The Defend Trade Secrets Act: Congress Considers a Federal Civil Cause of Action for Trade Secret Misappropriation

Trade secrets are a form of intellectual property that can consist of any piece of information that has commercial value or gives its owner an advantage in the marketplace.  Their value is directly tied to their secrecy, and their security and value is deeply, and often, fatally, impacted if they are stolen or publically revealed.

Currently, trade secret owners can obtain redress for trade secret theft through two avenues: federal remedies under criminal statutes and the Economic Espionage Act of 1996, and civil remedies available under state law.  Trade secret protection is roughly consistent between states, as most states have adopted a form of the Uniform Trade Secret Act.  Nevertheless, variances exist between state trade secret statutes, and the manner in which trade secret law is interpreted by courts also differs from one state to another.  As a result, a company seeking redress for trade secret theft might obtain different results in the courts of states with identical trade secret legislation.  There are currently no remedies under federal civil law for trade secret misappropriation.

Congress is considering an act to provide federal civil remedies for trade secret theft as an alternative to the relief available to trade secret owners under state law.  In late January, the Senate Judiciary Committee approved the Senate version of the Defend Trade Secrets Act, S. 1890 (the “DTSA”), moving the DTSA closer to a Senate Floor vote.  The current iteration of the DTSA contains the following notable provisions:

  • The statute of limitations to bring a claim under the DTSA will be three years.
  • The DTSA would allow trade secret owners to obtain ex parte seizure orders to recover stolen trade secrets while a full court hearing is pending.  Such seizure orders are only to be granted in “extraordinary circumstances,” upon a rigorous showing regarding ownership of the trade secret, theft of the trade secret, and the lack of harm to third parties should the ex parte order be granted.  Seized materials are to remain in the custody of the court pending a full hearing.
  • Under the DTSA, courts may not authorize the disclosure of trade secret information in litigation unless the trade secret owner is allowed the opportunity to submit the information under a seal describing the owner’s interest in preserving the confidentiality of the information.
  • The DTSA attempts to balance employee mobility against trade secret protection: trade secret owners can obtain injunctive relief to prevent actual or threatened disclosure of trade secrets, provided; 1) the injunction is supported by proof of actual or threatened misappropriation; 2) the injunction does not “prevent a person from entering into an employment relationship;” and 3) any conditions placed on employment are “based on evidence of threatened misappropriation, and not merely on the information the person knows.”  In addition, court orders cannot conflict with state laws prohibiting restraints on the practice of a profession, trade, or business.
  • “Safe Harbor” provisions in the DTSA will shelter whistleblowers who disclose trade secrets in confidence to government officials or in lawsuits alleging retaliation by an employer.
  • The DTSA will require an annual report from the Attorney General addressing overseas theft of United States trade secrets and the role of foreign governments in such theft.

The DTSA will not preempt the body of existing state trade secret law, but instead, will provide an alternative form of relief for business owners whose trade secrets have been misappropriated (particularly those whose business operations span multiple states).  If enacted, it will provide trade secret owners an additional tool to add to their enforcement arsenal.

The DTSA has garnered strong support in both the House and the Senate, and a variant of the DTSA is expected to pass into law in 2016.  — Mary Witzel

UPDATE (5/23/16): On May 11, 2016, President Obama signed the DTSA into law.  Litigants are already availing themselves of the federal civil cause of action created by the Act.  See M.C. Dean, Inc. v. City of Miami Beach, No. 16-cv-21731-CMA (S.D. Fla. May 16, 2016); Bonamar, Corp. v. Turkin, No. 16-CV-21746 (S.D. Fla. May 16, 2016); Universal Protection Services v. Thornburg, No. 2:16-cv-00097 (N.D. Tex. May 19, 2016).

Common Mistakes to Avoid When Naming a Business

Starting a business is exciting, as is picking out a name (or, in legal terms, a trademark) for your new startup. The possibilities may seem endless, or you may have one specific name that you have your heart set on. In picking a name, entrepreneurs may seize upon a certain theme or pun or just wait for a name to pop into their head. If you plan to offer products or services under your new business name, it is essential to carefully consider your options before you dive into branding. These same principles apply to choosing a trademark for a new product or service as well. No matter how you pick your new name, here are some common mistakes to avoid:

1. Descriptive Names. New business owners often want their business names to tell people exactly what products or services they are selling. Own a coffee shop? You might name it Beans and Brews. A convenience store? You might name it In-and-Out. The problem here is that such names are likely to be in use by many other coffee shops and convenience stores, meaning that consumers will find it more difficult to remember your name (because it is not catchy or distinctive) or to find you (and not a competitor) in an online search. Perhaps more importantly, you are more likely to receive a nasty cease and desist letter from a similarly-named company demanding that you stop using the name. Instead of having to completely re-brand later or face potentially substantial legal fees to fight such opposition, try to think of a unique and distinctive name — one that stands out from the crowd from the beginning. Then, if you want to include something descriptive, simply add a tagline.

2. “Borrowing” Names. Whether intentional or not, entrepreneurs sometimes pick business names that are incredibly similar to the name of a previous employer, a business across the street, or a company that caught their attention in the past. Searching for name inspiration on the Internet may lead to clever results, but it can also be risky if someone else is using the same or similar name. Not only might this be trademark infringement, but if proven, such “borrowing” could result in a willfulness finding, significantly increasing the amount of damages the other party can seek in a lawsuit. When thinking about a business name, do not emulate others. Instead, brainstorm distinctive names that will help your business cultivate its own individual brand.

3. Failing To Fully Research a Name. A preclearance search is the foundation on which to build your brand. Performed by trademark clearance experts, a preclearance search scours the marketplace (and not just Google) to find other businesses and products that use the same or similar names as your intended business name. An intellectual property attorney then reviews the report and assesses the risk associated with using your desired trademark. That way you will know up front whether to proceed with the name you have chosen or to avoid major conflicts and go back to the drawing board. Pre-clearing lets you rest easy, knowing that your brand is yours to build into an empire. — Stephanie Martinez

Social Media as a Terrorist Platform? #ISIS #TwitterTerror

Entrepreneurs and social media businesses beware! If your communications platform is used to support terrorism, you could potentially be held liable. Twitter may be learning that lesson the hard way in light of a recent lawsuit filed against the social media giant.

Lloyd Fields was killed in Amman, Jordan during an ISIS-sponsored attack on November 9, 2015, while training Jordanian police. Tamara Fields, Lloyd’s widow, filed suit in the Northern District of California on January 13, 2016, claiming that Twitter knowingly permits ISIS to recruit new terrorists, fund terrorism, and spread propaganda.

ISIS’s use of Twitter is well-documented. The Brookings Institute published a study in 2015 focusing on the spread of the militant Islamic terrorist group on the worldwide social media platform. The Brookings study estimated that between September and December 2014, ISIS supporters used at least 46,000 unique Twitter accounts, although not all were concurrently active. The ISIS-supporting accounts had 1,000 followers each (on average) and were much more active than non-supporting accounts, some authoring as many as 150 to 200 tweets a day. The study found that most of ISIS’s successful Twitter activity came from between 500 and 2,000 accounts that tweet in high-volume amounts.

Tamara Fields’ suit presents a unique challenge to the rising tide of social media as a global communications platform. In an effort to promote social media innovation and “promote the continued development of the Internet and other interactive computer services,” Congress passed 47 U.S. Code § 230, entitled “Protection for Private Blocking and Screening of Offensive Material.” Colloquially, section 230 has become known as the Computer Decency Act. The Act states that “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Essentially, the Act precludes social media sites such as Twitter from liability for the content of user posts. This would seem to bar suits brought against Twitter for what ISIS posts on the social media platform.

However, Mrs. Fields’ suit is brought under 18 U.S. Code § 2339A and § 2339B of the Anti-Terrorism Act — “Providing Material Support to Terrorists” and “Providing Material Support or Resources to Designated Foreign Terrorist Organizations,” respectively. Under these sections, whoever knowingly or with willful blindness provides material support or resources to a terrorist organization is liable. Normally a purely criminal statute, Mrs. Fields’ case seeks to hold Twitter liable under these sections via § 2333A of the same act, which allows the criminal statutes to be applied in civil suits.

In a unique application of law, the suit is not attempting to hold Twitter accountable for ISIS’s speech, but rather for providing material support to terrorism. This would mean that Twitter potentially moves from merely a social media tool to an active participant in global terrorism use simply by providing its platform.

Many who have written about Fields’ case believe that the case either lacks merit or would be extremely difficult to prove. However, her claim may have more success than it at first appears. The Anti-Terrorism Act defines “material support and resources” as (among other things) a “service.” Twitter is a communication service provided by Twitter Inc. The lynchpins of this case are: 1) whether Twitter knowingly (or with willful blindness) provided this service to ISIS; and 2) whether Twitter’s activity was a substantial factor in Lloyd Fields’ death. With regard to the latter, it is possible from the Brookings’ Institute findings that Twitter contributed to the spread of ISIS by providing both a propaganda platform for recruiting and a way to privately message recruits. As to the former, Twitter may not be able to in good faith claim that they do not provide a service to a specific set of people (ISIS), when they provide the platform for free to everyone in the world. Anyone can sign up for a Twitter account, and the ISIS-led accounts may have apparently contributed to the spread of the terrorist group. Mrs. Fields’ arguments may have much more merit than many give them credit for. It remains to be seen whether the facts will support her claim enough to show that Twitter should be liable under the circumstances.

Should Fields’ suit prove successful, it could have far-reaching consequences for social media and the technology industry. If hosting terrorism-related content itself is considered the same as providing material support to terrorism, the enormous burden of policing user accounts and content will shift to the hosting site. Instead of relying on users to report terrorist activity, sites like Twitter and Facebook would likely need to actively screen such activity in order to prevent hosting the content and facing liability. This could lead to limited user expression, if certain posts must be “approved” before they are posted. Further, direct-messaging applications in social media would potentially have to be monitored for terrorist recruiting and communication.

In what may be an effort to stay ahead of public criticism, Twitter updated the “Twitter Rules” on December 31, 2015, to include a section addressing “hateful conduct.” This section delineates Twitter’s stance that while Twitter believes in freedom of expression and “speaking truth to power,” such ideals mean little if certain voices are silenced because of fear. Therefore, the Twitter Rules now prohibit speech that directly promotes violence, directly threatens other people, or incites harm against other people on the basis of race, national origin, and religious affiliation (among other bases).

Interestingly, Twitter’s tracking abilities may give the company an unprecedented ability to police their users’ accounts and posts. The identification of current popular subjects through features including hashtag trending (globally, regionally, and locally), hashtag searching, and suggested postings based on trending hashtags appears easy. Although these abilities seem to make it easy for Twitter to identify harmful content and remove it, in practice, complications exist. Take, for example, the “hashtag” feature on Twitter — should Twitter automatically flag all accounts that post “#ISIS” as a potential terrorist threat? Many news outlets use similar hashtags to bring attention to the news they post on social media. In fact, one prevalent use of Twitter is “hashtag activism,” where individuals who otherwise could not contribute to awareness of a subject use hashtags to bring attention to issues. Screening hashtags such as #ISIS may cut down on ISIS recruiting efforts, but also would limit the ability to increase the dialogue about ISIS from concerned global citizens. Plus, once terrorist groups figure out how a social media platform is tracking them, they will likely employ methods that attempt to avoid such tracking. If Twitter is found liable for providing material support to terrorism through its platform, tracking such activity may prove a daunting task.

Although the potentially massive burden of policing user communication will likely factor into the outcome of this case, it could represents a landmark decision in social media liability and should be closely monitored by users and businesses alike.

UPDATE: On February 5, 2016, Twitter announced that it had suspended over 125,000 accounts since mid-2015 for promoting or threatening terrorism. The announcement coincides with multiple reports that the Obama administration has begun to pressure social media companies to counter terrorist activity online. It is unclear whether this announcement is in response to the lawsuit filed against Twitter discussed above, or what effect it will have upon the pending litigation. — Noah Downs