Protection of Trade Secrets: Overview of Current Law and Legislation
Released: 2016-04-22T00:00:00

Summary:
A trade secret is confidential, commercially valuable information that provides a company with a competitive advantage, such as customer lists, methods of production, marketing strategies, pricing information, and chemical formulae. (Well-known examples of trade secrets include the formula for Coca-Cola, the recipe for Kentucky Fried Chicken, and the algorithm used by Google's search engine.) To succeed in the global marketplace, U.S. firms depend upon their trade secrets, which increasingly are becoming their most valuable intangible assets.
However, U.S. companies annually suffer billions of dollars in losses due to the theft of their trade secrets by employees, corporate competitors, and even foreign governments. Stealing trade secrets has increasingly involved the use of cyberspace, advanced computer technologies, and mobile communication devices, thus making the theft relatively anonymous and difficult to detect. The Chinese and Russian governments have been particularly active and persistent perpetrators of economic espionage with respect to U.S. trade secrets and proprietary information.
In contrast to other types of intellectual property (trademarks, patents, and copyrights) that are governed primarily by federal law, trade secret protection is primarily a matter of state law. Thus, trade secret owners have more limited legal recourse when their rights are violated. State law provides trade secret owners with the power to file civil lawsuits against misappropriators. A federal criminal statute, the Economic Espionage Act (EEA), allows U.S. Attorneys to prosecute anyone who engages in "economic espionage" or the "theft of trade secrets." The EEA's "economic espionage" provision punishes those who misappropriate trade secrets with the intent or knowledge that the offense will benefit a foreign government, instrumentality, or agent. The EEA's "theft of trade secrets" prohibition is of more general application, involving the intentional theft of a trade secret related to a product or service used in or intended for use in interstate or foreign commerce, with the intent or knowledge that such action will injure the trade secret owner. In addition to criminal enforcement of the statute, the EEA authorizes the Attorney General to bring a civil action to obtain injunctive relief against any violation of the EEA.
However, because the U.S. Department of Justice and its Federal Bureau of Investigation have limited investigative and prosecutorial resources, as well as competing enforcement priorities, some observers assert that the federal government cannot adequately protect U.S. trade secrets from domestic and foreign threats. They have urged Congress to adopt a comprehensive, federal trade secret law in order to promote uniformity in trade secret law throughout the United States and to more effectively deal with trade secret theft that crosses state and international borders (a challenging problem for state courts to address). Among other things, they support the establishment of a federal civil cause of action for trade secret misappropriation, to allow U.S. companies to obtain monetary and injunctive relief when their trade secret assets are stolen.
In the 114th Congress, the Defend Trade Secrets Act (DTSA) (H.R. 3326 and S. 1890) has been introduced that would create a federal private right of action for trade secret misappropriation. S. 1890 was reported out of the Senate Judiciary Committee in late January 2016 with an amendment in the nature of a substitute. On April 4, 2016, the Senate passed S. 1890 by a vote of 87-0. On April 20, the House Judiciary Committee unanimously approved S. 1890.

subsections: section_title: Introduction1
paragraphs: U.S. corporations face a "growing and persistent threat" by individuals, rival companies, and foreign governments that seek to steal some of their most valuable intangible assets—their trade secrets. The tools, tactics, and methods used by such perpetrators vary widely but increasingly have involved the use of cyberspace and sophisticated technologies that "mak[e] it possible for malicious actors, whether they are corrupted insiders or foreign intelligence services (FIS), to quickly steal and transfer massive quantities of data while remaining anonymous and hard to detect." As former Attorney General Eric Holder once opined,
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. ... A hacker in China can acquire source code from a software company in Virginia without leaving his or her desk.
Globalization has been cited as a major contributor to the increased incidents of trade secret theft:
In many ways, trade-secret theft is a foreseeable outgrowth of expanding international markets. When large multinational companies expand their overseas operations, they almost inevitably face challenges related to supply accountability and protection against such theft. Their foreign manufacturing operations and joint-venture partners require customer lists, internal standards, manufacturing processes, information on sources of goods, recipes, and production and sales strategies in order to carry out their operational responsibilities. Each new piece of information that is sent overseas opens a company's supply chain and puts its valuable [intellectual property] at risk.
There is significant congressional interest in reducing the problems of trade secret theft and economic espionage that U.S. businesses currently face, as demonstrated by significant legislative activity in the 114 th Congress and hearings held in the 114 th and 113 th Congresses. This report provides an overview of existing federal, state, and international laws governing trade secret protection, describes the limitations of these legal regimes, and reviews pending legislation, the Defend Trade Secrets Act ( S. 1890 ), that is intended to address such deficiencies. 
section_title: Background
subsections: section_title: Definition of a Trade Secret
paragraphs: U.S. trade secret law protects secret, valuable business information from theft and espionage. While it has been said that an "exact definition of a trade secret is not possible," a trade secret generally consists of confidential, commercially valuable information. One U.S. federal court has described trade secrets as follows:
A trade secret is really just a piece of information (such as a customer list, or a method of production, or a secret formula for a soft drink) that the holder tries to keep secret by executing confidentiality agreements with employees and others and by hiding the information from outsiders by means of fences, safes, encryption, and other means of concealment, so that the only way the secret can be unmasked is by a breach of contract or a tort.
Whether information qualifies as a "trade secret" under federal or state law is a question of fact that may be determined by a jury. A jury may consider several factors in assessing whether certain material is a trade secret, including the following:
the extent to which the information is known outside of the company; the extent to which it is known by employees and others involved in the company; the extent of measures taken by the company to guard the secrecy of the information; the value of the information to the company and to its competitors; the amount of effort or money expended by the company in developing the information; and the ease or difficulty with which the information could be properly acquired or duplicated by others.
section_title: Eligible Subject Matter and Acquisition of Rights
paragraphs: The U.S. Supreme Court has explained that for subject matter to be protected as a trade secret, the material must meet minimal standards of novelty and inventiveness to avoid extending trade secret protection to matters of general or common knowledge in the industry in which it is used. In addition, the Supreme Court has held that a person can have a property interest in a trade secret (protected by the Taking Clause of the Fifth Amendment), although "[b]ecause of the intangible nature of a trade secret, the extent of the property right therein is defined by the extent to which the owner of the secret protects his interest from disclosure to others." Therefore, companies may acquire a protectable trade secret property right by putting into place reasonable measures to maintain the confidentiality of certain business information "that is sufficiently valuable ... to afford an actual or potential economic advantage over others." This expansive standard means that trade secret protection could be available to a wide range of proprietary information and technologies that companies rely on to give them an economic advantage over their competitors, including customer lists, methods of production, marketing strategies, pricing information, and chemical formulae.
section_title: Duration of Protection
paragraphs: Trade secret protection may extend indefinitely, lasting as long as the subject matter of the trade secret is commercially valuable and is kept confidential. However, the trade secret status of information may be lost if the information is accidentally or intentionally disclosed by anyone. Once a trade secret has been exposed to the public, its protected character is lost and cannot later be retrieved. However, disclosures of trade secrets to third parties for certain limited reasons do not waive trade secret protections, so long as the trade secret owner took reasonable measures to maintain its secrecy before and during disclosure, such as requiring non-disclosure or confidentiality agreements from each recipient of confidential information. 
section_title: Misappropriation
paragraphs: Misappropriation of a trade secret is a tort that may occur in several ways. One is when an individual acquires the trade secret through improper means, such as theft, bribery, misrepresentation, or espionage. Another is when the individual uses or discloses the trade secret through a breach of confidence. For example, an employee might switch jobs and then disclose his previous employer's trade secrets in violation of a confidentiality agreement. Finally, a trade secret may be misappropriated if it is used or disclosed with knowledge that the trade secret had been acquired improperly or through mistake. A person who uses information that he knows to have been stolen by another is therefore also guilty of misappropriation.
It is not a violation of trade secret law for another party to independently develop the subject matter of a trade secret, or for a party to analyze publicly available products or information in order to discover the secret information. In addition, "reverse engineering," which involves "starting with the known product and working backward to divine the process which aided in its development or manufacture," is not considered an improper means of acquiring the subject matter of another's trade secret. 
Misappropriation of a trade secret may be enjoined by a court and the defendant may also be liable for compensatory and punitive damages. 
section_title: Trade Secrets As a Form of Intellectual Property
paragraphs: Intellectual property encompasses a broad range of intangible property, including the following four categories of subject matter: (1) original artistic and literary works of authorship, such as motion pictures, books, art, photographs, music, and sound recordings (protected by copyright law); (2) symbols, names, colors, sounds, and words that distinguish commercially offered goods and services (protected by trademark law); (3) inventions of processes, machines, manufactures, and compositions of matter that are useful, new, and nonobvious (protected by patent law); and (4) confidential and proprietary business information (protected by trade secrets law). Federal law grants certain exclusive rights to the owners of patents, trademarks, and copyrights and provides remedies in the event that those rights are violated (an act referred to as an infringement). Owners of these three types of intellectual property may enforce their rights by bringing a lawsuit against an alleged infringer in federal court. The U.S. Department of Justice may also criminally prosecute particularly egregious violators of the copyright and trademark laws in order to impose greater punishment and possibly deter other would-be violators. (The Patent Act only provides civil remedies in the event of patent infringement. )
In contrast to the other three types of intellectual property that are governed primarily by federal law, trade secrets are primarily governed under state law, and thus owners of trade secrets have more limited legal recourse when their rights are violated by others. State law provides trade secret owners with the power to file civil lawsuits against those who misappropriate trade secrets. Federal law allows U.S. Attorneys to prosecute such offenders but does not currently give trade secret owners a private right of action in federal court against parties that have engaged in trade secret theft.
section_title: Purpose of Trade Secret Law and Comparison to Patent Law
paragraphs: Trade secret law serves as the primary alternative to the patent system, granting inventors proprietary rights to particular technologies, processes, designs, or formula that may not be able to satisfy the rigorous statutory standards for patentability. Companies may choose to maintain an invention as a trade secret rather than obtain a patent because their trade secret rights are not restricted to a limited number of years—unlike patent protection, which lasts less than 20 years and upon expiration, thrusts the invention into the public domain. In addition, trade secret protection is far easier, quicker, and cheaper to obtain (immediately receiving legal protection upon a company taking reasonable efforts to maintain the secrecy of valuable business information), compared to the complicated, lengthy, and expensive process of acquiring a patent, which can take several years and requires the involvement of a federal government agency, the U.S. Patent & Trademark Office. However, obtaining patent protection may be more appropriate in certain instances, such as when a technology is difficult to maintain as a secret because competitors could easily reverse-engineer or independently discover it. 
The U.S. Supreme Court has explained that the purpose of trade secret law is to provide companies with incentives to innovate and develop valuable information that may not be patentable:
Trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with the discovery and exploitation of his invention. Competition is fostered and the public is not deprived of the use of valuable, if not quite patentable, invention. 
In addition, by establishing legal remedies for trade secret misappropriation, trade secret law deters individuals who "have as their sole purpose and effect the redistribution of wealth from one firm to another."
section_title: Historical Development of Trade Secret Law
paragraphs: Unlike other forms of intellectual property that can trace their origins back several hundreds of years, trade secret law is a creation of state court opinions from the middle of the 19 th century. As noted by one legal scholar, the principles of trade secret law
evolved out of a series of related common law torts: breach of confidence, breach of confidential relationship, common law misappropriation, unfair competition, unjust enrichment, and torts related to trespass or unauthorized access to a plaintiff's property. It also evolved out of a series of legal rules—contract and common law—governing the employment relationship.
In 1939, the American Law Institute (ALI), a group of lawyers, judges, and legal scholars, published a treatise titled the "Restatement of Torts," which was an effort to provide a "clear formulation[]of common law and its statutory elements or variations and reflect the law as it presently stands or might plausibly be stated by a court." The Restatement of Torts included two sections dealing with the law of trade secrets. Section 757 explained the subject matter of trade secrets, while Section 758 spelled out the elements of a trade secret misappropriation cause of action. The ALI later addressed trade secrets in sections 39-45 of its 1993 "Restatement (Third) of Unfair Competition." 
In addition, the National Conference of Commissioners on Uniform State Law (NCCUSL) issued the Uniform Trade Secrets Act (UTSA) in 1979, which represents "the first comprehensive effort to codify the law of trade secrets protection, incorporating the major common law principles while filling gaps left by the courts." The NCCUSL consists of a group of academics, attorneys, and judges who draft statutes addressing a variety of issues, and then propose that each state enact them. However, the NCCUSL lacks direct legislative authority itself. Its uniform acts become law only to the extent that state legislatures choose to adopt them.
The federal government did not take steps to provide national trade secret protection until the mid-1990s, when Congress enacted the Economic Espionage Act of 1996. This federal criminal law is described in detail in the following section.
section_title: Current Legal Landscape for Trade Secret Protection
subsections: section_title: State Law
paragraphs: As noted in the section above, trade secrets primarily receive protection from misappropriation under state law. Individuals or corporations may seek civil damages in state courts by pursuing a common law tort action for misappropriation or through a specific state statute. The Uniform Trade Secrets Act (UTSA) codifies the basic principles of common law trade secret protection and has been adopted by 47 states and the District of Columbia, although many state legislatures made some changes to the original model text before enacting it. These state laws provide definitions for the key terms "trade secret," "misappropriation," and "improper means," and specify various forms of injunctive and monetary relief (including compensatory damages, punitive damages, and attorney's fees) in a civil action for misappropriation of a trade secret. A few states even recognize the theft of trade secrets as a prosecutable crime. 
However, according to a March 2016 Senate Judiciary Committee report, state law variations from the UTSA have led to different procedural and substantive standards being applied by state courts in trade secret cases:
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 a trade secret, and what measures are necessary to satisfy the requirement that the owner employ "reasonable measures" to maintain secrecy of the information.
section_title: Federal Law
subsections: section_title: Trade Secrets Act
paragraphs: Before 1996, arguably the most significant federal legislation regarding trade secrets was the Trade Secrets Act. This statute, enacted in 1948, is actually of narrow applicability. It forbids federal government employees and government contractors from making an unauthorized disclosure of confidential government information, including trade secrets. The sanctions for violating this criminal offense are removal from office or employment, and a fine and/or imprisonment of not more than one year. The law does not apply to state or local government actors or to private sector employees. 
section_title: Economic Espionage Act
paragraphs: In 1996, Congress enacted a far broader piece of legislation pertaining to trade secrets, the Economic Espionage Act of 1996 (EEA). The legislative history of the EEA reveals the congressional concerns over growing international and domestic economic espionage against U.S. businesses that prompted the establishment of a more comprehensive, federal scheme protecting trade secrets:
American companies and the U.S. Government spend billions on research and development. The benefits reaped from these expenditures can easily come to nothing, however, if a competitor can simply steal the trade secrets without expending the development costs. ... For years now, there has been mounting evidence that many foreign nations and their corporations have been seeking to gain competitive advantage by stealing the trade secrets, the intangible intellectual property of inventors in this country. ... [S]ince the end of the cold war, foreign nations have increasingly put their espionage resources to work trying to steal American economic secrets.
The EEA defines two separate criminal offenses: (1) theft of a trade secret for the benefit of a foreign entity (economic espionage, 18 U.S.C. Section 1831), and (2) trade secret theft intended to confer an economic benefit to another party (theft of trade secrets, 18 U.S.C. Section 1832). As a threshold matter, to trigger an action under either provision of the EEA, the information must qualify as a trade secret. The EEA expansively defines a "trade secret" to encompass
[A]ll 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) the owner thereof has taken reasonable measures to keep such information secret; and
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.
subsections: section_title: Economic Espionage
paragraphs: The EEA's "economic espionage" provision, 18 U.S.C. Section 1831, punishes those who misappropriate, or attempt or conspire to misappropriate, trade secrets with the intent or knowledge that the offense will benefit a foreign government, instrumentality, or agent. Such misappropriation must have been committed "knowingly"; in other words, the individual must have known that the information taken was valuable to its owner and that its owner had taken steps to keep it confidential.
According to the legislative history of the EEA, the "benefit" derived from a foreign espionage effort includes not only an economic benefit, but also "reputational, strategic, or tactical benefit." A "foreign instrumentality" includes any "entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government." Therefore, a foreign corporation that engages in espionage without any evidence of sponsorship or control from a foreign government may not be subjected to a Section 1831 prosecution. However, an individual or organization that engages in theft of trade secrets, although not intending to benefit a foreign entity, could be liable for violating the more general criminal trade secrets provision contained in Section 1832, described in the section below.
section_title: Theft of Trade Secrets
paragraphs: The EEA's "theft of trade secrets" prohibition, 18 U.S.C. Section 1832, is of more general application. The principal elements of an EEA claim for theft of trade secrets are (1) the intentional and/or knowing theft, appropriation, destruction, alteration, or duplication of (2) a trade secret related to a product or service used in or intended for use in interstate or foreign commerce (3) with intent to convert the trade secret and (4) intent or knowledge that such action will injure the owner.
Scrutiny of these additional elements reveals several fundamental differences between Sections 1832 and 1831. First, Section 1832 does not require that the offense benefit or intend to benefit a foreign entity; it is a law of general applicability. Section 1832 also requires that the theft economically benefit someone other than the trade secret owner, whereas Section 1831, the foreign economic espionage provision, more broadly encompasses misappropriation for any purpose, including non-economic benefits such as "reputational, strategic, or tactical benefit[s]." Establishing that the offender intended to cause injury to the trade secret owner "does not require the government to prove malice or evil intent, but merely that the actor knew or was aware to a practical certainty that his conduct would cause some disadvantage to the rightful owner."
In 2014, an FBI assistant director testified before Congress about the logistical difficulties of bringing a prosecution under Section 1831 compared to Section 1832:
Often, the greatest challenge in prosecuting economic espionage, as opposed to trade secret theft, is being able to prove that the theft was intended to benefit a foreign government or foreign instrumentality. The beneficiary of the stolen trade secrets may be traced to an overseas entity, but obtaining evidence that proves the entity's relationship with a foreign government can be difficult. The decision to pursue these cases under Section 1832 (theft of trade secrets) instead of Section 1831 (economic espionage) may depend upon the availability of foreign evidence and witnesses, diplomatic concerns, and the presence of classified or sensitive information required to prove the foreign nexus element. 
section_title: Authorized Penalties Under the EEA
paragraphs: The EEA authorizes substantial criminal fines and imprisonment penalties for economic espionage and theft of trade secrets. For economic espionage, the maximum penalties increase to $5 million for individuals and imprisonment of 15 years; in the case of corporations that are found guilty of this offense, the applicable maximum fine is the greater of (a) $10 million or (b) three times the value of the stolen trade secret. Theft of trade secrets for commercial advantage is punishable by a fine of up to $250,000 for individuals as well as imprisonment of up to 10 years, whereas organizations can be fined up to $5 million. The EEA also authorizes the criminal or civil forfeiture of "any property used, or intended to be used ... to commit or facilitate" an EEA violation as well as "any property constituting, or derived from, any proceeds obtained directly or indirectly as a result of" an EEA offense. Offenders must also pay victims of trade secret theft restitution.
In addition, during any prosecution or proceeding under the EEA, federal district courts are required to enter protective orders, or to take other measures, "as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws." The legislative history of the EEA reveals the congressional interest in ensuring that courts use protective orders to guard against trade secret disclosures:
We have been deeply concerned about the efforts taken by courts to protect the confidentiality of a trade secret. It is important that in the early stages of a prosecution the issue whether material is a trade secret not be litigated. Rather, courts should, when entering these orders, always assume that the material at issue is in fact a trade secret.
The EEA also allows the Attorney General to bring a civil action to obtain "appropriate injunctive relief" against any violation of the EEA provisions regarding the protection of trade secrets. However, the EEA does not provide victims of trade secret theft with a private civil cause of action. 
section_title: Extraterritorial Application of the EEA
paragraphs: Trade secret violations that occur both domestically and outside the United States may be subject to criminal prosecution by the federal government under the EEA. The U.S. Supreme Court has said on a number of occasions that "[i]t is a longstanding principle of American law 'that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States'" With this in mind, Congress specifically identified the circumstances under which it intended the economic espionage and theft of trade secrets provisions of the EEA to apply overseas. Either offense may be prosecuted if (1) the offender is a U.S. citizen or permanent resident alien or an organization organized under U.S. law, or (2) an act in furtherance of the offense is committed within the United States.
section_title: Statutory Exceptions to EEA Prohibitions
paragraphs: The EEA provides two express exceptions to the conduct that it prohibits (1) any otherwise lawful activity conducted by a governmental entity of the United States, a state, or a political subdivision of a state; or (2) the reporting of a suspected violation of law to any governmental entity of the United States, a state, or a political subdivision of a state, if such entity has lawful authority with respect to that violation. The first exception permits the government to conduct an otherwise lawful "investigative, protective, or intelligence activity" with respect to the trade secret. The second exception allows for the reporting of suspected criminal activity to law enforcement. 
section_title: Non-Preemption of Other Federal and State Laws
paragraphs: While the EEA was enacted in part due to the apparent shortcomings of other federal laws concerning the protection of trade secrets, the EEA expressly states that the act does not preempt or displace any other civil or criminal remedies provided by other federal or state laws for the misappropriation of a trade secret. Federal prosecutors thus may bring criminal charges under the following laws in addition to, or instead of, the EEA, assuming that the conduct involved in the EEA violation also violates these federal criminal statutes: (1) the Computer Fraud and Abuse Act, which penalizes anyone who accesses certain computers without authorization or in excess of authorization, with the intent to defraud; (2) the National Stolen Property Act (NSPA), which prohibits the interstate transportation of tangible stolen "goods, wares, or merchandise," or the knowing receipt of such property; and (3) the federal wire fraud statute, which makes it illegal to use wire, radio, or television communications for purposes of executing a scheme to defraud. 
section_title: International Law
paragraphs: The United States offers a more sophisticated and robust legal regime protecting trade secrets than most other countries. It has been noted that,
Much of the rest of the world has very weak laws or enforcement practices, with the issue particularly acute in many of the largest emerging economies, such as China, Brazil, Russia, and India. Thus, as supply chains and operations expand globally, a company's ability to protect its trade secrets may be significantly diminished by weak rule of law and ineffective or non-existent enforcement in a number of countries.
There is no international treaty specifically pertaining to the protection of trade secrets. However, one of the agreements reached during the Uruguay Round of Multilateral Trade Negotiations (that concluded with the signing of the Marrakesh Agreement Establishing the World Trade Organization (WTO)) was the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS establishes minimum standards of protection for patents, copyrights, trademarks, and trade secrets that each WTO signatory state must give to the intellectual property of fellow WTO members. Compliance with TRIPS is a prerequisite for WTO membership. 
TRIPS does not explicitly refer to "trade secrets." However, in order to "ensur[e] effective protection against unfair competition," TRIPS does refer to "protection of undisclosed information" and uses a definition that is similar to that of the traditional trade secret definition described above. Article 39 of TRIPS obliges WTO members to protect individuals and corporations who own or control "undisclosed information" from unauthorized disclosure, acquisition, or use "without their consent in a manner contrary to honest commercial practices." A footnote defines "a manner contrary to honest commercial practices" to mean "practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition." 
Article 39 also defines "undisclosed information" as information that
1. "is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 2. has commercial value because it is secret; and 3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."
Note that unlike the federal Economic Espionage Act that provides an extensive list of the various types of information that may be considered a trade secret, Article 39 lacks such specificity and thus the term "information" could be subject to broad or narrow interpretation by WTO members. In addition, recent testimony before Congress criticized the vagueness of the protection mandated by Article 39:
The heart of the relevant clause in TRIPS is vague; it asks whether the trade secret has been acquired or used "in a manner contrary to honest commercial practices." As a result, in Europe alone, trade secret law, which to date is not yet controlled by a European Union Directive, is a patchwork of different forms of protection. What is contrary to honest commercial practices in one country may be considered acceptable in other countries.
Nevertheless, Article 39 of TRIPS is the first time that protection of trade secrets has appeared in a multilateral treaty. According to a legal commentator, the "TRIPS Agreement includes a requirement that member nations enact trade secret law that is very similar to U.S. trade secret law. ... This is significant in light of the fact that trade secret law either did not exist or was undeveloped in many countries prior to the TRIPS Agreement."
The WTO has the power to resolve disputes between member states for alleged violations of the TRIPS Agreement, including its provisions governing "undisclosed information." However, such cases appear to be very rare; a search of the WTO's dispute cases revealed that a complaint involving Article 39 has occurred only once, and that case was eventually withdrawn after the parties (China and the European Communities) reached an agreement in the form of a Memorandum of Understanding. In May 2014, Senator Schumer sent a letter to the U.S. Trade Representative (USTR) Michael Froman, urging him to "initiate a case at the World Trade Organization (WTO) against China for state-backed cyber espionage against American businesses and workers." The letter argues that Chinese policies that sanction cyber espionage are in clear violation of the TRIPS agreement that obliges WTO members to protect trade secrets. As of the date of this report, the USTR has not filed a WTO complaint against China over this matter. 
The United States has entered into numerous bilateral and multilateral free trade agreements (FTAs) that require their signatories to provide higher levels of intellectual property protection than are required under the TRIPS Agreement. These intellectual property obligations exceed those of the TRIPS Agreement and are commonly referred to as "TRIPS-plus agreements." The United States has for many years pursued a policy of encouraging its trading partners to adopt TRIPS-plus provisions, which include more robust protections for trade secrets. Negotiating the inclusion of trade secret protection as part of these FTAs is discussed later in this report.
section_title: The Growing Problem of Trade Secret Theft and Economic Espionage
subsections: section_title: Measuring Economic Loss
paragraphs: It is difficult to determine the total value of trade secrets to U.S. businesses, although a report issued by the U.S. Chamber of Commerce stated that "[p]ublicly traded U.S. companies own an estimated $5 trillion worth of trade secrets." A recent study by PricewaterhouseCoopers (PwC) and the Center for Responsible Enterprise and Trade (CREATe.org) suggested that the economic loss attributable to trade secret theft is between 1% to 3% of U.S. Gross Domestic Product. A more precise calculation of the economic impact of trade secret theft is impeded by several factors identified by the Office of the National Counterintelligence Executive (ONCIX):
1. A company may not realize that its sensitive information has been stolen until years after the crime. 2. Reporting security breaches to the FBI or other law enforcement entity could harm the company's reputation and stock prices, or damage its corporate relationships. 3. Publicly accusing a foreign government or business competitor of trade secret theft carries the risk of offending the company's potential customers or business partners. 4. It may be very difficult, if not impossible, to measure the monetary value of some forms of sensitive information.
ONCIX further opined that the "[e]stimates from academic literature on the losses from economic espionage range so widely as to be meaningless—from $2 billion to $400 billion or more a year—reflecting the scarcity of data and the variety of methods used to calculate losses." 
section_title: Types of Offenders
subsections: section_title: Domestic
paragraphs: In the vast majority (over 90%) of trade secret cases that are litigated in state court, the alleged misappropriator is someone the trade secret owner knows, either a current or former employee or a business partner. Given this statistic, it has been suggested that "a prudent trade secret owner should focus its efforts in large part on protecting trade secrets from unscrupulous employees and, to a somewhat lesser extent, business partners."
section_title: Foreign
paragraphs: In its October 2011 report to Congress, ONCIX warned that "[b]ecause the United States is a leader in the development of new technologies and a central player in global finance and trade networks, foreign attempts to collect US technological and economic information will continue at a high level and will represent a growing and persistent threat to US economic security." ONCIX raised particular concerns about the use of the Internet, computer technologies, and mobile communication devices to steal the trade secrets of U.S. businesses: 
[N]early all business records, research results, and other sensitive economic or technology-related information now exist primarily in digital form. Cyberspace makes it possible for foreign collectors to gather enormous quantities of information quickly and with little risk, whether via remote exploitation of victims' computer networks, downloads of data to external media devices, or e-mail messages transmitting sensitive information.
While cyber-enabled methods of trade secret theft are getting increased attention from the federal government, it is important to realize that many actors (foreign intelligence services, corporate competitors, transnational criminal organizations) "still rely on physical means such as recruitment of insiders and placement of agents within companies for purposes of stealing critical data." The motivation for trade secret theft varies, with some perpetrators "seek[ing] personal financial gain, while others hope to advance national interests or political and social causes."
According to ONCIX, the governments of China and Russia are particularly "aggressive and capable collectors of sensitive U.S. economic information and technologies," and "Chinese actors are the world's most active and persistent perpetrators of economic espionage." The U.S. International Trade Commission (USITC) released a report indicating that U.S. firms lost approximately $1.1 billion in the year 2009 due to Chinese trade secret misappropriation. Between January 2009 and January 2013, China was involved in 17 criminal prosecutions (out of a total of 20) that the U.S. Department of Justice brought pursuant to the EEA.
section_title: Enforcement of Trade Secret Rights
subsections: section_title: Litigation and Prosecution
paragraphs: At the state level, enforcement of trade secret laws is generally the responsibility of the trade secret owner (by filing a civil suit in state court against an individual or organization alleged to have misappropriated the trade secret in order to obtain remedies such as injunctive relief and compensatory and punitive damages). In addition, as discussed above, a few states have enacted criminal laws against trade secret theft under which state prosecutors may bring criminal charges against defendants in trade secret cases.
At the federal level, the Economic Espionage Unit located within the Federal Bureau of Investigation's (FBI's) Counterintelligence Division has primary responsibility for investigating offenses under the EEA. The U.S. Department of Justice (DOJ) and its U.S. Attorneys have the power to prosecute cases involving corporate and state-sponsored trade secret theft. The Attorney General is also authorized by the EEA to bring a civil action in federal court to obtain "appropriate injunctive relief" against any violation of the EEA. However, as discussed in detail later in this report, federal law does not currently provide a private, federal cause of action for trade secret misappropriation.
section_title: Executive Branch Actions
subsections: section_title: Administration Strategy
paragraphs: In February 2013, the White House issued a report, T he Administration Strategy on Mitigating the Theft of U.S. Trade Secrets , which describes its plan for "vigorously ... combat[ing] the theft of U.S. trade secrets that could be used by foreign companies or foreign governments to gain an unfair economic edge." The report noted that the theft of valuable U.S. trade secrets has several negative consequences, including the loss of U.S. companies' intellectual property, the harm to American business innovation and global competitiveness, damage to national and economic security, possible reduction of U.S. exports, and the increased risk of American job losses.
The report contains five "strategy action items" that are intended to provide a "means for improved coordination within the U.S. government" to protect the integrity of trade secrets:
1. Focusing diplomatic efforts and pressure on other countries to protect trade secrets and discourage their theft, including (through the U.S. Trade Representative, or USTR) seeking provisions in bilateral, regional, and multilateral trade agreements that require parties to establish remedies for trade secret theft similar to those provided for in U.S. law; 2. Promoting the development and adoption of voluntary best practices by private industry to protect trade secrets; 3. Enhancing domestic law enforcement operations by having the FBI and DOJ prioritize trade secret theft investigations and prosecutions, as well as having the Office of the Director of National Intelligence share information with the private sector about potential foreign espionage threats; 4. Improving domestic legislation to ensure that federal laws are effective in protecting trade secrets; and 5. Conducting education and outreach efforts to raise public awareness of the detrimental effects of trade secret theft.
section_title: Special 301
paragraphs: The USTR is required to conduct an annual review of foreign countries' intellectual property policies and practices and to publish a "Special 301" Report that identifies countries that lack adequate and effective intellectual property protection and enforcement regimes. The 2013 Special 301 Report was the first time that the USTR included a section dedicated to "the growing problem of misappropriation of trade secrets in China and elsewhere." The Report "urge[d] its trading partners to ensure that they have robust systems for protecting trade secrets, including deterrent penalties for criminal trade secret theft" and promised that the "USTR will monitor developments in this area." 
In a 2014 congressional hearing, a witness described the negative consequences of overseas trade secret theft as follows: "Inadequate protection of trade secrets abroad harms not only companies whose property is stolen, but also the country where the theft occurs, because companies are then less likely to form joint ventures and make high-value global supply chain investments in those countries."
section_title: Free Trade Agreements (TPP and TTIP)
paragraphs: Currently, the USTR is seeking to improve trade secret protection in countries with which it has been negotiating two free trade agreements: (1) the Trans-Pacific Partnership (TPP), which involves 11 countries in the Asia-Pacific region, and (2) the Transatlantic Trade and Investment Partnership (TTIP), with the European Union. The U.S. Chamber of Commerce has argued that the legal regimes of TPP countries need significant improvement in the area of trade secret protection:
Some TPP countries, such as Canada, Australia, Malaysia, and Singapore, have no laws criminalizing traditional trade secret disclosure or misappropriation. ... Among those countries that do criminalize trade secret misappropriation or disclosure, the penalties often vary from those that would not provide sufficient deterrent effect to those that would but only if applied consistently. ... The low criminal penalties or lack thereof in some TPP jurisdictions are particularly troublesome, as criminal penalties are believed to provide a greater deterrent to the would-be trade secret thief than the prospect of a civil penalty alone.
Such variation in trade secret protection is also present in the TTIP negotiations, as the European Union currently lacks a consistent, harmonized legal system governing trade secret protection; instead, there are disparities across the 27 EU Member States in "what [trade secrets] can be protected, in what circumstances, and what the courts can or will do."
section_title: Limitations of Current Law and Proposed Changes
paragraphs: It has been argued that "federal law has not kept pace with the technological innovation that has enabled increased trade secret theft." The lack of a federal civil cause of action for trade secret misappropriation is perhaps the most widely cited deficiency in U.S. trade secret law. As one legal practitioner has argued,
Unfortunately the EEA has not deterred trade secret theft and foreign economic espionage. The Computer Crime and Intellectual Property Section of the United States Department of Justice has done an excellent job, but the burden on the government is too great. Without a federal civil cause of action, U.S. companies cannot adequately protect U.S. trade secret assets in a worldwide economy that now crosses international boundaries.
Another problem companies have encountered in having only federal criminal statutes protecting trade secrets is that "criminal law punishes the defendant, but the process for compensating the victim is unwieldy, particularly when compared to relief available under civil law." Others have highlighted the limitations of the EEA's extraterritorial application, noting that "prosecutors lack enforcement and proper service mechanisms against individuals and entities located outside the United States ... Prosecutors cannot charge alleged violators of the EEA until they cross U.S. borders." Reportedly, since the enactment of the EEA in 1996, there have been relatively few cases prosecuted under the law: approximately 125 indictments and 10 convictions. 
subsections: section_title: In Support of a Federal Civil Cause of Action for Trade Secret Theft
paragraphs: Some observers have urged Congress to adopt a comprehensive, federal trade secret law in order to promote uniformity in trade secret law throughout the United States. Supporters of such legislation have argued that a federal trade secrets law would create procedural and substantive standards for the trade secret misappropriation offense on a uniform nationwide basis, in response to the current situation of state trade secret laws in which there are "fundamental differences about what constitutes a trade secret, what is required to misappropriate it, and what remedies are available" due to state-by-state variations in statutory text and state court interpretations. In addition, Senator Coons has observed that, in contrast to state courts, "[f]ederal courts are better suited to working across state and national boundaries to facilitate discovery, serve defendants or witnesses, or prevent a party from leaving the country." Representative Nadler has also asserted that the limitations of state trade secret law are impediments to the effective protection of U.S. corporate trade secrets in a global economy:
While this system [of state law remedies] appears to have worked relatively well for local and intrastate disputes, it has not proven efficient or effective for [trade secret theft] incidents that cross state, and sometimes international, borders. ... 
[A] fifty-state system does not work well in our increasingly mobile and globally interconnected world. Former employees and industrial spies are likely to carry or transfer secret information across state borders or overseas. The limited jurisdiction of the state court system makes it more difficult to obtain discovery or to act quickly enough to enforce an order that might stop the immediate loss of company secrets.
Some commentators argue that trade secrets deserve to receive the same robust legal protections available to the three other types of intellectual property. For example, owners of patents, copyright, and trademarks have the right to file a lawsuit against infringers in federal court to recover damages and possibly to enjoin further infringement, and yet there is no similar right afforded to trade secret owners, despite the fact that trade secrets are often considered by many companies as their most valuable and important intellectual property asset. Instead, at the federal level, companies must rely on the federal government (and its limited resources) to enforce their trade secret rights.
Supporters of a federal civil remedy for trade secret misappropriation believe that Congress should empower federal courts to issue ex parte orders to seize stolen trade secrets in certain limited circumstances, such as "to prevent an imminent misappropriation, the dissemination of a stolen trade secret, and to preserve evidence." However, they note that any legislation should contain proper safeguards to prevent abuse of the ex parte process, "including damages in the event of wrongful seizure and protection of the information seized to protect against inappropriate access to the information." 
Finally, it has been asserted that "the United States has not consistently received cooperation from international jurisdictions in protecting trade secrets in part because it does not have its own federal civil statute to reference in encouraging the adoption and enforcement of similar legislation by its treaty partners."
section_title: In Opposition to a Federal Civil Trade Secret Remedy
paragraphs: The establishment of a federal civil trade secret remedy has many proponents, yet there have been some opposing views. In 2007, the Trade Secrets Committee of the American Intellectual Property Law Association (AIPLA) issued a report that advised against federalizing trade secret law, in part out of a concern that such action may create additional burdens and costs upon the federal judiciary:
The Committee believes that the problem of disparate state trade secret laws may have been overstated, because the various state statutes share much in common, especially those based upon the Uniform Trade Secrets Act (UTSA). Furthermore, many trade secret cases are already heard in federal court through diversity or supplemental jurisdiction, providing at least federal procedure, if not substantive law, benefits to private litigants. Others have argued, and the Committee agrees, that the current state regulation of trade secrets, although far from perfect, is functioning adequately and that federalizing state trade secret law would, therefore, needlessly burden the already overworked federal judiciary. 
However, AIPLA has since changed its position on this matter, as revealed in an April 2013 letter to the U.S. Intellectual Property Enforcement Coordinator (IPEC). In response to the IPEC's request for public comments for an administration legislative review related to economic espionage and trade secret theft, the President of AIPLA wrote that because of the increase in foreign trade secret theft in recent years, "AIPLA believes that the time has come to consider a federal civil remedy for international trade secret misappropriation." Furthermore, the AIPLA letter argued that "[a]ny federal legislation should not preempt state trade secret laws, but should instead complement them and should provide jurisdiction for civil actions involving claims involving the international theft of trade secrets." 
A group of law school professors has urged Congress to reject the Defend Trade Secrets Act of 2015 (DTSA) (discussed in detail in the following section of this report) because they believe that the legislation, which would establish a new private cause of action under the EEA, "is likely to create new problems that could adversely impact domestic innovation, increase the duration and cost of trade secret litigation, and ultimately negatively affect economic growth." The letter was authored or signed by professors who teach intellectual property law, trade secret law, innovation policy, and information law throughout the United States. In the view of these law professors, the DTSA is not necessary and could even cause unintentional harm. They argue that: "(1) it will not address the cyberespionage problem that is most often used to justify the adoption of a federal trade secret law; (2) a federal trade secret law is not needed to protect U.S. trade secrets because there is already a robust set of state laws for the protection of such secrets; and (3) there are significant costs to creating a federal civil cause of action for trade secret misappropriation."
An attorney who specializes in patent and trade secret litigation has identified two potential problems with the DTSA's lack of a provision expressly preempting state trade secret laws:
First, the need for the DTSA stems in part from state-by-state variations in trade secret laws and the transactional and substantive problems that such variations impose. The DTSA leaves those variations in place. Worse, the DTSA adds another law to the already cluttered landscape of 48 UTSA states (with their variations), two non-UTSA states, the federal Economic Espionage Act, and a federal common trade secret law.
Second, the DTSA opens a backdoor to common-law and other causes of action that are precluded in most states. The UTSA "displaces tort, restitutionary, and other laws…providing civil remedies for misappropriation of a trade secret." The DTSA doesn't displace anything.
Under the DTSA, trade secret plaintiffs would have the option of pursuing their claim in state or federal court and, if they choose federal court, the additional option of asserting duplicative causes of actions that aren't available in state courts.
A legal commentator testified before Congress in December 2015 that legislation creating a federal civil trade secret remedy may increase the length and cost of trade secret litigation:
[A]s there is no federal civil trade secret jurisprudence, numerous issues that have long been resolved at the state level are sure to be highly litigated at the federal level. As the federal courts develop their jurisprudence, they will have multiple sources of existing state law to borrow from, but with no direction from Congress on which to choose. … thereby leading to less uniformity in trade secret doctrine, not more.
section_title: Legislation in the 114th Congress: The Defend Trade Secrets Act
paragraphs: Two bills have been introduced in the 114 th Congress related to trade secret misappropriation, S. 1890 and H.R. 3326 (the Defend Trade Secrets Act (DTSA) of 2015). As introduced on July 29, 2015 by Senator Hatch and Representative Doug Collins, respectively, the bills are substantively identical. S. 1890 has seen all the legislative activity to date. On January 28, 2016, the Senate Judiciary Committee, by a unanimous voice vote, reported S. 1890 with an amendment in the nature of a substitute. Senator Grassley filed a written report on March 7, 2016. The Senate passed S. 1890 by a vote of 87-0 on April 4, 2016. On April 20, the House Judiciary Committee unanimously approved S. 1890 by voice vote. The following summarizes the key provisions of the DTSA ( S. 1890 ), as passed by the Senate and the House Judiciary Committee.
The DTSA would create a private cause of action in federal courts for trade secret owners to sue misappropriators. The DTSA would establish this new private right by adding a subsection entitled "private civil actions" to the provision of the EEA that currently authorizes the Attorney General to bring a civil action to obtain "appropriate injunctive relief" against any violation of the EEA, codified at 18 U.S.C. Section 1836. 
The DTSA would allow an owner of a trade secret that is misappropriated to bring a civil action if the trade secret is related to a product or service used in, or intended to be used in, interstate or foreign commerce. The legislation would amend the EEA's definition section (18 U.S.C. Section 1839) to include definitions of the terms "misappropriation" and "improper means" that largely mirror the definitions in the Uniform Trade Secrets Act. 
The DTSA would provide a court with the power to issue civil ex parte orders, "only in extraordinary circumstances," for the "seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." According to the Senate Judiciary Committee report, "[t]he 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." To avoid potential abuse of these seizure orders, the DTSA includes several detailed requirements that the court must follow before granting a seizure order, including (1) a finding that immediate and irreparable injury will occur if the seizure is not ordered; (2) the applicant for the seizure order is likely to succeed in showing that the information is a trade secret and that the person to whom the seizure is ordered misappropriated it by improper means; (3) the harm to the applicant in denying the order outweighs the harm to the legitimate interests of the party against whom the seizure is ordered and substantially outweighs the harm to any third parties; and (4) the matter to be seized would be destroyed, moved, hidden, or otherwise rendered inaccessible if the party in possession of such property were given advance notice. In addition, the DTSA requires that any seizure order must contain several elements, including
1. findings of fact and conclusions of law required for the order; 2. the narrowest seizure of property necessary to protect the trade secret; 3. a direction that the seizure be conducted 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; 4. a date for a hearing regarding the seizure order at the earliest possible time, but not later than seven days after the order has issued (unless the parties involved consent to another date); 5. a requirement that the applicant provide a security that the court finds is adequate for the payment of damages that any person may be entitled to recover as a result of a wrongful or excessive seizure.
The DTSA would require the court to take custody of any seized materials and secure it from physical and electronic access. The DTSA provides a cause of action for any person who suffers damage by reason of a wrongful or excessive seizure; the person is entitled to the same relief that is provided by the Trademark Act of 1946 (15 U.S.C. Section 1116(d)(11)) concerning the wrongful seizure of goods and counterfeit trademarks (including damages for lost profits, cost of materials, loss of good will, punitive damages, and reasonable attorney's fees).
The DTSA would empower a court to offer civil remedies for trade secret misappropriation, including injunctive relief, damages (for 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), punitive damages of up to two times the amount of damages (if the trade secret is willfully and maliciously misappropriated), and reasonable attorney's fees (if the 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). The DTSA would require evidence of actual or threatened misappropriation before a court may issue an injunction to prevent it. However, such an order for injunctive relief may not "prevent a person from entering into an employment relationship" or "otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business." In addition, "conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows." 
The DTSA would establish a three-year statute of limitations period for the misappropriation of trade secret civil action, which is similar to that provided by the Uniform Trade Secrets Act and under most state laws. Finally, the DTSA includes a "rule of construction" provision that declares that nothing in the DTSA shall be construed (1) to preempt any other provision of law or (2) to modify the EEA's existing rule of construction (codified at 18 U.S.C. Section 1838) stating that the EEA does not preempt or displace any civil or criminal remedies provided by federal or state law for the misappropriation of a trade secret.