/trade-secret-theft-
need-federal-civil-remedy.
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Protecting trade secrets has become increasingly difficult
given ever-evolving technological advancements. Thieves are
using increasingly sophisticated methods to steal trade secrets
and the growing use of technology and cyberspace has made trade
secret theft detection particularly difficult.\4\ The growing
problem of trade secret theft has been acknowledged by
industry, Congress,\5\ and the administration--with Attorney
General Eric Holder stating during a White House conference in
2013, ``There are only two categories of companies affected by
trade-secret theft: those that know they've been compromised
and those that don't know yet.''\6\
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\4\Brian T. Yeh, Protection of Trade Secrets: Overview of Current
Law and Legislation, CRS Report No. R43714 (2014), available at http://
www.crs.gov/pages/Reports.aspx?PRODCODE
=R43714&Source=search#fn12.
\5\Economic Espionage and Trade Secret Theft: Are Our Laws Adequate
for Today's Threats?: Hearing Before the Senate Judiciary Comm.,
Subcomm. on Crime and Terrorism, 113th Cong. (2014); Trade Secrets:
Promoting American Innovation, Competitiveness and Market Access in
Foreign Markets: Hearing Before the House Judiciary Comm., 113th Cong.
(2014); Protecting Trade Secrets: the Impact of Trade Secret Theft on
American Competitiveness and Potential Solutions to Remedy this Harm:
Hearing Before the Senate Judiciary Comm., 114th Cong. (2015).
\6\Siobhan Gorman and Jared A. Favole, U.S. Ups Ante for Spying on
Firms, Wall Street Journal (Feb. 21, 2013) (reproducing a statement
made by Attorney General Holder at a White House conference), available
at http://www.wsj.com/articles/SB100014241278873235
49204578316413319639782.
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Unlike other types of intellectual property, which are
primarily protected under Federal law, trade secrets are
primarily governed by State law. The Uniform Trade Secrets Act
(UTSA) has been adopted (in its entirety or with some
modifications) in 47 States and the District of Columbia.\7\
State laws that follow the UTSA provide trade secret owners
with the ability to file civil lawsuits against a party who
misappropriates trade secrets. Although the differences between
State laws and the UTSA are generally relatively minor, they
can prove case-dispositive: they may affect which party has the
burden of establishing that a trade secret is not readily
ascertainable, whether the owner has any rights against a party
that innocently acquires a trade secret, the scope of
information protectable as trade secret, and what measures are
necessary to satisfy the requirement that the owner employ
``reasonable measures'' to maintain secrecy of the information.
At the Federal level, the Economic Espionage Act of 1996 (EEA),
codified at 18 U.S.C. Sec. Sec. 1831 et seq., makes it a
Federal criminal offense to misappropriate a trade secret that
has an interstate or foreign nexus. The EEA, however, does not
give trade secret owners a private right of action in Federal
court. The Committee learned that, while fighting economic
espionage and the theft of trade secrets is a top priority for
Federal law enforcement,\8\ criminal enforcement remains a
limited solution to stopping trade secret theft as the Federal
Bureau of Investigation and Department of Justice are limited
in the resources they can bring to bear.\9\
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\7\Uniform Law Commission: The National Conference of Commissioners
on Uniform State Laws, Uniform Trade Secrets Act, available at http://
www.uniformlaws.org/Act.aspx?title=Trade+Secrets+Act.
\8\Economic Espionage and Trade Secret Theft: Are Our Laws Adequate
for Today's Threats?: Hearing Before the Senate Judiciary Comm.,
Subcomm. on Crime and Terrorism, 113th Cong. (2014) (statement of
Randall C. Coleman, Assistant Director, Counterintelligence Division,
FBI), available at https://www.fbi.gov/news/testimony/combating-
economic-espionage-and-trade-secret-theft.
\9\Trade Secrets: Promoting and Protecting American Innovation,
Competitiveness, and Market Access in Foreign Markets: Hearing Before
the House Judiciary Comm., Subcomm. on Courts, Intellectual Property,
and the Internet, 113th Cong. (2014) (statement of Richard A. Hertling,
Of Counsel, Covington & Burling, LLP, Protect Trade Secrets Coalition),
available at http:// judiciary.house.gov/_cache/files/5311b6c1-9a4f-
49e5-a477-451a3ee228bf/113-97-88436.pdf.
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S. 1890 amends the Economic Espionage Act of 1996 to
provide a Federal civil remedy for the misappropriation of
trade secrets. A Federal cause of action will allow trade
secret owners to protect their innovations by seeking redress
in Federal court, bringing their rights into alignment with
those long enjoyed by owners of other forms of intellectual
property, including copyrights, patents, and trademarks.
Modelling its definition of misappropriation on the UTSA, the
bill provides for equitable remedies and the award of damages
for the misappropriation of a trade secret. It also provides
for expedited relief on an ex parte basis in the form of a
seizure of property from the party accused of misappropriation,
a remedy available under extraordinary circumstances where
necessary to preserve evidence or prevent dissemination of a
trade secret. The ex parte seizure provision is an important
remedy for trade secret owners because it ``enable[s] a trade
secret owner under limited, controlled conditions, to
proactively contain a theft before it progresses and the trade
secret is lost.''\10\ For example, the damage caused by the
large-scale 2006 theft of know-how related to DuPont's
innovative Kevlar product, in which there was significant
destruction of evidence, would likely have been mitigated by
the existence of a seizure remedy.
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\10\Protecting Trade Secrets: The Impact of Trade Secret Theft on
American Competitiveness and Potential Solutions to Remedy this Harm:
Hearing Before the S. Comm. on the Judiciary, 114th Cong (2015),
Statement of Karen Cochran, Associate General Counsel and Chief
Intellectual Property Counsel, E.I. DuPont de Nemours & Co., at *4-5.
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The bill balances the need for efficient recovery of a
stolen trade secret with the rights of defendants and third-
parties. Seizure orders must therefore minimize interruption to
the business operations of third parties, protect the seized
property from disclosure, and set a hearing date at the
earliest possible time.
By improving trade secret protection, the Defend Trade
Secrets Act of 2016 will incentivize future innovation while
protecting and encouraging the creation of American jobs.
II. History of the Bill and Committee Consideration
A. INTRODUCTION OF THE BILL
On July 29, 2015, Senators Hatch and Coons introduced the
Defend Trade Secrets Act 2015. Senators Baldwin, Durbin, Flake,
and Tillis were original cosponsors. The bill was referred to
the Committee on the Judiciary. The bill built on previous
legislation introduced in the Senate in two prior Congresses:
S. 3389, the Protecting American Trade Secrets and Innovation
Act of 2012, which was introduced by Senators Kohl, Coons, and
Whitehouse in the 112th Congress and S. 2267, the Defend Trade
Secrets Act of 2014, which was introduced by Senators Coons and
Hatch in the 113th Congress.
B. COMMITTEE CONSIDERATION
On December 2, 2015, Senator Grassley chaired a Committee
hearing on the subject of trade secret theft, entitled
``Protecting Trade Secrets: the Impact of Trade Secret Theft on
American Competitiveness and Potential Solutions to Remedy This
Harm.'' The hearing examined the importance of trade secrets to
American companies, the adequacy of existing civil remedies,
and the potential impact of a uniform Federal civil remedy for
trade secret misappropriation. Testimony was received from Ms.
Karen Cochran, Chief Intellectual Property Counsel, E.I. DuPont
de Nemours and Company, Wilmington, DE;\11\ Mr. Tom Beall, Vice
President and Chief Intellectual Property Counsel, Corning
Incorporated, Corning, NY;\12\ Mr. James Pooley, Principal,
James Pooley, PLC, Menlo Park, CA;\13\ Ms. Sharon Sandeen,
Professor of Law, Hamline University School of Law, St. Paul,
MN.\14\
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\11\Protecting Trade Secrets: the Impact of Trade Secret Theft on
American Competitiveness and Potential Solutions to Remedy This Harm,
Before the Senate Comm. On the Judiciary, 114th Cong. (2015) (statement
of Ms. Karen Cochran, Chief Intellectual Property Counsel, E.I. DuPont
de Nemours and Company), available at http://www.judiciary.senate.gov/
imo/media/doc/12-02-15%20Cochran%20Testimony.pdf.
\12\Id. statement of Mr. Tom Beall, Vice President and Chief
Intellectual Property Counsel, Corning Incorporated, available at
http://www.judiciary.senate.gov/imo/media/doc/12-02-
15%20Beall%20Testimony.pdf.
\13\Id. statement of Mr. James Pooley, Principal, James Pooley,
available at http://www.judiciary.senate.gov/imo/media/doc/12-02-
15%20Pooley%20Testimony.pdf.
\14\Id. statement of Ms. Sharon Sandeen, Professor of Law, Hamline
University School of Law, available at http://www.judiciary.senate.gov/
imo/media/doc/12-02-15%20Sandeen%20
Testimony.pdf.
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The Committee's Subcommittee on Crime and Terrorism
previously held a hearing on the subject of trade secret theft
during the 113th Congress on May 13, 2014, entitled, ``Economic
Espionage and Trade Secret Theft: Are Our Laws Adequate for
Today's Threats?'' Testimony was received from Randall C.
Coleman, Assistant Director, Counterintelligence Division,
Federal Bureau of Investigation; Peter L. Hoffman, Vice
President, Intellectual Property Management, The Boeing
Company, Chicago, IL; Ms. Pamela Passman, President and Chief
Executive Officer, Center for Responsible Enterprise and Trade,
Washington, DC; Mr. Drew Greenblatt, President, Marlin Steel
Wire Products, Baltimore, MD; and Mr. Douglas K. Norman, Vice
President and General Patent Counsel, Eli Lilly and Company,
Indianapolis, IN.
The Committee considered S. 1890 on January 28, 2016, in
open session. Senators Hatch and Coons offered a substitute
amendment reflecting the input of several members of the
Committee. The amendment provides that only the owner of a
trade secret may bring a civil action for the secret's
misappropriation, reduces the period of limitations from 5 to 3
years to align with the UTSA, and amends the definitions of
``trade secret'' and ``improper means.'' The amendment also
makes clear that ex parte seizures are only available in
``extraordinary circumstances,'' and places other limitations
on the breadth of seizures. The amendment further clarifies the
appropriate scope of injunctions relating to employment to
ensure that court orders are not contrary to applicable State
laws. Finally, the amendment adds language expressing the sense
of Congress that it is important to balance the interests of
all parties when issuing an ex parte seizure, and instructing
the Federal Judicial Center to develop best practices for the
execution of seizures and the storage of seized information.
The amendment was accepted by a voice vote without objection.
Senators Leahy and Grassley offered an amendment to provide
protection to whistleblowers who disclose trade secrets to law
enforcement in confidence for the purpose of reporting or
investigating a suspected violation of law. The amendment also
immunizes the confidential disclosure of a trade secret in a
lawsuit, including an anti-retaliation proceeding. The
amendment was accepted by a voice vote without objection.
The Committee unanimously adopted both amendments by voice
vote. The Committee then voted to report the Defend Trade
Secrets Act of 2016, as amended, favorably to the Senate by
voice vote.
III. Section-by-Section Summary of the Bill
Section 1. Short title
Section 1 provides that the short title of S. 1890 is the
``Defend Trade Secrets Act of 2016.''
Sec. 2. Federal jurisdiction for theft of trade secrets
Section 2(a) amends Sec. 1836 of title 18 by striking
subsection (b), which provides that the Federal district courts
have exclusive jurisdiction over civil actions brought by the
Attorney General for trade secret misappropriation. In its
place, the new provision creates a Federal civil remedy for
private parties for trade secret misappropriation.
In general
The new Sec. 1836(b) in paragraph (1) authorizes the owner
of a trade secret that is misappropriated to bring a civil
action in Federal court if the trade secret that is related to
a product or service used in, or intended for use in,
interstate or foreign commerce. This jurisdictional nexus to
interstate or foreign commerce is identical to the existing
language required for Federal jurisdiction over the criminal
theft of a trade secret under Sec. 1832(a).
Civil seizure
The new Sec. 1836(b) authorizes a Federal court to issue an
order, in extraordinary circumstances and upon an ex parte
application based on an affidavit or verified complaint, to
provide for seizure of property necessary to preserve evidence
or to prevent the propagation or dissemination of the trade
secret. Ex parte seizures will issue only when the
prerequisites for the issuance of a seizure order are present.
The issuance of a seizure order is limited to ``extraordinary
circumstances.'' Subparagraph (A)(ii) lists requirements for
issuing a seizure order. For example, this authority is not
available if an injunction under existing rules of civil
procedure would be sufficient. The ex parte seizure provision
is expected to be used in instances in which a defendant is
seeking to flee the country or planning to disclose the trade
secret to a third party immediately or is otherwise not
amenable to the enforcement of the court's orders.
Subparagraph (A)(ii) contains numerous limitations,
described below, and is not intended to affect the authority of
the Federal courts to provide equitable relief and issue
appropriate orders pursuant to Rule 65 of the Federal Rules of
Civil Procedure, the All Writs Act (28 U.S.C. 1651), or any
other authority, including the court's inherent authority.
Subparagraph (A)(ii) of section 1836(b) specifies that that
a court may not grant a seizure order unless it finds that it
clearly appears from specific facts that (1) a temporary
restraining order issued pursuant to Federal Rule of Civil
Procedure 65(b) would be inadequate because the party to which
the order would be issued would evade, avoid, or otherwise not
comply with it; (2) immediate and irreparable injury will occur
if the seizure is not ordered; (3) the harm to the applicant of
denying the application outweighs the harm to the legitimate
interests of the person against whom the seizure is ordered and
substantially outweighs the harm to any third parties; (4) the
applicant is likely to succeed in showing that the person
against whom the seizure is ordered misappropriated the trade
secret by improper means, or conspired to misappropriate the
trade secret by improper means, and is in actual possession of
it and any property to be seized; (5) the applicant describes
with reasonable particularity the matter to be seized and, to
the extent reasonable, identifies the location where the matter
is to be seized; (6) the person against whom the seizure would
be ordered, or those working in concert with that person, would
destroy, move, hide, or otherwise make such matter inaccessible
if the applicant were to provide that person notice; and (7)
the applicant has not publicized the requested seizure.
Before granting an ex parte seizure order, it is the
Committee's expectation that courts will require applicants to
describe the trade secret that would be the subject of the
order with sufficient particularity so that the court may
evaluate the request. The requirement of actual possession
contained in clause (V) serves to protect third-parties from
seizure. For instance, the operator of a server on which
another party has stored a misappropriated trade secret, or an
online intermediary such as an Internet service provider, would
not be subject to seizure because their servers, and the data
stored upon them, would not be in the actual possession of the
defendant against whom seizure was ordered. While the court may
not order a seizure against the third party under this
provision, the court may decide to issue a third-party
injunction preventing disclosure of the trade secret using its
existing authority to provide equitable relief. The requirement
relating to improper means is intended to prevent the seizure
provision from being used against a party who may know it is in
possession of a trade secret that was misappropriated, but did
not use, or conspire to use, improper means to acquire such
trade secret.\15\ Seizure of a trade secret that was stolen by
one party and handed off to an accomplice is allowed under the
clause.
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\15\The Act's protections against the misappropriation of trade
secrets--and the remedies it provides against such misappropriation--
are not intended to displace or restrict protections for members of the
press recognized under the First Amendment. The Act should be applied
consistently with the First Amendment and with the Supreme Court's
decision in Bartnicki v. Vopper, 532 U.S. 514 (2001). That case held
that the First Amendment protects members of the press against
liability (including in civil actions) for disclosing information, even
if the information was improperly or illegally obtained by another
party in the first instance, particularly if the information relates to
a matter of public concern. Indeed, Bartnicki recognized that the
Supreme Court ``has repeatedly held that `if a newspaper lawfully
obtains truthful information about a matter of public significance then
state officials may not constitutionally punish publication of the
information, absent a need . . . of the highest order.''' See
Bartnicki, 532 U.S. at 528 (quoting Smith v. Daily Mail Publ'g Co., 443
U.S. 97, 102 (1979)).
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Subparagraph (B) of new Sec. 1836(b)(2) provides that a
seizure order shall (i) set forth findings of fact and
conclusions of law required for the order; (ii) provide for the
narrowest seizure of property necessary to protect the trade
secret, in a manner that minimizes any interruption of the
business operations of third parties and, to the extent
possible, does not interrupt the legitimate business operations
of the person accused of misappropriating the trade secret;
(iii) be accompanied by an order protecting the seized property
from disclosure by prohibiting access by the applicant or the
person against whom the order is directed, and prohibiting any
copies of the seized property, until such parties have an
opportunity to be heard in court (iv) provide guidance to law
enforcement officials executing the seizure that clearly
delineates the scope of their authority, including the hours
during which the seizure may be executed and whether force may
be used to access locked areas; (v) set a date for a hearing at
the earliest possible time, and no later than seven days after
the order has issued, unless parties involved consent to
another date; and (vi) require the person obtaining the order
to provide the security determined adequate by the court for
payment of damages that person may be entitled to recover as a
result of a wrongful or excessive seizure, or attempted
seizure.
Subparagraph (C) of new Sec. 1836(b)(2) requires a court,
in issuing a seizure order, to take appropriate action to
protect the target of the order from publicity, by or at the
behest of the person obtaining the order, about such order and
any seizure under such order.
Subparagraph (D) states that any materials seized pursuant
to an order shall be taken into the custody of the court, which
shall secure the material from physical and electronic access.
In implementing this subparagraph, unless there is consent from
the parties, the court should be careful to keep any electronic
data or storage media secure and disconnected from any network
or the Internet, thereby increasing security of the materials.
The court shall take appropriate measures to protect the
confidentiality of seized materials that are unrelated to the
trade secret, unless the person against whom the order is
entered consents to the disclosure of the material. The court
may appoint a special master, bound by a nondisclosure
agreement approved by the court, to locate and isolate all
misappropriated trade secret information and facilitate the
return of unrelated property and data to the person from whom
the property was seized.
Subparagraph (E) requires service of the court's order and
the submissions of the applicant on the party against whom the
order is directed. The order must be carried out by a Federal
law enforcement officer. The court may allow State and local
law enforcement officials to participate but may not allow the
applicant or its agents to participate. At the request of law
enforcement, the court may appoint a neutral technical expert,
bound by a nondisclosure agreement, to assist in the seizure if
the court determines that the expert's participation would
minimize the burden of the seizure.
Subparagraph (F) provides that the court shall hold a
hearing at which the party who obtained the order shall have
the burden to prove the facts supporting the findings of fact
and conclusions of law necessary to prove the order. If a party
fails to meet the burden for its proposed seizure, the seizure
order shall be dissolved or modified appropriately. A party
against whom the order has been issued, or any person harmed by
the order, may move the court at any time to dissolve or modify
the order.
Subparagraph (G) provides that a person who suffers damage
by reason of a wrongful or excessive seizure has a cause of
action against the applicant for the order under which the
seizure was made, to recover damages, including punitive
damages, and reasonable attorney's fees.
Subparagraph (H) provides that a party or other person who
claims to have an interest in the subject matter seized may
move to encrypt any seized materials.
Remedies
Paragraph (3) of new Sec. 1836(b) provides the remedies for
the misappropriation of a trade secret.
Subparagraph (A) specifies the equitable relief available
and is drawn directly from Sec. 2 of the Uniform Trade Secrets
Act (``UTSA''), which forms the basis of trade secrets law in
almost every State. Provided an order does not prevent a person
from entering into an employment relationship or otherwise
conflict with applicable State laws prohibiting restraints on
trade, a court may grant an injunction to prevent any actual or
threatened misappropriation. Any conditions placed by a court
on employment must be based on evidence of threatened
misappropriation, and not merely on information a person
knows.\16\ These limitations on injunctive relief were included
to protect employee mobility, as some members, including
Senator Feinstein, voiced concern that the injunctive relief
authorized under the bill could override state-law limitations
that safeguard employee mobility and thus could be a
substantial departure from existing law in those states. If
determined appropriate, a court may require affirmative actions
to be taken to protect the trade secret, and, in exceptional
circumstances that render an injunction inequitable, may
condition future use of the trade secret upon payment of a
reasonable royalty for no longer than the period of time for
which such use would have been prohibited.
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\16\The Committee notes that courts interpreting State trade secret
laws have reached different conclusions on the applicability of the
inevitable disclosure doctrine. Compare PepsiCo, Inc. v. Redmond, 54
F.3d 1262, 1269 (7th Cir. 1995) (``[A] plaintiff may prove a claim of
trade secret misappropriation by demonstrating that [the] defendant's
new employment will inevitably lead him to rely on the plaintiff's
trade secrets''), with Whyte v. Schlage Lock Co., 125 Cal. Rptr. 2d
277, 281 (Ct. App. 2002) (rejecting explicitly the inevitable
disclosure doctrine under California law).
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Section (3)(A)(i)(1)(I) reinforces the importance of
employment mobility and contains some limitations on injunctive
relief that may be ordered. However, as Senator Feinstein
explained when the Committee considered this bill at its
executive business meeting, if a State's trade secrets law
authorizes additional remedies, those State-law remedies will
still be available. Some courts have found, based on the
information possessed by the employee alone, that an injunction
may issue to enjoin a former employee from working in a job
that would inevitably result in the improper use of trade
secrets. Consistent with the overall intent of the Defense
Trade Secret Act and, in particular, Section (2)(f), which
provides that the bill does not ``preempt any other provision
of law,'' the remedies provided in Section (3)(A)(i)(1)(I) are
intended to coexist with, and not to preempt, influence, or
modify applicable State law governing when an injunction should
issue in a trade secret misappropriation matter.
Subparagraph (B), drawn directly from Sec. 3 of the UTSA,
specifies the damage award that a court may issue.
Specifically, it authorizes an award of damages for the actual
loss and any unjust enrichment caused by the misappropriation
of the trade secret, or, in lieu of damages measured by any
other method, an award of a reasonable royalty. It is not the
Committee's intent to encourage the use of reasonable royalties
to resolve trade secret misappropriation. Rather, the Committee
prefers other remedies that, first, halt the misappropriator's
use and dissemination of the misappropriated trade secret and,
second, make available appropriate damages.\17\
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\17\The Committee notes that courts interpreting the UTSA's
analogous provision have held that the award of reasonable royalties is
a remedy of last resort. See e.g., Progressive Prod., Inc. v. Swartz,
258 P.2d 969, 979-80 (Kan. 2011) (citing the comment to Sec. 2 of the
UTSA and explaining that an award of royalties is reserved for
``special situation[s],'' including ``exceptional circumstances'' in
which an overriding public interest makes an injunction untenable).
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Subparagraph (C) authorizes an award of exemplary damages,
not exceeding twice the compensatory damages awarded, if the
trade secret is willfully and maliciously misappropriated. This
provision is similar to Sec. 3(b) of the UTSA.
Subparagraph (D) allows that attorney's fees may be awarded
to the prevailing party if a claim of misappropriation is made
in bad faith, there is willful and malicious misappropriation,
or a motion to terminate an injunction is made or opposed in
bad faith. This provision is modeled on Sec. 4 of the UTSA.
Jurisdiction
Subsection (c) of new Sec. 1836 provides that district
courts of the United States shall have original jurisdiction of
civil actions brought under the section. This is identical to
current subsection (b).
Period of limitations
Subsection (d) of new Sec. 1836 provides a three-year
period of limitations in which to bring a claim under the
section. This limitations period, which was reduced from five
years during the Committee's markup, is now identical to the
limitations period of the UTSA, although a number of States
have modified the limitations period in enacting the UTSA.
Definitions; Rule of construction; Conforming amendments
Section 2(b) of the Act amends Sec. 1839 of title 18 to add
three new definitions.
The intent of Section 2(b)(1)(A)--striking ``the public''
and inserting ``another person who can obtain economic value
from the disclosure or use of the information''--is to bring
the Federal definition of a trade secret in conformity with the
definition used in the Uniform Trade Secrets Act (``UTSA'').
Both the Court of Appeals for the Seventh Circuit, in United
States v. Lange, 312 F.3d 263, 267 (7th Cir. 2002), and the
Court of Appeals for the Third Circuit, in United States v.
Hsu, 155 F.3d 189, 196 (3d Cir. 1998), have identified this
difference between the UTSA and the Federal definition of a
trade secret as potentially meaningful. While other minor
differences between the UTSA and Federal definition of a trade
secret remain, the Committee does not intend for the definition
of a trade secret to be meaningfully different from the scope
of that definition as understood by courts in States that have
adopted the UTSA.
First, ``misappropriation'' is defined identically in all
relevant respects to the definition of misappropriation in
Sec. 1(2) of the UTSA. The Committee intentionally used this
established definition to make clear that this Act is not
intended to alter the balance of current trade secret law or
alter specific court decisions.
Second, the subsection defines ``improper means.'' The
definition contained in subparagraph (A) is identical to the
definition in Sec. 1(1) of the UTSA and includes theft,
bribery, misrepresentation, breach, or inducement of a breach
of a duty to maintain secrecy, or espionage though electronic
or other means. Subparagraph (B) serves to clarify that reverse
engineering and independent derivation of the trade secret do
not constitute improper means.
Third, the subsection defines ``Trademark Act of 1946,''
commonly called the Lanham Act, which provides the basis for
recovery by a party harmed by a wrongful or excessive seizure.
Subsection 2(c) of the Act ensures that nothing in the
legislation is read to create a private right of action for
conduct of a governmental entity or (following the amendment of
18 U.S.C. 1833 by section 7 of this Act) for disclosing trade
secret information to the Government or in a court filing in
accordance with new 18 U.S.C. 1833(b).
Subsection 2(d) of the Act is a conforming amendment that
updates the title of section 1836 in the section heading and
table of sections based on the changes made by this Act.
Subsection 2(e) provides that amendments made by section 2
of the Act shall apply to any misappropriation for which any
act occurs on or after the date of enactment of the Act.
Subsection 2(f) of the Act clarifies that nothing in this
Act modifies the rule of construction in Sec. 1838 of title 18,
and, as a result State trade secret laws are not preempted or
affected by this Act. Further, nothing in this Act affects an
otherwise lawful disclosure under the Freedom of Information
Act.
Subsection 2(g) of the Act also specifies that the new
civil remedy created by this Act is not to be construed as a
law pertaining to intellectual property for purposes of any
other Act of Congress.
Sec. 3. Trade secret theft enforcement
Subsection 3(a) of the Act amends Sec. 1832(b) of title 18
by revising the maximum penalty for a violation under
Sec. 1832(a) to be the greater of $5,000,000 or three times the
value of the stolen trade secret to the organization, including
expenses for research and design and other costs that the
organization has thereby avoided.
Subsection 3(a) also amends Sec. 1835 of title 18 by adding
a new subsection (b), which provides that the court may not
direct the disclosure of any material the owner asserts to be a
trade secret unless the court allows the owner to file a
submission under seal describing the interest of the owner in
keeping the information confidential. The provision or
disclosure of information relating to a trade secret to the
United States or to the court in connection with a prosecution
does not constitute waiver of trade secret protection unless
the owner expressly consents to such waiver. The provision is
also intended to ensure that in a prosecution for conspiracy
related to the alleged theft of a trade secret, the actual
trade secret itself is not subject to disclosure to the
defense, because the actual secrecy of the information that is
the object of the conspiracy is not relevant to the prosecution
of a conspiracy charge.
Subsection 3(b) of the Act amends section 1961(1) of title
18 to include sections 1831 and 1832 relating to economic
espionage and theft of trade secrets as predicate offenses for
the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Sec. 4. Report on theft of trade secrets occurring abroad
Section 4 of the Act requires, not later than one year
after the date of enactment of this act and biannually
thereafter, a report by the Attorney General, in consultation
with the Intellectual Property Enforcement Coordinator, the
Director of the United States Patent and Trademark Office, and
the heads of other appropriate agencies, to the Committees on
the Judiciary of the Senate and the House of Representatives,
on:
(1) the scope and breadth of trade secret theft from
United States companies occurring outside the United
States;
(2) the extent to which trade secret theft occurring
outside of the United States is sponsored by foreign
governments, agents, or instrumentalities;
(3) the threat posed by trade secret theft occurring
outside of the United States;
(4) the ability and limitations of trade secret
owners to prevent the trade secret misappropriation of
trade secrets outside of the United States, to enforce
judgment against foreign entities for such theft, and
to prevent imports based on theft of trade secrets
overseas;
(5) the trade secret protections afforded United
States companies by each country that is a trading
partner of the United States and specific information
about enforcement efforts available and undertaken in
each such country, including a list of specific
countries where trade secret theft is a significant
problem for United States companies;
(6) instances of the Federal Government working with
foreign countries to investigate, arrest, and prosecute
entities and individuals involved in the theft of trade
secrets outside of the United States;
(7) specific progress made under trade agreements and
treaties, including any new remedies enacted by foreign
countries, to protect United States companies from
trade secret theft outside the United States; and
(8) recommendations for legislative and executive
branch actions that may be undertaken to (A) reduce the
threat of and economic impact caused by the theft of
the trade secrets of United States companies occurring
outside of the United States; (B) educate United States
companies regarding threats to their trade secrets when
taken outside of the United States; (C) provide
assistance to United States companies to reduce the
risk of loss of their trade secrets when taken outside
of the United States; and (D) provide a mechanism for
United States companies to confidentially or
anonymously report the theft of trade secrets occurring
outside the United States.
Sec. 5. Sense of Congress
Section 5 of the Act provides that it is the sense of
Congress that trade secret theft occurs domestically and around
the world, and that it is harmful to United States companies
that own and depend on trade secrets. The Economic Espionage
Act of 1996 protects trade secrets from theft under the
criminal law. In enacting a civil remedy, it is important when
seizing information to balance the need to prevent or remedy
misappropriation with the need to avoid interrupting the
legitimate interests of the party against whom a seizure is
issued, and the business of third parties.
Sec. 6. Best practices
Section 6 directs the Federal Judicial Center to develop
recommended best practices for seizure, storage, and security
of information under this Act, within two years of the
enactment. A copy of the recommendations and any updates made
shall be provided to the Committees on the Judiciary of the
Senate and the House of Representatives.
Sec. 7. Immunity from liability for confidential disclosure of a trade
secret to the Government or in a court filing
Section 7 of the Act amends Sec. 1833 of title 18 by adding
a new subsection (b). The new Sec. 1833(b)(1) provides for
criminal and civil immunity for anyone who discloses a trade
secret under two circumstances. Subparagraph (A) addresses
disclosures in confidence to a Federal, State, or local
government official, or to an attorney, for the purpose of
reporting or investigating a suspected violation of the law.
Subparagraph (B) applies to disclosure in a complaint or other
document filed under seal in a judicial proceeding. The
Committee stresses that this provision immunizes the act of
disclosure in the limited circumstances set forth in the
provision itself; it does not immunizes acts that are otherwise
prohibited by law, such as the unlawful access of material by
unauthorized means.
Section 1833(b)(2) created by this Act provides that an
individual who files a lawsuit against an employer for
retaliation for reporting a suspected violation of the law may
disclose a trade secret to an attorney for use in the
proceeding, provided the individual files any document
containing the trade secret under seal and does not disclose
the trade secret other than pursuant to a court order.
Section 1833(b)(3) requires notice of the immunity in this
subsection to be set forth in any employment contract that
governs the use of trade secrets, although an employer may
choose to provide such notice by reference to a policy document
setting forth the employer's reporting policy for a suspected
violation of the law that provides notice of the immunity. An
employer may not be awarded exemplary damages or attorney's
fees under this Act against an employee to whom such notice was
not provided. The notice requirements apply to contracts
entered into or updated after the date of enactment of this
subsection.
Section 1833(b)(4) defines the term ``employee'' to include
any individual performing work as a contractor or consultant.
Section 1833(b)(5) is a conforming amendment to update
section 1838 of title 18 in the section heading and table of
sections based on the changes made by this Act.
IV. Congressional Budget Office Cost Estimate
The Committee sets forth, with respect to the bill, S.
1890, the following estimate and comparison prepared by the
Director of the Congressional Budget Office under section 402
of the Congressional Budget Act of 1974:
February 25, 2016.
Hon. Chuck Grassley,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1890, Defend Trade
Secrets Act of 2016.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Marin
Burnett.
Sincerely,
Keith Hall.
Enclosure.
S. 1890--Defend Trade Secrets Act of 2016
S. 1890 would establish a federal remedy for individuals
seeking relief from the misappropriation of trade secrets.
Under the bill, an owner of a trade secret could file a civil
action in a district court and the court could issue an order
to seize any property necessary to preserve evidence for the
civil action. The legislation would require information
gathered or stored during a legal proceeding related to trade
secrets to be secured to protect its confidentiality. The bill
also would increase the fines that may be collected in the
event of the theft of a trade secret. Finally, the legislation
would require the Department of Justice (DOJ) and the Federal
Judicial Center to submit periodic reports concerning the theft
of trade secrets in the United States.
Based on information from DOJ and the Administrative Office
of the U.S. Courts, CBO estimates that implementing S. 1890
would have no significant effect on the federal budget. Because
enacting S. 1890 would affect direct spending and revenues,
pay-as-you-go procedures apply. Specifically, the bill would
affect civil court filing fees and potentially increase certain
fines, which are recorded in the budget as revenues. A portion
of those revenues would be spent without further appropriation.
On net, CBO estimates that the budgetary effect of those
provisions would be negligible for each year and over the 2016-
2026 period.
CBO estimates that enacting S. 1890 would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year period beginning in 2027.
S. 1890 would preempt state laws that govern matters of
individual liability when trade secrets are disclosed to
governmental officials during the course of an investigation or
legal proceeding. That preemption would be a mandate as defined
in the Unfunded Mandates Reform Act (UMRA) because it would
limit the authority of states to apply their own laws. However,
CBO estimates that the preemption would not affect the budgets
of state, local, or tribal governments because it would impose
no duty on states that would result in additional spending or
loss of revenue.
S. 1890 also would impose a private-sector mandate as
defined in UMRA by extending civil and criminal liability
protection to individuals who disclose trade secrets to
government authorities during the course of an investigation or
as a part of certain legal proceedings. By providing such
liability protection, the bill would prevent entities from
seeking compensation for damages from those individuals under
trade secret laws. The cost of the mandate would be the forgone
value of judgements and compensation for damages for such
disclosures that entities would be awarded under a trade
secrets claim. The bill would strengthen existing whistleblower
protections to protect individuals from potential trade secret
claims. The available literature suggests that few of those
types of lawsuits have been brought against individuals under
current law. Consequently, CBO estimates the cost of the
mandate would probably fall below the annual threshold
established in UMRA for private-sector mandates ($154 million
in 2016, adjusted annually for inflation).
The CBO staff contacts for this estimate are Marin Burnett
(for federal costs), Rachel Austin (for intergovernmental
mandates), and Logan Smith (for private-sector mandates). The
estimate was approved by H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
V. Regulatory Impact Evaluation
In compliance with rule XXVI of the Standing Rules of the
Senate, the Committee finds that no significant regulatory
impact will result from the enactment of S. 1890.
VI. Conclusion
The Defend Trade Secrets Act, S. 1890, as amended, offers a
needed update to Federal law to provide a Federal civil remedy
for trade secret misappropriation. Carefully balanced to ensure
an effective and efficient remedy for trade secret owners whose
intellectual property has been stolen, the legislation is
designed to avoid disruption of legitimate business, without
preempting State law. This narrowly drawn legislation will
provide a single, national standard for trade secret
misappropriation with clear rules and predictability for
everyone involved. Victims will be able to move quickly to
Federal court, with certainty of the rules, standards, and
practices to stop trade secrets from winding up being
disseminated and losing their value. As trade secret owners
increasingly face threats from both at home and abroad, the
bill equips them with the tools they need to effectively
protect their intellectual property and ensures continued
growth and innovation in the American economy.
VII. Changes to Existing Law Made by the Bill, as Reported
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the Committee finds that it is
necessary to dispense with the requirement of paragraph 12 to
expedite the business of the Senate.
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