Trade secrets need federal protection

Each year, an estimated 1 to 3 percent of U.S. GDP is lost as a result of stolen intellectual property, which has a severe impact on job creation in America. Congress is considering legislation to help address this problem by giving trade secrets protection under federal law.

Currently, trade secrets are the only broad category of intellectual property that do not have such protection. Patents, copyrights, and trademarks all are protected by a uniform body of federal statutory law. But trade secrets — which are also valuable assets for many companies — are protected by a patchwork of laws that can vary from state to state.

Trade secrets are key assets of America's most innovative and successful companies. Trade secrets can be any kind of information, including financial information, business plans, or formulas, that is kept confidential and gives a company a competitive advantage. They can be just as valuable to businesses as patents, copyrights, or trademarks. And the theft of a company's trade secrets can be just as devastating to its interests as infringement of other intellectual property.

Congress has considered national trade secret legislation in various forms for several years. This year, a bill to create federal trade secret protections is awaiting action by the full U.S. House. This bill has significant bipartisan support, and in light of the growing international threat to U.S. intellectual assets, has a much better chance to pass — even in the next congressional session — than earlier proposals.

State laws lacking

Currently, the state laws governing trade secrets differ from state to state. Although many states have adopted forms of a statute called the Uniform Trade Secrets Act, this law is not truly "uniform." States with the Uniform Act have adopted varying amendments, and courts in various states can interpret identical statutory language differently. This variation means that depending on the state, a business trying to protect its trade secrets may face various substantive trade secret laws, different procedural rules and inconsistent forms of relief.

First, the substance of trade secret law varies by state. For example, in different states, "misappropriation" can mean different things. This makes it harder for national companies to enact uniform internal policies to protect their trade secrets.

Second, procedural rules also change from state to state. This is particularly significant because trade secret theft usually affects more than one state. But many state courts do not have efficient procedures that allow companies to enforce their rights across state lines. For example, many states do not provide "national service of process," making it cumbersome to obtain key information or testimony from witnesses located in other states. This means that companies trying to enforce their rights often must go to court in several different states simultaneously, with different rules and procedures in each. In addition, the statutes of limitations vary from state to state, making it more challenging for national and global companies to efficiently enforce their rights.

Finally, the relief available for trade secret theft fluctuates from state to state. For example, many states allow injunctions to stop trade secret theft, but some do not provide for lightning-fast proceedings (called "ex parte" proceedings) to seize evidence of the misappropriation, such as computers or hard drives. This makes it very difficult to prove that misappropriation occurred. States also have varying degrees of proof — and burden — needed to obtain relief when trade secrets have been stolen.

Some commentators have argued that federal criminal laws like the Economic Espionage Act are sufficient to protect trade secrets. The criminal laws, however, do not fully protect trade secrets of U.S. companies because they require a much higher standard and burden of proof to punish offenders. Moreover, the federal criminal laws do not allow private parties to recover financially for the damage they suffer due to trade secret theft.

No foreign protection

At a recent hearing before the U.S. Senate Judiciary Subcommittee on Crime and Terrorism, several witnesses expressed concern over foreign-sponsored trade secret threats. Witnesses testified that not only does foreign-sponsored trade secret theft have a severe impact on job creation in the United States, but the risk of trade secret misappropriation is a chief concern for businesses selecting foreign partners. Proponents of the uniform legislation hope that it will provide an effective way to protect U.S. businesses against foreign misappropriators. In addition, passage of a uniform federal standard will help trade negotiators press for more stringent protections by U.S. trading partners, many of which have less concern for the protection of trade secrets.

In September, the House Judiciary Committee approved the Trade Secrets Protection Act of 2014, which would enhance trade secret protection in several ways, including creating a uniform federal standard for trade secrets; strengthening remedies for trade secret theft; and providing trade secret owners the advantages of federal court. Similar legislation, the Defend Trade Secrets Act (S. 2267), was considered by the Senate Judiciary Committee.

Trade secrets have become as important to U.S. companies as other forms of intellectual property — and are particularly susceptible to foreign attack. A trade secret thief can transmit valuable confidential information around the country (and the world) in the blink of an eye. The bipartisan legislation that both branches of Congress considered presents an opportunity for federal law to help companies protect their trade secrets faster, easier, and with less expense.

-- Randy Kahnke, Kerry Bundy and Marty Chester are attorneys and partners in the Minneapolis office of Faegre Baker Daniels. They handle litigation around the country and the world.