Thursday, September 18, 2014

A Fool's Errand: Seizing Instrumentalities of Trade Secrets Theft

There is much debate about the companion pieces of legislation introduced in Congress that relate to trade secrets law.

Those two proposed laws are known as the Defend Trade Secrets Act of 2014 (the Senate version) and the Trade Secrets Protection Act of 2014 (the House version). The debate often centers around whether it is sensible for Congress to federalize a branch of law traditionally reserved to the States, under which a well-established body of case law already exists. There also is the perception that federal courts provide muscle that state courts cannot, and that in certain states overly taxed judges do not have the resources to handle complicated discovery disputes and the sheer pace of trade secrets litigation.

One area of friction that is starting to gain some attention concerns the federal proposal to allow for ex parte seizure orders in trade secrets cases - something that commands almost no attention at the state level. Seizure orders are common in copyright and trademark cases because the infringing good (a pirated movie, for instance) is itself a reflection of the wrong. In trade secrets cases, however, the device used to store a stolen secret - a hard-drive or a server - may have (indeed, likely has) a mostly legitimate, non-infringing purpose. The DTSA attempts to incorporate the provisions of the Trademark Act in regards to seizure order, but this fails to recognize the vast difference in the type of intellectual property which trademark law is intended to protect compared with trade secrets law.

The TSPA is, to be certain, more mindful of the problems associated with the ex parte seizure order. But in trying to be more balanced (ostensibly), the TSPA deploys a weird seven-part test that an applicant must show on an ex parte basis. As if district court judges need more seven-part tests to apply.

Part one of the test specifically requires an applicant to show that a temporary restraining order would be ineffective because the responding party would evade it. Yet, the law clearly allows federal courts to issue orders directed at parties to preserve relevant evidence. And the destruction of evidence not only leads to sanctions, but it's also a criminal act. The built-in deterrent from the common law is so strong that part one of the test is almost self-defeating. Then, there's part six of the test, which separately requires an applicant to show that the responding part would "destroy, move, or hide the property" subject to the seizure order. I have thought about this too much and still cannot see how this is any different than the part one, but I suppose someone will come up with a reason. The only "benefit" I can see is that it gives an associate three more pages of briefing to come up with in the ex parte motion.

The seventh part of the test is downright bizarre, as it states that the applicant cannot have publicized the requested seizure. This raises the obvious question of what constitutes a publication. If a company needs to reassure investors, lenders, or clients that it is taking steps to remedy trade secrets theft that includes the application for a seizure order, it seems unusual to penalize the company for such a practice and remove an otherwise viable remedy the statute provides. There's no policy rationale to discourage publication.

In opposing the new federal legislation, a group of 31 law school professors stated that they were "concerned the TSPA requires a level of secrecy about court rulings that is unprecedented." I don't believe that's the case at all, since nothing in the TSPA requires the impoundment of court orders relating to ex parte seizure applications. My concern is that existing law covers any concerns Congress may have. And the new law may stand in the way of applying that time-tested law relating to preservation of relevant evidence, expedited discovery, and the use of court-appointed neutrals to image and copy digital storage media.

I have been relatively ambivalent when it comes to federalizing trade secret law. But any law that allows for the use of ex parte seizure orders is pushing me towards favoring the current state law regime. This is simply a poor fit for a branch of intellectual property law that is qualitatively different than trademark and copyright.

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