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Tuesday, 24 May 2016

What does the timing of the US Defend Trade Secrets Act and EU Trade Secrets Directive really mean for companies?

The AmeriKat listening intently to trade secrets
expert, Jim Pooley
With President Obama signing the Defend Trade Secrets Act into law a couple of weeks ago and the imminent adoption of the European Trade Secrets Directive by the European Council (assumingly, see post here), 2016 seems to be the year for trade secrets.  The timing of the two laws could not be more perfect for trade secret owners, not least given the emphatic and helpful statements made by legislators regarding the value and importance of trade secrets to both economies.  Given all the excitement, the AmeriKat has been in continual correspondence with Kat friend James Pooley.  For readers who do not know, James is recognized as one of the world's leading trade secret scholars and practitioners.  His recent induction to the IP Hall of Fame says as much (see here).

James was actively involved in the passage of the US Defend Trade Secrets Act, testifying before Congress on the legislation last year (see previous post here).  So with two new trade secrets laws on both sides of the Atlantic, what does this really mean for companies seeking to protect and enforce their valuable trade secrets?  Here is what James has to say: 
"Do you see synergy for clients in managing their trade secrets on a global basis in light of the two laws?
Secrecy is a right that derives from a promise of confidence, rather than registration with a government. It exists wherever the business relationship does. So companies have always operated internationally to coordinate their disclosures and confidential projects in part based on whether any given country’s laws and courts provided realistic remedies in case something went wrong. The Trade Secrets Directive will improve what has been a patchwork of laws within Europe by providing for minimum standards of protection, making it easier for companies to predictably manage their global information assets. In that sense one could say that the simultaneous appearance of these two laws will allow clients to more closely align their internal protection schemes in the U.S. and Europe.
But given that the misappropriation of trade secrets is now, more often than not, digital with information crossing state and international borders at a click of a button, how far do these laws really go?
I believe that these coincident efforts on both sides of the Atlantic reflect a common concern of business that the global, networked economy relies in part on robust protection for industrial secrets. From the company viewpoint, having one law that supplies equivalent remedies worldwide would be ideal. That’s not going to happen soon, if ever, but in the meantime every step towards harmonization reduces friction and increases efficiency. We’ve already seen substantial work put into the relevant articles of  the Trans-Pacific Partnership agreement (TPP) (Articles 18.74 and 18.78), and I would be surprised if the same focus were not brought to bear in the ongoing Transatlantic Trade Investment Partnership (TTIP) negotiations.

James Pooley
What should European-based companies keep in mind when they now come to enforce their trade secrets under the DTSA? 
Just last December a US jury awarded $75 million to a U.K. company that alleged its secrets had been stolen by Caterpillar, a major U.S. manufacturer. So European companies should not be concerned that they will be unfairly treated in a contest with a US defendant. But they need to be ready for the broad discovery that characterizes US litigation. And in a trade secrets case, the plaintiff often faces a more difficult discovery burden than the defendant, because its “reasonable efforts” in protecting the information will be at issue, along with damage claims that depend on a complex history of its development of the purloined technology. They need to prepare themselves for a much more aggressive fight than is typical of European litigation. That said, European companies that have a well-prepared case can get direct access to facts – through discovery – that may well have eluded them in a domestic lawsuit. 
What about the pleading requirements?  In the UK, litigants can encounter difficulty in particularizing the trade secrets that have been subject to misuse because they do not know the extent of what has been taken.  Even if they do, they are concerned about disclosing highly sensitive information to the very people that they know/suspect of stealing their trade secrets.  Nevertheless, claimants have to particularize their case well enough to be able to survive a strike out or summary judgment application.  
Importantly, the US standard for pleading trade secret cases recognizes that much of what happened will likely be unknown to the plaintiff at the outset; it is enough to have a reasonable suspicion that the misappropriation occurred. Of course, it helps to be very specific in pleading the circumstantial evidence that is known. But there should be no worry about disclosing the trade secrets themselves in a public complaint; this is typically addressed later, and the plaintiff’s description of its secrets will be protected by a protective order, even limiting access to litigation counsel for the most sensitive information,
In circumstances where the claimant doesn't have as much information as they would like to meet the pleading requirements, will the ex parte seizure mechanism under the DTSA assist? Or will the in-built safeguards deter this type of practice?  
The ex parte seizure will seldom be used, because it is so difficult to obtain. And in any event the seized information is provided only to the court in the first instance.  I suspect that extracting it from that process will be more cumbersome than obtaining the information through normal discovery.
Will there be a "long arm" of the DTSA, like there arguably is under Article 3(5) of the European Trade Secrets Directive?  
Regarding the DTSA, one area of interest – both for U.S. and European firms – will be the willingness of federal courts to apply the law to behavior that happens entirely or mostly outside of the U.S. but causes substantial impact in this country. Some have speculated that an existing provision of the Economic Espionage Act (the criminal statute that the DTSA amended to add a civil cause of action) indicates an intent that the law should apply extraterritorially. But that portion of the Economic Espionage Act (18 U.S.C. § 1837) speaks in terms of the “offense” and the “offender,” making it an awkward fit with a civil cause of action. 
The long arm of trade secrets laws...
However, the DTSA expressly requires the USPTO Director to prepare a detailed bi-annual report to Congress on the “theft of the trade secrets of United States companies occurring outside of the United States” (see Section 4).  We can assume that the legislators were focused on that kind of conduct. But in my view, the result in any given case will have less to do with statutory arguments than constitutional questions of in personam jurisdiction that examine the fairness of requiring a foreign defendant to appear in the US.  The DTSA will allow these questions to be put to federal judges who as a group are more experienced with handling international disputes. 
Given this potential for federal judges to wrestle with possible extra-territorial trade secret theft, this might make the US an even more attractive forum for trade secret litigants.  And of course, those big damages awards help....
I expect that European companies would find it attractive to sue in the US to take advantage of our broad discovery rights and generous damages law. And since they would most likely be suing defendants who are physically present in the US and who have allegedly benefited by using the information, there should be no significant jurisdiction issue, even if most of the relevant transactional facts occurred outside the country. 
Returning to Europe, the legislative process there was driven largely by legitimate concerns of industry and policymakers about European competitiveness. But from my outsider’s perspective, the Directive was mistakenly seen by some as a corporate threat to personal liberties and the mobility of labor. The end result, in my view, did not go far enough in guaranteeing robust enforcement, and it also created some extremely broad exceptions. Looking forward, I think the EU eventually will have to confront the fact that a trade secret plaintiff needs access to facts that are usually known only to the defendant. While that doesn’t necessarily require US-style discovery, there should be some way to address that need within the framework of civil law systems.
It seems a shame that the EU Trade Secrets Directive missed a trick, then.   Although I can imagine that many of the same arguments about the threat to personal liberties/mobility of labor would be employed against an introduction of disclosure measures.  However, it must be remembered that sometimes disclosure also shows the opposite - there was no trade secret misuse.  It can cut both ways.  In any event, ever looking for solutions, perhaps given the ongoing IP Enforcement Directive consultation there is scope for amendment so that it applies to trade secrets as well (in particular the measures in Section 2). 
Well, I am certainly no expert in European political procedures, but clearly businesses will not enjoy full practical enforcement of trade secret rights until they have a way to get at important facts that are under exclusive control of the target. Whether that happens by fixing the TS Directive so that it incorporates the Enforcement Directive, or by some other route, I would of course not venture a guess or make a recommendation.
I was intrigued by the recent news of US Steel Corp asking the US government to ban imports of what would be "infringing goods" under the EU Trade Secrets Directive from Chinese steel importers under Section 337 of the Tariff Act of 1930 .  US Steel alleged that Chinese hackers stole their trade secrets. The intersection of cybersecurity laws and trade secrets will be undoubtedly be increasingly important in the future, but will this mean the DTSA and civil recourse will be underused?   
Cyberespionage is one of many ways that secrets leak in the globalized, digitized economy. (More losses occur through careless employees and sloppy management of transactions.) We can expect that as information assets become increasingly valuable and vulnerable, companies will become increasingly sophisticated concerning both loss prevention and the pursuit of remedies after the fact. Although barring importation of tainted goods under Section 337 is one way to deal with trade secret theft, it only works against the goods themselves. If you want to recover damages for loss or prevent further leakage, you need to sue the wrongdoer, and the DTSA will be widely used to do just that.
Thanks, James!"  

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