[House Report 113-657]
[From the U.S. Government Publishing Office]
113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-657
======================================================================
TRADE SECRETS PROTECTION ACT OF 2014
_______
December 11, 2014.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
[To accompany H.R. 5233]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 5233) to amend chapter 90 of title 18, United States
Code, to provide Federal jurisdiction for the theft of trade
secrets, and for other purposes, having considered the same,
reports favorably thereon with an amendment and recommends that
the bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 1
Purpose and Summary.............................................. 5
Background and Need for the Legislation.......................... 5
Hearings......................................................... 7
Committee Consideration.......................................... 8
Committee Votes.................................................. 8
Committee Oversight Findings..................................... 8
New Budget Authority and Tax Expenditures........................ 8
Congressional Budget Office Cost Estimate........................ 8
Duplication of Federal Programs.................................. 9
Disclosure of Directed Rule Makings.............................. 9
Performance Goals and Objectives................................. 9
Advisory on Earmarks............................................. 9
Section-by-Section Analysis...................................... 10
Changes in Existing Law Made by the Bill, as Reported............ 14
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Trade Secrets Protection Act of
2014''.
SEC. 2. FEDERAL JURISDICTION FOR THEFT OF TRADE SECRETS.
(a) In General.--Section 1836 of title 18, United States Code, is
amended by striking subsection (b) and inserting the following:
``(b) Private Civil Actions.--
``(1) In general.--An owner of a trade secret may bring a
civil action under this subsection if the person is aggrieved
by a misappropriation of a trade secret that is related to a
product or service used in, or intended for use in, interstate
or foreign commerce.
``(2) Civil seizure.--
``(A) In general.--
``(i) Application.--Based on an affidavit or
verified complaint satisfying the requirements
of this paragraph, the court may, upon ex parte
application, issue an order providing for the
seizure of property necessary to preserve
evidence in a civil action brought under
paragraph (1) or to prevent the propagation or
dissemination of the trade secret that is the
subject of the action.
``(ii) Requirements for issuing order.--The
court may not grant an application under clause
(i) unless the court finds that it clearly
appears from specific facts that--
``(I) an order issued pursuant to
Rule 65(b) of the Federal Rules of
Civil Procedure would be inadequate to
achieve the purpose of this paragraph
because the party to which the order
would be issued would evade, avoid, or
otherwise not comply with such an
order;
``(II) an immediate and irreparable
injury will occur if such seizure is
not ordered;
``(III) the harm to the applicant of
denying the application outweighs the
harm to the legitimate interests of the
person against whom seizure would be
ordered of granting the application and
substantially outweighs the harm to any
third parties who may be harmed by such
seizure;
``(IV) the applicant is likely to
succeed in showing that the person
against whom seizure would be ordered
misappropriated the trade secret by
improper means, or conspired to use
improper means to misappropriate the
trade secret, and is in possession of
the trade secret;
``(V) the application describes with
reasonable particularity the matter to
be seized and, to the extent reasonable
under the circumstances, identifies the
location where the matter is to be
seized;
``(VI) the person against whom
seizure would be ordered, or persons
acting in concert with such person,
would destroy, move, hide, or otherwise
make such matter inaccessible to the
court, if the applicant were to proceed
on notice to such person; and
``(VII) the applicant has not
publicized the requested seizure.
``(B) Elements of order.--If an order is issued under
subparagraph (A), it shall--
``(i) set forth findings of fact and
conclusions of law required for the order;
``(ii) provide for the seizure of any
property in a manner that minimizes any
interruption of the business operations of
third parties and, to the extent possible, does
not interrupt those legitimate business
operations of the person accused of
misappropriating the trade secret that are
unrelated to the trade secret that has
allegedly been misappropriated;
``(iii) be accompanied by an order protecting
the property from disclosure by restricting the
access of the applicant, including during the
seizure, and prohibiting any copies, in whole
or in part, of the seized property, to prevent
undue damage to the party against whom the
order has issued or others, until such parties
have an opportunity to be heard in court;
``(iv) set a date for a hearing at the
earliest possible time, and not later than 7
days after the order has issued, unless the
party against whom the order is directed and
others harmed by the order consent to another
date for such hearing, except that a party
against whom the order has issued or any person
harmed by the order may move the court at any
time to dissolve or modify the order after
giving notice to the applicant who obtained the
order; and
``(v) require the person obtaining the order
to provide the security determined adequate by
the court for the payment of such damages as
any person may be entitled to recover as a
result of a wrongful or excessive seizure or
wrongful or excessive attempted seizure under
this paragraph.
``(C) Protection from publicity.--The court shall
take appropriate action to protect the person against
whom an order under this paragraph is directed from
publicity, by or at the behest of the person obtaining
the order, about such order and any seizure under such
order.
``(D) Materials in custody of court.--Any materials
seized under this paragraph shall be taken into the
custody of the court. The court shall secure the seized
material from physical and electronic access during the
seizure and while in the custody of the court.
``(E) Service of order.--The court shall order that
service of a copy of the order under this paragraph
shall be made by a Federal law enforcement officer, or
may be made by a State or local law enforcement
officer, who, upon making service, shall carry out the
seizure under the order.
``(F) Action for damage caused by wrongful seizure.--
A person who suffers damage by reason of a wrongful or
excessive seizure under this paragraph has a cause of
action against the applicant for the order under which
such seizure was made, and shall be entitled to the
same relief as is provided under section 34(d)(11) of
the Trademark Act of 1946 (15 U.S.C. 1116(d)(11)). The
security posted with the court under subparagraph
(B)(v) shall not limit the recovery of third parties
for damages.
``(3) Remedies.--In a civil action brought under this
subsection with respect to the misappropriation of a trade
secret, a court may--
``(A) grant an injunction--
``(i) to prevent any actual or threatened
misappropriation described in paragraph (1) on
such terms as the court deems reasonable;
``(ii) if determined appropriate by the
court, requiring affirmative actions to be
taken to protect the trade secret; and
``(iii) in exceptional circumstances that
render an injunction inequitable, that
conditions future use of the trade secret upon
payment of a reasonable royalty for no longer
than the period of time for which such use
could have been prohibited;
``(B) award--
``(i)(I) damages for actual loss caused by
the misappropriation of the trade secret; and
``(II) damages for any unjust enrichment
caused by the misappropriation of the trade
secret that is not addressed in computing
damages for actual loss; or
``(ii) in lieu of damages measured by any
other methods, the damages caused by the
misappropriation measured by imposition of
liability for a reasonable royalty for the
misappropriator's unauthorized disclosure or
use of the trade secret;
``(C) if the trade secret is willfully and
maliciously misappropriated, award exemplary damages in
an amount not more than 3 times the amount of the
damages awarded under subparagraph (B); and
``(D) if a claim of the misappropriation is made in
bad faith, a motion to terminate an injunction is made
or opposed in bad faith, or the trade secret was
willfully and maliciously misappropriated, award
reasonable attorney's fees to the prevailing party.
``(c) Jurisdiction.--The district courts of the United States shall
have original jurisdiction of civil actions brought under this section.
``(d) Period of Limitations.--A civil action under subsection (b) may
not be commenced later than 5 years after the date on which the
misappropriation with respect to which the action would relate is
discovered or by the exercise of reasonable diligence should have been
discovered. For purposes of this subsection, a continuing
misappropriation constitutes a single claim of misappropriation.''.
(b) Definitions.--Section 1839 of title 18, United States Code, is
amended--
(1) in paragraph (3), by striking ``and'' at the end;
(2) in paragraph (4), by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following:
``(5) the term `misappropriation' means--
``(A) acquisition of a trade secret of another by a
person who knows or has reason to know that the trade
secret was acquired by improper means; or
``(B) disclosure or use of a trade secret of another
without express or implied consent by a person who--
``(i) used improper means to acquire
knowledge of the trade secret;
``(ii) at the time of disclosure or use, knew
or had reason to know that the knowledge of the
trade secret was--
``(I) derived from or through a
person who had used improper means to
acquire the trade secret;
``(II) acquired under circumstances
giving rise to a duty to maintain the
secrecy of the trade secret or limit
the use of the trade secret; or
``(III) derived from or through a
person who owed a duty to the person
seeking relief to maintain the secrecy
of the trade secret or limit the use of
the trade secret; or
``(iii) before a material change of the
position of the person, knew or had reason to
know that--
``(I) the trade secret was a trade
secret; and
``(II) knowledge of the trade secret
had been acquired by accident or
mistake;
``(6) the term `improper means'--
``(A) includes theft, bribery, misrepresentation,
breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other
means; and
``(B) does not include reverse engineering or
independent derivation; and
``(7) the term `Trademark Act of 1946' means the Act entitled
`An Act to provide for the registration and protection of
trademarks used in commerce, to carry out the provisions of
certain international conventions, and for other purposes,
approved July 5, 1946 (15 U.S.C. 1051 et seq.) (commonly
referred to as the ``Trademark Act of 1946'' or the ``Lanham
Act'')'.''.
(c) Exceptions to Prohibition.--Section 1833 of title 18, United
States Code, is amended, in the matter preceding paragraph (1), by
inserting ``or create a private right of action for'' after
``prohibit''.
(d) Conforming Amendments.--
(1) The section heading for section 1836 of title 18, United
States Code, is amended to read as follows:
``Sec. 1836. Civil proceedings''.
(2) The table of sections for chapter 90 of title 18, United
States Code, is amended by striking the item relating to
section 1836 and inserting the following:
``1836. Civil proceedings.''.
(e) Effective Date.--The amendments made by this section shall apply
with respect to any misappropriation of a trade secret (as defined in
section 1839 of title 18, United States Code, as amended by this
section) for which any act occurs on or after the date of the enactment
of this Act.
(f) Rule of Construction.--Nothing in the amendments made by this
section shall be construed to modify the rule of construction under
section 1838 of title 18, United States Code, or to preempt any other
provision of law.
(g) Applicability to Other Laws.--This section and the amendments
made by this section shall not be construed to be a law pertaining to
intellectual property for purposes of any other Act of Congress.
SEC. 3. REPORT ON THEFT OF TRADE SECRETS OCCURRING ABROAD.
(a) Reports.--Not later than 1 year after the date of the 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.
(b) Definitions.--In this section:
(1) Director.--The term ``Director'' means the Under
Secretary of Commerce for Intellectual Property and Director of
the United States Patent and Trademark Office.
(2) Foreign instrumentality, etc.--The terms ``foreign
instrumentality'', ``foreign agent'', and ``trade secret'' have
the meanings given those terms in section 1839 of title 18,
United States Code.
(3) State.--The term ``State'' includes the District of
Columbia and any commonwealth, territory, or possession of the
United States.
(4) United states company.--The term ``United States
company'' means an organization organized under the laws of the
United States or a State or political subdivision thereof.
Purpose and Summary
H.R. 5233 amends the Economic Espionage Act of 1996 to
provide a Federal civil remedy for the misappropriation of
trade secrets, allowing trade secret owners to protect their
innovations by seeking redress in Federal court, just as owners
of other forms of intellectual property, including copyrights,
patents, and trademarks, can seek remedies in Federal court for
violations of their rights. The bill provides for equitable
remedies and the award of damages for the misappropriation of a
trade secret, and models its definition of ``misappropriation''
on the Uniform Trade Secrets Act. It also provides for
expedited relief on an ex parte basis in the form of seizure of
property from the party accused of misappropriation only if
necessary to preserve evidence or prevent the dissemination of
a trade secret. Any ex parte seizure order issued by a court
must minimize any interruption to the business operations of
third parties, protect the property seized from disclosure, and
set a hearing date at the earliest possible time. The bill also
provides sanctions for an erroneous seizure.
Background and Need for the Legislation
Trade secrets are the commercially valuable designs,
processes, techniques and other forms of information kept
confidential by companies because, by virtue of their secrecy,
they give companies an edge in a competitive marketplace. Often
developed at great cost and through years of research and
development, trade secrets include manufacturing processes,
proprietary technologies, industrial techniques, formulas,
codes, designs, and customer lists. In a global economy based
on knowledge and innovation, trade secrets constitute some of
any company's most valuable property.
The trade secrets of American companies are increasingly at
risk for misappropriation by thieves looking for a quick payday
or to replicate the market-leading innovations developed by
trade secret owners. Using ever-more sophisticated means of
attack, these thieves aim to steal the know-how that has made
American industry the envy of the world. The Commission on the
Theft of American Intellectual Property found that the illegal
theft of intellectual property is undermining the means and
incentive for entrepreneurs to innovate, slowing the
development of new inventions and industries that could raise
the prosperity and quality of life for everyone.\1\
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\1\Report of the Commission of the Theft of American Intellectual
Property, at 1, 10 (May 2013), available at http://
www.ipcommission.org/report/IP_Commission_Report_052213.pdf.
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The threat is significant: Trade secrets are an integral
part of a company's competitive advantage in today's economy,
and with the increased digitization of critical data and
increased global trade, this information is highly susceptible
to theft.\2\ The United States Department of Defense has found
that every year, ``an amount of intellectual property larger
than that contained in the Library of Congress is stolen from
networks maintained by U.S. businesses, universities, and
government departments and agencies.''\3\ General Keith
Alexander, former head of the National Security Agency and U.S.
Cyber Command, estimated that U.S. companies lose $250 billion
per year due to the theft of their intellectual property.\4\
More recently, the Center for Responsible Enterprise and Trade,
along with PwC, issued a report estimating that trade secret
theft exacts a cost on U.S. companies of between one and 3
percent of GDP annually, roughly a cost of between $160 and
$480 million each year.\5\ And in the last Congress, this
Committee recognized the ``significant and growing threat
presented by criminals who engage in espionage on behalf of
foreign adversaries and competitors.''\6\
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\2\See Trade Secrets: Promoting and Protecting American Innovation,
Competitiveness and Market Access in Foreign Markets: Hearing Before
the Subcomm. on Courts, Intellectual Property, and the Internet of the
H. Comm. on the Judiciary, 113th Cong (2014), Statement of Richard
Hertling, Of Counsel, Covington & Burling LLP, at 12; see also id.,
Statement of David M. Simon, Senior Vice President for Intellectual
Property, salesforce.com, Inc., at 24-25; Statement of Thaddeus Burns,
Senior Counsel, Intellectual Property & Trade, General Electric, on
behalf of Intellectual Property Owners Association, at 36; Statement of
Chris Moore, Senior Director, International Business Policy, National
Association of Manufacturers, at 47.
\3\Dep't of Defense, Strategy for Operating in Cyberspace, at 4
(July 2011), available at http://www.defense.gov/news/
d20110714cyber.pdf.
\4\Josh Rogin, NSA Chief: Cybercrime Constitutes the ``Greatest
Transfer of Wealth in History,'' The Cable, July 9, 2012, available at
http://thecable.foreignpolicy.com/posts/2012/07/09/
nsa_chief_cybercrime_constitutes_the_greatest_transfer_of_wealth_in_hist
ory.
\5\Center for Responsible Enterprise and Trade & PwC, Economic
Impact of Trade Secret Theft: a Framework for Companies to Safeguard
Trade Secrets and Mitigate Potential Threats, at 7-9 (February 2014),
available at https://create.org/wp-content/uploads/2-14/07/CREATe.org-
PwC-Trade-Secret-Theft-FINAL-Feb-2014_01.pdf.
\6\H.R. Rep. No. 112-610, Foreign and Economic Espionage Penalty
Enhancement Act of 2012, at 1 (2012).
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Companies have taken a number of measures to combat this
threat, including strengthening their cybersecurity measures,
encrypting key documents, examining their supply chains for
weak points, employing strong contractual protections to
safeguard their trade secrets in business relationships, and
increasing the physical security of their plants and offices.
When thefts do occur, companies turn to either state civil
laws, which vary by jurisdiction, or the Federal Economic
Espionage Act (``EEA'').\7\
---------------------------------------------------------------------------
\7\Economic Espionage Act of 1996, Pub. L. No. 104-294, 110 Stat.
3488 (1996).
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The EEA, enacted in 1996 and codified at 18 U.S.C.
Sec. Sec. 1831 et seq., makes it a Federal criminal offense to
misappropriate a trade secret that has an interstate or foreign
nexus. This Committee's Report on the EEA found that trade
secrets form ``an integral part of America's economic well-
being.''\8\ As the first Federal statute to protect trade
secrets, the EEA has enabled the FBI to investigate cases of
trade secret theft, including, for example, the case of a
former engineer at Ford Motor Co. who stole 4,000 documents and
went to work at a competitor, causing losses to Ford estimated
at $50 million. However, the FBI does not have the resources to
investigate every case of trade secret theft. And the EEA, as a
criminal statute, is not suited to making whole the victims of
misappropriation.
---------------------------------------------------------------------------
\8\H.R. Rep. No. 104-788, Economic Espionage Act of 1996, at 4
(1996)
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Companies facing a trade secret theft also turn to state
trade secret laws, many of them based on the Uniform Trade
Secrets Act (``UTSA''). While 48 states have adopted variations
of the UTSA, the state laws vary in a number of ways and
contain built-in limitations that make them not wholly
effective in a national and global economy. First, they require
companies to tailor costly compliance plans to meet each
individual state's law. Second, trade secret theft today is
often not confined to a single state. The theft increasingly
involves the movement of secrets across state lines, making it
difficult for state courts to efficiently order discovery and
service of process. Finally, trade secret cases often require
swift action by courts across state lines to preserve evidence
and keep a trade secret thief from boarding a plane and taking
the secret beyond the reach of American law. In a globalized
and national economy, Federal courts are better situated to
address these concerns.
America's strength has always been found in the innovation
and ingenuity of its people--its inventors, creators,
engineers, designers, developers, and doers. American
businesses that compete globally will lose their competitive
edge if they cannot quickly pursue and stop thieves looking to
shortcut the innovative products, designs, and processes that
have fueled our economy. This bill will equip companies with
the additional tools they need to protect their proprietary
information, to preserve and increase jobs and promote growth
in the United States, and to continue to lead the world in
creating new and innovative products, technologies, and
services.
Hearings
The Committee held an oversight hearing on ``Trade Secrets:
Promoting and Protecting American Innovation, Competitiveness
and Market Access in Foreign Markets'' on June 24, 2014. The
Committee heard testimony from Mr. Thaddeus Burns, Senior
Counsel, Intellectual Property & Trade, General Electric; Mr.
Richard A. Hertling, Of Counsel, Covington & Burling LLP, on
behalf of the Protect Trade Secrets Coalition; Mr. Christopher
Moore, Senior Director, International Business Policy, National
Association of Manufacturers; and Mr. David Simon, Senior Vice
President, Intellectual Property, Salesforce.com.
Committee Consideration
On September 17, 2014, the Committee met in open session
and ordered the bill H.R. 5233 favorably reported with an
amendment, by voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no recorded votes during the Committee's consideration of
H.R. 5233.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 5233, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 25, 2014.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5233, the ``Trade
Secrets Protection Act of 2014.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Martin von
Gnechten, who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 5233--Trade Secrets Protection Act of 2014.
As ordered reported by the House Committee on the Judiciary
on September 17, 2014.
H.R. 5233 would establish a Federal remedy for individuals
seeking relief from the misappropriation of trade secrets.
Under the bill, an owner of a trade secret could file a civil
action in a district court, and the court may issue an order to
seize any property necessary to preserve evidence for the civil
action. The legislation would require the Department of Justice
(DOJ) to submit periodic reports on theft of trade secrets in
the United States.
Based on information provided by the DOJ and the
Administrative Office of the U.S. Courts, CBO estimates that
implementing H.R. 5233 would have no significant effect on the
Federal budget. Enacting H.R. 5233 would affect direct spending
and revenues; therefore, pay-as-you-go procedures apply.
Specifically, the bill would affect civil court filing fees,
which are recorded in the budget as revenues. A portion of
those revenues would be spent without further appropriation.
However, CBO estimates that the net budget effect would be
insignificant for each year and over the 2015-2024 period.
H.R. 5233 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Martin von
Gnechten. The estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 5233 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 5233 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
5233 will provide for civil jurisdiction in Federal court for
the misappropriation of a trade secret, providing companies
with an essential tool to prevent the disclosure of their
valuable trade secrets and to obtain equitable remedies and
damages in the event of trade secret theft.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5233 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short Title.
Section 1 provides that the short title of H.R. 5233 is the
``Trade Secrets Protection Act of 2014.''
Sec. 2. Federal Jurisdiction for Theft of Trade Secrets.
Section 2(a) amends Sec. 1836 of title 18 by striking
subsection (b) (which provides for Federal district courts to
have exclusive jurisdiction over civil actions brought by the
Attorney General for trade secret misappropriation) and
creating a Federal civil remedy for trade secret
misappropriation.
In General.
The new Sec. 1836(b) in paragraph (1) authorizes a trade
secret owner to bring a civil action for the misappropriation
of a trade secret that is related to a product or service used
in, or intended for use in, interstate or foreign commerce. The
jurisdictional interstate or foreign commerce language is
identical to the existing language required for Federal
jurisdiction over a crime involving the theft of a trade secret
under Sec. 1832(a).
Civil Seizure.
The new Sec. 1836(b) in paragraph (2) authorizes a court to
issue an order, and upon an ex parte application based on an
affidavit or verified complaint, for seizure of property
necessary to preserve evidence or to prevent the propagation or
dissemination of the trade secret. Subparagraph (A) contains
numerous limitations, described below, and is not intended to
affect the inherent authority of the Federal courts. It also
does not affect the authority of the court to issue appropriate
orders pursuant to Rule 65 of the Federal Rules of Civil
Procedure.
In clause (ii) of paragraph (2), the legislation instructs
that the court may not grant a seizure order unless it finds
that it clearly appears from specific facts that (I) a
temporary restraining order issued pursuant to Federal Rule of
Civil Procedure 65(b) would be inadequate because the party to
which the order would be issued would evade, avoid, or
otherwise not comply; (II) immediate and irreparable injury
will occur if the seizure is not ordered; (III) the harm to the
applicant of denying the application outweighs the harm to the
legitimate interests of the person against whom the seizure is
ordered and substantially outweighs the harm to any third
parties; (IV) the applicant is likely to succeed in showing
that the person against whom the seizure is ordered
misappropriated the trade secret by improper means, or
conspired to use improper means, and is in possession of it;
(V) the applicant describes with reasonable particularity the
matter to be seized and, to the extent reasonable, identifies
the location where the matter is to be seized; (VI) the person
against whom the seizure would be ordered, or those working in
concert with that person, would destroy, move, hide, or
otherwise make such matter inaccessible if the applicant were
to provide that person notice; and (VII) the applicant has not
publicized the requested seizure.
The Committee expects that courts will require applicants
for ex parte seizure orders to describe the trade secret that
would be the subject of the order with sufficient particularity
for the court to evaluate the request. The requirement in
subclause (IV) protects third-parties from seizure. For
instance, the operator of a server on which another party has
stored a misappropriated trade secret, or online an
intermediary such as an Internet service provider, would not be
subject to seizure because that party did not misappropriate
the trade secret. The court may decide to issue an injunction
preventing disclosure of the trade secret, but not a seizure
order under this provision. The requirement in that subclause
relating to improper means is intended to prevent the seizure
provision from being used against a party who may know it is in
possession of a trade secret that was misappropriated, but did
not use or conspire to use improper means to acquire it. The
subclause is flexible enough, however, to allow seizure of a
trade secret stolen by one party and handed off to an
accomplice.
Subparagraph (B) of new Sec. 1836(b)(2) further provides
that a seizure order shall (i) set forth findings of fact and
conclusions of law required for the order; (ii) provide for the
seizure in a manner that minimizes any interruption of the
business operations of third parties and, to the extent
possible, does not interrupt the legitimate, unrelated business
operations of the person accused of misappropriating the trade
secret; (iii) be accompanied by an order protecting the seized
property from disclosure by restricting the access of the
applicant and prohibiting any copies of the seized property;
(iv) set a date for a hearing at the earliest possible time,
and no later than 7 days after the order has issued; and (v)
require the person obtaining the order to provide the security
determined adequate by the court for payment of such damages as
a person may be entitled to recover as a result of a wrongful
or excessive seizure.
Subparagraph (C) of new Sec. 1836(b)(2) requires a court,
in issuing a seizure order, to take appropriate action to
protect the target of the order from publicity about the order
and seizure. Subparagraph (D) provides that any materials
seized shall be taken into the custody of the court, which
shall secure the material from physical and electronic access.
The court, in implementing this subparagraph, should be careful
to keep, for instance, any electronic data secure and not
connected to a device that may be connected to the Internet and
therefore susceptible to cyberattacks. Subparagraph (E)
requires the order to be carried out by a law enforcement
officer. Subparagraph (F) provides that a person who suffers
damage by reason of a wrongful or excessive seizure has a cause
of action against the applicant to recover damages, including
punitive damages, and a reasonable attorney's fee.
Remedies.
Paragraph (3) of new Sec. 1836(b) provides the remedies for
the misappropriation of a trade secret. Subparagraph (A)
specifies the equitable relief available and comes directly
from Sec. 2 of the UTSA. A court may grant an injunction to
prevent any actual or threatened misappropriation. A court may
require affirmative actions to be taken to protect the trade
secret. And, in exceptional circumstances that render an
injunction inequitable, a court may condition future use of the
trade secret upon payment of reasonable royalties.
Subparagraph (B) specifies the damage award that a court
may issue and comes directly from Sec. 3 of the UTSA. This
subparagraph authorizes an award of damages for the actual loss
and any unjust enrichment caused by the misappropriation, or,
in lieu of damages calculated by any other method, an award of
a reasonable royalty.
Subparagraph (C) authorizes an award of exemplary damages
if the trade secret is willfully and maliciously
misappropriated. This provision is similar to Sec. 3(b) of the
UTSA, which authorizes an award not exceeding twice the damages
awarded for willful and malicious misappropriation. The
Committee included treble damages, rather than double, for
consistency with the patent laws--section 284 of title 35, in
the second undesignated paragraph--and the trademark laws--
section 35(b) of the Lanham Act--both of which authorize treble
damages for willful infringement.
Subparagraph (D) authorizes an award of attorney's fees to
the prevailing party if a claim of misappropriation is made in
bad faith, there is willful and malicious infringement, or a
motion to terminate an injunction is made or opposed in bad
faith. This provision comes directly from Sec. 4 of the UTSA.
Jurisdiction.
Subsection (c) of new Sec. 1836 is identical to current
subsection (b), which provides that the district courts of the
United States shall have original jurisdiction of civil actions
brought under the section.
Period of Limitations.
Subsection (d) of new Sec. 1836 provides a 5-year period of
limitations in which to bring a claim under the section.
Additional Provisions.
Section 2(b) of the Act amends Sec. 1839 to add three new
definitions.
First, the subsection includes a definition of
``misappropriation'' that is identical in all relevant respects
to the definition of misappropriation in Sec. 1(2) of the UTSA.
The Committee intentionally used this established definition to
make clear the Committee is not intending to alter the balance
of current trade secret law or alter specific court
decisions.\9\
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\9\The Committee is cognizant, for instance, that courts
interpreting state trade secret laws have reached different conclusions
on the applicability of the inevitable disclosure doctrine. Compare
PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995) (``[A]
plaintiff may prove a claim of trade secret misappropriation by
demonstrating that [the] defendant's new employment will inevitably
lead him to rely on the plaintiff's trade secrets''), with Whyte v.
Schlage Lock Co., 125 Cal. Rptr. 2d 277, 281 (Ct. App. 2002) (rejecting
explicitly the inevitable disclosure doctrine under California law).
The Committee does not intend this legislation to affect the
development of this doctrine.
---------------------------------------------------------------------------
Second, the subsection includes a definition of ``improper
means.'' This definition in subparagraph (A) is identical to
the definition in the Sec. 1(1) of the UTSA. The Committee
included a subparagraph (B) to clarify that reverse engineering
and independent derivation of the secret do not constitute
improper means.
Third, the subsection defines ``Trademark Act of 1946'',
which provides the basis for recovery by a person harmed by a
wrongful or excessive seizure.
Section 2(c) of the Act ensures that nothing in the
legislation is read to create a cause of action for conduct of
a governmental entity or for reporting a suspected violation of
law to a governmental entity.
Section 2(d) of the Act is a conforming amendment to update
the title of section 1836 in the section heading and table of
sections based on the changes made by this Act.
Section 2(e) of the Act sets the effective date for the
amendments made by section 2 of the Act. The amendments shall
apply to any misappropriation for which any act occurs on or
after the date of enactment of the Act.
Section 2(f) of the Act clarifies that nothing in this Act
modifies the rule of construction in Sec. 1838 and, therefore,
state trade secret law is not preempted and nothing affects an
otherwise lawful disclosure under the Freedom of Information
Act.
Section 2(g) of the Act also specifies that the new civil
remedy created by this Act will not be an additional exception
to protections provided to certain online services. This
section has no impact on whether pre-existing law related to
trade secrets at the state or Federal level are laws pertaining
to intellectual property and therefore exceptions to those
protections.
Sec. 3. Report on Theft of Trade Secrets Occurring Abroad.
Section 3 of the Act requires a biannual report by the
Attorney General, in consultation with the Intellectual
Property Enforcement Coordinator, the Director of the United
States Patent and Trademark Office, and the heads of other
appropriate agencies, on:
(1) the scope of trade secret theft from United States
companies that occurs outside the United States;
(2) the extent to which trade secret theft outside of the
United States is sponsored by foreign entities;
(3) the threat posed by trade secret theft outside the
United States;
(4) the ability and limitations of trade secret owners to
prevent trade secret misappropriation outside of the United
States, to enforce judgment against foreign entities for such
theft, and to prevent imports based on theft of trade secrets
overseas;
(5) the trade secret protections afforded United States
companies by trading partners of the United States and specific
information about enforcement efforts available and undertaken
in each such country;
(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 to protect United States companies from trade secret
theft outside the United States; and
(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 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 the United States.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
TITLE 18, UNITED STATES CODE
* * * * * * *
PART I--CRIMES
* * * * * * *
CHAPTER 90--PROTECTION OF TRADE SECRETS
Sec.
1831. Economic espionage.
* * * * * * *
[1836. Civil proceedings to enjoin violations.]
1836. Civil proceedings.
* * * * * * *
Sec. 1833. Exceptions to prohibitions
This chapter does not prohibit or create a private right
of action for--
(1) * * *
* * * * * * *
Sec. 1836. [Civil proceedings to enjoin violations] Civil proceedings
(a) * * *
[(b) The district courts of the United States shall have
exclusive original jurisdiction of civil actions under this
section.]
(b) Private Civil Actions.--
(1) In general.--An owner of a trade secret may
bring a civil action under this subsection if the
person is aggrieved by a misappropriation of a trade
secret that is related to a product or service used in,
or intended for use in, interstate or foreign commerce.
(2) Civil seizure.--
(A) In general.--
(i) Application.--Based on an
affidavit or verified complaint
satisfying the requirements of this
paragraph, the court may, upon ex parte
application, issue an order providing
for the seizure of property necessary
to preserve evidence in a civil action
brought under paragraph (1) or to
prevent the propagation or
dissemination of the trade secret that
is the subject of the action.
(ii) Requirements for issuing
order.--The court may not grant an
application under clause (i) unless the
court finds that it clearly appears
from specific facts that--
(I) an order issued
pursuant to Rule 65(b) of the
Federal Rules of Civil
Procedure would be inadequate
to achieve the purpose of this
paragraph because the party to
which the order would be issued
would evade, avoid, or
otherwise not comply with such
an order;
(II) an immediate and
irreparable injury will occur
if such seizure is not ordered;
(III) the harm to the
applicant of denying the
application outweighs the harm
to the legitimate interests of
the person against whom seizure
would be ordered of granting
the application and
substantially outweighs the
harm to any third parties who
may be harmed by such seizure;
(IV) the applicant is
likely to succeed in showing
that the person against whom
seizure would be ordered
misappropriated the trade
secret by improper means, or
conspired to use improper means
to misappropriate the trade
secret, and is in possession of
the trade secret;
(V) the application
describes with reasonable
particularity the matter to be
seized and, to the extent
reasonable under the
circumstances, identifies the
location where the matter is to
be seized;
(VI) the person against
whom seizure would be ordered,
or persons acting in concert
with such person, would
destroy, move, hide, or
otherwise make such matter
inaccessible to the court, if
the applicant were to proceed
on notice to such person; and
(VII) the applicant has not
publicized the requested
seizure.
(B) Elements of order.--If an order is
issued under subparagraph (A), it shall--
(i) set forth findings of fact and
conclusions of law required for the
order;
(ii) provide for the seizure of any
property in a manner that minimizes any
interruption of the business operations
of third parties and, to the extent
possible, does not interrupt those
legitimate business operations of the
person accused of misappropriating the
trade secret that are unrelated to the
trade secret that has allegedly been
misappropriated;
(iii) be accompanied by an order
protecting the property from disclosure
by restricting the access of the
applicant, including during the
seizure, and prohibiting any copies, in
whole or in part, of the seized
property, to prevent undue damage to
the party against whom the order has
issued or others, until such parties
have an opportunity to be heard in
court;
(iv) set a date for a hearing at
the earliest possible time, and not
later than 7 days after the order has
issued, unless the party against whom
the order is directed and others harmed
by the order consent to another date
for such hearing, except that a party
against whom the order has issued or
any person harmed by the order may move
the court at any time to dissolve or
modify the order after giving notice to
the applicant who obtained the order;
and
(v) require the person obtaining
the order to provide the security
determined adequate by the court for
the payment of such damages as any
person may be entitled to recover as a
result of a wrongful or excessive
seizure or wrongful or excessive
attempted seizure under this paragraph.
(C) Protection from publicity.--The court
shall take appropriate action to protect the
person against whom an order under this
paragraph is directed from publicity, by or at
the behest of the person obtaining the order,
about such order and any seizure under such
order.
(D) Materials in custody of court.--Any
materials seized under this paragraph shall be
taken into the custody of the court. The court
shall secure the seized material from physical
and electronic access during the seizure and
while in the custody of the court.
(E) Service of order.--The court shall
order that service of a copy of the order under
this paragraph shall be made by a Federal law
enforcement officer, or may be made by a State
or local law enforcement officer, who, upon
making service, shall carry out the seizure
under the order.
(F) Action for damage caused by wrongful
seizure.--A person who suffers damage by reason
of a wrongful or excessive seizure under this
paragraph has a cause of action against the
applicant for the order under which such
seizure was made, and shall be entitled to the
same relief as is provided under section
34(d)(11) of the Trademark Act of 1946 (15
U.S.C. 1116(d)(11)). The security posted with
the court under subparagraph (B)(v) shall not
limit the recovery of third parties for
damages.
(3) Remedies.--In a civil action brought under this
subsection with respect to the misappropriation of a
trade secret, a court may--
(A) grant an injunction--
(i) to prevent any actual or
threatened misappropriation described
in paragraph (1) on such terms as the
court deems reasonable;
(ii) if determined appropriate by
the court, requiring affirmative
actions to be taken to protect the
trade secret; and
(iii) in exceptional circumstances
that render an injunction inequitable,
that conditions future use of the trade
secret upon payment of a reasonable
royalty for no longer than the period
of time for which such use could have
been prohibited;
(B) award--
(i)(I) damages for actual loss
caused by the misappropriation of the
trade secret; and
(II) damages for any unjust
enrichment caused by the
misappropriation of the trade secret
that is not addressed in computing
damages for actual loss; or
(ii) in lieu of damages measured by
any other methods, the damages caused
by the misappropriation measured by
imposition of liability for a
reasonable royalty for the
misappropriator's unauthorized
disclosure or use of the trade secret;
(C) if the trade secret is willfully and
maliciously misappropriated, award exemplary
damages in an amount not more than 3 times the
amount of the damages awarded under
subparagraph (B); and
(D) if a claim of the misappropriation is
made in bad faith, a motion to terminate an
injunction is made or opposed in bad faith, or
the trade secret was willfully and maliciously
misappropriated, award reasonable attorney's
fees to the prevailing party.
(c) Jurisdiction.--The district courts of the United States
shall have original jurisdiction of civil actions brought under
this section.
(d) Period of Limitations.--A civil action under subsection
(b) may not be commenced later than 5 years after the date on
which the misappropriation with respect to which the action
would relate is discovered or by the exercise of reasonable
diligence should have been discovered. For purposes of this
subsection, a continuing misappropriation constitutes a single
claim of misappropriation.
* * * * * * *
Sec. 1839. Definitions
As used in this chapter--
(1) * * *
* * * * * * *
(3) the term ``trade secret'' means all forms and
types of financial, business, scientific, technical,
economic, or engineering information, including
patterns, plans, compilations, program devices,
formulas, designs, prototypes, methods, techniques,
processes, procedures, programs, or codes, whether
tangible or intangible, and whether or how stored,
compiled, or memorialized physically, electronically,
graphically, photographically, or in writing if--
(A) * * *
(B) the information derives independent
economic value, actual or potential, from not
being generally known to, and not being readily
ascertainable through proper means by, the
public; [and]
(4) the term ``owner'', with respect to a trade
secret, means the person or entity in whom or in which
rightful legal or equitable title to, or license in,
the trade secret is reposed[.];
(5) the term ``misappropriation'' means--
(A) acquisition of a trade secret of
another by a person who knows or has reason to
know that the trade secret was acquired by
improper means; or
(B) disclosure or use of a trade secret of
another without express or implied consent by a
person who--
(i) used improper means to acquire
knowledge of the trade secret;
(ii) at the time of disclosure or
use, knew or had reason to know that
the knowledge of the trade secret was--
(I) derived from or through
a person who had used improper
means to acquire the trade
secret;
(II) acquired under
circumstances giving rise to a
duty to maintain the secrecy of
the trade secret or limit the
use of the trade secret; or
(III) derived from or
through a person who owed a
duty to the person seeking
relief to maintain the secrecy
of the trade secret or limit
the use of the trade secret; or
(iii) before a material change of
the position of the person, knew or had
reason to know that--
(I) the trade secret was a
trade secret; and
(II) knowledge of the trade
secret had been acquired by
accident or mistake;
(6) the term ``improper means''--
(A) includes theft, bribery,
misrepresentation, breach or inducement of a
breach of a duty to maintain secrecy, or
espionage through electronic or other means;
and
(B) does not include reverse engineering or
independent derivation; and
(7) the term ``Trademark Act of 1946'' means the
Act entitled ``An Act to provide for the registration
and protection of trademarks used in commerce, to carry
out the provisions of certain international
conventions, and for other purposes, approved July 5,
1946 (15 U.S.C. 1051 et seq.) (commonly referred to as
the `Trademark Act of 1946' or the `Lanham Act')''.
* * * * * * *