US trade secret reform: an efficient way of protecting ideas

Imagine a situation where you are sure someone has stolen your idea but you can’t prove it—or at least you face a very long fight to do so.

Trade secrets theft is a nightmare scenario for any business, particular those that have spent years or even decades building a trusted brand or technology. In contrast to much litigation, it’s the biggest and more established companies, with multiple staff and more secrets, that are arguably the more vulnerable.

As it stands it is not possible to protect trade secrets through federal law in the same way that you could a patent, trademark or copyright, so instances of infringement have to be litigated on a state-by-state basis.

For a company based in only one state, this is manageable, but for a nationwide or even multinational company the task suddenly becomes much harder.

Michael Oblon, partner at law firm Perkins Coie, says he believes that while lots of companies know that their trade secrets have been misappropriated, many do not think they have an effective tool to enforce their rights.

Current trade secret laws are based on the Uniform Trade Secrets Act, which is adopted by 47 out of 50 states. There’s a catch, says Oblon: despite the act’s name, the law is in fact anything but uniform.

“Some states apply the ‘inevitable disclosure’ doctrine—preventing an employee from working in a job that would result in trade secrets use—whereas others do not,” he says, adding that as it stands a plaintiff alleging trade secret misappropriation can be left without any remedy if the defendant flees to another state or leaves the country.

A uniform standard

New US legislation is hoped to address these problems and finally bring trade secrets into line with other forms of IP. The Defend Trade Secrets Act, introduced to the US House of Representatives in July last year, seeks to create a “uniform standard” for tackling trade secret theft.

The most important change would allow instances of theft to be litigated in federal courts—meaning one judgment would apply across the nation, not just one state.

Robert Milligan, partner at law firm Seyfarth Shaw, says the bill could provide a welcome change, as having “50 different versions” of a trade secret law can prove inefficient.

“We are living in an ever globalising world, where a small company in Massachusetts can sell its products anywhere in the world. That small company in one part of the country could have a large consumer base or even an employee that telecommutes from California.

“As it stands, Massachusetts and California have different trade secrets laws as well as different state procedural laws. Being connected via the internet and mobile devices increases the likelihood of trade secret theft across state lines; one may work from home in a state that is on the other side of the country from the state in which the person’s employer is located.

“Having a streamlined, standardised federal cause of action in place to protect any misappropriation of trade secrets by an out-of-state individual may definitely be beneficial to companies, especially those with limited resources,” he adds.

“Having a streamlined, standardised federal cause of action in place to protect any misappropriation of trade secrets by an out-of-state individual may definitely be beneficial to companies.”

Oblon explains there is a provision in the bill that may enable plaintiffs to ask courts to have technology or items believed to have been made through trade secret theft seized from a defendant’s possession before giving notice of the lawsuit.

Although this is necessary to prevent the increase or wider dissemination of the trade secret subject to the action, it is controversial, very powerful and “could wreak havoc if applied improperly”, Oblon says.

The bill, unlike the attempts to address US patent reform, appears to have attracted universal backing.

In December, ahead of a Senate hearing, the Intellectual Property Owners Association sent a letter to the US Senate Judiciary Committee to “express strong support” for the legislative proposals. On the day the bill was first introduced (July 29, 2015), 30 brands including Nike, Eli Lilly, GE, Honda, IBM, Johnson & Johnson, Boeing and Siemens outlined their support for the bill.

In a co-signed letter, they said the protection of trade secrets was essential to driving innovation and creativity.

Milligan says that if, as is likely, the bill is passed, it would also create a standard from which other countries could base their own laws to protect trade secrets, leading to the “harmonisation of trade secret protection globally”.

“I have yet to hear from any prominent stakeholder speaking against the legislation,” he adds.

Oblon says that given the “time-sensitive nature” of trade secrets cases he would like to see legislators consider a requirement for early discovery and a possible dispositive motion hearing “within a short time after the complaint is filed”.

“Letting discovery drag on for months can be harmful to both sides, because it might deprive a legitimate plaintiff of the ability to quickly halt the theft, and it also might keep an innocent defendant under the cloud of litigation,” he says.

“Unless both sides stipulate to opt out, the default should be that the case moves extremely fast.”

Oblon and Milligan agree that the bill should pass “in some form” later this year, as it is generally supported by both Democrats and Republicans and is becoming a more urgent issue.

For some businesses with secrets to protect, the nightmare could soon be over.