In July, Senators Herb Kohl (WI), Chris Coons (DE) and Sheldon Whitehouse (RI) introduced the Protecting American Trade Secrets and Innovation Act of 2012 (PATSIA), to the applause of many in the trade secret community, including yours truly. One of PATSIA’s notable provisions proposed is an ex parte seizure order that would enable a trade secret claimant to seize evidence or product relating to misappropriated trade secrets that might otherwise be destroyed or improperly used. Does this seizure provision, however, go too far?
Recap of the Proposed Seizure Order: PATSIA provides for an ex parte proceeding that authorizes the seizure of materials (1) used in connection with the alleged misappropriation (including computers) or (2) for the preservation of evidence. A federal court can approve the seizure order if the claimant presents clear and convincing evidence of irreparable harm (not a terribly high standard, since that is the standard required for any injunction) without notice to the other side. While short in duration (the seizure can last no longer than 72 hours), the categories of information subject to seizure are very broad.
Once the products or computers are seized, however, there is no provision addressing how the information should be stored or protected, who will actually gather it, and who will have access to it. Instead, the proposed statute simply says an “appropriate” protective order should be included to protect disclosure or misuse of the information seized. (A link to the proposed statute and seizure order can be found here).
“I was for it before I was against it”: After some reflection and gentle chiding from a colleague concerned about the potential for the seizure order’s abuse, I now think this provision has to be modified. As presently proposed, what would prevent a judge who was not on top of his game that morning from granting an ex parte seizure allowing a competitor to misuse the order to seize and review high level trade secrets for its own benefit? Before you harrumph and say “impossible!”, think about the number of bad faith trade secret actions in the news over the past six months (ACS v. Leadscope, SASCO v. Rosendin Elec., etc.). One would hope there would be severe consequences if a court improvidently granted such an ex parte request, but the damage from the disclosure would be done.
How best to narrow the provision but still keep it effective? I think there are three changes that would significantly reduce, if not eliminate, this potential problem with the seizure provision.
First, the ex parte seizure provision should be aligned to the primary goal of PATSIA — namely, the protection of U.S. trade secrets from foreign misappropriation. A review of of a press release by Senator Kohl for a previous amendment to the Economic Espionage Act virtually identical to this bill made clear foreign misappropriation was the primary concern, so why not confine this powerful tool to that perceived problem?
Second, the material or evidence that was seized would have to be kept in a secure escrow or location where the party bringing the claim could not inadvertently or intentionally access that information during the pendency of the seizure order and any challenge to the seizure order. This would serve the purpose of preservation and segregation but remove the danger of misappropriation. Make the statute clear that the claimant cannot access the information or evidence until a court has the opportunity to hear from the other side.
Third, there should be mandatory and severe penalties for any abuse of the seizure order. While the provision authorizes claims for compensatory damages, punitive damages and attorneys fees for a bad faith seizure order, that is not enough. Penalties should be directed at the lawyer as well as the client. Have the lead lawyer certify why this order needs to be done in an ex parte fashion. This would ensure that a claimant and his counsel would be on the hook if they were not careful in considering their request or acted improperly during the seizure process.
Another Necessary Fix: And while this amendment is being made, Congress should take the opportunity to undo the damage caused by the U.S. Court of Appeals for the Second Circuit in U.S. v. Aleynikov. Readers of this blog will remember that the Second Circuit bobbled the ball when it imposed an unduly narrow construction of the categories of trade secrets covered under section 1832 of the Economic Espionage Act to only those trade secrets that are included in products that are ultimately sold within the stream of commerce. This too needs to be fixed as a broad category of trade secrets would be left unprotected under the statute’s present language, which tracks the language of section 1832.