Recently introduced legislation aims to create a federal cause of action for trade secrets misappropriation and a consistent standard for pursuing such claims across the country. The latest bill, however, might provide more protections to defendants than plaintiffs would like.
Currently, state law governs trade secrets misappropriation claims. Although many states model their trade secrets laws on the Uniform Trade Secrets Act, there are variations from state to state, which can lead to inconsistent results and frustration for companies operating in multiple states.
Just a few months after a similar bill was introduced in the United States Senate, Congressman George Holding (R-NC) introduced The Trade Secrets Act of 2014 (H.R. 5233) in the United States House of Representatives on July 29, 2014. The House Bill has bipartisan co-sponsorship and, like its counterpart in the Senate, would create a federal private right of civil action for misappropriation of a trade secret that is related to a product or service used in, or intended to be used in, interstate or foreign commerce.
Also like the recent Senate Bill, the House Bill would allow a plaintiff to apply ex parte for a civil seizure of potential evidence (such as computers, portable hard drives, etc.) that is necessary to bring a cause of action under the Bill or prevent dissemination of allegedly misappropriated trade secrets.
The House Bill, however, provides some significant protections to defendants. In order for a court to issue an order for civil seizure, the plaintiff must “clearly” demonstrate, with “specific facts,” all of the following:
- federal injunctive relief under Federal Rules of Civil Procedure Rule 65(b) is inadequate because the defendant would evade, avoid, or not comply with such an order;
- immediate and irreparable harm to the plaintiff;
- the harm to the plaintiff (should the application be denied) outweighs any potential harm to the defendant against whom the order is sought and substantially outweighs any harm to third parties resulting from any civil seizure;
- a likelihood that the defendant misappropriated the trade secret and is in possession of the trade secret;
- a description with reasonable particularity of the trade secret and its location;
- the defendant would destroy, move, hide or otherwise make the property inaccessible if the plaintiff provided notice to such defendant; and
- the plaintiff has not publicly disclosed the request for civil seizure.
In addition, the House Bill places significant limitations on orders for civil seizures. For example, the order must minimize the interruption of business activities of third parties and, “to the extent possible”, the business activities of the defendant. The House Bill also provides defendants with a private cause of action against applicants for damages caused by “wrongful or excessive” seizures – despite all the requirements to obtain the court order.
Although the recently introduced Senate Bill (S. 2267, titled the “Defend Trade Secrets Act of 2014”) also provides for ex parte orders for civil seizure of evidence of misappropriation, the procedural requirements for the House Bill appear to be more stringent than those of the Senate Bill.
The Senate Bill has been assigned to the Senate Judiciary Committee, which will consider it before possibly sending it to the House or Senate for a vote. The House Bill was referred to the House Judiciary Committee, which will consider it before potentially sending it to the House for a vote.