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Congressional Research Service (CRS)

 

Protection of Trade Secrets: Overview of Current Law and Legislation

Brian T. Yeh,  Legislative Attorney

September 5, 2014

http://fas.org/sgp/crs/secrecy/R43714.pdf

[full-text, 37 pages]

 

Summary

A trade secret is confidential, commercially valuable information that provides a company with a

competitive advantage, such as customer lists, methods of production, marketing strategies,

pricing information, and chemical formulae. (Well-known examples of trade secrets include the

formula for Coca-Cola, the recipe for Kentucky Fried Chicken, and the algorithm used by

Google’s search engine.) To succeed in the global marketplace, U.S. firms depend upon their

trade secrets, which increasingly are becoming their most valuable intangible assets.

 

However, U.S. companies annually suffer billions of dollars in losses due to the theft of their

trade secrets by employees, corporate competitors, and even foreign governments. Stealing trade

secrets has increasingly involved the use of cyberspace, advanced computer technologies, and

mobile communication devices, thus making the theft relatively anonymous and difficult to

detect. The Chinese and Russian governments have been particularly active and persistent

perpetrators of economic espionage with respect to U.S. trade secrets and proprietary information.

 

In contrast to other types of intellectual property (trademarks, patents, and copyrights) that are

governed primarily by federal law, trade secret protection is primarily a matter of state law. Thus,

trade secret owners have more limited legal recourse when their rights are violated. State law

provides trade secret owners with the power to file civil lawsuits against misappropriators. A

federal criminal statute, the Economic Espionage Act (EEA), allows U.S. Attorneys to prosecute

anyone who engages in “economic espionage” or the “theft of trade secrets.” The EEA’s

“economic espionage” provision punishes those who misappropriate trade secrets with the intent

or knowledge that the offense will benefit a foreign government, instrumentality, or agent. The

EEA’s “theft of trade secrets” prohibition is of more general application, involving the intentional

theft of a trade secret related to a product or service used in or intended for use in interstate or

foreign commerce, with the intent or knowledge that such action will injure the trade secret

owner. In addition to criminal enforcement of the statute, the EEA authorizes the Attorney

General to bring a civil action to obtain injunctive relief against any violation of the EEA.

 

However, because the U.S. Department of Justice and its Federal Bureau of Investigation have

limited investigative and prosecutorial resources, as well as competing enforcement priorities,

some observers assert that the federal government cannot adequately protect U.S. trade secrets

from domestic and foreign threats. They have urged Congress to adopt a comprehensive, federal

trade secret law in order to promote uniformity in trade secret law throughout the United States

and to more effectively deal with trade secret theft that crosses state and international borders (a

challenging problem for state courts to address). Among other things, they support the

establishment of a federal civil cause of action for trade secret misappropriation, to allow U.S.

companies to obtain monetary and injunctive relief when their trade secret assets are stolen.

 

Several bills have been introduced in the 113th Congress related to trade secret misappropriation,

including S. 884 (Deter Cyber Theft Act); H.R. 2281, S. 1111 (Cyber Economic Espionage

Accountability Act); S. 1770 (Future of American Innovation and Research (FAIR) Act of 2013);

H.R. 2466 (Private Right of Action Against Theft of Trade Secrets Act of 2013); S. 2384 (Deter

Cyber Theft Act of 2014); S. 2267 (Defend Trade Secrets Act of 2014); H.Res. 643; H.R. 5103

(Chinese Communist Economic Espionage Sanctions Act); and H.R. 5233 (Trade Secrets

Protection Act of 2014). As of the date of this report, none of these proposals has been enacted.

 

Contents

Introduction ...................................................................................................................................... 1

Background ...................................................................................................................................... 2

Definition of a Trade Secret....................................................................................................... 2

Eligible Subject Matter and Acquisition of Rights .................................................................... 2

Duration of Protection ............................................................................................................... 3

Misappropriation ....................................................................................................................... 3

Trade Secrets As a Form of Intellectual Property ...................................................................... 4

Purpose of Trade Secret Law and Comparison to Patent Law .................................................. 5

Historical Development of Trade Secret Law .................................................................................. 5

Current Legal Landscape for Trade Secret Protection ..................................................................... 6

State Law ................................................................................................................................... 6

Federal Law ............................................................................................................................... 7

Trade Secrets Act ................................................................................................................. 7

Economic Espionage Act .................................................................................................... 7

International Law ..................................................................................................................... 11

The Growing Problem of Trade Secret Theft and Economic Espionage ....................................... 14

Measuring Economic Loss ...................................................................................................... 14

Current Trends in Trade Secret Litigation ............................................................................... 14

Types of Offenders .................................................................................................................. 15

Domestic ........................................................................................................................... 15

Foreign .............................................................................................................................. 15

Enforcement of Trade Secret Rights .............................................................................................. 16

Litigation and Prosecution ....................................................................................................... 16

Executive Branch Actions ....................................................................................................... 17

Administration Strategy .................................................................................................... 17

Special 301 ........................................................................................................................ 18

Free Trade Agreements (TPP and TTIP) ........................................................................... 18

Limitations of Current Law and Proposed Changes ...................................................................... 19

In Support of a Federal Civil Cause of Action for Trade Secret Theft .................................... 20

In Opposition to a Federal Civil Trade Secret Remedy ........................................................... 21

Legislation in the 113th Congress ................................................................................................... 23

S. 884, Deter Cyber Theft Act ................................................................................................. 23

H.R. 2281 / S. 1111, Cyber Economic Espionage Accountability Act .................................... 24

S. 1770, the Future of American Innovation and Research (FAIR) Act of 2013 ..................... 25

H.R. 2466, Private Right of Action Against Theft of Trade Secrets Act of 2013 .................... 27

S. 2384, Deter Cyber Theft Act of 2014 .................................................................................. 27

S. 2267, the Defend Trade Secrets Act of 2014 ....................................................................... 28

H.Res. 643, Calling for Further Defense Against the People’s Republic of China’s

State-sponsored Cyber-enabled Theft of Trade Secrets ........................................................ 29

H.R. 5103, Chinese Communist Economic Espionage Sanctions Act .................................... 30

H.R. 5233, Trade Secrets Protection Act of 2014 .................................................................... 31

 

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