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[Senate Report 114-220]
[From the U.S. Government Publishing Office]

                                                      Calendar No. 355
114th Congress     }                                      {     Report
                                 SENATE
 2d Session        }                                      {    114-220

======================================================================

 
                    DEFEND TRADE SECRETS ACT OF 2016

                                _______
                                

                 March 7, 2016.--Ordered to be printed

                                _______
                                

          Mr. Grassley, from the Committee on the Judiciary, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1890]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 1890), 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
  I. Background and Purpose of the Defend Trade Secrets Act of 2016...1
 II. History of the Bill and Committee Consideration..................4
III. Section-by-Section Summary of the Bill...........................5
 IV. Congressional Budget Office Cost Estimate.......................13
  V. Regulatory Impact Evaluation....................................14
 VI. Conclusion......................................................14
VII. Changes to Existing Law Made by the Bill, as Reported...........15

       I. Background and Purpose of the Defend Trade Secrets Act

    Trade secrets are a form of intellectual property that 
allow for the legal protection of commercially valuable, 
proprietary information and make up an increasingly important 
part of American companies' intellectual property portfolios. 
Comprising all types of financial, scientific, technical, 
engineering, or other forms of information, trade secrets are 
an integral part of the operation, competitive advantage, and 
financial success of many U.S.-based companies.
    The growing importance of trade secrets as a form of 
intellectual property makes their theft a particularly 
economically damaging crime. In a recent report, the Commission 
on the Theft of American Intellectual Property estimated that 
annual losses to the American economy caused by trade secret 
theft are over $300 billion, comparable to the current annual 
level of U.S. exports to Asia.\1\ This same report found that 
trade secret theft has led to the loss of 2.1 million American 
jobs each year and that the illegal theft of intellectual 
property is undermining the means and incentive for 
entrepreneurs to innovate. This in turn is slowing the 
development of new inventions and industries that could raise 
the prosperity and quality of life for everyone.\2\ In another 
study, PricewaterhouseCoopers LLP and the Center for 
Responsible Enterprise and Trade found that the annual cost of 
trade secret theft may be as high as $480 billion.\3\
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    \1\The IP Commission, The Report of the Commission on the Theft of 
American Intellectual Property (May 2013), available at http://
www.ipcommission.org/report/IP_Commission_Report_052213.pdf.
    \2\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.
    \3\Richard A. Hertling & Aaron Cooper, Trade Secret Theft: The Need 
for a Federal Civil Remedy, The National Law Review (June 25, 2014), 
available at http://www.natlawreview.com/ article/trade-secret-theft-
need-federal-civil-remedy.
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    Protecting trade secrets has become increasingly difficult 
given ever-evolving technological advancements. Thieves are 
using increasingly sophisticated methods to steal trade secrets 
and the growing use of technology and cyberspace has made trade 
secret theft detection particularly difficult.\4\ The growing 
problem of trade secret theft has been acknowledged by 
industry, Congress,\5\ and the administration--with Attorney 
General Eric Holder stating during a White House conference in 
2013, ``There are only two categories of companies affected by 
trade-secret theft: those that know they've been compromised 
and those that don't know yet.''\6\
---------------------------------------------------------------------------
    \4\Brian T. Yeh, Protection of Trade Secrets: Overview of Current 
Law and Legislation, CRS Report No. R43714 (2014), available at http://
www.crs.gov/pages/Reports.aspx?PRODCODE
=R43714&Source=search#fn12.
    \5\Economic Espionage and Trade Secret Theft: Are Our Laws Adequate 
for Today's Threats?: Hearing Before the Senate Judiciary Comm., 
Subcomm. on Crime and Terrorism, 113th Cong. (2014); Trade Secrets: 
Promoting American Innovation, Competitiveness and Market Access in 
Foreign Markets: Hearing Before the House Judiciary Comm., 113th Cong. 
(2014); Protecting Trade Secrets: the Impact of Trade Secret Theft on 
American Competitiveness and Potential Solutions to Remedy this Harm: 
Hearing Before the Senate Judiciary Comm., 114th Cong. (2015).
    \6\Siobhan Gorman and Jared A. Favole, U.S. Ups Ante for Spying on 
Firms, Wall Street Journal (Feb. 21, 2013) (reproducing a statement 
made by Attorney General Holder at a White House conference), available 
at http://www.wsj.com/articles/SB100014241278873235
49204578316413319639782.
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    Unlike other types of intellectual property, which are 
primarily protected under Federal law, trade secrets are 
primarily governed by State law. The Uniform Trade Secrets Act 
(UTSA) has been adopted (in its entirety or with some 
modifications) in 47 States and the District of Columbia.\7\ 
State laws that follow the UTSA provide trade secret owners 
with the ability to file civil lawsuits against a party who 
misappropriates trade secrets. Although the differences between 
State laws and the UTSA are generally relatively minor, they 
can prove case-dispositive: they may affect which party has the 
burden of establishing that a trade secret is not readily 
ascertainable, whether the owner has any rights against a party 
that innocently acquires a trade secret, the scope of 
information protectable as trade secret, and what measures are 
necessary to satisfy the requirement that the owner employ 
``reasonable measures'' to maintain secrecy of the information. 
At the Federal level, the Economic Espionage Act of 1996 (EEA), 
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. The EEA, however, does not 
give trade secret owners a private right of action in Federal 
court. The Committee learned that, while fighting economic 
espionage and the theft of trade secrets is a top priority for 
Federal law enforcement,\8\ criminal enforcement remains a 
limited solution to stopping trade secret theft as the Federal 
Bureau of Investigation and Department of Justice are limited 
in the resources they can bring to bear.\9\
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    \7\Uniform Law Commission: The National Conference of Commissioners 
on Uniform State Laws, Uniform Trade Secrets Act, available at http://
www.uniformlaws.org/Act.aspx?title=Trade+Secrets+Act.
    \8\Economic Espionage and Trade Secret Theft: Are Our Laws Adequate 
for Today's Threats?: Hearing Before the Senate Judiciary Comm., 
Subcomm. on Crime and Terrorism, 113th Cong. (2014) (statement of 
Randall C. Coleman, Assistant Director, Counterintelligence Division, 
FBI), available at https://www.fbi.gov/news/testimony/combating-
economic-espionage-and-trade-secret-theft.
    \9\Trade Secrets: Promoting and Protecting American Innovation, 
Competitiveness, and Market Access in Foreign Markets: Hearing Before 
the House Judiciary Comm., Subcomm. on Courts, Intellectual Property, 
and the Internet, 113th Cong. (2014) (statement of Richard A. Hertling, 
Of Counsel, Covington & Burling, LLP, Protect Trade Secrets Coalition), 
available at http:// judiciary.house.gov/_cache/files/5311b6c1-9a4f-
49e5-a477-451a3ee228bf/113-97-88436.pdf.
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    S. 1890 amends the Economic Espionage Act of 1996 to 
provide a Federal civil remedy for the misappropriation of 
trade secrets. A Federal cause of action will allow trade 
secret owners to protect their innovations by seeking redress 
in Federal court, bringing their rights into alignment with 
those long enjoyed by owners of other forms of intellectual 
property, including copyrights, patents, and trademarks. 
Modelling its definition of misappropriation on the UTSA, the 
bill provides for equitable remedies and the award of damages 
for the misappropriation of a trade secret. It also provides 
for expedited relief on an ex parte basis in the form of a 
seizure of property from the party accused of misappropriation, 
a remedy available under extraordinary circumstances where 
necessary to preserve evidence or prevent dissemination of a 
trade secret. The ex parte seizure provision is an important 
remedy for trade secret owners because it ``enable[s] a trade 
secret owner under limited, controlled conditions, to 
proactively contain a theft before it progresses and the trade 
secret is lost.''\10\ For example, the damage caused by the 
large-scale 2006 theft of know-how related to DuPont's 
innovative Kevlar product, in which there was significant 
destruction of evidence, would likely have been mitigated by 
the existence of a seizure remedy.
---------------------------------------------------------------------------
    \10\Protecting Trade Secrets: The Impact of Trade Secret Theft on 
American Competitiveness and Potential Solutions to Remedy this Harm: 
Hearing Before the S. Comm. on the Judiciary, 114th Cong (2015), 
Statement of Karen Cochran, Associate General Counsel and Chief 
Intellectual Property Counsel, E.I. DuPont de Nemours & Co., at *4-5.
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    The bill balances the need for efficient recovery of a 
stolen trade secret with the rights of defendants and third-
parties. Seizure orders must therefore minimize interruption to 
the business operations of third parties, protect the seized 
property from disclosure, and set a hearing date at the 
earliest possible time.
    By improving trade secret protection, the Defend Trade 
Secrets Act of 2016 will incentivize future innovation while 
protecting and encouraging the creation of American jobs.

          II. History of the Bill and Committee Consideration

                      A. INTRODUCTION OF THE BILL

    On July 29, 2015, Senators Hatch and Coons introduced the 
Defend Trade Secrets Act 2015. Senators Baldwin, Durbin, Flake, 
and Tillis were original cosponsors. The bill was referred to 
the Committee on the Judiciary. The bill built on previous 
legislation introduced in the Senate in two prior Congresses: 
S. 3389, the Protecting American Trade Secrets and Innovation 
Act of 2012, which was introduced by Senators Kohl, Coons, and 
Whitehouse in the 112th Congress and S. 2267, the Defend Trade 
Secrets Act of 2014, which was introduced by Senators Coons and 
Hatch in the 113th Congress.

                       B. COMMITTEE CONSIDERATION

    On December 2, 2015, Senator Grassley chaired a Committee 
hearing on the subject of trade secret theft, entitled 
``Protecting Trade Secrets: the Impact of Trade Secret Theft on 
American Competitiveness and Potential Solutions to Remedy This 
Harm.'' The hearing examined the importance of trade secrets to 
American companies, the adequacy of existing civil remedies, 
and the potential impact of a uniform Federal civil remedy for 
trade secret misappropriation. Testimony was received from Ms. 
Karen Cochran, Chief Intellectual Property Counsel, E.I. DuPont 
de Nemours and Company, Wilmington, DE;\11\ Mr. Tom Beall, Vice 
President and Chief Intellectual Property Counsel, Corning 
Incorporated, Corning, NY;\12\ Mr. James Pooley, Principal, 
James Pooley, PLC, Menlo Park, CA;\13\ Ms. Sharon Sandeen, 
Professor of Law, Hamline University School of Law, St. Paul, 
MN.\14\
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    \11\Protecting Trade Secrets: the Impact of Trade Secret Theft on 
American Competitiveness and Potential Solutions to Remedy This Harm, 
Before the Senate Comm. On the Judiciary, 114th Cong. (2015) (statement 
of Ms. Karen Cochran, Chief Intellectual Property Counsel, E.I. DuPont 
de Nemours and Company), available at http://www.judiciary.senate.gov/
imo/media/doc/12-02-15%20Cochran%20Testimony.pdf.
    \12\Id. statement of Mr. Tom Beall, Vice President and Chief 
Intellectual Property Counsel, Corning Incorporated, available at 
http://www.judiciary.senate.gov/imo/media/doc/12-02-
15%20Beall%20Testimony.pdf.
    \13\Id. statement of Mr. James Pooley, Principal, James Pooley, 
available at http://www.judiciary.senate.gov/imo/media/doc/12-02-
15%20Pooley%20Testimony.pdf.
    \14\Id. statement of Ms. Sharon Sandeen, Professor of Law, Hamline 
University School of Law, available at http://www.judiciary.senate.gov/
imo/media/doc/12-02-15%20Sandeen%20
Testimony.pdf.
---------------------------------------------------------------------------
    The Committee's Subcommittee on Crime and Terrorism 
previously held a hearing on the subject of trade secret theft 
during the 113th Congress on May 13, 2014, entitled, ``Economic 
Espionage and Trade Secret Theft: Are Our Laws Adequate for 
Today's Threats?'' Testimony was received from Randall C. 
Coleman, Assistant Director, Counterintelligence Division, 
Federal Bureau of Investigation; Peter L. Hoffman, Vice 
President, Intellectual Property Management, The Boeing 
Company, Chicago, IL; Ms. Pamela Passman, President and Chief 
Executive Officer, Center for Responsible Enterprise and Trade, 
Washington, DC; Mr. Drew Greenblatt, President, Marlin Steel 
Wire Products, Baltimore, MD; and Mr. Douglas K. Norman, Vice 
President and General Patent Counsel, Eli Lilly and Company, 
Indianapolis, IN.
    The Committee considered S. 1890 on January 28, 2016, in 
open session. Senators Hatch and Coons offered a substitute 
amendment reflecting the input of several members of the 
Committee. The amendment provides that only the owner of a 
trade secret may bring a civil action for the secret's 
misappropriation, reduces the period of limitations from 5 to 3 
years to align with the UTSA, and amends the definitions of 
``trade secret'' and ``improper means.'' The amendment also 
makes clear that ex parte seizures are only available in 
``extraordinary circumstances,'' and places other limitations 
on the breadth of seizures. The amendment further clarifies the 
appropriate scope of injunctions relating to employment to 
ensure that court orders are not contrary to applicable State 
laws. Finally, the amendment adds language expressing the sense 
of Congress that it is important to balance the interests of 
all parties when issuing an ex parte seizure, and instructing 
the Federal Judicial Center to develop best practices for the 
execution of seizures and the storage of seized information. 
The amendment was accepted by a voice vote without objection. 
Senators Leahy and Grassley offered an amendment to provide 
protection to whistleblowers who disclose trade secrets to law 
enforcement in confidence for the purpose of reporting or 
investigating a suspected violation of law. The amendment also 
immunizes the confidential disclosure of a trade secret in a 
lawsuit, including an anti-retaliation proceeding. The 
amendment was accepted by a voice vote without objection.
    The Committee unanimously adopted both amendments by voice 
vote. The Committee then voted to report the Defend Trade 
Secrets Act of 2016, as amended, favorably to the Senate by 
voice vote.

              III. Section-by-Section Summary of the Bill

Section 1. Short title

    Section 1 provides that the short title of S. 1890 is the 
``Defend Trade Secrets Act of 2016.''

Sec. 2. Federal jurisdiction for theft of trade secrets

    Section 2(a) amends Sec. 1836 of title 18 by striking 
subsection (b), which provides that the Federal district courts 
have exclusive jurisdiction over civil actions brought by the 
Attorney General for trade secret misappropriation. In its 
place, the new provision creates a Federal civil remedy for 
private parties for trade secret misappropriation.
            In general
    The new Sec. 1836(b) in paragraph (1) authorizes the owner 
of a trade secret that is misappropriated to bring a civil 
action in Federal court if the trade secret that is related to 
a product or service used in, or intended for use in, 
interstate or foreign commerce. This jurisdictional nexus to 
interstate or foreign commerce is identical to the existing 
language required for Federal jurisdiction over the criminal 
theft of a trade secret under Sec. 1832(a).
            Civil seizure
    The new Sec. 1836(b) authorizes a Federal court to issue an 
order, in extraordinary circumstances and upon an ex parte 
application based on an affidavit or verified complaint, to 
provide for seizure of property necessary to preserve evidence 
or to prevent the propagation or dissemination of the trade 
secret. Ex parte seizures will issue only when the 
prerequisites for the issuance of a seizure order are present. 
The issuance of a seizure order is limited to ``extraordinary 
circumstances.'' Subparagraph (A)(ii) lists requirements for 
issuing a seizure order. For example, this authority is not 
available if an injunction under existing rules of civil 
procedure would be sufficient. The ex parte seizure provision 
is expected to be used in instances in which a defendant is 
seeking to flee the country or planning to disclose the trade 
secret to a third party immediately or is otherwise not 
amenable to the enforcement of the court's orders.
    Subparagraph (A)(ii) contains numerous limitations, 
described below, and is not intended to affect the authority of 
the Federal courts to provide equitable relief and issue 
appropriate orders pursuant to Rule 65 of the Federal Rules of 
Civil Procedure, the All Writs Act (28 U.S.C. 1651), or any 
other authority, including the court's inherent authority.
    Subparagraph (A)(ii) of section 1836(b) specifies that that 
a court may not grant a seizure order unless it finds that it 
clearly appears from specific facts that (1) 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 with it; (2) immediate and irreparable injury will occur 
if the seizure is not ordered; (3) 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; (4) 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 misappropriate the 
trade secret by improper means, and is in actual possession of 
it and any property to be seized; (5) 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; (6) 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 (7) 
the applicant has not publicized the requested seizure.
    Before granting an ex parte seizure order, it is the 
Committee's expectation that courts will require applicants to 
describe the trade secret that would be the subject of the 
order with sufficient particularity so that the court may 
evaluate the request. The requirement of actual possession 
contained in clause (V) serves to protect third-parties from 
seizure. For instance, the operator of a server on which 
another party has stored a misappropriated trade secret, or an 
online intermediary such as an Internet service provider, would 
not be subject to seizure because their servers, and the data 
stored upon them, would not be in the actual possession of the 
defendant against whom seizure was ordered. While the court may 
not order a seizure against the third party under this 
provision, the court may decide to issue a third-party 
injunction preventing disclosure of the trade secret using its 
existing authority to provide equitable relief. The requirement 
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 such 
trade secret.\15\ Seizure of a trade secret that was stolen by 
one party and handed off to an accomplice is allowed under the 
clause.
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    \15\The Act's protections against the misappropriation of trade 
secrets--and the remedies it provides against such misappropriation--
are not intended to displace or restrict protections for members of the 
press recognized under the First Amendment. The Act should be applied 
consistently with the First Amendment and with the Supreme Court's 
decision in Bartnicki v. Vopper, 532 U.S. 514 (2001). That case held 
that the First Amendment protects members of the press against 
liability (including in civil actions) for disclosing information, even 
if the information was improperly or illegally obtained by another 
party in the first instance, particularly if the information relates to 
a matter of public concern. Indeed, Bartnicki recognized that the 
Supreme Court ``has repeatedly held that `if a newspaper lawfully 
obtains truthful information about a matter of public significance then 
state officials may not constitutionally punish publication of the 
information, absent a need . . . of the highest order.''' See 
Bartnicki, 532 U.S. at 528 (quoting Smith v. Daily Mail Publ'g Co., 443 
U.S. 97, 102 (1979)).
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    Subparagraph (B) of new Sec. 1836(b)(2) provides that a 
seizure order shall (i) set forth findings of fact and 
conclusions of law required for the order; (ii) provide for the 
narrowest seizure of property necessary to protect the trade 
secret, in a manner that minimizes any interruption of the 
business operations of third parties and, to the extent 
possible, does not interrupt the legitimate business operations 
of the person accused of misappropriating the trade secret; 
(iii) be accompanied by an order protecting the seized property 
from disclosure by prohibiting access by the applicant or the 
person against whom the order is directed, and prohibiting any 
copies of the seized property, until such parties have an 
opportunity to be heard in court (iv) provide guidance to law 
enforcement officials executing the seizure that clearly 
delineates the scope of their authority, including the hours 
during which the seizure may be executed and whether force may 
be used to access locked areas; (v) set a date for a hearing at 
the earliest possible time, and no later than seven days after 
the order has issued, unless parties involved consent to 
another date; and (vi) require the person obtaining the order 
to provide the security determined adequate by the court for 
payment of damages that person may be entitled to recover as a 
result of a wrongful or excessive seizure, or attempted 
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, by or at the 
behest of the person obtaining the order, about such order and 
any seizure under such order.
    Subparagraph (D) states that any materials seized pursuant 
to an order shall be taken into the custody of the court, which 
shall secure the material from physical and electronic access. 
In implementing this subparagraph, unless there is consent from 
the parties, the court should be careful to keep any electronic 
data or storage media secure and disconnected from any network 
or the Internet, thereby increasing security of the materials. 
The court shall take appropriate measures to protect the 
confidentiality of seized materials that are unrelated to the 
trade secret, unless the person against whom the order is 
entered consents to the disclosure of the material. The court 
may appoint a special master, bound by a nondisclosure 
agreement approved by the court, to locate and isolate all 
misappropriated trade secret information and facilitate the 
return of unrelated property and data to the person from whom 
the property was seized.
    Subparagraph (E) requires service of the court's order and 
the submissions of the applicant on the party against whom the 
order is directed. The order must be carried out by a Federal 
law enforcement officer. The court may allow State and local 
law enforcement officials to participate but may not allow the 
applicant or its agents to participate. At the request of law 
enforcement, the court may appoint a neutral technical expert, 
bound by a nondisclosure agreement, to assist in the seizure if 
the court determines that the expert's participation would 
minimize the burden of the seizure.
    Subparagraph (F) provides that the court shall hold a 
hearing at which the party who obtained the order shall have 
the burden to prove the facts supporting the findings of fact 
and conclusions of law necessary to prove the order. If a party 
fails to meet the burden for its proposed seizure, the seizure 
order shall be dissolved or modified appropriately. A party 
against whom the order has been issued, or any person harmed by 
the order, may move the court at any time to dissolve or modify 
the order.
    Subparagraph (G) provides that a person who suffers damage 
by reason of a wrongful or excessive seizure has a cause of 
action against the applicant for the order under which the 
seizure was made, to recover damages, including punitive 
damages, and reasonable attorney's fees.
    Subparagraph (H) provides that a party or other person who 
claims to have an interest in the subject matter seized may 
move to encrypt any seized materials.
            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 is drawn directly from Sec. 2 of the Uniform Trade Secrets 
Act (``UTSA''), which forms the basis of trade secrets law in 
almost every State. Provided an order does not prevent a person 
from entering into an employment relationship or otherwise 
conflict with applicable State laws prohibiting restraints on 
trade, a court may grant an injunction to prevent any actual or 
threatened misappropriation. Any conditions placed by a court 
on employment must be based on evidence of threatened 
misappropriation, and not merely on information a person 
knows.\16\ These limitations on injunctive relief were included 
to protect employee mobility, as some members, including 
Senator Feinstein, voiced concern that the injunctive relief 
authorized under the bill could override state-law limitations 
that safeguard employee mobility and thus could be a 
substantial departure from existing law in those states. If 
determined appropriate, a court may require affirmative actions 
to be taken to protect the trade secret, and, in exceptional 
circumstances that render an injunction inequitable, may 
condition future use of the trade secret upon payment of a 
reasonable royalty for no longer than the period of time for 
which such use would have been prohibited.
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    \16\The Committee notes 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).
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    Section (3)(A)(i)(1)(I) reinforces the importance of 
employment mobility and contains some limitations on injunctive 
relief that may be ordered. However, as Senator Feinstein 
explained when the Committee considered this bill at its 
executive business meeting, if a State's trade secrets law 
authorizes additional remedies, those State-law remedies will 
still be available. Some courts have found, based on the 
information possessed by the employee alone, that an injunction 
may issue to enjoin a former employee from working in a job 
that would inevitably result in the improper use of trade 
secrets. Consistent with the overall intent of the Defense 
Trade Secret Act and, in particular, Section (2)(f), which 
provides that the bill does not ``preempt any other provision 
of law,'' the remedies provided in Section (3)(A)(i)(1)(I) are 
intended to coexist with, and not to preempt, influence, or 
modify applicable State law governing when an injunction should 
issue in a trade secret misappropriation matter.
    Subparagraph (B), drawn directly from Sec. 3 of the UTSA, 
specifies the damage award that a court may issue. 
Specifically, it authorizes an award of damages for the actual 
loss and any unjust enrichment caused by the misappropriation 
of the trade secret, or, in lieu of damages measured by any 
other method, an award of a reasonable royalty. It is not the 
Committee's intent to encourage the use of reasonable royalties 
to resolve trade secret misappropriation. Rather, the Committee 
prefers other remedies that, first, halt the misappropriator's 
use and dissemination of the misappropriated trade secret and, 
second, make available appropriate damages.\17\
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    \17\The Committee notes that courts interpreting the UTSA's 
analogous provision have held that the award of reasonable royalties is 
a remedy of last resort. See e.g., Progressive Prod., Inc. v. Swartz, 
258 P.2d 969, 979-80 (Kan. 2011) (citing the comment to Sec. 2 of the 
UTSA and explaining that an award of royalties is reserved for 
``special situation[s],'' including ``exceptional circumstances'' in 
which an overriding public interest makes an injunction untenable).
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    Subparagraph (C) authorizes an award of exemplary damages, 
not exceeding twice the compensatory damages awarded, if the 
trade secret is willfully and maliciously misappropriated. This 
provision is similar to Sec. 3(b) of the UTSA.
    Subparagraph (D) allows that attorney's fees may be awarded 
to the prevailing party if a claim of misappropriation is made 
in bad faith, there is willful and malicious misappropriation, 
or a motion to terminate an injunction is made or opposed in 
bad faith. This provision is modeled on Sec. 4 of the UTSA.
            Jurisdiction
    Subsection (c) of new Sec. 1836 provides that district 
courts of the United States shall have original jurisdiction of 
civil actions brought under the section. This is identical to 
current subsection (b).
            Period of limitations
    Subsection (d) of new Sec. 1836 provides a three-year 
period of limitations in which to bring a claim under the 
section. This limitations period, which was reduced from five 
years during the Committee's markup, is now identical to the 
limitations period of the UTSA, although a number of States 
have modified the limitations period in enacting the UTSA.
            Definitions; Rule of construction; Conforming amendments
    Section 2(b) of the Act amends Sec. 1839 of title 18 to add 
three new definitions.
    The intent of Section 2(b)(1)(A)--striking ``the public'' 
and inserting ``another person who can obtain economic value 
from the disclosure or use of the information''--is to bring 
the Federal definition of a trade secret in conformity with the 
definition used in the Uniform Trade Secrets Act (``UTSA''). 
Both the Court of Appeals for the Seventh Circuit, in United 
States v. Lange, 312 F.3d 263, 267 (7th Cir. 2002), and the 
Court of Appeals for the Third Circuit, in United States v. 
Hsu, 155 F.3d 189, 196 (3d Cir. 1998), have identified this 
difference between the UTSA and the Federal definition of a 
trade secret as potentially meaningful. While other minor 
differences between the UTSA and Federal definition of a trade 
secret remain, the Committee does not intend for the definition 
of a trade secret to be meaningfully different from the scope 
of that definition as understood by courts in States that have 
adopted the UTSA.
    First, ``misappropriation'' is defined identically 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 that this Act is not 
intended to alter the balance of current trade secret law or 
alter specific court decisions.
    Second, the subsection defines ``improper means.'' The 
definition contained in subparagraph (A) is identical to the 
definition in Sec. 1(1) of the UTSA and includes theft, 
bribery, misrepresentation, breach, or inducement of a breach 
of a duty to maintain secrecy, or espionage though electronic 
or other means. Subparagraph (B) serves to clarify that reverse 
engineering and independent derivation of the trade secret do 
not constitute improper means.
    Third, the subsection defines ``Trademark Act of 1946,'' 
commonly called the Lanham Act, which provides the basis for 
recovery by a party harmed by a wrongful or excessive seizure.
    Subsection 2(c) of the Act ensures that nothing in the 
legislation is read to create a private right of action for 
conduct of a governmental entity or (following the amendment of 
18 U.S.C. 1833 by section 7 of this Act) for disclosing trade 
secret information to the Government or in a court filing in 
accordance with new 18 U.S.C. 1833(b).
    Subsection 2(d) of the Act is a conforming amendment that 
updates the title of section 1836 in the section heading and 
table of sections based on the changes made by this Act.
    Subsection 2(e) provides that amendments made by section 2 
of the Act shall apply to any misappropriation for which any 
act occurs on or after the date of enactment of the Act.
    Subsection 2(f) of the Act clarifies that nothing in this 
Act modifies the rule of construction in Sec. 1838 of title 18, 
and, as a result State trade secret laws are not preempted or 
affected by this Act. Further, nothing in this Act affects an 
otherwise lawful disclosure under the Freedom of Information 
Act.
    Subsection 2(g) of the Act also specifies that the new 
civil remedy created by this Act is not to be construed as a 
law pertaining to intellectual property for purposes of any 
other Act of Congress.

Sec. 3. Trade secret theft enforcement

    Subsection 3(a) of the Act amends Sec. 1832(b) of title 18 
by revising the maximum penalty for a violation under 
Sec. 1832(a) to be the greater of $5,000,000 or three times the 
value of the stolen trade secret to the organization, including 
expenses for research and design and other costs that the 
organization has thereby avoided.
    Subsection 3(a) also amends Sec. 1835 of title 18 by adding 
a new subsection (b), which provides that the court may not 
direct the disclosure of any material the owner asserts to be a 
trade secret unless the court allows the owner to file a 
submission under seal describing the interest of the owner in 
keeping the information confidential. The provision or 
disclosure of information relating to a trade secret to the 
United States or to the court in connection with a prosecution 
does not constitute waiver of trade secret protection unless 
the owner expressly consents to such waiver. The provision is 
also intended to ensure that in a prosecution for conspiracy 
related to the alleged theft of a trade secret, the actual 
trade secret itself is not subject to disclosure to the 
defense, because the actual secrecy of the information that is 
the object of the conspiracy is not relevant to the prosecution 
of a conspiracy charge.
    Subsection 3(b) of the Act amends section 1961(1) of title 
18 to include sections 1831 and 1832 relating to economic 
espionage and theft of trade secrets as predicate offenses for 
the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Sec. 4. Report on theft of trade secrets occurring abroad

    Section 4 of the Act requires, not later than one year 
after the date of enactment of this act and biannually 
thereafter, a 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, to the Committees on 
the Judiciary of the Senate and the House of Representatives, 
on:
          (1) the scope and breadth of trade secret theft from 
        United States companies occurring outside the United 
        States;
          (2) the extent to which trade secret theft occurring 
        outside of the United States is sponsored by foreign 
        governments, agents, or instrumentalities;
          (3) the threat posed by trade secret theft occurring 
        outside of the United States;
          (4) the ability and limitations of trade secret 
        owners to prevent the trade secret misappropriation of 
        trade secrets 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 each country that is a trading 
        partner of the United States and specific information 
        about enforcement efforts available and undertaken in 
        each such country, including a list of specific 
        countries where trade secret theft 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 United States companies from 
        trade secret theft outside the United States; and
          (8) recommendations for 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.

Sec. 5. Sense of Congress

    Section 5 of the Act provides that it is the sense of 
Congress that trade secret theft occurs domestically and around 
the world, and that it is harmful to United States companies 
that own and depend on trade secrets. The Economic Espionage 
Act of 1996 protects trade secrets from theft under the 
criminal law. In enacting a civil remedy, it is important when 
seizing information to balance the need to prevent or remedy 
misappropriation with the need to avoid interrupting the 
legitimate interests of the party against whom a seizure is 
issued, and the business of third parties.

Sec. 6. Best practices

    Section 6 directs the Federal Judicial Center to develop 
recommended best practices for seizure, storage, and security 
of information under this Act, within two years of the 
enactment. A copy of the recommendations and any updates made 
shall be provided to the Committees on the Judiciary of the 
Senate and the House of Representatives.

Sec. 7. Immunity from liability for confidential disclosure of a trade 
        secret to the Government or in a court filing

    Section 7 of the Act amends Sec. 1833 of title 18 by adding 
a new subsection (b). The new Sec. 1833(b)(1) provides for 
criminal and civil immunity for anyone who discloses a trade 
secret under two circumstances. Subparagraph (A) addresses 
disclosures in confidence to a Federal, State, or local 
government official, or to an attorney, for the purpose of 
reporting or investigating a suspected violation of the law. 
Subparagraph (B) applies to disclosure in a complaint or other 
document filed under seal in a judicial proceeding. The 
Committee stresses that this provision immunizes the act of 
disclosure in the limited circumstances set forth in the 
provision itself; it does not immunizes acts that are otherwise 
prohibited by law, such as the unlawful access of material by 
unauthorized means.
    Section 1833(b)(2) created by this Act provides that an 
individual who files a lawsuit against an employer for 
retaliation for reporting a suspected violation of the law may 
disclose a trade secret to an attorney for use in the 
proceeding, provided the individual files any document 
containing the trade secret under seal and does not disclose 
the trade secret other than pursuant to a court order.
    Section 1833(b)(3) requires notice of the immunity in this 
subsection to be set forth in any employment contract that 
governs the use of trade secrets, although an employer may 
choose to provide such notice by reference to a policy document 
setting forth the employer's reporting policy for a suspected 
violation of the law that provides notice of the immunity. An 
employer may not be awarded exemplary damages or attorney's 
fees under this Act against an employee to whom such notice was 
not provided. The notice requirements apply to contracts 
entered into or updated after the date of enactment of this 
subsection.
    Section 1833(b)(4) defines the term ``employee'' to include 
any individual performing work as a contractor or consultant.
    Section 1833(b)(5) is a conforming amendment to update 
section 1838 of title 18 in the section heading and table of 
sections based on the changes made by this Act.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 
1890, the following estimate and comparison prepared by the 
Director of the Congressional Budget Office under section 402 
of the Congressional Budget Act of 1974:

                                                 February 25, 2016.
Hon. Chuck Grassley,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1890, Defend Trade 
Secrets Act of 2016.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Marin 
Burnett.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 1890--Defend Trade Secrets Act of 2016

    S. 1890 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 could issue an order 
to seize any property necessary to preserve evidence for the 
civil action. The legislation would require information 
gathered or stored during a legal proceeding related to trade 
secrets to be secured to protect its confidentiality. The bill 
also would increase the fines that may be collected in the 
event of the theft of a trade secret. Finally, the legislation 
would require the Department of Justice (DOJ) and the Federal 
Judicial Center to submit periodic reports concerning the theft 
of trade secrets in the United States.
    Based on information from DOJ and the Administrative Office 
of the U.S. Courts, CBO estimates that implementing S. 1890 
would have no significant effect on the federal budget. Because 
enacting S. 1890 would affect direct spending and revenues, 
pay-as-you-go procedures apply. Specifically, the bill would 
affect civil court filing fees and potentially increase certain 
fines, which are recorded in the budget as revenues. A portion 
of those revenues would be spent without further appropriation. 
On net, CBO estimates that the budgetary effect of those 
provisions would be negligible for each year and over the 2016-
2026 period.
    CBO estimates that enacting S. 1890 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year period beginning in 2027.
    S. 1890 would preempt state laws that govern matters of 
individual liability when trade secrets are disclosed to 
governmental officials during the course of an investigation or 
legal proceeding. That preemption would be a mandate as defined 
in the Unfunded Mandates Reform Act (UMRA) because it would 
limit the authority of states to apply their own laws. However, 
CBO estimates that the preemption would not affect the budgets 
of state, local, or tribal governments because it would impose 
no duty on states that would result in additional spending or 
loss of revenue.
    S. 1890 also would impose a private-sector mandate as 
defined in UMRA by extending civil and criminal liability 
protection to individuals who disclose trade secrets to 
government authorities during the course of an investigation or 
as a part of certain legal proceedings. By providing such 
liability protection, the bill would prevent entities from 
seeking compensation for damages from those individuals under 
trade secret laws. The cost of the mandate would be the forgone 
value of judgements and compensation for damages for such 
disclosures that entities would be awarded under a trade 
secrets claim. The bill would strengthen existing whistleblower 
protections to protect individuals from potential trade secret 
claims. The available literature suggests that few of those 
types of lawsuits have been brought against individuals under 
current law. Consequently, CBO estimates the cost of the 
mandate would probably fall below the annual threshold 
established in UMRA for private-sector mandates ($154 million 
in 2016, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Marin Burnett 
(for federal costs), Rachel Austin (for intergovernmental 
mandates), and Logan Smith (for private-sector mandates). The 
estimate was approved by H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 1890.

                             VI. Conclusion

    The Defend Trade Secrets Act, S. 1890, as amended, offers a 
needed update to Federal law to provide a Federal civil remedy 
for trade secret misappropriation. Carefully balanced to ensure 
an effective and efficient remedy for trade secret owners whose 
intellectual property has been stolen, the legislation is 
designed to avoid disruption of legitimate business, without 
preempting State law. This narrowly drawn legislation will 
provide a single, national standard for trade secret 
misappropriation with clear rules and predictability for 
everyone involved. Victims will be able to move quickly to 
Federal court, with certainty of the rules, standards, and 
practices to stop trade secrets from winding up being 
disseminated and losing their value. As trade secret owners 
increasingly face threats from both at home and abroad, the 
bill equips them with the tools they need to effectively 
protect their intellectual property and ensures continued 
growth and innovation in the American economy.

       VII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee finds that it is 
necessary to dispense with the requirement of paragraph 12 to 
expedite the business of the Senate.

                                  [all]
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