Trade Secrets Update

Just as trade secrets cases continue to proliferate in the news, the U.S. Senate introduced legislation last week aimed at streamlining the ability of American companies to combat trade secret theft.

Under the proposed legislation S.3389, “Protecting American Trade Secrets and Innovation Act of 2012”(“PATSIA”), a single federal statute would be created under which companies could sue in Federal Court, as an alternative to the existing structure of state or common law statutes. To be eligible, plaintiffs are required under a heightened pleading standard to: “(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.” Plaintiffs also are subject to a three-year statute of limitations.

PATSIA provides federal courts with jurisdiction, on ex parte application, to issue an order to seize property used in connection with the alleged misappropriation of trade secrets and/or to preserve evidence relating to the alleged theft. A defendant injured by such a seizure can in turn file a civil action for damages. In the event that a misappropriation of trade secrets is found by the Court, plaintiffs may obtain injunctive relief, damages (including exemplary damages and attorney’s fees), and/or a court order requiring defendant’s affirmative action to protect the trade secrets. If the Court determines that it would be unreasonable to prohibit further use of the trade secrets, it may alternatively award plaintiffs with a reasonable royalty.

The bill’s sponsors are Senators Herb Kohl (WI), Chris Coons (DE) and Sheldon Whitehouse (RI), and the matter has been referred to the Senate Judiciary Committee for consideration. Senator Kohl also sponsored the Economic Espionage Penalty Enhancement Act of 2011, which proposes increased criminal penalties for persons committing economic espionage. This Act passed the Senate Judiciary Committee with amendment, and is presently under consideration by the full Senate and House of Representatives.

Earlier this year, we reported that New Jersey passed legislation providing state law protection against trade secret misappropriation. Prior to enactment, New Jersey was one of only four states, including New York, Massachusetts and Texas, that had not adopted some form of the Uniform Trade Secrets Act.

Gibbons will continue to monitor developments in this important area and remains at the forefront of rendering counsel in all aspects of trade secrets law, from enforcement to prevention and best practices for employers to safeguard their trade secrets.