If a Trade Secret is Stolen, Should the Owner be Able to Sue in Federal Court? (S. 1890)

What is S. 1890?

(Updated August 1, 2018)

This bill was enacted on May 11, 2016

This bill would enable individuals and companies to sue in federal courts to recover damages from the misappropriation or theft of trade secrets, while also ensuring the confidentiality of trade secrets during legal proceedings. A trade secret is a type of intellectual property that, unlike a patent, is concealed from public knowledge to give the owner an economic advantage over its competitors. Under current law, only the Dept. of Justice can file suit in federal court for trade secret misappropriation.

The owner of a misappropriated trade secret would be able to file a lawsuit in a federal district court, and the court would then be able to issue an order to seize any property necessary to preserve evidence in the case. All information gathered or stored by the court would be required to be protected from physical or electronic access while in the court’s custody. Any relevant civil suit filed in federal court must be initiated within three years of when the misappropriation should have reasonably been discovered.

Federal courts would have the following options at their disposal for remedying the case:

• Grant an injunction to prevent actual or threatened trade secret misappropriation and take necessary steps to protect the trade secret;

• Award damages for either the actual damages caused by the misappropriation, unjust enrichment not covered by the actual damages, or to require reasonable royalties be paid as compensation;

• Award exemplary damages of up to two-times the award described above, plus reasonable attorney’s fees if the trade secret was willfully and maliciously misappropriated;

• Award reasonable attorney’s fees to the prevailing party if a claim of misappropriation is shown to be made in bad faith based on circumstantial evidence, or a motion to terminate an injunction is made or opposed in bad faith.

Any individual who confidentially discloses a trade secret to a government official or an attorney in the process of reporting suspected misappropriation would be immune from criminal or civil liability. Companies would be required to inform employees about their immunity under the above circumstances in portions of contracts or corporate policy documents that discuss the handling and use of trade secrets.

The Dept. of Commerce and the Patent and Trademark Office would be required to provide relevant congressional committees with a report on the theft of trade secrets belonging to U.S. entities by foreign governments or businesses.

Argument in favor

Owners of trade secrets that were misappropriated should be able to sue in federal district courts to recover damages, given that trade secret theft is often an issue that crosses state and national borders.

Argument opposed

Federal courts don’t need to deal with lawsuits related to trade secret theft. There shouldn’t be immunity for people who confidentially report suspected misappropriation to law enforcement or attorneys.

Impact

Individuals and businesses whose trade secrets have been misappropriated; those who misappropriate trade secrets; federal courts; the Patent and Trademark Office; and the Dept. of Commerce.

Cost of S. 1890

The CBO estimates that implementing this bill would have an insignificant effect on the federal budget.

Additional Info

In-Depth: Sponsoring Sen. Orrin Hatch (R-UT) introduced this bill to provide owners of trade secrets that were misappropriated a way to recover damages in federal court:

“Unfortunately, in today’s global information age, there are endless examples of how easy—and rewarding—it can be to steal trade secrets. Yet there are no federal remedies available to help victim companies recover from their losses. The Defend Trade Secrets Act of 2015 establishes a uniform standard for what constitutes trade secret theft and will give U.S. companies the ability to protect their trade secrets in federal court.”

This legislation was passed unanimously by the Senate Judiciary Committee, and it has a total of 64 cosponsors in the Senate — including 36 Republicans, 27 Democrats, and one Independent. Numerous companies and organizations have also expressed their approval of this bill.

Of Note: According to a 2014 report by PwC, the economic cost of trade secret theft to America’s economy runs between one and three percent of U.S. gross domestic product (GDP). Given that U.S. GDP was estimated at nearly $18 trillion in 2015, the projected cost of trade secret theft would be between $180 - $540 billion.

Media:

• Sponsoring Sen. Orrin Hatch (R-UT) Press Release
• Senate Judiciary Committee Press Release
• CBO Cost Estimate
• Bloomberg
• IP Frontline
• Salt Lake Tribune (In Favor)
• Washington Times (In Favor)