One of the overlooked issues of Britain’s decision to leave the European Union is the implications of “Brexit” on the rights afforded to individuals and entities holding European Union trademark and design registrations (a/k/a “EU Community Registrations”).  The EU Community Registration process has become favored by many trademark owners across the globe for a number of reasons, the most obvious being the ability to obtain protection in all EU member states with a single application (and the corresponding reduction in fees and costs).  It is expected that legislation will be passed to protect those who have obtained UK trademark protection by virtue of their EU Community Registration, although the logistics of any transfer from the European Union Intellectual Property Office to the UK Intellectual Property Office is yet to be determined (for example, will the registration automatically transfer, will a streamlined application process be necessary, and how will priority be determined).  With the UK’s formal departure from the EU expected to take some time, there should be no immediate concern, although trademark owners should continue to follow the issue closely to ensure continuity of protection through this transition.

After less than a day of deliberation, a California jury has found the members of the legendary group Led Zeppelin (and their record label) did not copy the famous opening riff of Stairway to Heaven from an earlier song by the band Spirit.  Applying basic copyright principles, the jury found that while Jimmy Page and Robert Plant may have heard Spirit’s song Taurus before composing the opening of Stairway, the songs were not “substantially similar.”

The verdict contrasts with another recent high-profile copyright infringement case in which a California jury found that Pharrell Williams, Robin Thicke and Clifford Harris infringed Marvin Gaye’s classic Got to Give it Up when writing Blurred Lines.  The Blurred Lines jury rejected similar defense arguments that the songs were not “substantially similar.”  (A previous blog on the Blurred Lines verdict can be found here.)

The two cases illustrate the fact-sensitive and often unpredictable nature of the “substantial similarity” test.  What remains certain, however, is that successful artists will continue to be challenged on the provenance of their works, even long after those works first topped the charts.

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), which has been widely hailed as the “most significant expansion” of federal intellectual property law since the passage of the Lanham Act 70 years ago. This post provides a brief overview of the DTSA and discusses the provisions most likely to impact businesses and trade secret owners.

      a.  Summary

The DTSA amends the Economic Espionage Act, 18 U.S.C. §§ 1831 et seq. (the “EEA”), to create a private civil cause of action for trade secret misappropriation. As stated in the official summary of the DTSA, under the new law “[a] trade secret owner may file a civil action in a U.S. district court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. The bill establishes remedies including injunctive relief, compensatory damages, and attorneys’ fees. It sets a three year statute of limitations from the date of discovery of the misappropriation.” (Summary: S. 1890 – 114th Congress (2015-2016), at Sec. 2.) Although closely aligned with the Uniform Trade Secrets Act (“UTSA”), adopted in some form by every state except New York and Massachusetts, the DTSA explicitly does not preempt preexisting state laws protecting trade secrets. (See 18 U.S.C. § 1838.)

Other provisions of the DTSA (not discussed in this post), require “the Department of Justice [to] submit to Congress and publish a biannual report on trade secret theft outside the United States” and the “Federal Judicial Center [to] develop, update, and submit to Congress best practices for seizing information and securing seized information.” (Id., at §§ 4, 6.)

     b.  Ex Parte Seizure

One of the more controversial provisions of the DTSA empowers a district court “upon ex parte application but only in extraordinary circumstances, [to] issue an order providing for the seizure of property necessary to prevent the propogation or dissemination of the trade secret that is the subject of the action.” (18 U.S.C. § 1836(b)(2)(A)(i).)

Although seizure might be an invaluable remedy to a trade secret owner, to obtain it they must meet a high burden, both factually and financially. As the text makes clear, ex parte seizure will be granted “only in extraordinary circumstances” and the requesting party must also provide security for the payment of damages resulting from wrongful, excessive, and even attempted seizure. (Id. at § 1836(b)(2)(A) and (B) (setting forth requirements for issuing seizure order and listing required elements of seizure order itself).) If the requirements are met, however, “[a]ny materials seized … shall be taken into the custody of the court” pending a hearing that must be scheduled within seven (7) days or “at the earliest possible time”. (See 18 U.S.C. § 1836(b)(2)(B)(v) (emphasis added).)

     c.  Damages

The DTSA increases the maximum penalty for trade secret theft (currently $5 million) to the greater of $5 million or 3 times the value of the stolen trade secret. A court may also award “exemplary damages” (triple damages and/or attorneys’ fees) upon a finding that the trade secret was “willfully and maliciously misappropriated”. (See 18 U.S.C. § 1836(b)(3)(B).) A variety of other remedies are available under the DTSA, including “an injunction to prevent any actual or threatened misappropriation” and, “[i]n exceptional circumstances that render an injunction inequitable,” the court may condition future use of the trade secret(s) upon the payment of a reasonable royalty. (See 18 U.S.C. § 1836(b)(3)(A)-(B).)

     d.  Whistleblower Immunity and Notice Requirement

The DTSA includes a whistleblower immunity provision that grants civil and criminal immunity “under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local governmental official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” (18 U.S.C. § 1833 (b)(1)(A)-(B).)

Businesses and trade secret owners should familiarize themselves with these provisions of the DTSA because “[i]f an employer does not comply with the [whistleblower immunity and] notice requirement…, the employer may not be awarded exemplary damages or attorney fees … in an action against an employee to whom notice was not provided.” (18 U.S.C. § 1833(b)(3)(C).)

     e.  New Definitions (And Some Old Ones, Too)

The EEA’s definition of “trade secret” remains unchanged under the DTSA, which adds definitions for, among other things, “misappropriation” and “improper means” that are similar to those found in the UTSA. (See 18 U.S.C. § 1839(5)-(6) (defining “misappropriation” and “improper means,” respectively).) A key distinction, however, is that unlike the UTSA, the DTSA expressly exempts reverse engineering and independent derivation from its definition of “improper means.” (See 18 U.S.C. § 1839(6)(A)-(B).)

CONCLUSION

     Trade secret owners and employers desiring to protect their valuable intellectual property rights should familiarize themselves with the DTSA. Although it is, in many respects, substantially similar to the UTSA already adopted by a majority of states, the remedies afforded under the DTSA – ex parte seizure of assets, treble damages and attorneys’ fees – will likely incentivize parties to file suit in federal court. Critically, however, the panoply of remedies under the DTSA is not available to an employer/trade secret owner that fails to incorporate a proper whistleblower immunity notice into their agreement with the misappropriating party. Employers and trade secret owners faced with the threat of misappropriation should be certain to incorporate a proper immunity notice in their confidentiality and trade secrets agreements with employees and contractors.

Last week, the United States Patent and Trademark Office (“USPTO”) in Lee v. Simon Shiao Tam, asked the United States Supreme Court to reverse the decision of the United States Federal Circuit, which held that trademark law’s ban on “disparaging” trademark registrations violates the First Amendment.  On December 22, 2015, we discussed the underlying decision of the Federal Circuit in Tam.  The Tam decision was expected to have broad implications, especially in light of a contradictory decision by the United States District Court for the Eastern District of Virginia, which affirmed the USPTO’s cancellation of six “REDSKINS” trademark registrations owned by the Washington Redskins football franchise, Pro-Football, Inc. (“PFI”).  The District Court held that the registrations were “disparaging” to the Native American population.

PFI initially appealed the District Court’s decision to the Fourth Circuit, and the parties are currently awaiting a date to appear for oral argument.

On the heels of the USPTO’s petition for certiorari, this week PFI filed a rare prejudgment petition for writ of certiorari to the United States Supreme Court, requesting that the High Court hear its appeal before the Fourth Circuit renders a decision.  PFI explained in its petition that its case “is the paradigmatic candidate for certiorari before judgment because it is a necessary and ideal companion to Tam.”  The two cases are undoubtedly similar and call into question the same provision of seemingly well-settled trademark law.  The respondents in the Tam and PFI cases have 30 days from the petition docketing dates to file response briefs to the petition for writ of certiorari.  Thereafter, the justices will consider whether to grant either and/or both petitions.

Lee v. Simon Shiao Tam was docketed in the United States Supreme Court as Case No. 15-1293 on April 20, 2016.

Pro-Football, Inc. v. Amanda Blackhorse, et al. was docketed in the United States Supreme Court as Case No. 15-1311 on April 26, 2016.

Are you relying on your insurance policy to cover unauthorized or unintended electronic disclosure of confidential information?  If so, you may want to take a closer look at your policy with an eye towards objections to coverage raised by an insurance company in a recent Fourth Circuit case.

In Travelers Indemnity Co. of America v. Portal Healthcare Solutions LLC, the Fourth Circuit Court of Appeals affirmed the Eastern District of Virginia’s decision requiring the insurance company defend its insured against improper disclosure claims.¹  The case arose after a class-action lawsuit was filed in New York against the insured alleging failure to adequately safeguard confidential medical records.  According to the pleadings, patients of the hospital found their medical records available on the Internet upon Google searches of their names.  Portal Healthcare and Travelers disagreed over whether the insurance policies obligated Travelers to defend the class-action and filed cross-motions for summary judgment in the Eastern District of Virginia.

According to the Eastern District decision, the insurance policies covered “electronic publication of material that . . . gives unreasonable publicity to a person’s private life” or “discloses information about a person’s private life.”  Given that the insured stored confidential medical records, it doesn’t seem unreasonable that the insured would have thought it had coverage for data disclosure types of claims.  However, the insurance company took the position that defense of the insured was not required.

As grounds for not defending against the class action suit, Travelers asserted that there could be no publication as required under the policy because “the entire purpose of the services [the insured] provided was to keep the medical records private and confidential.”  According to the insurance company’s argument, the fact that the records ended up available on the Internet did not mean they were published. In a similar vein, the insurance company argued that the policies at issue would only provide coverage if the insured had taken steps intending to attract the public, and further that there was no publication (and therefore no coverage) because no third-party was alleged to have actually viewed the information.

Although Travelers’ arguments were rejected and the Court found defense required, engaging in these types of disputes over policy language has potential for undesirable consequences in the underlying action (e.g., an insured might end up having to argue that there was a publication of confidential information to get insurance coverage, when that might be one of the elements of the very claim against the insured).  The case goes to show how important it is to review your coverages for data disclosure and cybersecurity types of claims, lest you find yourself surprised to fighting two battles instead of one.

¹See Travelers Indemnity Co. of America v. Portal Healthcare Solutions, LLC, Case No. 14-1944 (4th Cir. April 11, 2016) at the District Court, 35 F.Supp.3d 765 (E.D. Va. 2014).