President Obama Signs into Law the Theft of Trade Secrets Clarification Act

On December 28, 2012, President Obama signed into law the Theft of Trade Secrets Clarification Act. The Act amends the Economic Espionage Act of 1996 (EEA) and expands the jurisdiction of federal courts over cases concerning misappropriation of trade secrets. It was enacted in response to a recent Second Circuit decision that arguably narrowed the jurisdictional scope of the Economic Espionage Act of 1996.

The passage of the EEA (18 U.S.C. §§ 1831-39) marked the first major federal legislation aimed specifically at granting federal courts jurisdiction over claims of trade secret misappropriation. With the enactment of the EEA, Congress gave federal prosecutors a vehicle to bring criminal charges against individuals who knowingly misappropriate trade secrets. 18 U.S.C. § 1832(a). The EEA also provided the federal government the ability to seek injunctive relief for trade secret theft in a civil action under the statute. Id. § 1836.

Prior to the EEA, trade secrets were the subject of state law protections, largely under state-adopted versions of the Uniform Trade Secrets Act. Under that regime, federal courts obtained jurisdiction over such claims solely by means of diversity jurisdiction or through charges under federal criminal statutes stretched to cover trade secret misappropriation.

While the enactment of the EEA was a significant step toward extending meaningful federal protection to trade secrets, the reach of the EEA was constrained by language that made it applicable only to the theft of trade secrets related to "a product that is produced for or placed in interstate or foreign commerce." 18 U.S.C. § 1832(a). In April 2012, in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), the Second Circuit interpreted this language to mean that the EEA only applied where a trade secret relates to products that a company sells, and not those related to products that a company uses internally. As a result, the court reversed the conviction of former Goldman Sachs programmer, Sergey Aleynikov, who was convicted under the EEA for stealing source code for Goldman Sachs’ proprietary trading platform. Aleynikov, 676 F.3d at 73. The Second Circuit held the stolen software was not protected by the statute because it was only used internally by the company and, accordingly, never was "produced for or placed in" commerce. Id. The decision led many advocates for trade secret protection to question the effectiveness of the EEA to prevent the misappropriation of valuable confidential business information.

As a result, Congress passed, and the President signed into law, the Theft of Trade Secrets Clarification Act. The Act expands the EEA so that it now covers not merely a trade secret included in products that are produced for or placed in commerce. Instead, the EEA now applies to trade secrets related to "a product or service used in or intended for use" in commerce. According to Senator Patrick Leahy, the sponsor of the bill, the new language would encompass trade secrets like Goldman’s internal source code, which, though not for sale, "was part of a financial trading system that was used in interstate commerce every day." Cong. Rec. S6978 (daily ed. Nov. 27, 2012).

The Theft of Trade Secrets Clarification Act standing alone is significant. That it was enacted in a political era marked by partisanship and the "fiscal cliff" by a lame-duck Congress during a holiday consumed by fiscal cliff negotiations makes it all the more remarkable. These circumstances underscore the federal government’s continued commitment to protecting the intellectual property of U.S. businesses and entrepreneurs.