The global harmonization of trade secret law: the convergence of protections for trade secret information in the United States and European Union.

• Author: Patel, Anand B.

Victoria Cundiff litigates trade secrets disputes in state and Federal courts nationally, coordinates international trade secrets litigation, and helps clients develop alternatives to litigating trade secrets disputes. She is the Chair of AlPLA's Trade Secrets Litigation Subcommittee and is Co-Chair of the New York State Bar Association's Committee on Trade Secrets. Bradford Newman founded and leads Paul Hastings' International Employee Mobility and Trade Secret practice. He is the author of Protecting Intellectual Property in the Age of Employee Mobility: Forms and Analysis, a comprehensive treatise published by ALM that offers authoritative guidance on legal risks and practical steps companies can take to protect their IP and remedy IP theft. In connection with his national practice spanning many industries, Mr. Newman routinely serves as lead trial counsel in cases with potential eight and nine-figure liability, and has successfully litigated a broad spectrum of trade secret and employee mobility cases in state and federal courts throughout the country. Jeffrey A. Pade is an intellectual property litigator with over 20 years of experience in all phases of patent trade secrets, and other intellectual property laws. He has directed complex and international patent and trade secrets litigation strategies concerning mechanical, semiconductor, and many other technologies for clients around the globe, and actively represents international clients in intellectual property audits, investigations, and strategic initiatives. Anand B. Patel provides strategic business counseling on intellectual property disputes, investigations, and transactions, and has extensive trial and appellate experience in patent and trade secret matters. A former Federal Circuit clerk, he represents a diverse group of clients on technologies ranging from microprocessor fabrication to pharmaceuticals.

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AS major regions across the world seek to harmonize trade secret law within and across jurisdictions, international companies now should focus on building their own uniform policies and procedures for protecting their intellectual property and defending against claims of misappropriation. Given the recent passage of the Defend Trade Secrets Act ("DTSA") and the EU Trade Secrets Directive (the "Directive"), it is clear that both regions have recognized the substantial value of trade secrets to the global economy and have decided to take analogous stances on the basics of trade secret law, including what constitutes a trade secret and how a violation occurs. Although the similarities are not unexpected the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement") (1) provides many foundational provisions there are important nuances in each locale's rules that affect how companies should consider enforcing trade secret rights and defending against misappropriation claims across those major international jurisdictions.

1. Overview of the DTSA

   After several unsuccessful attempts over more than five years, (2) Congress in April overwhelmingly approved (3) and President Obama in May signed (4) the DTSA, which provides a Federal private right of action for trade secret misappropriation. The DTSA is incorporated into the previously-enacted Economic Espionage Act ("EEA"), (5) which provides criminal penalties for misappropriation. (6)

   The DTSA pulls heavily from the Uniform Trade Secrets Act ("UTSA"), (7) already in force in some form in 48 states, (8) by providing similar definitions of key terms and remedies for misappropriation. (9) In addition to providing the right to sue in Federal court (importantly, without preempting parallel state law claims (10)), the DTSA provides an ex parte seizure mechanism and whistleblower immunity.

2. Overview of the EU Directive

   In 2013, after studies (11) showed the importance of trade secrets to the economy, particularly to small and medium-sized enterprises, and the fears of many organizations that asserting claims for misappropriation would result in inadequate remedies and potentially place their trade secrets at risk of public disclosure, the European Commission proposed a Directive to address differences in the trade secret laws of the EU Member States. (12) Late last year, members of the European Parliament and Council reached a preliminary agreement on the text of the Directive, (13) which was approved by the European Parliament (14) and adopted by the European Council on May 27, 2016. (15) EU Member States now will have until May 2018 to implement the Directive's provisions. (16)

   Like the DTSA, the Directive seeks to harmonize trade secret laws across the EU, in accordance with the TRIPS Agreement, by providing a common definition of what a trade secret is, how trade secrets are to be protected, and what remedies are available for misappropriation. At the same time, the Directive only sets a floor for what is required of Members; individual States can craft more stringent provisions, if desired. (17) Additional harmonization discussions are expected once Member States begin drafting national legislation.

3. Key Provisions

1. Trade Secret Definitions and Requirements for Misappropriation

   The DTSA (18) and Directive (19) both seek to protect confidential commercial information, and they therefore set out similar definitions for what information is eligible to qualify as trade secret (i.e., almost all types of confidential business and technical information). Both require that the information be kept secret and that it derive economic value from not being generally known or readily ascertainable. They also focus on protecting the underlying information itself, as opposed to simply the memorialization of that information (e.g., documents)--although that distinction often blurs in the practical sense, since proving a trade secret is more easily done via documentary evidence. Both provisions presumably should protect a combination of otherwise public information if it has economic value and is not generally known or readily ascertainable." (20)

   The requirements for a finding of misappropriation are also similar under the DTSA (21) and EU Directive, (22) with each setting forth that a violation can be found for wrongful acquisition, wrongful use, and wrongful disclosure. Acquisition of a trade secret via conduct considered contrary to honest commercial practices will constitute misappropriation of a trade secret (e.g., acquisition by unauthorized access), as will use or disclosure of a trade secret by a person who unlawfully acquired that trade secret. The DTSA (23) and Directive" (24) also deem independent development and reverse engineering as lawful conduct except when otherwise agreed by contract which, the EU Directive notes, may be limited by law. (25)

   2. Standing

      One potentially significant difference between the DTSA and the EU Directive concerns who has standing to pursue a misappropriation action. Although a few state trade secrets statutes require ownership for standing to sue, (26) the UTSA itself does not explicitly address this issue" and some courts have concluded that ownership is not an element of an UTSA claim." However, the DTSA deviates from the UTSA by specifically providing that an "owner of a trade secret" may bring a civil misappropriation action, similar to how only a "patentee" may bring a patent infringement action under 35 U.S.C. [section] 281. (29) Defendants therefore could argue that the DTSA does not confer standing on plaintiffs that own or have a license to less than substantially all rights to a trade secret. (30) In contrast, under the Directive, remedies and relief may be requested by a "trade secret holder," which is "any natural or legal person lawfully controlling a trade secret." (31) Plaintiffs may argue that this definition confers standing to more than just the owner or exclusive licensee of the trade secret, such as a non-exclusive licensee who controls the trade secret, which potentially broadens the application of the Directive as compared to the DTSA. (32)

   3. Remedies

      The DTSA (33) and Directive (34) both allow for monetary and equitable relief, including reasonable royalties, lost profits, and pre- and post-judgment injunctive relief.

      Besides the above remedies, the DTSA allows for enhancement of damages and attorney's fees based on willful or malicious violations and for claims made or opposed in bad faith. (35) It further provides for ex parte seizure by a Federal law enforcement officer of property "necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." (36) The seized property is held by the court (37) pending a hearing on the merits of the seizure (38) at which the claimant bears the burden of proof. (39) The statute provides some protections for the accused party by requiring the requestor to post security that would be adequate to compensate the accused in the event of a wrongful seizure order. (40) The potential extraterritorial reach of this explicitly "extraordinary" DTSA remedy against both physical and electronic assets held abroad by individuals and corporations could prompt constitutional challenges, test international treaties, and inflame diplomatic and political sensitivity.

      Separately, the DTSA also made economic espionage and trade secrets theft under the EEA "racketeering activities" under the Racketeer Influenced and Corrupt Organizations ("RICO") Act. (41) Under the RICO Act as amended by the DTSA, one who conducts the affairs of a distinct enterprise through a pattern of trade secrets theft (42) may be subject to two potentially onerous remedies: treble damages and the aggrieved party's attorney's fees. (43) The DTSA has the potential to spawn a relatively new class of civil RICO actions premised directly on trade secret theft. (44)

      Unlike the DTSA, the Directive does not provide for explicit ex parte relief, and unlike the Economic...