TRADE SECRETS AND NON-COMPETES

Sponsor: Civil Litigation Section CLE Credit: 1.0

Thursday, June 22, 2017 8:30 a.m. - 9:30 a.m. East Ballroom A-B

Owensboro Convention Center Owensboro, Kentucky

A NOTE CONCERNING THE PROGRAM MATERIALS

The materials included in this Kentucky Bar Association Continuing Legal Education handbook are intended to provide current and accurate information about the subject matter covered. No representation or warranty is made concerning the application of the legal or other principles discussed by the instructors to any specific fact situation, nor is any prediction made concerning how any particular judge or jury will interpret or apply such principles. The proper interpretation or application of the principles discussed is a matter for the considered judgment of the individual legal practitioner. The faculty and staff of this Kentucky Bar Association CLE program disclaim liability therefore. Attorneys using these materials, or information otherwise conveyed during the program, in dealing with a specific legal matter have a duty to research original and current sources of authority.

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TABLE OF CONTENTS The Presenter .................................................................................................................. i Recent Developments in the Law of Trade Secrets and Non-competition Agreements .......................................................................................... 1 Attachment 1: Defend Trade Secrets Act of 2019, P.L. 114-153 .................................. 17 Attachment 2: Defend Trade Secrets Act, as Codified at 18 U.S.C. §1833 et seq. ......................................................................... 31 Attachment 3: Kentucky Uniform Trade Secrets Act, KRS 365.880 et seq. .................. 43 Attachment 4: Senate Report on the Defend Trade Secrets Act, Report No. 114-220 ....................................................................................................... 49

THE PRESENTER

E. Kenly Ames English, Lucas, Priest & Owsley, LLP

1101 College Street Post Office Box 770

Bowling Green, Kentucky 42101 (270) 781-6500

kames@elpolaw.com E. KENLY AMES is a partner at English, Lucas, Priest & Owsley, LLP in Bowling Green. Her practice focuses on litigation, arbitration and counseling relating to business disputes, with an emphasis on trademark, copyright, trade secret and non-competition matters. Ms. Ames graduated from the University of Pennsylvania and then from Columbia University Law School. She was a member of the Columbia Law Review. After law school, Ms. Ames was a law clerk to the Honorable William C. Conner of the United States District Court for the Southern District of New York. She then joined Choate, Hall & Stewart in Boston, where she was an associate and then a partner in the Litigation Department and the Intellectual Property Litigation Group. She also spent six months as a specially-appointed Assistant District Attorney in Boston. In 2002, she moved to Bowling Green and joined English, Lucas, Priest & Owsley, LLP.

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RECENT DEVELOPMENTS IN THE LAW OF TRADE SECRETS AND NON-COMPETITION AGREEMENTS

E. Kenly Ames I. INTRODUCTION

This presentation focuses on the new federal legislation creating a federal civil cause of action for misappropriation of trade secrets. It describes the new legislation, compares it to the Kentucky Uniform Trade Secrets Act, provides some information about the extent to which plaintiffs are filing trade secret claims in federal court, and suggests some questions to consider when deciding whether to pursue a trade secret claim in federal or state court. This presentation then touches on recent developments (or more accurately, the lack of recent developments) in the Kentucky law on non-competition agreements.

II. BACKGROUND

Trade secret theft has been a federal crime since the enactment of the Economic Espionage Act in 1996. However, until last year, there was no federal civil cause of action for trade secret misappropriation. Civil claims for trade secret misappropriation had to be brought under state law and could only be pursued in federal court if the plaintiff could plead diversity jurisdiction or another claim that arose under federal law. Over the last twenty years, there were many calls for creation of a federal civil cause of action for trade secret misappropriation. One of the reasons for the calls was a perceived need for uniformity. The Uniform Trade Secrets Act has existed since 1979. It was amended in 1985. Although forty-eight out of fifty states are listed as having adopted the Uniform Trade Secrets Act, two significant states – Massachusetts and New York – have not. And among the states that have adopted it, some adopted the first version, while others adopted the amended version. Furthermore, many states modified the statutory language. Commentators generally agree that uniformity has not been achieved. There are significant variations from state to state in statutory language and in the state courts' interpretation and application of the Uniform Trade Secrets Act. After quite a few failed attempts to enact federal trade secret legislation, the effort finally succeeded last year. President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law on May 11, 2016. The legislation had broad bipartisan support. It passed the Senate by a vote of 87-0. It passed the House by a vote of 410-2.1

1 A law librarian at the Drexel University law school has collected the legislative history for the DTSA on the law library's web site. It can be found at this link: http://drexellaw.libguides.com/c.php?g=488526&p=3340869&preview=0af5e6621c11dde0c2e5eb74b1cf8848

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In many respects, the DTSA will be familiar reading to anyone who has litigated under the Uniform Trade Secrets Act, but there are some notable differences.

III. DTSA AND KENTUCKY LAW COMPARED

Kentucky adopted the amended version of the Uniform Trade Secrets Act in 1990, without any substantive changes. KRS 365.880 et seq. (KUTSA). Since the KUTSA is familiar territory for many Kentucky practitioners, this presentation reviews the provisions of the DTSA in the context of how they are similar to and different from the KUTSA. A. Cause of Action

The DTSA creates a private federal civil cause of action to remedy misappropriation of trade secrets. It provides: "An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. §1836(b)(1). It also expressly provides that the district courts of the United States have original jurisdiction of civil actions brought under 18 U.S.C. §1836. 18 U.S.C. §1836(c). The KUTSA also provides for a private civil right of action, but it does not present a federal question and can only be asserted in federal court if diversity jurisdiction exists or if it is supplemental to a federal claim. Under the KUTSA, there is no requirement that the trade secret relate to a product or service used in or intended for use in interstate or foreign commerce.

B. Definitions

The definitions of key terms in the DTSA and KUTSA are similar, but they are not identical. 1. Under the DTSA, only an "owner" of a trade secret may bring a

claim. An "owner" is defined as the "person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed." 18 U.S.C. §1839(4). The KUTSA does not use the term "owner." Presumably, however, only a person with an interest in a trade secret would have standing to bring a claim under the KUTSA.

2. A "trade secret" is defined in the DTSA as:

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized

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physically, electronically, graphically, photo-graphically, 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, another person who can obtain economic value from the disclosure or use of the information.

18 U.S.C. §1839(3). This definition is very similar to the definition of "trade secret" in KRS 365.880(4), although the DTSA's list of examples of information that may constitute a trade secret is longer. The KUTSA defines a "trade secret" as:

information, including a formula, pattern, compi-lation, program, data, device, method, technique, or process, that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

KRS 365.880(4). 3. Under the DTSA, "misappropriation" is defined as:

(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (B) disclosure or use of a trade secret of another without express or implied consent by a person who –

(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was –

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(I) derived from or through a person who had used improper means to acquire the trade secret; (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or

(iii) before a material change of the position of the person, knew or had reason to know that –

(I) the trade secret was a trade secret; and (II) knowledge of the trade secret had been acquired by accident or mistake;

18 U.S.C. §1839(5). The definition of "misappropriation" in KRS 365.880(2) is substantively the same.

4. The DTSA provides that the term "improper means:"

(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition;

18 U.S.C. §1839(6). The KUTSA defines "improper means" in the same terms as far as what it includes, but it does not expressly exclude reverse engineering, independent derivation or other lawful means of acquisition. KRS 365.880(1). In practice, that should make no difference, since the law is well-established that reverse engineering and independent derivation are proper.

C. Statute of Limitations

Under the DTSA, the statute of limitations is three years from the "date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered." 18 U.S.C. §1836(d). For purposes of the statute of limitations, "a continuing misappropriation constitutes a single claim of

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misappropriation." Id. The Kentucky statute of limitations is the same. KRS 365.890.

D. Immunity for Whistleblowers under DTSA

1. Immunity.

The DTSA expressly provides that it does not create a private right of action for trade secret misappropriation against an individual who discloses a trade secret in confidence to a federal, state or local government official or an attorney "solely for the purpose of reporting or investigating a suspected violation of law" or discloses a trade secret in a document filed in a lawsuit or other proceeding, as long as the document is filed under seal. 18 USC §§1833(a)(2), 1833(b)(1). The DTSA expressly provides that an individual who discloses a trade secret solely under those circumstances shall not be held "criminally or civilly liable under any Federal or State trade secret law…." 18 U.S.C. §1833(b)(1). The DTSA also permits an individual who files a lawsuit against an employer for retaliation for reporting a suspected violation of law to disclose the trade secret to his attorney and to use it in the court proceeding as long as any document containing the trade secret is filed under seal and the employee does not disclose the trade secret except pursuant to court order. 18 U.S.C. §1833(b)(2).

It seems likely that the courts will treat this immunity as an affirmative defense that the employee bears the burden of proving. In a case in the District of Massachusetts, an executive with Unum, the disability insurer, was caught on security video on three occasions leaving his office building with – all told – two boxes, a briefcase, two shopping bags full of documents, and his company laptop. He did not cooperate when Unum investigated. Unum demanded that the employee return the laptop and the documents, but he only returned the laptop. Unum filed suit, alleging claims under the DTSA, the Massachusetts Trade Secrets Act and conversion. The employee moved to dismiss on the grounds that he had turned over the documents to his attorney to report and investigate a suspected violation of law, thereby invoking the immunity provision of the DTSA. The court denied the motion to dismiss. It ruled that the immunity was an affirmative defense and at that stage of the case, the record lacked sufficient facts to support or reject the affirmative defense. Unum Group v. Loftus, 2016 U.S. Dist. LEXIS 168713 (D. Mass. Dec. 6, 2016).2

2 Unum succeeded in obtaining a preliminary injunction from the court to compel the employee to return the documents. Interestingly, the court based the injunction on Unum's likelihood of success on its conversion claim and did not address the merits of Unum's federal or state trade secret claims.

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2. Notice requirement.

Employers are required to give notice of these immunities in "any contract or agreement with an employee that governs the use of a trade secret or other confidential information." 18 U.S.C. §1833(b)(3)(A). Notice can be expressly provided in the contract or can be provided by cross-reference in the contract to a policy document provided to the employee in which the employer sets out its reporting policy for a suspected violation of law. 18 U.S.C. §1833(b)(3)(B). This notice requirement applies to any contracts and agreements entered into or updated after May 11, 2016. 18 U.S.C. §1833(b)(3)(D). For purposes of these provisions, "employee" includes contractors and consultants for an employer. 18 U.S.C. §1833(b)(4). The KUTSA does not contain any such provisions.

E. Remedies

The primary remedies available under the DTSA and the KUTSA are essentially the same: injunctive relief, compensatory damages, and exemplary damages and reasonable attorneys' fees for willful and malicious misappropriation. However, there is a trap for the unwary with respect to the availability of exemplary damages and attorneys' fees under the DTSA. 1. Injunctive relief. A court may grant injunctive relief to prevent actual or threatened

misappropriation. 18 U.S.C. §1836(b)(3)(A); KRS 365.882. Under both statutes, in appropriate cases the court may require affirmative actions to be taken to protect the trade secret. 18 U.S.C. §1836(b)(3)(A)(ii); KRS 365.882(3). Under both statutes, in cases where an injunction would be inequitable, the court may condition the future use of the trade secret on the payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited. 18 U.S.C. §1836(b)(3)(A)(iii); KRS 365.882(2).

There are two notable differences in the provisions relating to injunctive relief. First, the DTSA simply states that the court may grant an injunction on "such terms as the court deems reasonable …," while the KUTSA expressly states that the "injunction shall be terminated when the trade secret has ceased to exist" but may nevertheless be continued "for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from misappropriation." 18 U.S.C. §1836(b)(3)(A)(i); KRS 365.882(1). One wonders if parties will argue that the DTSA's omission of the language authorizing a so-called "head start" injunction indicates that relief is not available

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under the DTSA. As cases under the DTSA are still in their early stages, I am not aware of any decisions where this issue has been discussed.3 The other notable difference is that the DTSA expressly requires that the injunction not "prevent a person from entering into an employment relationship," and also requires "that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows." 18 U.S.C. §1836(b)(3)(A)(i)(I). Thus, the DTSA forecloses the "inevitable disclosure" doctrine, under which a court can issue an injunction on the basis that an employee now working for a competitor will inevitably disclose trade secret information. To my knowledge, the Kentucky courts have never recognized or approved the inevitable disclosure doctrine, so this provision is less significant in Kentucky than it might be in other states that do recognize inevitable disclosure. The DTSA also provides that an injunction may not "otherwise conflict with an applicable state law prohibiting restraints on the practice of a lawful profession, trade or business…." 18 U.S.C. §1836(b)(3)(A)(i)(II). There is no similar provision in the KUTSA.

2. Compensatory damages. The damages available to a successful plaintiff under the DTSA

and the KUTSA are the same. They include damages for actual loss caused by the misappropriation of the trade secret and damages for unjust enrichment caused by the misappropriation and not taken into account in computing actual loss. 18 U.S.C. §1836(b)(3)(B)(i); KRS 365.884(1). Damages may also include, in lieu of damages measured by any other method, imposition of a reasonable royalty for the misappropriator's unauthorized use or disclosure of the trade secret. 18 U.S.C. §1836(b)(3)(B)(ii); KRS 365.884(1).

3. Exemplary damages.

Under both the DTSA and the KUTSA, if a trade secret is willfully and maliciously misappropriated, the court may award exemplary damages not exceeding two times the amount of the compensatory damages awarded. 18 U.S.C. §1836(b)(3)(C); KRS 365.884(2).

3 In a very brief opinion, one district court granted a preliminary injunction under the DTSA and the California Uniform Trade Secrets Act that contained provisions intended to "eliminate any unfair head start Defendants may have gained" by misappropriating trade secrets. Trulite Glass & Aluminum Solutions, LLC v. Smith, 2016 U.S. Dist. LEXIS 142816 at *3 (E.D. Cal. Oct. 5, 2016).

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4. Reasonable attorney's fees. Under both the DTSA and the KUTSA, the court may award

reasonable attorneys' fees to the prevailing party if willful and malicious misappropriation exists. The court may also award fees if a claim of misappropriation is made in bad faith or if a motion to terminate an injunction is made or resisted in bad faith. 18 U.S.C. §1836(b)(3)(D); KRS 365.886.

5. Trap for the unwary.

There is one critical limitation on the availability of damages under the DTSA. If an employer fails to give notice of immunities from liability when required (as discussed above), then the employer cannot be awarded exemplary damages or attorneys' fees in any action against an employee to whom notice was not provided. 18 U.S.C. §1833(b)(3)(C).

F. Provisional Relief

1. Generally.

In appropriate cases under both the DTSA and the KUTSA, parties may – and often do – seek provisional relief, including temporary restraining orders and preliminary injunctions. They may also seek expedited discovery, leave to file under seal, and protective orders to protect trade secrets from disclosure during the course of the litigation. The KUTSA includes a specific provision (KRS 365.888) on the preservation of secrecy during the pendency of a trade secret action, while the DTSA does not. However, the federal courts have long taken similar steps to preserve secrecy where warranted. Whether a party succeeds in obtaining these types of provisional relief and procedural accommodations turns on the facts of the case, the law of the particular jurisdiction, the procedural rules of the particular court, and the practices of the particular judge.

2. Ex parte seizure orders.

However, the DTSA expressly provides for one provisional remedy that is not available under the KUTSA. Under Section 1836(b)(2), "in extraordinary circumstances," the court may issue an ex parte seizure order "providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." A seizure order may only be issued if the court finds that a temporary restraining order or preliminary injunction would not be adequate relief because the other party would evade or disregard the order. 18 U.S.C. §1836(b)(2)(A)(ii)(I). The legislative history states that the ex parte seizure order is expected to be used in instances where a defendant is planning to flee the country or to immediately

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disclose the trade secret or can otherwise be expected to disobey a restraining order or injunction. Senate Report 114-220 at 6. The provisions in 18 U.S.C. §1836(b)(2) relating to the ex parte seizure order are long and detailed. In summary, they set out a very high standard that must be met for issuance of a seizure order, set out the elements that must be included in the order (including guidance for the law enforcement personnel who will be executing the order and the security that the party obtaining the order must post to pay any damages for wrongful or excessive seizure), provide for the court to take custody of the seized materials and protect their confidentiality, provide for a prompt post-seizure hearing, prohibit the party obtaining the order from publicizing it, and provide for a cause of action for damages for wrongful or excessive seizure. It will be a very rare case that will warrant a court issuing an ex parte seizure order.

G. Preemption

Section 2(g) of the DTSA expressly provides that it does not preempt any other laws. 18 U.S.C. §1833 note. Parties are therefore free to plead claims under both the DTSA and the KUTSA, as well as any other state law claims that are not preempted by the KUTSA. The KUTSA preempts any "conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret," but it does not preempt contractual remedies whether or not based on misappropriation of a trade secret or other civil remedies not based on misappropriation of a trade secret. KRS 365.892. It will be interesting to see how the law develops with respect to exactly how the DTSA interacts with existing state law. As one district court has observed, the legislative history makes it clear that Congress intended the DTSA to apply in substantially the same way as the states' trade secrets laws, but with a much broader geographic and jurisdictional reach. Brand Energy & Infrastructure Servs. v. Irex Contr. Grp., 2017 U.S. Dist. LEXIS 43497 at *17 (E.D. Pa. Mar. 23, 2017).

H. Applicability of DTSA

Section 2(e) of the DTSA provides that the Act applies "to any misappropriation of a trade secret … for which any act occurs on or after the date of the enactment of this Act." 18 U.S.C. §1833 note. The DTSA was enacted on May 11, 2016. Until the DTSA has been in place for a while, the courts will be confronted with claims where all or some of the actionable conduct occurred before May 11, 2016. There are already a number of cases where defendants have moved to dismiss DTSA claims on the grounds that the DTSA does not apply to misappropriations before May 11, 2016. A number of the

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decisions are collected in Brand Energy & Infrastructure Servs. v. Irex Contr. Grp., 2017 U.S. Dist. LEXIS 43497 (E.D. Pa. Mar. 23, 2017). In that case, and in others that it cites, the courts have held that the DTSA applies to misappropriation that begins prior to May 11, 2016, and continues thereafter. The courts point out that the DTSA defines "misappropriation" as "disclosure or use of a trade secret," 18 U.S.C. §1839(5), and find that allegations of continued use of the trade secret after the enactment of the DTSA suffice to state a claim. See, e.g., Brand Energy, 2017 U.S. Dist. LEXIS 43497 at *10. However, if all of the conduct at issue occurred before May 11, 2016, the DTSA does not apply, and any claim brought under it will be dismissed. See, e.g., Avago Techs. United States, Inc. v. NanoPrecision Prods., 2017 U.S. Dist. LEXIS 13484 (N.D. Cal. Jan. 31, 2017) (acquisition and initial disclosure of alleged trade secrets occurred before DTSA enacted; disclosing same trade secret again after DTSA enactment does not constitute basis for claim).

IV. DTSA CLAIMS – FILING STATISTICS

One big question is: are more trade secret cases being filed in federal court now that the DTSA has been enacted? An article published on February 28, 2017, suggests that the answer is "no." The article reports that about 500 cases were filed in the year preceding the DTSA's enactment that included at least one claim for trade secret misappropriation under state law. In the nine months after the DTSA was enacted, there were 227 cases filed in federal court that included a claim under the DTSA and/or state trade secret statutes. The article reports that the largest number of cases have been filed in the Northern and Central Districts of California, Southern District of New York and Northern District of Illinois.4 With respect to the most novel aspect of the DTSA, which is the ex parte seizure order provisions, the same article indicates that less than a dozen applications for seizure have been filed. One court granted a seizure application in part. Mission Capital Advisors LLC v. Romaka, 1:16-cv-05878 (S.D.N.Y. Jul. 29, 2016) (ordering seizure of a contact list but denying a broader order). Other courts have granted seizure, in effect, under more common forms of pre-trial relief, including expedited discovery and temporary restraining orders. See footnote 4 for a link to the article, which collects the cases. Lexis searches on April 2, 2017 for cases citing 18 U.S.C. §1836 or referring to the DTSA returned about seventy-five results for federal district court case decisions. Not surprisingly, since the DTSA is less than a year old, the searches did not return any results from the Courts of Appeals.5

4 Lora A. Brzezynkski, Cass W. Christenson, Peter Stockburger & Sophia Gassman, Trends & Insights: The Defend Trade Secrets Act Nine Months Later, Feb. 28, 2017, available on Dentons website at http://www.dentons.com/en/insights/alerts/2017/february/28/trends-insights-the-defend-trade-secrets-act-nine-months-later. 5 These materials were submitted in early April 2017.

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The same Lexis searches located only two decisions in cases in the Kentucky federal district courts in which claims were asserted under the DTSA. They are Raben Tire Co., LLC v. McFarland, 2017 U.S. Dist. LEXIS 26051 (W.D. Ky. Feb. 24. 2017) (Russell, J.), and Procom Heating, Inc. v. GHP Group, Inc., 2016 U.S. Dist. LEXIS 183883 (W.D. Ky. Sept. 9, 2016) (Stivers, J.). In Raben, which is discussed in more detail in the next section, the court granted the defendants' motion to dismiss for failure to state a claim. In Procom, the parties had been embroiled in a long-running lawsuit when new events happened after the DTSA was enacted that caused the plaintiff to move to amend the complaint to add claims under the DTSA and for tortious interference with contract, aiding and abetting breach of fiduciary duty, and breach of a nondisclosure agreement and also to seek a preliminary injunction. The court granted the preliminary injunction without any specific discussion of the DTSA claim, and the case settled shortly thereafter. It remains to be seen whether trade secret filings in federal court will increase as parties become more familiar with the DTSA and as the case law applying it develops. At present it appears that about the same number of trade secret cases are being filed in federal court. The only change is that now most of those cases include claims under the DTSA, as well as claims under the applicable state trade secret misappropriation statutes and other state law claims.

V. PLEADING CONCERNS

One challenging aspect of litigating trade secret cases is to strike a balance between protecting a trade secret from public disclosure and alleging a claim with enough particularity that it gives the defendant fair notice of the nature of the claim against him. Plead in too much detail, and you risk disclosing the trade secret you are trying to protect. Plead in too little detail, and you risk the case being dismissed on a motion for failure to state a claim. This concern is heightened in federal court. In our state courts, CR 8.01(1) requires only that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The Kentucky Supreme Court has stated that a motion to dismiss for failure to state a claim should not be granted unless, after taking as true the material facts of the complaint, "it appears the pleading party would not be entitled to relief under any set of facts which could be proved…." Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010). In the Kentucky state courts, motions to dismiss are rarely granted. The same is not true in federal court. Under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), a complaint must contain "enough facts to state a claim to relief that is plausible on its face" to survive a motion to dismiss for failure to state a claim. The federal district courts are beginning to wrestle with how much particularity is required to state a claim under the DTSA. In the only Kentucky district court decision available on Lexis that has addressed this issue so far, the court dismissed the DTSA claim on the grounds that the plaintiff had not "plausibly alleged how the information in question qualifies as a 'trade secret' under federal law." Raben Tire, 2017 U.S. Dist. LEXIS 26051 at *1. The court particularly

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faulted the plaintiff for failing to allege "any steps that it took to protect the information from disclosure." Id. at *3. The court pointed out that there is no allegation that the defendants were restricted from sharing the information by a nondisclosure agreement. Id. at *6. The court found that the absence of any allegations from which to plausibly infer that the plaintiff took any steps to maintain the information's secrecy was fatal to the plaintiff's DTSA claim. Id. at *7. The court dismissed the DTSA claim with prejudice. It then declined to exercise supplemental jurisdiction over the plaintiff's KUTSA and other state law claims, and it dismissed them without prejudice. Id. at *7-*8. Other federal district courts have considered similar motions. In Mission Measurement Corp. v. Blackbaud, Inc., 2016 U.S. Dist. LEXIS 148607 (N.D. Ill. Oct. 27, 2016), the court stated that "trade secrets need not be disclosed in detail in a complaint alleging misappropriation for the simple reason that such a requirement would result in public disclosure of the purported trade secrets." Id. at *13. Instead, "[a]t the pleading stage, plaintiffs need only describe the information and efforts to maintain the confidentiality of the information in general terms." Id. at *14. In that case, the plaintiff listed specifically, albeit in general terms, six types of information that it alleged the defendants misappropriated, alleged that the defendants were subject to a non-disclosure and confidentiality agreement, and alleged the specific occasions on which it disclosed the information to defendants pursuant to the nondisclosure agreement. Id. at *14-*15. That sufficed to defeat the defendants' motion to dismiss under Rule 12(b)(6). See also Aggreko v. Barreto, 2017 U.S. Dist. LEXIS 35573 (D.N.D. Mar. 13, 2017) (denying motion to dismiss; complaint alleged former employee downloaded customer lists, pricing strategy, client history, etc. and provided it to new employer; "All that is required at this stage of the proceedings is an allegation that Barreto misappropriated Aggreko's trade secrets sufficient to put the defense on notice as to the nature of the claim."). It will take time for a sufficient body of law to emerge to give parties guidance on what level of particularity is required to state a claim under the DTSA that meets the federal courts' plausibility pleading standard.

VI. PRACTICE CONSIDERATIONS

Because the DTSA does not preempt state law, plaintiffs seeking to bring a claim for misappropriation of trade secrets can choose whether to assert a federal claim, a state claim, or both. They can also choose whether to file in federal court or in state court. How does one decide? Given the similarity in the DTSA and the KUTSA, there are a relatively small number of substantive legal issues to consider. However, there are a host of practical concerns. The following is a non-exhaustive list of questions the prospective plaintiff's attorney may want to weigh. A. Substantive Legal Issues

1. How dire is the threat of harm to the plaintiff? Is this a situation where an ex parte seizure order may be needed to prevent an immediate public disclosure of the trade secrets, to keep a defendant from leaving the country, or the like? Or will a

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temporary restraining order, preliminary injunction and/or expedited discovery suffice?

2. Can you seek double damages and attorneys' fees under the

DTSA? That is, if the defendant is an employee and has a contract with the plaintiff that governs the use of trade secrets or other confidential information, was the contract entered into or updated after May 11, 2016? If so, does it contain the required immunity notice? If not, how significant is the possibility of recovering double damages and attorneys' fees to your case? Is the primary focus injunctive relief, or are there significant money damages? What is the likelihood that double damages and attorneys' fee will be collectible?

3. Can the plaintiff allege that the trade secret is related to a product

or service used in, or intended for use in, interstate or foreign commerce?

4. When did the misappropriation occur? Was the trade secret

disclosed or used after enactment of the DTSA on May 11, 2016?

B. Pleading Issues

Can the plaintiff meet the plausibility threshold for pleading in federal court? Or is there a Twombly/Iqbal problem? Give thought to how specific the allegations will need to be about what the trade secrets are, the plaintiff's reasonable measures to keep the information secret, and how and when the misappropriation occurred.

C. Procedural and Practical Issues

1. Where are the parties located? Nationwide service of process under Fed. R. Civ. P. 4 is very useful when the parties are out of state.

2. Where are any non-party witnesses located? Are there many

non-party witnesses? Nationwide service of subpoenas under Fed. R. Civ. P. 45 is very helpful when the non-party witnesses are numerous and/or far-flung.

3. Does the case involve parties or witnesses outside the United

States? The federal courts have developed a body of law and procedures for handling matters involving foreign parties and witnesses.

4. If the plaintiff prevails, will injunctive relief or a money judgment be

easier to enforce if you obtain them in federal court? If you have out-of-state defendants, the answer is likely to be yes.

5. Is the case complex in terms of the number of claims and parties

or the scope of the discovery that will be required? Although some

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of our state trial judges are accustomed to handling complex civil cases, many are not. The federal courts may be more comfortable and efficient in handling the issues that arise in complex cases with many parties and extensive discovery.

6. Do the trade secrets in question involve complex technology?

Again, although some state trial judges may be comfortable with cases involving complex technology, for many, that kind of case will be a rarity. The federal courts also tend to be quicker to appoint special masters when needed to assist the court with novel or complex technology.

7. Will the case involve a lot of electronic discovery? In much of the

state, circuit court judges do not regularly deal with extensive electronic discovery.

8. Will the case benefit from active case management? The

involvement of the federal magistrate judges may be a significant benefit to proceeding in federal court in a highly contentious case.

9. Do you want the case to move quickly? Many of our state courts

do not use scheduling orders or only enter them once the case has been set for trial. The federal courts always enter a scheduling order tailored to the needs of the case, after input from the parties.

10. Consider the different limitations on discovery under the federal

and state court rules. Does one or the other set of limitations work better for you in your case?

11. Are there any differences in the courts' attitudes toward protective

orders and filings made under seal? 12. If you are bringing a case for a corporate entity against a

departing individual employee, will one court or the other be less likely to sympathize with the employee?

13. Assume the case is going to trial. Do you prefer a one-county jury

pool, which you will have in state court, or do you prefer a federal jury pool drawn from a larger area? And does it matter to you that federal juries have to return a unanimous verdict, and in state court only nine out of twelve jurors have to agree? There is a school of thought that it may be more difficult to get a unanimous verdict in a case involving a departing employee.

Evaluating all these factors, and others that may be specific to a particular case, falls into the realm of "art, not science" and will be subject to the exercise of judgment (and possibly to second-guessing with hindsight). But it may be that in a particular case, one or more factors will tip the scales clearly in favor of pursuing relief in either federal court or state court.

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VII. NONCOMPETITION AGREEMENTS

During most of 2016, non-competition agreements were a hot topic. In March 2016, the Treasury Department issued a report titled "Non-Compete Contracts: Economic Effects and Policy Considerations"6 that argued that non-compete agreements are pervasively misused, especially with lower wage earners. In April 2016, President Obama issued an executive order titled "Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy,"7 directing federal agencies to identify actions they can take to promote greater competition. In May 2016, the White House issued a report titled "Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,"8 which pledged that the administration would identify key issues with non-compete agreements and identify best approaches for reform. Finally, in October 2016, the White House issued a "State Call to Action on Non-Compete Agreements."9 Since President Trump's election, there have not been any similar policy pronouncements. A number of states have recently enacted legislation restricting non-competes in various ways, including setting one-year or two-year duration limits, prohibiting non-competes for low-wage workers, and prohibiting non-competes for individuals in certain professions. Some state's attorney generals (e.g., Illinois and New York) have brought enforcement actions against employers whose use of non-competes is alleged to violate state law. However, as far as I know, there has been no such activity in Kentucky, nor has any legislation been proposed. Indeed, 2016 was notable for the lack of significant development in the law of non-compete agreements in Kentucky. The last big development was in 2014, when the Kentucky Supreme Court issued its decision in Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345 (Ky. 2014), and held that mere continued employment (without more) was not adequate consideration for a non-competition agreement. When I wrote the description for this program in Fall 2016, it seemed like there might be a lot to talk about regarding non-competition agreements. But in Kentucky, it turns out it has been a quiet year.

VIII. ACTION ITEM

As a final note, we should revisit one immediate action item for you to take away from this presentation. Many, if not most, trade secret cases are brought against departing employees. In order to take full advantage of the DTSA in such a

6 https://www.treasury.gov/resource-center/economic-policy/Documents/UST%20Non-competes %20Report.pdf. 7 https://obamawhitehouse.archives.gov/the-press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consumers. 8 https://obamawhitehouse.archives.gov/sites/default/files/non-competes_report_final2.pdf. 9 https://obamawhitehouse.archives.gov/sites/default/files/competition/noncompetes-calltoaction-final.pdf.

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case, it is critical that an employer has given notice of the new whistleblower immunity in its contracts with employees, consultants and contractors. Clients need to be advised to review their template agreements (including but not limited to employment, confidentiality, nondisclosure, consulting, contractor engage-ment, severance, separation, and invention assignment agreements) and their pertinent policies and written procedures – and to update them as needed.

IX. ATTACHMENTS

A. Defend Trade Secrets Act of 2016, P.L. 114-153 B. Defend Trade Secrets Act, as codified at 18 U.S.C. §1833 et seq. C. Kentucky Uniform Trade Secrets Act, KRS 365.880 et seq. D. Senate Report on the Defend Trade Secrets Act, Report No. 114-220

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ATTACHMENT 1

PUBLIC LAW 114-153-MAY 11, 2016 DEFEND TRADE SECRETS ACT OF 2016

Public Law 114-153 114th Congress

An Act

May 11, 2016 [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.

Defend Trade Secrets Act of 2016. 18 USC 1 note.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.

This Act may be cited as the "Defend Trade Secrets Act of 2016." SEC. 2. FEDERAL JURISDICTION FOR THEFT OF TRADE SECRETS. (a) IN GENERAL. - Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following: "(b) PRIVATE CIVIL ACTIONS.-

"(1) IN GENERAL.- An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

"(2) CIVIL SEIZURE.-

"(A) IN GENERAL.-

"(i) APPLICATION.- Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action. "(ii) REQUIREMENTS FOR ISSUING ORDER.- The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that-

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"(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order; "(II) an immediate and irreparable injury will occur if such seizure is not ordered; "(Ill) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure; "(IV) the applicant is likely to succeed in showing that- ..

"(aa) the information is a trade secret; and "(bb) the person against whom seizure would be ordered-

"(AA) misappropriated the trade secret of the applicant by improper means; or "(BB) conspired to use improper means to misappropriate the trade secret of the applicant;

"(V) the person against whom seizure would be ordered has actual possession of-

"(aa) the trade secret; and "(bb) any property to be seized;

"(VI) the application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized; "(VII) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and

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"(VIII) the applicant has not publicized the requested seizure.

"(B) ELEMENTS OF ORDER. - lf an order is issued under subparagraph (A), it shall-

"(i) set forth findings of fact and conclusions of law required for the order; "(ii) provide for the narrowest seizure of property necessary to achieve the purpose of this paragraph and direct 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; "(iii) (I) 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, in whole or in part, of the seized property, to prevent undue damage to the party against whom the order has issued or others, until such parties have an opportunity to be heard in court; and

"(II) provide that if access is granted by the court to the applicant or the person against whom the order is directed, the access shall be consistent with subparagraph (D);

"(iv) provide guidance to the law enforcement officials executing the seizure that clearly delineates the scope of the authority of the officials, including-

"(I) the hours during which the seizure may be executed; and

"(II) whether force may be used to access locked areas;

Deadline. Notification.

"(v) set a date for a hearing described in subparagraph (F) at the earliest possible time, and not later than 7 days after the order has issued, unless the party against whom the order is directed and others harmed by the order consent to another date for the hearing, except that a party against whom the order has issued or any person harmed by the order may move the court at any time to dissolve or modify the order after giving notice to the applicant who obtained the order; and "(vi) require the person obtaining the order to provide the security determined adequate by the court for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.

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Courts.

"(C) PROTECTION FROM PUBLICITY. - The court shall take appropriate action to protect the person against whom an order under this paragraph is directed from publicity, by or at the behest of the person obtaining the order, about such order and any seizure under such order. "(D) MATERIALS IN CUSTODY OF COURT.-

"(i) IN GENERAL. - Any materials seized under this paragraph shall be taken into the custody of the court. The court shall secure the seized material from physical and electronic access during the seizure and while in the custody of the court. "(ii) STORAGE MEDIUM. - If the seized material includes a storage medium, or if the seized material is stored on a storage medium, the court shall prohibit the medium from being connected to a network or the Internet without the consent of both parties, until the hearing required under subparagraph (B)(v) and described in subparagraph (F). "(iii) PROTECTION OF CONFIDENTIALITY. - The court shall take appropriate measures to protect the confidentiality of seized materials that are unrelated to the trade secret information ordered seized pursuant to this paragraph unless the person against whom the order is entered consents to disclosure of the material. "(iv) APPOINTMENT OF SPECIAL MASTER. - The court may appoint a special master to locate and isolate all misappropriated trade secret information and to facilitate the return of unrelated property and data to the person from whom the property was seized. The special master appointed by the court shall agree to be bound by a non-disclosure agreement approved by the court.

"(E) SERVICE OF ORDER. - The court shall order that service of a copy of the order under this paragraph, and the submissions of the applicant to obtain the order, shall be made by a Federal law enforcement officer who, upon making service, shall carry out the seizure under the order. The court may allow State or local law enforcement officials to participate, but may not permit the applicant or any agent of the applicant to participate in the seizure. At the request of law enforcement officials, the court may allow a technical expert who is unaffiliated with the applicant and who is bound by a court-approved non-disclosure agreement to participate in the seizure if the court determines that the participation of the expert will aid the efficient execution of and minimize the burden of the seizure. "(F) SEIZURE HEARING.-

"(i) DATE. - A court that issues a seizure order shall hold a hearing on the date set by the court under subparagraph (B)(v).

Determination.

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"(ii) BURDEN OF PROOF. - At a hearing held under this sub-paragraph, the party who obtained the order under subparagraph (A) shall have the burden to prove the facts supporting the findings of fact and conclusions of law necessary to support the order. If the party fails to meet that burden, the seizure order shall be dissolved or modified appropriately. "(iii) DISSOLUTION OR MODIFICATION OF ORDER. - 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 after giving notice to the party who obtained the order. "(iv) DISCOVERY TIME LIMITS. - The court may make such orders modifying the time limits for discovery under the Federal Rules of Civil Procedure as may be necessary to prevent the frustration of the purposes of a hearing under this subparagraph.

"(G) ACTION FOR DAMAGE CAUSED BY WRONGFUL SEIZURE. - A person who suffers damage by reason of a wrongful or excessive seizure under this paragraph has a cause of action against the applicant for the order under which such seizure was made, and shall be entitled to the same relief as is provided under section 34(d)(ll) of the Trademark Act of 1946 (15 U.S.C. 1116(d)(ll)). The security posted with the court under subparagraph (B)(vi) shall not limit the recovery of third parties for damages.

"(H) MOTION FOR ENCRYPTION. - A party or a person who claims to have an interest in the subject matter seized may make a motion at any time, which may be heard ex parte, to encrypt any material seized or to be seized under this paragraph that is stored on a storage medium. The motion shall include, when possible, the desired encryption method.

"(3) REMEDIES. - In a civil action brought under this sub-section with respect to the misappropriation of a trade secret, a court may-

"(A) grant an injunction-

"(i) to prevent any actual or threatened misappropriation described in paragraph (1) on such terms as the court deems reasonable, provided the order does not-

"(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation, and not merely on the information the person knows; or "(II) otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business;

"(ii) if determined appropriate by the court, requiring affirmative actions to be taken to protect the trade secret; and

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"(iii) in exceptional circumstances that render an injunction inequitable, that conditions future use of the trade secret upon payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited;

"(B) award-

"(i) (I) damages for actual loss caused by the misappropriation of the trade secret; and

"(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or

"(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret;

"(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and "(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney's fees to the prevailing party .

"(c) JURISDICTION. - The district courts of the United States shall have original jurisdiction of civil actions brought under this section. "(d) PERIOD OF LIMITATIONS. - A civil action under subsection (b) may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation." (b) DEFINITIONS .-Section 1839 of title 18, United States Code, is amended-

(1) in paragraph (3)-

(A) in subparagraph (B), by striking "the public" and inserting "another person who can obtain economic value from the disclosure or use of the information"; and (B) by striking "and" at the end;

(2) in paragraph (4), by striking the period at the end and inserting a semicolon; and

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(3) by adding at the end the following:

"(5) the term 'misappropriation' means-

"(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or "(B) disclosure or use of a trade secret of another without express or implied consent by a person who -

"(i) used improper means to acquire knowledge of the trade secret; "(ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was-·

"(I) derived from or through a person who had used improper means to acquire the trade secret; "(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or "(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or

"(iii) before a material change of the position of the person, knew or had reason to know that-

"(I) the trade secret was a trade secret; and "(II) knowledge of the trade secret had been acquired by accident or mistake;

"(6) the term 'improper means'-

"(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and "(B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition; and

"(7) the term 'Trademark Act of 1946' means the Act entitled 'An Act to provide for the registration and protection of trademarks used in commerce, to carry out the provisions of certain international conventions, and for other purposes, approved July 5, 1946 (15 U.S.C. 1051 et seq.) (commonly referred to as the "Trademark Act of 1946" or the "Lanham Act")'.".

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(c) EXCEPTIONS TO PROHIBITION. - Section 1833 of title 18, United States Code, is amended, in the matter preceding paragraph (1), by inserting "or create a private right of action for" after "prohibit". (d) CONFORMING AMENDMENTS. -

(1) The section heading for section 1836 of title 18, United States Code, is amended to read as follows:

"§1836. Civil proceedings".

(2) The table of sections for chapter 90 of title 18, United States Code, is amended by striking the item relating to section 1836 and inserting the following:

"1836. Civil proceedings.". (e) EFFECTIVE DATE. - The amendments made by this section shall apply with respect to any misappropriation of a trade secret (as defined in section 1839 of title 18, United States Code, as amended by this section) for which any act occurs on or after the date of the enactment of this Act . (f) RULE OF CONSTRUCTION. - Nothing in the amendments made by this section shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law. (g) APPLICABILITY TO OTHER LAWS. - This section and the amendments made by this section shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress. SEC. 3. TRADE SECRET THEFT ENFORCEMENT. (a) IN GENERAL. - Chapter 90 of title 18, United States Code, is amended-

(1) in section 1832(b), by striking "$5,000,000" and inserting "the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided"; and (2) in section 1835-

(A) by striking "In any prosecution" and inserting the following:

"(a) IN GENERAL.-In any prosecution"; and

(B) by adding at the end the following:

"(b) RIGHTS OF TRADE SECRET OWNERS. - The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. No submission under seal made under this subsection may be used in a prosecution under this chapter for any

18 USC 1833 note.

18 USC 1833 note.

18 USC 1831 prec.

Applicability . 18 USC 1833 note.

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purpose other than those set forth in this section, or otherwise required by law. The provision of information relating to a trade secret to the United States or the court in connection with a prosecution under this chapter shall not constitute a waiver of trade secret protection, and the disclosure of information relating to a trade secret in connection with a prosecution under this chapter shall not constitute a waiver of trade secret protection unless the trade secret owner expressly consents to such waiver." (b) RICO PREDICATE OFFENSES. - Section 1961(1) of title 18, United States Code, is amended by inserting "sections 1831 and 1832 (relating to economic espionage and theft of trade secrets)," before "section 1951". SEC. 4. REPORT ON THEFT OF TRADE SECRETS OCCURRING ABROAD. (a) DEFINITIONS. - In this section:

(1) DIRECTOR. - The term "Director" means the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office. (2) FOREIGN INSTRUMENTALITY, ETC. - The terms "foreign instrumentality'', "foreign agent", and "trade secret" have the meanings given those terms in section 1839 of title 18, United States Code. (3) STATE. - The term "State" includes the District of Columbia and any commonwealth, territory, or possession of the United States.

(4) UNITED STATES COMPANY. - The term "United States company" means an organization organized under the laws of the United States or a State or political subdivision thereof.

(b) REPORTS. - Not later than 1 year after the date of enactment of this Act, and biannually thereafter, the Attorney General, in consultation with the Intellectual Property Enforcement Coordinator, the Director, and the heads of other appropriate agencies, shall submit to the Committees on the Judiciary of the House of Representatives and the Senate, and make publicly available on the Web site of the Department of Justice and disseminate to the public through such other means as the Attorney General may identify, a report on the following:

(1) The scope and breadth of the theft of the trade secrets of United States companies occurring outside of the United States. (2) The extent to which theft of trade secrets occurring outside of the United States is sponsored by foreign governments, foreign instrumentalities, or foreign agents. (3) The threat posed by theft of trade secrets occurring outside of the United States.

18 USC 1832 note .

Consultation. Public information. Web posting.

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(4) The ability and limitations of trade secret owners to prevent the mis-appropriation of trade secrets outside of the United States, to enforce any judgment against foreign entities for theft of trade secrets, and to prevent imports based on theft of trade secrets overseas. (5) A breakdown of the trade secret protections afforded United States companies by each country that is a trading partner of the United States and enforcement efforts available and undertaken in each such country, including a list identifying specific countries where trade secret theft, laws, or enforcement is a significant problem for United States companies. (6) Instances of the Federal Government working with foreign countries to investigate, arrest, and prosecute entities and individuals involved in the theft of trade secrets outside of the United States. (7) Specific progress made under trade agreements and treaties, including any new remedies enacted by foreign countries, to protect against theft of trade secrets of United States companies outside of the United States.

(8) Recommendations of legislative and executive branch actions that may be undertaken to-

(A) reduce the threat of and economic impact caused by the theft of the trade secrets of United States companies occurring outside of the United States; (B) educate United States companies regarding the threats to their trade secrets when taken outside of the United States; (C) provide assistance to United States companies to reduce the risk of loss of their trade secrets when taken outside of the United States; and (D) provide a mechanism for United States companies to confidentially or anonymously report the theft of trade secrets occurring outside of the United States.

SEC. 5. SENSE OF CONGRESS. It is the sense of Congress that-

(1) trade secret theft occurs in the United States and around the world; (2) trade secret theft, wherever it occurs, harms the companies that own the trade secrets and the employees of the companies; (3) chapter 90 of title 18, United States Code (commonly known as the "Economic Espionage Act of 1996"), applies broadly to protect trade secrets from theft; and (4) it is important when seizing information to balance the need to prevent or remedy misappropriation with the need to avoid interrupting the-

Recommenda-tions.

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(A) business of third parties; and (B) legitimate interests of the party accused of wrong-doing.

SEC. 6. BEST PRACTICES. (a) IN GENERAL. - Not later than 2 years after the date of enactment of this Act, the Federal Judicial Center, using existing resources, shall develop recommended best practices for-

(1) the seizure of information and media storing the information; and (2) the securing of the information and media once seized.

(b) UPDATES. - The Federal Judicial Center shall update the recommended best practices developed under subsection (a) from time to time. (c) CONGRESSIONAL SUBMISSIONS. – The Federal Judicial Center shall provide a copy of the recommendations developed under sub-section (a), and any updates made under subsection (b), to the-

(1) Committee on the Judiciary of the Senate; and (2) Committee on the Judiciary of the House of Representatives.

SEC. 7. IMMUNITY FROM LIABILITY FOR CONFIDENTIAL DISCLOSURE OF A TRADE SECRET TO THE GOVERNMENT OR IN A COURT FILING. (a) AMENDMENT. - Section 1833 of title 18, United States Code, is amended-

(1) by striking "This chapter" and inserting "(a) IN GENERAL.-This chapter"; (2) in subsection (a)(2), as designated by paragraph (1), by striking "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" and inserting "the disclosure of a trade secret in accordance with subsection (b)"; and (3) by adding at the end the following:

"(b) IMMUNITY FROM LIABILITY FOR CONFIDENTIAL DISCLOSURE OF A TRADE SECRET TO THE GOVERNMENT OR IN A COURT FILING. -

"(1) IMMUNITY.-An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that-

"(A) is made-

"(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and

28 USC 620 note.

Deadline.

Records.

27

"(ii) solely for the purpose of reporting or investigating a suspected violation of law; or

"(B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

"(2) USE OF TRADE SECRET INFORMATION IN ANTI-RETALIATION LAWSUIT. - An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual-

"(A) files any document containing the trade secret under seal; and "(B) does not disclose the trade secret, except pursuant to court order.

"(3) NOTICE.-

"(A) IN GENERAL. - An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. "(B) POLICY DOCUMENT.- An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law. "(C) NON-COMPLIANCE. – If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided. "(D) APPLICABILITY. - This paragraph shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.

"(4) EMPLOYEE DEFINED. - For purposes of this subsection, the term 'employee' includes any individual performing work as a contractor or consultant for an employer.

"(5) RULE OF CONSTRUCTION.- Except as expressly provided for under this subsection, nothing in this subsection shall be construed to authorize, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means."

(b) TECHNICAL AND CONFORMING AMENDMENT. - Section 1838 of title 18, United States Code, is amended by striking "This chapter" and inserting "Except as provided in section 1833(b), this chapter".

Contracts.

Contracts.

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Approved May 11, 2016. LEGISLATIVE HISTORY - S. 1890: HOUSE REPORTS: No. 114-529 (Comm. on the Judiciary). SENATE REPORTS: No. 114-220 (Comm. on the Judiciary). CONGRESSIONAL RECORD, Vol. 162 (2016):

Apr. 4, considered and passed Senate. Apr. 27, considered and passed House .

DAILY COMPILATION OF PRESIDENTIAL DOCUMENTS (2016): May 11, Presidential remarks.

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30

ATTACHMENT 2

18 USCS §1833 Current through PL 115-14, approved 3/27/17

§1833. Exceptions to prohibitions (a) In general. This chapter [18 USCS §§1831 et seq.] does not prohibit or create a private right of action for--

(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 disclosure of a trade secret in accordance with subsection (b).

(b) Immunity from liability for confidential disclosure of a trade secret to the government or in a court filing.

(1) Immunity. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that--

(A) is made--

(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or

(B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

(2) Use of trade secret information in anti-retaliation lawsuit. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual--

(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.

(3) Notice.

(A) In general. An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. (B) Policy document. An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the

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employee that sets forth the employer's reporting policy for a suspected violation of law. (C) Non-compliance. If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) [18 USCS §1836(b)(3)] in an action against an employee to whom notice was not provided. (D) Applicability. This paragraph shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection [enacted May 11, 2016].

(4) Employee defined. For purposes of this subsection, the term "employee" includes any individual performing work as a contractor or consultant for an employer.

(5) Rule of construction. Except as expressly provided for under this subsection, nothing in this subsection shall be construed to authorize, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.

History (Added Oct. 11, 1996,P.L. 104-294, Title I, §101(a), 110 Stat. 3489.) (As amended May 11, 2016,P.L. 114-153, §§2(c), 7(a), 130 Stat. 381, 384.) Annotations Notes Amendments: 2016. Act May 11, 2016 (applicable as provided by §2(e) of such Act, which appears as a note to this section), in the introductory matter, inserted "or create a private right of action for". Such Act further, inserted the subsec. (a) designator and heading, and in subsec. (a)(2), as so designated, substituted "the disclosure of a trade secret in accordance with subsection (b)" for "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"; and added subsec. (b). Other provisions: Applicability of amendments made by §2 of Act May 11, 2016. Act May 11, 2016, P.L. 114-153, §2(e), 130 Stat. 381, provides: "The amendments made by this section [amending this section, 18 USCS §§1836, 1839] shall apply with respect to any

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misappropriation of a trade secret (as defined in section 1839 of title 18, United States Code, as amended by this section) for which any act occurs on or after the date of the enactment of this Act.". Rule of construction. Act May 11, 2016, P.L. 114-153 , §2(f), 130 Stat. 382, provides: "Nothing in the amendments made by this section [amending this section, 18 USCS §§1836, 1839] shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law." Applicability to other laws. Act May 11, 2016, P.L. 114-153, §2(g), 130 Stat. 382, provides: "This section and the amendments made by this section [amending this section, 18 USCS §§1836, 1839] shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress."

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18 USCS §1836 Current through PL 115-14, approved 3/27/17

§1836. Civil proceedings (a) The Attorney General may, in a civil action, obtain appropriate injunctive relief against any violation of this chapter [18 USCS §§1831 et seq.]. (b) Private civil actions.

(1) In general. An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. (2) Civil seizure.

(A) In general.

(i) Application. Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action. (ii) Requirements for issuing order. The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that--

(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order; (II) an immediate and irreparable injury will occur if such seizure is not ordered; (III) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure; (IV) the applicant is likely to succeed in showing that—

(aa) the information is a trade secret; and (bb) the person against whom seizure would be ordered--

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(AA) misappropriated the trade secret of the applicant by improper means; or (BB) conspired to use improper means to misappropriate the trade secret of the applicant;

(V) the person against whom seizure would be ordered has actual possession of—

(aa) the trade secret; and (bb) any property to be seized;

(VI) the application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized; (VII) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and (VIII) the applicant has not publicized the requested seizure.

(B) Elements of order. If an order is issued under subparagraph (A), it shall--

(i) set forth findings of fact and conclusions of law required for the order; (ii) provide for the narrowest seizure of property necessary to achieve the purpose of this paragraph and direct 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; (iii)

(I) 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, in whole or in part, of the seized property, to prevent undue damage to the party against whom the order has issued or others, until such parties have an opportunity to be heard in court; and

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(II) provide that if access is granted by the court to the applicant or the person against whom the order is directed, the access shall be consistent with subparagraph (D);

(iv) provide guidance to the law enforcement officials executing the seizure that clearly delineates the scope of the authority of the officials, including--

(I) the hours during which the seizure may be executed; and (II) whether force may be used to access locked areas;

(v) set a date for a hearing described in subparagraph (F) at the earliest possible time, and not later than 7 days after the order has issued, unless the party against whom the order is directed and others harmed by the order consent to another date for the hearing, except that a party against whom the order has issued or any person harmed by the order may move the court at any time to dissolve or modify the order after giving notice to the applicant who obtained the order; and (vi) require the person obtaining the order to provide the security determined adequate by the court for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.

(C) Protection from publicity. The court shall take appropriate action to protect the person against whom an order under this paragraph is directed from publicity, by or at the behest of the person obtaining the order, about such order and any seizure under such order. (D) Materials In custody of court.

(i) In general. Any materials seized under this paragraph shall be taken into the custody of the court. The court shall secure the seized material from physical and electronic access during the seizure and while in the custody of the court. (ii) Storage medium. If the seized material includes a storage medium, or if the seized material is stored on a storage medium, the court shall prohibit the medium from being connected to a network or the Internet without the consent of both parties, until the hearing required under subparagraph (B)(v) and described in subparagraph (F).

(iii) Protection of confidentiality. The court shall take appropriate measures to protect the confidentiality of seized materials that are unrelated to the trade secret information ordered seized pursuant to this paragraph unless the person against whom the order is entered consents to disclosure of the material.

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(iv) Appointment of special master. The court may appoint a special master to locate and isolate all misappropriated trade secret information and to facilitate the return of unrelated property and data to the person from whom the property was seized. The special master appointed by the court shall agree to be bound by a non-disclosure agreement approved by the court.

(E) Service of order. The court shall order that service of a copy of the order under this paragraph, and the submissions of the applicant to obtain the order, shall be made by a Federal law enforcement officer who, upon making service, shall carry out the seizure under the order. The court may allow State or local law enforcement officials to participate, but may not permit the applicant or any agent of the applicant to participate in the seizure. At the request of law enforcement officials, the court may allow a technical expert who is unaffiliated with the applicant and who is bound by a court- approved non-disclosure agreement to participate in the seizure if the court determines that the participation of the expert will aid the efficient execution of and minimize the burden of the seizure.

(F) Seizure hearing.

(i) Date. A court that issues a seizure order shall hold a hearing on the date set by the court under subparagraph (B)(v). (ii) Burden of proof. At a hearing held under this subparagraph, the party who obtained the order under subparagraph (A) shall have the burden to prove the facts supporting the findings of fact and conclusions of law necessary to support the order. If the party fails to meet that burden, the seizure order shall be dissolved or modified appropriately. (iii) Dissolution or modification of order. 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 after giving notice to the party who obtained the order. (iv) Discovery time limits. The court may make such orders modifying the time limits for discovery under the Federal Rules of Civil Procedure as may be necessary to prevent the frustration of the purposes of a hearing under this subparagraph.

(G) Action for damage caused by wrongful seizure. A person who suffers damage by reason of a wrongful or excessive seizure under this paragraph has a cause of action against the applicant for the order under which such seizure was made, and shall be entitled to the same relief as is provided under section 34(d)(11) of the Trademark Act of 1946 (15 U.S.C. 1116(d)(11)). The security posted with the court under subparagraph (B)(vi) shall not limit the recovery of third parties for damages.

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(H) Motion for encryption. A party or a person who claims to have an interest in the subject matter seized may make a motion at any time, which may be heard ex parte, to encrypt any material seized or to be seized under this paragraph that is stored on a storage medium. The motion shall include, when possible, the desired encryption method.

(3) Remedies. In a civil action brought under this subsection with respect to the misappropriation of a trade secret, a court may--

(A) grant an injunction--

(i) to prevent any actual or threatened misappropriation described in paragraph (1) on such terms as the court deems reasonable, provided the order does not--

(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows; or (II) otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business;

(ii) if determined appropriate by the court, requiring affirmative actions to be taken to protect the trade secret; and

(iii) in exceptional circumstances that render an injunction inequitable, that conditions future use of the trade secret upon payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited;

(B) award--

(i)

(I) damages for actual loss caused by the misappropriation of the trade secret; and (II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or

(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret;

(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and

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(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney's fees to the prevailing party.

(c) Jurisdiction. The district courts of the United States shall have original jurisdiction of civil actions brought under this section. (d) Period of limitations. A civil action under subsection (b) may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation. History (Added Oct. 11, 1996, P.L. 104-294, Title I, §101(a), 110 Stat. 3490; Nov. 2, 2002, P.L. 107-273, Div B, Title IV, §4002(e)(9), 116 Stat. 1810.) (As amended May 11, 2016, P.L. 114-153, §2(a), (d)(1), 130 Stat. 376, 381.) Annotations Notes Amendments: 2002. Act Nov. 2, 2002, in subsec. (a), substituted "this chapter" for "this section"; and, in subsec. (b), substituted "this section" for "this subsection". 2016. Act May 11, 2016 (applicable as provided by §2(e) of such Act, which appears as 18 USCS §1833 note), substituted the section heading for one which read: "Civil proceedings to enjoin violations"; substituted subsec. (b) for one which read: "(b) The district courts of the United States shall have exclusive original jurisdiction of civil actions under this section."; and added subsecs. (c) and (d).

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18 USCS §1839 Current through PL 115-14, approved 3/27/17

§1839. Definitions As used in this chapter [18 USCS §§1831 et seq.]-- (1) the term "foreign instrumentality" means any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization, corporation, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government; (2) the term "foreign agent" means any officer, employee, proxy, servant, delegate, or representative of a foreign government; (3) the term "trade secret" means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photo-graphically, 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, another person who can obtain economic value from the disclosure or use of the information;

(4) the term "owner", with respect to a trade secret, means the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed; (5) the term "misappropriation" means--

(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (B) disclosure or use of a trade secret of another without express or implied consent by a person who--

(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was--

(I) derived from or through a person who had used improper means to acquire the trade secret;

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(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or

(iii) before a material change of the position of the person, knew or had reason to know that--

(I) the trade secret was a trade secret; and

(II) knowledge of the trade secret had been acquired by accident or mistake;

(6) the term "improper means"--

(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition; and

(7) the term "Trademark Act of 1946" means the Act entitled "An Act to provide for the registration and protection of trademarks used in commerce, to carry out the provisions of certain international conventions, and for other purposes, approved July 5, 1946 (15 U.S.C. 1051 et seq.) (commonly referred to as the 'Trademark Act of 1946' or the 'Lanham Act')". History (Added Oct. 11, 1996, P.L. 104-294, Title I, §101(a), 110 Stat. 3490.) (As amended May 11, 2016, P.L. 114-153, §2(b), 130 Stat. 380.) Annotations Notes Amendments: 2016. Act May 11, 2016 (applicable as provided by §2(e) of such Act, which appears as 18 USCS §1833 note), in para. (3)(B), substituted "another person who can obtain economic value from the disclosure or use of the information" for "the public" and deleted "and" following the concluding semicolon, in para. (4), substituted a semicolon for a concluding period, and added paras. (5)-(7).

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ATTACHMENT 3

KRS §365.880 Current through sections amended through Chapter 7 of the 2017 session

365.880. Definitions. As used in KRS 365.880 to 365.900, unless the context requires otherwise: (1) "Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; (2) "Misappropriation" means:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

1. Used improper means to acquire knowledge of the trade secret; or 2. At the time of disclosure or use, knew or had reason to know that his

knowledge of the trade secret was:

a. Derived from or through a person who had utilized improper means to acquire it;

b. Acquired under circumstances giving rise to a duty to maintain

its secrecy or limit its use; or c. Derived from or through a person who owed a duty to the

person seeking relief to maintain its secrecy or limit its use; or

3. Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

(3) "Person" means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity. (4) "Trade secret" means information, including a formula, pattern, compilation, program, data, device, method, technique, or process, that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

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(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

History Enact. Acts 1990, ch. 300, §1, effective July 13, 1990.

KRS §365.882 Current through sections amended through Chapter 7 of the 2017 session

365.882. Injunctive relief. (1) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the mis-appropriation. (2) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances shall include, but not be limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable. (3) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order. History Enact. Acts 1990, ch. 300, §2, effective July 13, 1990.

KRS §365.884 Current through sections amended through Chapter 7 of the 2017 session

365.884. Damages. (1) Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant shall be entitled to recover damages for misappropriation. Damages may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing

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actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret. (2) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (1). History Enact. Acts 1990, ch. 300, §3, effective July 13, 1990.

KRS §365.886 Current through sections amended through Chapter 7 of the 2017 session

365.886. Attorney's fees. If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees to the prevailing party. History Enact. Acts 1990. ch . 300. §4, effective July 13, 1990.

KRS §365.888 Current through sections amended through Chapter 7 of the 2017 session

365.888. Preservation of secrecy. In an action under KRS 365.880 to 365.900, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval. History Enact. Acts 1990. ch. 300. §5, effective July 13, 1990.

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KRS §365.890 Current through sections amended through Chapter 7 of the 2017 session

365.890. Statute of limitations. An action for misappropriation must be brought within three (3) years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim. History Enact. Acts 1990, ch. 300, §6, effective July 13, 1990.

KRS §365.892 Current through sections amended through Chapter 7 of the 2017 session

365.892. Effect on other laws. (1) Except as provided in subsection (2) of this section, KRS 365.880 to 365.900 replaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret. (2) KRS 365.880to 365.900 shall not affect:

(a) Contractual remedies, whether or not based upon misappropriation of a trade secret; (b) Other civil remedies that are not based upon misappropriation of a trade secret; or (c) Criminal remedies, whether or not based upon misappropriation of a trade secret.

History Enact. Acts 1990. ch. 300. §7, effective July 13, 1990.

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KRS §365.894 Current through sections amended through Chapter 7 of the 2017 session

365.894. Uniformity of application and construction. KRS 365.880 to 365.900 shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of KRS 365.880 to 365.900 among states enacting it. History Enact. Acts 1990, ch. 300, §8, effective July 13, 1990.

KRS §365.896 Current through sections amended through Chapter 7 of the 2017 session

365.896. Short title. KRS 365.880 to 365.900 may be cited as the Uniform Trade Secrets Act. History Enact. Acts 1990, ch. 300, §9, effective July 13, 1990.

KRS §365.898 Current through sections amended through Chapter 7 of the 2017 session

365.898. Severability. If any provision of KRS 365.880 to 365.900 or its application to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of KRS 365.880 to 365.900 which can be given effect without the invalid provision or application, and to this end the provisions of KRS 365.880 to 365.900 shall be severable. History

Enact. Acts 1990, ch. 300, §10, effective July 13, 1990.

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KRS §365.900 Current through sections amended through Chapter 7 of the 2017 session

365.900. Effective date - When applicable to misappropriation. KRS 365.880 to 365.900 shall take effect on July 13, 1990, and shall not apply to misappropriation occurring prior to July 13, 1990. With respect to a continuing misappropriation that began prior to July 13, 1990, KRS 365.880 to 365.900 also shall not apply to the continuing misappropriation that occurs after July 13, 1990. History Enact. Acts 1990, ch. 300, §11, effective July 13, 1990.

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ATTACHMENT 4 AUTHENTICATED U.S. GOVERNMENT INFORMATION GPO Calendar No. 355

114TH CONGRESS 2d Session

SENATE REPORT 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

REPORT

[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 ..................... 49 II. History of the Bill and Committee Consideration ................................................... 52 III. Section-by-Section Summary of the Bill ................................................................ 53 IV. Congressional Budget Office Cost Estimate ......................................................... 61 V. Regulatory Impact Evaluation ............................................................................... 63 VI. Conclusion ............................................................................................................ 63 VII. Changes to Existing Law Made by the Bill, as Reported ....................................... 63 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.

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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, Pricewaterhouse-Coopers 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 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 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

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. 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/SB10001424127887323549204578316 413319639782.

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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. §§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 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

7 Uniform Law Commission: The National Conference of Commissioners on Uniform State Laws, Uniform Trade Secrets Act, available at http://www.uniformlaws.org/shared/docs/ trade%20secrets/utsa_final_85.pdf. 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. 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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innovative Kevlar product, in which there was significant destruction of evidence, would likely have been mitigated by the existence of a seizure remedy. 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 intro- duced 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

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.

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Pooley, PLC, Menlo Park, CA;13 Ms. Sharon Sandeen, Professor of Law, Hamline University School of Law, St. Paul, MN.14 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 five to three 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.

Ill. 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."

13 Id. Statement of Mr. James Pooley, Principal, James Pooley, available at https://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 https://www.judiciary.senate.gov/imo/media/doc/12-02-15%20Sandeen%20 Testimony.pdf.

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Sec. 2. Federal jurisdiction for theft of trade secrets Section 2(a) amends §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 §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 §1832(a). Civil seizure The new §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[sic] 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 mis-appropriate 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.

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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 mis-appropriated 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. Subparagraph (B) of new §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 §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.

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 (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 non-disclosure 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 §1836(b) provides the remedies for the misappropriation of a trade secret. Subparagraph (A) specifies the equitable relief available and is drawn directly from §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

16 The Committee notes that courts interpreting State trade secret laws have reached different conclusions on the applicability of the inevitable disclosure doctrine. Compare Pepsi Co, Inc. v.

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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. 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 §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 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 §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 §4 of the UTSA.

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). 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.3d 969, 979-80 (Kan. 2011) (citing the comment to §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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Jurisdiction Subsection (c) of new §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 §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 §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 §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 §1(1) of the UTSA and includes theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy, or espionage through 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).

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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 §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 §1832(b) of title 18 by revising the maximum penalty for a violation under §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 §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;

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(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.

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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 §1833 of title 18 by adding a new subsection (b). The new §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 immunize 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 sub-section 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.

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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 mis-appropriation 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 ten-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

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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 Sen ate, 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.

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