Sen. Orrin Hatch (R-Utah).
Sen. Orrin Hatch (R-Utah). | Gage Skidmore / Flickr

Senate overwhelmingly OKs trade secrets law; on to House

A law giving companies more tools to sue over leaked trade secrets passed 87-0 in the Senate April 4, and has President Obama’s support, but its fate in the House remains uncertain.

The Defend Trade Secrets Act of 2016 (DTSA) makes it easier for companies to pursue alleged trade secret theft by allowing the cases to be tried in federal courts, instead of individual state courts. Proponents argue that a rise in international espionage of company documents prompted the law. In addition to expanding enforcement of trade secret theft beyond state and U.S. borders, proponents argue that federal courts are often better suited to handling the cases.

Despite support in both the Senate and the White House, the law still has strong critics who worry provisions in the bill would allow larger companies to stifle innovation. In a letter to the members of the House and Senate judiciary committees, 40 law school professors outlined their concerns, which include a provision allowing companies bringing trade-secrets allegations to have evidence seized prior to a court hearing.

“There is a fear from those who are concerned, that it could be subject to abuse,” Elizabeth Rowe, a University of Florida law professor who specializes in intellectual property law and trade secrets, told AMI Newswire. “There could be many unintended consequence to parties that might very well be innocent.”

Specifically, the provision allows companies to argue before a judge “ex parte” - or without the defendant present - for seizure of “property” connected to the alleged theft by the government. Although Rowe said the expected amount of time between such as seizure and a formal hearing should be less than two weeks, she notes there have been many cases where it is months, or even a over year, before an innocent client could argue for return of the seized items. And in a trade secrets case, the evidence seized is often at the core of the business for the accused, she said.

“Let’s assume it’s a particular program or a particular technology; that means they can’t service their clients, they basically can’t do business,” she said. “It puts tremendous pressure on the accused to try to settle even if they haven’t done anything wrong, or … I’ve actually seen cases where they go out of business.”

In the opposition letter, critics further argue that there already exists the ability for companies to seek such injunctions through the courts.  “Which raises the question: why create a new remedy that is fraught with the potential for abuse?” the letter’s authors write.

Despite the criticism, both Rowe and proponents see reforms on trade secret law as necessary. Since 2013, efforts have been made to reform the rules, particularly in light of a rise in international trade secret theft. Although many states have allowed for trade secrets actions to be taken, opening up the suits in federal courts allows action to be taken, in theory, beyond U.S. borders. The law does not, however, pre-empt existing state law, meaning that plaintiffs are free to “shop” for the most favorable court for their ruling, critics warn.

In her speech on the Senate floor April 4 in support of the bill, Sen. Amy Klobuchar (D-Minnesota) cited figures that estimated trade secret theft cost as much as 3 percent of the U.S. gross domestic product. She pointed out that, as the home of the pacemaker and the Post-It, Minnesota has a particularly strong stake in protecting intellectual property and trade secrets.

“Stealing ideas can wipe out years of research by employees ... and cost millions of dollars in losses, because competitors, those that steal the innovations, reap the benefit without putting in any of the work,” Klobuchar said.

The White House issued a statement April 4, pledging support for DTSA bill in the Senate.

In a report issued in 2013, the White House outlined a strategy for combating what it said was a “rapidly accelerating” problem of foreign theft of trade secrets. The administration highlighted the case of Yu Xiang Dong, a former Ford Motor Co. employee who brought a hard drive containing over 4,000 documents from Ford when he went to work for Beijing Automotive Company in 2011. Ford valued the theft at over $50 million, and Dong received 70 months in prison under the Electronic Espionage Act of 1996.

During floor debate on DTSA, no Senators spoke in opposition to the bill.

In his speech on the floor, Sen. Orrin Hatch (R-Utah) said the bill had been a nearly two-year-long effort between himself and Sen. Christopher Coons (D-Delaware). An effort to pass a similar bill in 2014 stalled in committee. The latest legislation features limitation on the seizure requirements and garnered 65 co-sponsors within the Senate.

Rowe said she expects the legislation will move forward. “[The House] is not likely to have strongly diverging views on [DTSA],” she said. “The worst is behind it.”

The bill is currently sitting before the House Subcommittee on Courts, Intellectual Property and the Internet. Calls. Emails to the office of the subcommittee chairman, Rep. Darrell Issa (R-California), were not returned as of April 7.