Legislative Developments

December 1, 2012

On Tuesday, November 27, 2012, the United States Senate unanimously passed the Theft of Trade Secrets Clarification Act of 2012 (“Clarification Act”). Introduced by Sen. Patrick Leahy (D-Vt.) and retiring Sen. Herb Kohl (D-Wis.), the Clarification Act amends specific language in the Economic Espionage Act (“EEA”) in response to a recent court decision that had potentially limited the EEA's reach.

In United States v. Aleynikov, the United States Court of Appeals for the Second Circuit recently vacated former Goldman Sachs computer programmer Sergey Aleynikov’s conviction for theft of trade secrets under the EEA. A jury convicted Aleynikov of criminal trade secrets theft after he copied hundreds of thousands of lines of code related to Goldman Sachs' high-frequency trading business to his home computer; he had planned to use the code to develop a similar trading platform. However, on appeal, the Second Circuit determined that the source code in question was not related to a product "produced for . . . interstate or foreign commerce" as required by the EEA.

As discussed in TSI’s Case Report on Aleynikov, the controversial “ decision called into question the government's ability to prosecute theft of internal trading systems or other internal financial instruments under the Economic Espionage Act.” In response to this judicial “narrowing,” the Clarification Act broadens the EEA’s reach by striking the relevant language in § 1832(a) (i.e. ‘‘or included in a product that is produced for or placed in’’) and inserting ‘‘a product or service used in or intended for use in’’.

August 10, 2012

On July 17, 2012, U.S. Senators Herb Kohl (WI), Chris Coons (DE), and Sheldon Whitehouse (RI) introduced “Protecting American Trade Secrets and Innovation Act of 2012” (“PATSIA”).

The proposed legislation aims at "provid[ing companies with] federal jurisdiction for theft of trades secrets," as opposed to relying upon each states individual laws. However, PATSIA requires a comparatively higher pleading standard than the Uniform Trade Secrets Act or Restatement: “(A) describe with specificity the reasonable measures taken to protect the secrecy of the alleged trade secrets in dispute; and (B) include a sworn representation by the party asserting the claim that the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country.”

Additionally, PATSIA allows parties, on ex parte application, to seize property related to the misappropriated trade secrets (or evidence thereof) for up to 72 hours. It also provides remedies in the form of injunctive relief, monetary damages (including royalties), and/or any other "affirmative actions [necessary] to protect a trade secret."

The "Definitions" section is almost identical to the Uniform Trade Secret Act. Should the bill pass, it would end years of debate regarding the need for a single federal cause of action for misappropriation of trade secrets. According to Senator's Kohl's press release: "[PATSIA] will help American companies protect their valuable trade secrets by giving them the additional option of seeking redress in Federal courts when they are victims of economic espionage or trade secret theft. Stolen trade secrets cost American companies billions of dollars each year and threaten their ability to innovate and compete globally. This bill ensures that companies have the most effective and efficient ways to combat trade secret theft and recoup their losses, helping them to maintain their global competitive edge."

November 20, 2011

Proposed legislation in Massachusetts would repeal the state’s idiosyncratic trade secrets laws and replace them with a version of the Uniform Trade Secrets Act.

Rep. Eugene L. O’Flaherty sponsored the bill, H.2846, entitled “An Act Making Uniform the Law Regarding Trade Secrets.” The bill was referred to the Massachusetts House of Representatives Joint Committee on the Judiciary on January 24, 2011.

If enacted, the bill would repeal §§ 42 and 42A of Chapter 93 of the Massachusetts General Laws and add an incarnation of the Uniform Trade Secrets Act (UTSA) as Chapter 93H. The updated law would differ from present law in several respects.

First, §§ 42 and 42A currently rely on the definition of trade secrets provided by Chapter 266, Section 30 of the General Laws, which stipulate: “The term ‘trade secret’ as used in this paragraph means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.” The replacement definition will add further detail to this definition by statutorily enshrining the “economic value” and “reasonable efforts to maintain secrecy” requirements in proposed Chapter 93H §§ 2(4)(i) and (ii), respectively.

Second, the adoption of the UTSA will add detail to Massachusetts’ trade secrets regulation by specifying what types of monetary damages are available to plaintiffs. The current § 42 provides only that a misappropriator “shall be liable in tort to [a trade secrets holder] for all damages resulting therefrom.” The UTSA, on the other hand, indicates that awarding both actual damages and damages for unjust enrichment deriving from the misappropriation are appropriate, and that in the case of difficult measurement of damages, damages equal to a reasonable royalty may be granted. Additionally, the current § 42 simply provides that the court may double damages “in its discretion.” The UTSA will add that this should be limited to cases of “willful” or “malicious” misappropriation. The UTSA will also reaffirm the availability of injunctive relief that § 42A currently provides.

Third, the UTSA adds that “a court shall preserve the secrecy of an alleged trade secret by reasonable means,” whereas the current Massachusetts laws do not require protection for the duration of judicial proceedings. Such means “may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.”

Finally, the UTSA will add a three-year statute of limitations on trade secrets misappropriation claims, where the current §§ 42 and 42A do not specify a time limit.

The Massachusetts criminal statute concerning trade secrets, General Laws Chapter 266 § 30(4), would survive the repeal of §§ 42 and 42A. The statute makes “unlawful” trade secrets theft a form of larceny and provides for a jail term of up to 5 years (or of up to 2 years if accompanied by a maximum $25,000 fine).

November 16, 2011

Governor Chris Christie of New Jersey signed into law on January 9, 2012 the "New Jersey Trade Secrets Act" (NJTSA). New Jersey now joins its 45 sister States and the District of Columbia in adopting the Uniform Trade Secrets Act (“UTSA”). New York, Texas, Massachusetts and North Carolina remain as the only four states that have not enacted the UTSA. New York and Texas follow the Section 757. Massachusetts has statutory law that creates tort liability for the misappropriation of trade secrets. The NJTSA, introduced on January 1, 2010, is New Jersey’s first statute governing trade secrets.

The NJTSA grants injunctive relief for actual or threatened misappropriation and, in exceptional cases, an “injunction may condition future use on payment of a reasonable royalty.” It also entitles a complainant to damages for misappropriation, which may be calculated to include actual loss and unjust enrichment caused by the misappropriation. Damages caused by misappropriation may also be imposed as a reasonable royalty. Punitive damages are awarded in cases of “willful and malicious misappropriation.”

To ensure against bad conduct by parties on both sides, attorneys’ fees are permitted if: 1) willful and malicious appropriation exits; 2) a misappropriation claim was made in bad faith; or 3) a motion to terminate an injunction is made or resisted in bad faith.

The New Jersey legislature contemplated adopting the UTSA since 2009 and the NJTSA was first passed by the New Jersey Assembly on October 25, 2010, 78-0, and by the Senate on September 26, 2011, 39-0. But it returned to the Assembly for consideration in November because of an amendment clarifying that a court must preserve the secrecy of an alleged trade secret by reasonable means.

It will be some time before differences between the NJTSA and the common law become apparent. However, under the NJTSA, the statute of limitations (“SoL”) to bring a trade secrets claim is three years whereas under the common law, the SoL is six years. The NJTSA is also not identical to the UTSA. Significantly, the NJTSA departs from the UTSA by creating a presumption in favor of granting protective orders in connection with discovery proceedings.

October 19, 2011

A newly proposed amendment stands to modify the Economic Espionage Act (“EEA”), 18 U.S.C. 1831 et seq., which criminalizes trade secret theft, to allow a private civil cause of action for injunctive or monetary relief. The amendment would create a federal statute governing trade secret misappropriation in certain limited circumstances and offer federal protection for trade secrets as in the case of other types of intellectual property.

Currently, civil litigants bring trade secret misappropriation actions under state statutes or common law. Federal actions under the EEA may be brought when related to interstate or foreign commerce but only by the Attorney General as a criminal matter under 18 U.S.C. §1832(a).

Senator Christopher Coons (D-Delaware), along with Senator Herb Kohl (D-Wisconsin), has proposed an amendment to §1832 that would allow for the option of a private civil action. However, a special affidavit would be required of the plaintiff that demonstrates either: (1) a substantial need for nationwide service of process; or (2) theft of trade secrets in the United States with transfer to a foreign state. These new amendments would become §1832(b).

The amendment would allow a private entity to pursue a Federal cause of action in the above instances rather than rely on state laws, which tend to vary greatly – even the Uniform Trade Secrets Act, followed by most states, has suffered from uneven implementation. The goal is ostensibly to make protection of American trade secrets easier as long as the affidavit requirements are met. The requirements would limit the amendment’s application to cases of interstate or foreign theft.

The proposed amendment, if accepted, will be attached to the Currency Exchange Rate Oversight Reform Act of 2011.