The recently enacted Defend Trade Secrets Act of 2016 (DTSA), which provides, among other protections, a federal civil cause of action for trade secret misappropriation, received nearly unanimous support in the Senate and the House. The bill benefitted from a wave of patriotic, protectionist rhetoric that called for greater safeguards against the theft of U.S. company trade secrets by foreign entities. The underlying sentiment has resonated especially well with a public weary of a sagging job market and the specter of ever-strengthening foreign competition. While debate remains regarding the exact magnitude of the threat, most can agree that foreign misappropriation of U.S. trade secrets is a real and growing concern.[1]
Options available to U.S. trade secret holders seeking recourse for misappropriation occurring outside the U.S. by foreign entities have traditionally been limited. One option requires U.S. trade secret holders to pursue an action under the laws of a foreign perpetrator’s jurisdiction, presenting significant financial and/or logistical challenges. Take, for example, a misappropriation action brought by a U.S.-based company in China. The U.S. company can generally choose from three options to enforce trade secrets: administrative, civil, and criminal. Each involves different government agencies, offers different levels of penalties to deter infringers, and suffers from at least the following common challenges.
Firstly, U.S. companies face a high evidentiary burden for trade secrets cases, particularly in administrative and civil cases, thus requiring the company to essentially assemble a complete case using private resources. China does not have a discovery process similar to that in the U.S. for supporting these efforts. Companies also confront a strong preference for documentary evidence over witness testimony.
Secondly, only a small number of trade secret infringement cases are brought each year, so Chinese officials and courts have limited experience deciding such cases. This can affect the quality and consistency of decisions on trade secrets cases, or can lead to burdensome procedures, such as lengthy expert panel reviews in civil cases to determine if a piece of confidential information counts as a trade secret.
Thirdly, there is a reluctance of Chinese government officials and courts to tackle complex cases, such as trade secret misappropriation. Officials and courts are often reluctant to take cases unless they are seen as straightforward or high-value. Convincing local officials to devote limited resources to these cases only adds to the challenges U.S. companies face. Additionally, potential bias in favor of domestic defendants further diminishes the likelihood of a successful judgment for U.S. trade secret holders.
Domestic federal options available to U.S. trade secret holders include filing an action in the International Trade Commission (ITC), or asking the U.S. Attorney to bring criminal charges against a perpetrator, for example, under the Economic Espionage Act (EEA). However, ITC actions require importation into the U.S. of a product made using a trade secret misappropriated abroad, while federal actions under the EEA require either (1) the offender is a U.S. citizen or permanent resident alien or an organization organized under U.S. law, or (2) an act in furtherance of the offense is committed within the U.S. Misappropriation occurring exclusively abroad by foreign entities therefore remains unreachable by domestic procedures.
Given the recent emphasis on foreign misappropriation and the shortcomings associated with traditional forms of recourse, one might expect the DTSA to include provisions conferring meaningful protections and remedies to U.S. trade secret holders for theft occurring abroad by foreign entities. However, this is not likely the case, as the DTSA’s definition of trade secret misappropriation does not include express territory-based limitations. As a result, questions remain regarding the extraterritorial reach of the new law, including whether a U.S. company will be permitted to bring an action under the DTSA against a foreign entity that allegedly stole its trade secrets in a foreign country.
Section 4 of the DTSA is the only portion of the law that addresses this issue. Specifically, Section 4 includes the following reporting requirement:
REPORTS.—Not later than 1 year after the date of enactment of this Act, and biannually thereafter, the Attorney General, in consultation with the Intellectual Property Enforcement Coordinator, the Director, and the heads of other appropriate agencies, shall submit to the Committees on the Judiciary of the House of Representatives and the Senate, and make publicly available on the Web site of the Department of Justice and disseminate to the public through such other means as the Attorney General may identify, a report on the following:
(1) The scope and breadth of the theft of the trade secrets of United States companies occurring outside of the United States.
(2) The extent to which theft of trade secrets occurring outside of the United States is sponsored by foreign governments, foreign instrumentalities, or foreign agents.
(3) The threat posed by theft of trade secrets occurring outside of the United States.
(4) The ability and limitations of trade secret owners to prevent the misappropriation of trade secrets outside of the United States, to enforce any judgment against foreign entities for theft of trade secrets, and to prevent imports based on theft of trade secrets overseas.
(5) A breakdown of the trade secret protections afforded United States companies by each country that is a trading partner of the United States and enforcement efforts available and undertaken in each such country, including a list identifying specific countries where trade secret theft, laws, or enforcement is a significant problem for United States companies.
(6) Instances of the Federal Government working with foreign countries to investigate, arrest, and prosecute entities and individuals involved in the theft of trade secrets outside of the United States.
(7) Specific progress made under trade agreements and treaties, including any new remedies enacted by foreign countries, to protect against theft of trade secrets of United States companies outside of the United States.
(8) Recommendations of legislative and executive branch actions that may be undertaken to—
(A) reduce the threat of and economic impact caused by the theft of the trade secrets of United States companies occurring outside of the United States;
(B) educate United States companies regarding the threats to their trade secrets when taken outside of the United States;
(C) provide assistance to United States companies to reduce the risk of loss of their trade secrets when taken outside of the United States; and
(D) provide a mechanism for United States companies to confidentially or anonymously report the theft of trade secrets occurring outside of the United States.[2]
As provided, the reporting requirement details the type of information needed to continue studying this issue, and seeks a recommendation to law makers as to what actions may be taken in light of the findings. While this may be a step in the right direction, it doesn’t seem to be much more than a prospectus that may or may not lead to tangible results, presumably in the form of additional legislation, treaties, or agreements, and at some indefinite time in the future. The reporting requirement has no immediate impact on the lackluster protections and means of recourse for foreign misappropriation that were available to U.S. trade secret holders prior to enactment of the DTSA. The very inclusion of the reporting mandate indicates that lawmakers are not yet prepared to address foreign misappropriation by foreign entities, which may disappoint some companies looking for more definitive and immediate action.
Undoubtedly, it will be some time before the reporting guidelines of the DTSA yield actionable measures that specifically target foreign misappropriation. In the meantime, the other provisions of the DTSA, i.e., those that affect trade secret holder’s rights presently, may have a very real, and potentially negative, impact on the enforceability of trade secret protections domestically.
Particularly, the DTSA implements a blanket expansion of trade secret holders’ rights by broadening the scope of what is considered trade secret misappropriation to include activities that were previously legitimate ways for trade secrets to enter the public domain. Such an indiscriminate enlargement of the rights of trade secret holders may come at the expense of domestic innovation. It is possible that trade secret holders will use stronger trade secret rights afforded by the DTSA in other types of domestic misappropriation cases to impede follow-on innovation, restrict worker mobility, dampen competition, and hamper public access to useful information, while doing nothing at the present time to combat foreign misappropriation of trade secrets occurring abroad. As such, if foreign misappropriation of U.S. trade secrets abroad is as critical to U.S. companies as advertised, the DTSA might have included more than a placeholder reporting requirement to address the issue.
[1] PONEMON INSTITUTE, SECOND ANNUAL COST OF CYBER CRIME STUDY: BENCHMARK STUDY OF U.S. COMPANIES 2 (Aug. 2011), available at http://www.hpenterprisesecurity.com/collateral/report/2011_Cost_of_Cyber_Crime_Study_August.pdf
[2] Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 (2016).
Ashley A. Aminian is a Senior Associate with the firm. Mr. Aminian practices a range of patent counseling services, with an emphasis on preparing and prosecuting patent applications before the United States Patent & Trademark Office, as well as advising clients regarding patentability and patent infringement issues. Prior to joining the firm, Mr. Aminian was a patent attorney with the law firm of Kremblas & Foster in Columbus, Ohio, where his practice was primarily focused on patent preparation and prosecution and client counseling in a range of intellectual property matters.
Before entering the practice of law, Mr. Aminian worked as an intern in the intellectual property department at the Battelle Memorial Institute in Columbus, Ohio, and as a technical consultant for the law firm of Amin & Turocy in Cleveland, Ohio.
Mr. Aminian is a graduate of Capital University Law School and received a B.S. in Electrical and Computer Engineering from The Ohio State University.
Mr. Aminian is a member of the Ohio and Massachusetts Bars and is registered to practice before the United States Patent and Trademark Office.
Mr. Pogue is Principal with the firm, concentrating on patent matters. His practice focuses on patent preparation and prosecution, patent management and evaluation, patent landscape and clearance studies, and patent litigation support. Mr. Pogue has experience in a range of fields, including semiconductors, medical devices, cloud computing, display devices, and software/computer-implemented methods.
Prior to joining Kacvinsky Daisak Bluni PLLC, Mr. Pogue was a partner at Keohane & D’Alessandro PLLC, an intellectual property boutique located in Albany, NY. Prior to that, Mr. Pogue was an associate, first at Hoffman, Warnick, & D’Alessandro LLC, and then at Scully, Scott, Murphy & Presser P.C.
Mr. Pogue is a graduate of Albany Law School, and has a B.S. in Mechanical Engineering from Syracuse University. He is a registered patent attorney, and is admitted to practice law in New York.