BFV Perspectives, Noncompete & Trade Secrets, | Aug 08, 2014

Bi-Partisan Bill Introduced in the House of Representatives Would Create a Private Right of Action for the Trade Secret Theft Under Federal Law

This week, a bi-partisan bill was introduced in the House of Representatives that would create a private right of action for trade secret theft under federal law. The Trade Secrets Protection Act of 2014 (the “TSPA”) was introduced by representatives on the house judiciary committee and would create a federal civil remedy for trade secret theft. This bill comes on the heels of the bill introduced in the Senate earlier this year, the Defend Trade Secrets Act (DTSA).

Like the DTSA, the TSPA seeks to create a private federal remedy for victims of trade secret theft. The TSPA is largely similar to the DTSA, but contains provisions aimed at decreasing the likelihood of bad faith use of the Act and limiting the use of seizures permitted by the Act.

Like the DTSA, the TSPA provides for:

1. A private civil action brought by the trade secret owner for “a misappropriation of a trade secret that is related to a product or service used, or intended for use in, interstate or foreign commerce”.

2. Original jurisdiction in the federal courts.

3. Remedies including injunctions, damages, and exemplary damages. TSPA also provides for exemplary damages in an amount not more than three times the amount of damages awarded. If a claim of misappropriation is made in bad faith or if a trade secret is willfully or maliciously misappropriated, a court may award attorneys’ fees.

4. A civil ex parte order for seizure of property.

5. A five-year statute of limitation.

Different from the DTSA, the TSPA provides for a claim for wrongful seizure. A party who claims wrongful seizure may recover damages for lost profits, cost of materials, and loss of good will, and may be compensated for attorney’s fees. The party also may be awarded punitive damages if a seizure was sought in bad faith.

Also unlike the DTSA, the TSPA does not

1. Provide for orders to preserve evidence, such as orders to copy an electronic storage medium containing the trade secret; or

2. Provide a cause of action for violation of the Economic Espionage Act of 1996.

The TSPA also contains more restrictive requirements than the DTSA for issuing orders for seizure:

1. The TSPA has a more limited definition of the property that may be seized. The DTSA defines such property as “any property used, in any manner or part, to commit or facilitate” misappropriation. But the TSPA requires that a property seizure be necessary to preserve evidence or prevent the dissemination of a trade secret that is the subject of the action.

2. The TSPA does not permit issuance of orders for seizure unless a court finds specific facts that clearly demonstrate the following:

a. A Temporary Restraining Order would be inadequate because the party would evade, avoid, or not comply with it.

b. An immediate and irreparable injury will occur without the order.

c. A balancing test of harms favors the applicant for the order over the party whose property is seized.

d. The likeliness of succeeding on the misappropriation claim.

e. The property to be seized and its location have been described with reasonable particularity.

f. The person against whom the seizure is sought (or persons acting in concert with that person) would destroy, move, or hide the property.

g. The applicant has not publicized the requested seizure.

3. The TSPA also requires that specific elements be included in an order for seizure, including (i) a date for a hearing not later than 7 days after the order has been issued and (ii) a requirement that the applicant provide security for the payment of damages in case the seizure is found to be wrongful or excessive.

Finally, the TSPA also includes requirements that courts protect from publicity all persons who are subject to a seizure order and that service of a seizure order be made by a federal, state, or local law enforcement officer.

Given the dysfunction in Congress, it is difficult to predict whether the TSPA or the DTSA will become law; however, the fact that bi-partisan legislation has been introduced in both houses of Congress is encouraging.

BFV Perspectives, Noncompete & Trade Secrets, | Aug 08, 2014
Benjamin I. Fink
Benjamin I. Fink

Benjamin Fink is known for his work in noncompete, trade secret and competition-related disputes. A shareholder at Berman Fink Van Horn, Ben concentrates his practice in business and employment litigation.