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Senate Judiciary Committee Approves the Defend Trade Secrets Act

Senate Judiciary Committee Approves the Defend Trade Secrets Act

In November 2015, Jones Day issued a White Paper titled "Are Federally Protected Trade Secrets on the Horizon? Key Things to Know about the Defend Trade Secrets Act of 2015," providing a detailed analysis on the Defend Trade Secrets Act of 2015 ("DTSA"). While the situation is unchanged in the House of Representatives, in January 2016 the Senate Judiciary Committee passed the bill by unanimous voice vote with various amendments. This Alert discusses notable amendments approved by the committee.

Restrictions on Ex Parte Seizure

The committee approved various amendments to the controversial ex parte seizure provision, generally restricting application of that extraordinary remedy. The restrictions include:

  • Ex parte seizure is available "only in extraordinary circumstances."[1]
  • Before issuing an order, the court must find that "an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate" (emphasized requirement is new).[2]
  • Before issuing an order, the court must find that the person against whom seizure would be ordered has "actual possession of … the trade secret ... and … any property to be seized" (emphasized requirement is new).[3]
  • The seizure order must "provide guidance to the law enforcement officials executing the seizure that clearly delineates the scope of the authority of the officials, including: (i) the hours during which the seizure may be executed; and (ii) whether force may be used to access locked areas."[4]
  • The court must take "appropriate measures to protect the confidentiality of the seized materials that are unrelated to the trade secret information."[5]

In addition, the amendments allow for the appointment of a special master to assist in the seizure[6] and permit state or local law enforcement to assist in the seizure.[7] At the request of law enforcement, the court may allow a technical expert, unaffiliated with the applicant, to participate in the seizure.[8] Neither the applicant nor any agent of the applicant may participate in the seizure.[9]

The amendments also apply restrictions on access to the seized materials to the person against whom the order is directed as well as to the applicant.[10]

More Restrictive Remedies

The committee also approved various restrictions to the remedies for misappropriation, including:

  • Exemplary damages are reduced from up to three times damages awarded to up to two times damages awarded.[11]
  • The protection on freedom of employment is strengthened by requiring any conditions on employment to be evidence-based and not merely based on information the person knows, and by prohibiting an injunction from conflicting with state law prohibitions on the practice of a lawful profession, business, or trade.[12]

The statute of limitations is reduced from five years to three years.[13]

Definition of "Trade Secret"

Under the current 18 U.S.C. § 1839(3), for information to be a "trade secret," it must "derive[] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public." An amendment to the DTSA replaces "the public" with "another person who can obtain economic value from the disclosure or use of the information."[14] This change puts the federal definition more in line with the Uniform Trade Secret Act.

Best Practices

The amendments require the Federal Judicial Center to develop, not later than two years after enactment, recommended best practices for (i) the seizure of information and media storing the information; and (ii) the securing of the information and media once seized.[15] The recommendations should be updated periodically, and the first and periodic reports must be submitted to the Committee on the Judiciary of the Senate and the Committee on the Judiciary of the House of Representatives.[16]

Criminal Provisions

The amendments to the DTSA also address the criminal provisions of the Economic Espionage Act:

  • The maximum potential fine of an organization for trade secret theft is changed from $5 million to the greater of $5 million or three times the value of the trade secret to the victim, including research and development costs.[17]
  • Additional protection for trade secret owners is provided, such as prohibiting a court from disclosing alleged trade secrets until the owner is allowed an opportunity to file a submission of its interests.[18]
  • Whistleblower immunity is strengthened to protect individuals from potential trade secret claims if they present information in confidence to government officials solely for the purpose of reporting or investigating a suspected violation of law.[19]

Conclusion

It is not known when the bill will proceed to the Senate floor or when the House will take further action. Jones Day will continue to monitor and report on any significant developments.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.

Randall E. Kay
San Diego
+1.858.314.1139
rekay@jonesday.com

Kelsey I. Nix
New York
+1.212.326.8390
knix@jonesday.com

Christopher M. Morrison
Boston
+1.617.449.6895
cmorrison@jonesday.com

Kenneth S. Canfield of the New York Office and Douglas L. Clark of the Irvine Office assisted in the preparation of this Alert.

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.



[1] S. 1890, 114th Cong., 2d Sess. (2016) (amendment in the nature of a substitute, introduced by Hatch), at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(A)(i).

[2] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(A)(ii)(I).

[3] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(A)(ii)(V).

[4] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(B)(iv).

[5] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(D)(iii).

[6] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(D)(iv).

[7] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(E).

[8] Id.

[9] Id.

[10] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(2)(B)(iii).

[11] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(3)(C).

[12] Id. at § 2(a), amd. 18 U.S.C. § 1836(b)(3)(A)(i)(I)-(II).

[13] Id. at § 2(a), amd. 18 U.S.C. § 1836(d).

[14] Id. at § 2(b), amd. 18 U.S.C. § 1839(3).

[15] Id. at § 6(a).

[16] Id. at § 6(b)-(c).

[17] Id. at § 3(a)(1), amd. 18 U.S.C. § 1832(b).

[18] Id. at § 3(a)(2)(B), amd. 18 U.S.C. § 1835(b).

[19] Amendment to S. 1890, 114th Cong., 2d Sess. (2016) (amendment introduced by Leahy), at § __(a)(3), amd. U.S.C. § 1833(b)(1)(A).

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