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Recent Seyi Decision a Prelude to a Kiss? Federal Trade Secret Reform

The firm's recent decision in Seyi-America, Inc. v. Stamtec, Inc., 4:13-cv-00082-HSM-WBC (E.D. Tenn. Jan. 30, 2015), highlights a timely issue currently being considered by the U.S. Congress.  That is – a need for a federal law to protect businesses’ trade secrets.  As observed by the House Judiciary Committee, “The threat is significant: Trade secrets are an integral part of a company's competitive advantage in today's economy . . .”

In our case, the district court considered weighty threshold issues in a long standing dispute between two fierce competitors in the international mechanical press industry regarding alleged misappropriations of trade secret information protected by state law.  The plaintiff originally filed an action in California for, among other things, misappropriation against its former employee under California’s version of the Uniform Trade Secrets Act.  The plaintiff later filed an action in Tennessee against our firm’s client asserting claims under Tennessee’s version of the Uniform Trade Secrets Act. 

The action in Tennessee was based on the same transactions and occurrences alleged in the California suit.  As such, we asked the district court to consider a complex issue of which state’s law will govern the dispute.  The plaintiff argued that it was entitled to pursue claims under both state’s laws, while we argued that California law should govern the dispute at issue.  Ultimately, after grappling with what is a most difficult choice of law analysis, the district court agreed with our position and held that California law governed the plaintiff’s action.

The issue facing the district court merely highlights a contemporary problem in our increasingly global economy.  At present, unlike other areas of intellectual property and with the exception of certain criminal statutes, causes of action for misappropriation of trade secrets are exclusively governed by state laws, based mostly upon the Uniform Trade Secrets Act.  As a result, in almost every case involving interstate commerce there will be some choice of law issue, which is far from a simple task for courts to address given the complexities of this area of the law.  The crux of this complexity lies almost exclusively in the patchwork nature of the laws and standards, including discovery rules, governing trade secrets across jurisdictions.

It is for good reason then that the U.S. Congress has taken up this issue and is currently considering legislation that would standardize trade secrets law for businesses and provide for a federal cause of action for misappropriation.  See H.R. 5233, the Trade Secrets Protection Act of 2014; S.2267, the Defend Trade Secrets Act of 2014.  The import of the issue facing businesses was expressed by the House Judiciary Committee, as follows:

Trade secrets are the commercially valuable designs, processes, techniques and other forms of information kept confidential by companies because, by virtue of their secrecy, they give companies an edge in a competitive marketplace. Often developed at great cost and through years of research and development, trade secrets include manufacturing processes, proprietary technologies, industrial techniques, formulas, codes, designs, and customer lists. In a global economy based on knowledge and innovation, trade secrets constitute some of any company's most valuable property. The trade secrets of American companies are increasingly at risk for misappropriation by thieves looking for a quick payday or to replicate the market-leading innovations developed by trade secret owners. Using ever-more sophisticated means of attack, these thieves aim to steal the know-how that has made American industry the envy of the world. The Commission on the Theft of American Intellectual Property found that the illegal theft of intellectual property is undermining the means and incentive for entrepreneurs to innovate, slowing the development of new inventions and industries that could raise the prosperity and quality of life for everyone.

House Report 113-657 – Judiciary Committee – Trade Secrets Protection Act of 2014.

Obviously, the legislation is in its infancy, and much remains to be seen.  However, passage of this type of law would almost certainly be of great assistance to courts and litigants alike.  For instance, creating a federal cause of action would standardize the legal issues to be litigated in this type of case, much like cases of other federally protected intellectual property (i.e. trademark, patent, and copyright).  Moreover, such causes of action will most certainly be brought originally in federal court, a forum which is by necessity more familiar with complex intellectual property disputes. 

The changing tide on this issue appears to be driven by the recognition that trade secrets are as vital to business as are any other form of intellectual property.  In fact, it is probably a more common issue and affects far more typical businesses than do any other type of intellectual property issues.  We shall see what the future holds for the federal law of trade secrets.  In the meantime, please contact us if you have questions about how to protect your “most valuable property” or if you have a dispute involving trade secrets.