In a recently unprecedented bipartisan effort the United States enacted the
Defend Trade Secrets Act (DTSA) on May 11, 2016. What many in the US do not
know is that less than 30 days later the EU passed European Union Directive
(EU) 2016/943, on the Protection of Trade Secrets (EU 943) on June 8.
Coincidence or Collaboration? The two new corresponding
trade secrets laws have far more in common than in differences, and based upon
available information appear to represent another steady and methodical effort
to harmonize international intellectual property rights.
DTSA is an amendment of Economic Espionage Act (EEA), which established US
federal criminal enforcement for foreign economic espionage activities. As an
amendment to EEA, DTSA creates the first private federal trade secret civil
action in US history. In doing so, DTSA provides a nationwide service and
enforcement for trade secret violations, with extraterritorial implications.
DTSA has several unique requirements and remedies from existing law.
Similar to DTSA, EU 943 creates the first private common trade secret
action applicable in all EU member states. In doing so, EU 943 provides common
EU wide trade secret protections and enforcement rights. Like DTSA, EU 943 also
has clear extraterritorial implications. Also like DTSA, EU 943 has unique
requirements and remedies. Both laws have significant implications to
technology, contracting and employment practices.
History of International Harmonization of Trade
Secrets
International harmonization of intellectual property rights, and in
particular trade secret protection, began in 1984 with World Trade
Organization, Trade-Related Intellectual Property Agreement (TRIPs). DTSA / EU
943 can both arguably trace their roots to Section 7, Article 39 of TRIPs on
the Protection of “Undisclosed Information,” which was the first international
effort to uniformly define and evoke protection for trade secrets. In 2014, the
International Chamber of Commerce (ICC) published a white paper titled “Trade
Secrets: Tools for Innovation and Collaboration”. The ICC white paper
delineated most of the considerations and protections ultimately enacted in
DTSA and EU 943. Recommendations and support from the ICC white paper have been
heavily cited in both US and EU legislative materials in support of passage of
DTSA and EU 943, including but not limited to the U.S. Congressional Research
Service and EU Directive 2016/943 Preamble annotations.
Technology, Business and Politics Since the WTO
So what prompted the apparent collaboration and resulting harmonization of
trade secret protection since the WTO? The need for international harmonization
of trade secrets has been driven by changes in international trade and the
products involved in such. At the time of the WTO, trade was focused
principally on goods, business was country centric and politics was focused on
physical imports / exports. The pace and nature of international trade changed
dramatically since 1984, with technology being both the driver and product
instigating such changes. More recently, cloud-based systems have resulted in
virtual imports / exports. Business is global and politics grapples with how to
even track on-line international trade. The result is global harmonization of
business, before harmonization of the laws intended to address such.
Apparently, the lack of a US wide federal trade secrets law was raised in both
the TPP and TTIP trade agreement negotiations by other countries, which
arguably helped advance bipartisan support for the rapid passage of DTSA.
Extraterritorial Enforcement
In response to the globalization of business and resulting IP threats, the
US congress included specific language in DTSA to permit extraterritorial
enforcement of US trade secret rights. The first indication of such intent is
in Section 5 of Sense of Congress, which references to… “theft within the U.S. and
around the world, and harm wherever it occurs…”. Section 2(b)(1) includes
references “…for use in, interstate or foreign commerce”, Section 4 adds
“…occurring outside of the United States...”, “… sponsored by foreign
governments or instrumentalities, or foreign agents…”. All of which seem
intended to assure the ability of extraterritorial enforcement in the
International Trade Commission via 337 proceedings, see Tianrui Group
v. ITC, 661 F. 3d 1322 (Fed. Cir. 2011).
EU 943 International Considerations
The EU also made it clear that they intended to protect member state
innovations from external threats. EU Directives include a preamble which set
out the support and basis for the directive. Directive 943 includes multiple
references to extraterritorial protections. Preamble, Section (3) provides
“…cross-border cooperation is particularly important in increasing levels of
business research and development…” Preamble, Section (4) notes “…Recent
developments, such as globalization …. contribute to increasing risk….”.
Preamble, Section (28) explains “Considering the global nature of trade, it is
also necessary that such measures include the prohibition of the importation of
those goods …”. Chapter II, Article 4, 5 of the Directive references “… or the
importation, export or storage of infringing goods…” Chapter III, Article 10,
1.(b) again notes the “… “… or the importation, export or storage of infringing
goods…” and Chapter III, Article 12, 1.(b) similarly makes reference to “… or
the importation, export or storage of infringing goods…”.
Commonalities of DTSA and EU 943
As noted, DTSA and EU 943 have more in common than different. The
commonalities include the definition of a trade secret, prohibited uses, ex
parte seizures, injunctive relief, confidential proceedings, award of actual
losses, unjust enrichment or a reasonable royalty, damages for willful or
malicious misappropriation, and attorney fees and costs for bad faith. Both
DTSA and EU 943 also include common limitations, including exclusions for
reverse engineering or independent creation, exclusions for regulatory and
whistleblower disclosures, limitations on employment injunctions and no
pre-emption of other laws or remedies.
Some of the most unique common provisions are requirements for confidential
proceedings, ex parte relief, remedies available for extraterritorial threats,
limitations on publicity, exemptions for whistleblowers, as well as limits on
injunctions otherwise in conflict with state/member law regarding restraint of
profession, trade or business.
The one primary current difference relates to a limitation in EU 943
protecting EU labor/ employment practices including protection of collective
bargaining agreements, employment contracts and the mobility of employees.
Interestingly, on October 25, 2016, the White House issued a directive for the
reform of US non-compete and employment laws to better protect against generic
employment contracts and restrictions on the mobility of employees.
Cross-border Considerations
Based upon the harmonization between the US and the EU, multinational
companies and businesses engaged in multinational businesses should begin
assessing the impact and implication of such to their international operations.
In doing so, they should consider that they are subject to dual enforcement,
but conversely have the ability to enforce in multiple jurisdictions. They need
to harmonize their policies, procedures and practices, particularly with regard
to international development, cross-border staffing and performance, delivery and
payment, and choice of law and forum.
In assessing international harmonization, businesses engaged in
cross-border sales or operations need to engage in operational planning and
threat assessment. Cross-border operational planning should include review and
likely revisions of employee handbook and code, employee confidentiality and
proprietary rights agreements, non-disclosure and confidentiality agreements,
teaming and development agreement confidentiality provisions – with
whistleblower exceptions, marking and/or tracking of confidential materials,
physical and cyber security of confidential materials and evaluation of overall
IP strategy, relative to trade secrets, patents, copyrights and trademarks.
Preparations for cross-border threats should include advance understanding
of business and operations. Response to cross-border anti-competitive threats
will require a clear understanding of critical trade secrets, key employees,
competitors and activities, available legal resources, probable damages and desirable
recourse, and possible jurisdictions. When enforcing trade secrets
internationally, one will need to consider forum selection, enforceability,
location for protection and/or recovery, cost & time relative to durable
value/loss, location of illegal acts, location of resulting injury and location
of recoverable damages.
Conclusion
International Harmonization - Coincidence or
Collaboration? It does matter, the two new US and EU trade secrets
laws require anyone engaged in cross-border business to prepare for such and
harmonize their practices accordingly.
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