Do We Need a Federal Trade Secrets Law?

Posted on October 13, 2011 by Dabney Carr

On October 5, Senators Chris Coons and Herb Kohl introduced an amendment to S. 1619, the Currency Exchange Rate Oversight Reform Act, that would provide a private civil cause of action in federal court for trade secret theft. The proposal, however, appears to be a solution in search of a problem, and the amendment was not ultimately included in the legislation, which passed the Senate on October 11.

The proposed amendment would have amended the criminal statute for theft of trade secrets, 18 U.S.C. § 1831 et seq., to allow “[a]ny person aggrieved by a violation of [18 U.S.C. § 1832(a)]” to bring a civil action in federal court. Such an action need only

  • “describe with specificity the reasonable measures taken to protect the secrecy of the alleged trade secrets in dispute;” and
  • include a sworn representation “that the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country.” 

 

18 U.S.C. § 1832(a), generally imposes liability on anyone who knowingly steals, copies, buys or possesses a trade secret that is “related to or included in a product” placed in interstate or foreign commerce with the knowledge that the offense will, injury the owner of the trade secret.

In their press releases announcing the amendment,  found here and here, Senators Coons and Kohl focused on protecting American companies from trade secret theft by foreign companies and governments. Senator Coons gave three reasons for enacting the legislation:

  • The amendment would allow victimized trade secret owners to sue in federal court;
  • The amendment would allow for a single, uniform, nationwide cause of action; and
  • The amendment would “elevate” trade-secret intellectual property to the same level as copyright, trademark and patent violations.

None of these reasons, however, hold much water. First, trade secret owners already have a way to bring suit in federal court – diversity jurisdiction. As Dupont’s recent $900 million verdict in the Eastern District of Virginia against a Korean company amply demonstrates, the federal courts are already open to state-law trade secret suits against foreign companies. The only claims that this amendment would affect would be claims where the parties were from the same state and claims where the amount in dispute is less than $75,000. Those categories of claims seem just the kind of local dispute that should remain in state court, rather than adding to the burden of already busy federal courts.

The amendment also would not create a uniform nationwide cause of action for the simple reason that it would not preempt state law. Litigants will still bring their state-law trade secret claims; this proposal will simply add a duplicative federal cause of action. 

Finally, it’s hard to see why trade secret law needs to be “elevated” to the level of copyright, trademark and patent violations. Sure, trade secret law differs from state to state, but that’s true of all kinds of civil claims. Differences in individual state laws, standing alone, don’t justify federalizing civil causes of action. There also isn’t any indication that the current state-law schemes for protection of state laws aren’t working. In the absence of examples of trade secret owners being unable to protect their trade secret rights under existing state law, this proposal appears unnecessary. 

Senators Coons’ and Kohl’s proposal did not make it very far. The Senate took up S. 1619, which dealt primarily with Chinese currency manipulation, and passed it on October 11 without considering the trade secret amendment. 
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Jury Awards Dupont $920 Million for Misappropriation of Trade Secrets

Posted on September 15, 2011 by Dabney Carr

Yesterday, in what we believe is the largest verdict in an intellectual property case in Virginia, a jury in the Richmond Division of the Eastern District of Virginia awarded Dupont $920 million for misappropriation of trade secrets against the Korean company, Kolon Industries.  E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 3:09CV58 (E.D. Va. Aug. 14, 2011) (Payne, J.).   The jury's 51 page verdict, in which they found for Dupont on all 155 claims of trade secret misappropriation, can be found here.  The clerk entered judgment on the verdict the same day.

For more on the Dupont v. Kolon case, see our earlier posts which summarize the background and Judge Payne's prior rulings in the case here, and here. 

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Kevlar® Trade Secret Theft Trial to Begin July 21

Posted on July 20, 2011 by Dabney Carr

Jury selection for the trial of DuPont’s claims against a Korean competitor, Kolon Industries, for the alleged theft of trade secrets relating to DuPont’s Kevlar® fiber is set to begin July 21 before District Judge Robert E. Payne, culminating years of criminal and civil litigation and two Fourth Circuit appeals (so far). E.I. du Pont de Nemours and Co. v. Kolon Industries, Case No. 3:09CV58- REP (E.D.Va.). The trial is set for a very un-Rocket Docket length of 27 trial days spread over eight weeks, but the public is not likely to see much of it, as the Court has issued a Notice that it will close the trial proceedings when confidential trade secret evidence is presented.

The case involves a former DuPont engineer and sales rep, Michael Mitchell, who worked for more than 25 years at DuPont, including two years in the sales and marketing of Kevlar®. As stated in a Department of Justice press release in 2010, Mitchell began to work as a consultant for Kolon after he was terminated by DuPont in 2006. Mitchell provided proprietary information regarding Kevlar® to Kolon, and a search warrant executed in 2008 revealed that Mitchell had hundreds of pages of DuPont proprietary documents stored on his home computer. Mitchell agreed to cooperate with the government and even set up a meeting in a Richmond hotel between three Kolon employees and another cooperator posing as a “disgruntled” senior scientist at DuPont. Mitchell eventually pled guilty to theft of trade secrets and obstruction of justice in March, 2010 and was sentenced to 18 months in prison. He’s due to be released this fall, but he’ll get some time off, as Judge Payne has ordered him to be present at trial.

In early 2009, DuPont brought suit against Kolon for theft of its trade secrets. Kolon counterclaimed for antitrust violations, alleging that DuPont had attempted to monopolize the market for para-aramid fibers by illegally using multi-year supply agreements which required high-volume customers to purchase between 80% and 100% of their requirements from DuPont. Judge Payne dismissed the counterclaim for failure to plead a relevant geographic market. Kolon filed an interlocutory appeal.  In March, the Fourth Circuit reversed the dismissal (opinion here) and remanded the counterclaim back to the District Court. 

DuPont continued to actively communicate and cooperate with federal criminal investigators, and the government served two grand jury subpoenaes on DuPont for the documents produced by Kolon in the civil litigation. Kolon moved to quash the subpoenaes, alleging that the government was unfairly “piggy-backing” on the DuPont’s civil suit. Judge Payne denied the motion to quash, ruling that DuPont’s cooperation with the government was not improper. As Legal Times reported here, on June 15, the Fourth Circuit unanimously affirmed, allowing the federal government to obtain all of the documents produced by Kolon in discovery for its grand jury investigation.

The DuPont/Kolon fight has been massive and hotly disputed, generating more than 1200 pleadings and orders, including a recent Order instructing Kolon’s lead counsel to study the provisions of 28 U.S.C. 1927 regarding taxable costs because of Kolon’s persistent filing of repetitive motions (sometimes after the Court had decided a like motion) and for filing 6,000 trial exhibits and refusing to materially reduce the number of those exhibits.

As we’ve blogged before here, property rights in trade secrets can override the public’s First Amendment right of access to judicial proceedings and documents. In his Notice and Order issued yesterday, Judge Payne ruled that there was no alternative to the protection of DuPont’s alleged trade secrets than to permit the use of documents under seal and to close the Court upon notice that such evidence is to be presented. Since the public’s right of access extends to all evidence and trial proceedings that do not include trade secrets, however, Judge Payne may face practical difficulties in determining when and how often to limit public participation in the trial.
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District Court Refuses Third Party's Request to Seal Trial Exhibits

Posted on June 8, 2009 by Dabney Carr

A common concern in all patent litigation is how to maintain the confidentiality of proprietary and valuable business information produced in discovery.  Before trial, standard protective orders provide an easy, straightforward solution. Even confidential documents submitted with pre-trial motions are routinely filed under seal – and requests to seal such exhibits are rarely challenged. It is less certain, though, whether exhibits shown to a jury at trial may be kept from becoming a part of the public record.

Judge Davis in the Norfolk Division recently addressed the confidentiality of trial exhibits in Level 3 Comm’s., LLC v. Limelight Networks, Inc., Case No. 2:07cv589, 2009 U.S. Dist. LEXIS 37775 (E.D.Va. April 30, 2009). In Level 3, a third party, Savvis, produced confidential information under a protective order. Two days before trial (on a Sunday), Level 3 informed Savvis that it intended to introduce some of Savvis’ documents as trial exhibits. In the evening after the first day of trial, Savvis responded by asking Level 3 to inform the Court that Savvis wanted the documents to remain under seal. Level 3 refused Savvis’ request, and Savvis took no further action until more than a month later (three weeks after the trial had ended), when it moved to seal the trial exhibits that contained its documents.

Judge Davis held that Savvis had waived the confidentiality of its documents by failing to object before the exhibits were introduced. Even if Savvis had objected, the judge ruled, the public’s First Amendment right of access to trial exhibits trumped Savvis’ confidentialiy interest because Savvis did not claim the documents contained trade secrets.

The main points in Judge Davis’ opinion are:

  • The public has a right of access to documents filed in a District Court under both the common law and the First Amendment.
     
  • The common law right of access extends to all judicial records and documents. The First Amendment right of access extends only to materials filed in connection with a dispositive motion or used at trial.
     
  • The First Amendment right of access is far stronger than the common law right of access.
     
  • Property rights in trade secrets can override the First Amendment right of access. Confidential information that is not a trade secret, however, will not overcome the public’s First Amendment right of access.
     
  • Where only the common law right of access applies (such as in discovery or when documents are filed in connection with a non-dispositive civil motion), confidential information may receive more protection.
     
  • Once information is released to the jury at trial, a party waives any confidentiality interest in that information.
     
  • Even if Savvis had not waived its right to assert that the trial exhibits were confidential, Savvis could not overcome the public’s First Amendment right of access because it did not claim the exhibits contained any trade secrets.

Judge Davis did not define what constitutes a “trade secret” and the term could potentially encompass a multitude of categories of confidential business information – not just formulas, designs or inventions but also costs, pricing and specific contractual terms. Thus, while Judge Davis ultimately (after 33 pages) sets forth a simple rule – only exhibits that contain trade secrets can potentially remain sealed at trial – he does not shed any light on how broadly  the “trade secret” protection for trial exhibits extends.

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