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American Intellectual Property Law Association

Shhhh! Trade Secrets Update

Yuichi WatanabeAIPLA IP Practice in Japan Committee

January 27-28, 2015

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Background – Trade Secrets in the U.S.

• Predominantly governed by state law, not federal law, under the model of UTSA

• UTSA: Uniform Trade Secrets Act– Drafted by the Uniform Law Commission (ULC) – Codified basic principles of common law trade secret

protection– Approved and recommended by American Bar

Association for enactment in all the states– As of January 21, 2015, Adopted by 47 states

• All but New York, North Carolina, and Massachusettshttp://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf

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Background - Uniform Trade Secrets Act

• Defines “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that:– (i) derives independent economic value, actual or

potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

– (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

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Background - Uniform Trade Secrets Act

• Defines “misappropriation” as: – (i) acquisition of a trade secret of another by a person who

knows or has reason to know that the trade secret was acquired by improper means; or

– (ii) disclosure or use of a trade secret of another without express or implied consent by a person who acquired the trade secret or knew the trade secret was acquired by improper means.

• Defines “improper means” as including at least:– theft, bribery, misrepresentation, breach or inducement of a

breach of a duty to maintain secrecy, or espionage through electronic or other means

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Background - ULC Comments on UTSA

• There are “proper” means to acquire trade secret, including at least:– Discovery by independent invention;– Discovery by “reverse engineering”;– Discovery under a license from the owner of the trade

secret;– Observation of the item in public use or on public

display; – Obtaining the trade secret from published literature

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Background – Other Statutory Bases

• Federal Criminal Statutes– Economic Espionage Act of 1996– *Theft of Trade Secrets Clarification Act of 2012– *Foreign and Economic Espionage Penalty

Enhancement Act of 2012*Amended Economic Espionage Act

– Computer Fraud and Abuse Act

• Federal Civil Statutes– None!

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New (Proposed) Legislation

• Currently, a federal civil cause of action does not exist for trade secrete misappropriation– Congress has considered numerous bills over the

years, but none has passed• The latest proposed bills are:

– Trade Secrets Protection Act of 2014• House Bill

– Defend Trade Secrets Act of 2014• Senate Bill

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Trade Secrets Protection Act of 2014

• Summary– Authorizes owner of a trade secret related to a

product/service used in interstate/foreign commerce, who is aggrieved by misappropriation of such trade secret, to bring a civil action to obtain appropriate relief

– Grants district courts original jurisdiction of such actions, subject to a five-year statute of limitations beginning when the misappropriation is or should have been discovered

https://www.congress.gov/bill/113th-congress/house-bill/5233

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Trade Secrets Protection Act of 2014

• Summary (cont’d)– Authorizes courts, upon ex parte application, to issue an

order providing for seizure of property necessary to preserve evidence in such civil action or to prevent the propagation or dissemination of the trade secret

– Sets forth remedies for such misappropriation, including granting injunctive relief, awarding damages for losses or unjust enrichment caused, and awarding exemplary damages and attorney fees for willful and malicious misappropriation.

https://www.congress.gov/bill/113th-congress/house-bill/5233

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Defend Trade Secrets Act of 2014

• Summary– Authorizes owner of a trade secret aggrieved by an act

of economic espionage, theft of a trade secret, or misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce to bring a civil action under this Act

– Authorizes courts, based on an affidavit or verified complaint satisfying the requirements of this Act, upon ex parte application, and if necessary to prevent irreparable harm, to issue appropriate orders including . . . [see next slide]

https://www.congress.gov/bill/113th-congress/senate-bill/2267

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Defend Trade Secrets Act of 2014

• Summary (cont’d)– . . . (1) providing for preservation of evidence; (2)

granting an injunction to prevent any actual or threatened violation; (3) requiring affirmative actions to be taken to protect a trade secret; or (4) providing for the seizure of any property used to commit or facilitate the commission of an alleged violation

https://www.congress.gov/bill/113th-congress/senate-bill/2267

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Defend Trade Secrets Act of 2014

• Summary (cont’d)– Authorizes a court to (1) grant an injunction; (2) award

damages for actual loss, damages for unjust enrichment, and (in lieu of damages measured by any other methods) damages caused by misappropriation; (3) award exemplary treble damages if the trade secret is willfully or maliciously misappropriated; and (4) award reasonable attorney's fees to the prevailing party if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or a trade secret is willfully and maliciously misappropriated

https://www.congress.gov/bill/113th-congress/senate-bill/2267

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Similarities Between House and Senate Bills

• The Trade Secrets Protection Act and Defend Trade Secrets Act are very similar– Both follow the language provided by UTSA– Both create a procedure for ex parte seizure of

property– Both have five-year statute of limitations beginning

from the time when misappropriation is or should have been discovered

– Both provide injunctive relief, damages, exemplary damages, and attorney fees

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Impact if Bills Pass

• More enforcement tools for trademark owners– Owners can bring private action in either state court or

federal court– Owners can choose between state law claims, federal

law claims, or assert both– Brand new ex parte seizure procedure

• UTSA does not provide such a procedure• Brand new procedure that did not exist in UTSA• Allows trade secret owners to appear in court, without

opposition, to obtain court order for seizure of property• Probably the most controversial provision in the proposed bills

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Opposition to Bills

• 31 law school professors presented letter to Congress opposing legislation because:– Effective and uniform state law already exists;– Acts will damage trade secret law and jurisprudence by

weakening uniformity while simultaneously creating parallel, redundant and/or damaging law;

– Acts are imbalanced and could be used for anti-competitive purposes;

– Acts increase risk of accidental disclosure of trade secret;– Acts have negative impacts on access to information,

collaboration among businesses and mobility of laborhttp://cyberlaw.stanford.edu/files/blogs/FINAL%20Professors%27%20Letter

%20Opposing%20Trade%20Secret%20Legislation.pdf

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Other News

• USPTO hosted its first Trade Secret Symposium on January 8, 2015– “The protection of U.S. trade secrets from

misappropriation is an Administration priority.” http://www.uspto.gov/ip/init_events/trade_secret_symposium.jsp

• EU Trade Secrets Directive– Efforts to harmonize trade secrets law throughout EU– Currently being debated by the European Parliament

http://register.consilium.europa.eu/content/out?lang=EN&typ=ENTRY&i=SMPL&DOC_ID=ST-9870-2014-INIT

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Thanks for your attention! Questions?

Yuichi WatanabePartner

Osha Liang LLPTwo Houston Center

Suite 3500909 Fannin St.

Houston, TX 77009 USA1-713-228-8600

watanabe@oshaliang.com