Why the Burden of Proving Causation Should Shift to the Defendant Under the New Federal Trade Secrets Act Robert A
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Hastings Business Law Journal Volume 13 Article 1 Number 1 Fall 2016 Fall 2016 Why the Burden of Proving Causation Should Shift to the Defendant Under the New Federal Trade Secrets Act Robert A. Kearney Follow this and additional works at: https://repository.uchastings.edu/ hastings_business_law_journal Part of the Business Organizations Law Commons Recommended Citation Robert A. Kearney, Why the Burden of Proving Causation Should Shift ot the Defendant Under the New Federal Trade Secrets Act, 13 Hastings Bus. L.J. 1 (2016). Available at: https://repository.uchastings.edu/hastings_business_law_journal/vol13/iss1/1 This Article is brought to you for free and open access by the Law Journals at UC Hastings Scholarship Repository. It has been accepted for inclusion in Hastings Business Law Journal by an authorized editor of UC Hastings Scholarship Repository. For more information, please contact [email protected]. KEARNEY MACRO KEARNEY.DOCX (DO NOT DELETE) 2/9/2017 3:40 PM Why the Burden of Proving Causation Should Shift to the Defendant under the New Federal Trade Secrets Act Robert A. Kearney* I. INTRODUCTION The new federal Defend Trade Secrets Act1 is like a surprise addition to a family: a happy though puzzling event followed by a genuine concern about how it is going to be cared for and fed over the next twenty-five or so years.2 That is because while trade secrets have always been considered part of intellectual property law,3 the secrets have never been protected by federal legislation, unlike patents,4 trademarks,5 and copyrights.6 The law in those traditional IP areas is fairly mature in the federal courts, though certainly not orderly or structured. Civil trade secret cases have always been local, state court matters, placed on the same docket as tenant disputes and custody fights, unless a case has landed in federal court under diversity jurisdiction.7 The typical trade secret case is welcome in federal court now, Edward R. Telling Professor, Illinois Wesleyan University. B.A., University of Notre Dame; M.B.A., University of Illinois at Chicago; J.D., Notre Dame Law School. 1. See Defend Trade Secrets Act of 2016, Pub. L. No. 114-53, 130 Stat. 376 (amending the Economic Espionage Act to allow private parties to seek civil remedies in Federal Court for trade secret misappropriation and codified as amended at 18 U.S.C.A. § 1836 et. seq. (2015)). 2. It took more than twenty-five years for Congress to amend Title VII of the Civil Rights Act of 1964 in a meaningful way. See Civil Rights Act of 1991, Pub. L. No. 102-66, 105 Stat. 1071. 3. “This is an important case because trade secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry.” Rockwell Graphic Sys., Inc. v. DEV Inds., Inc., 925 F.2d 174, 180 (7th Cir. 1991); but see Defend Trade Secrets Act of 2016, Pub. L. No. 114-53, § 2(g), 130 Stat. 376, 382. (“This section and the amendments made by this section shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress.”). 4. See 35 U.S.C. § 101 et. seq. (2015). 5. See 17 U.S.C. § 1051 et. seq. (2015). 6. See 17 U.S.C. § 102(a) (2015). 7. On the criminal side, the misappropriation of trade secrets has been a federal crime since 1996 by virtue of the Economic Espionage Act of 1996, Pub. L. No. 104‐294, § 101, 110 Stat. 3488 (codified [1] KEARNEY.DOCX (DO NOT DELETE) 2/9/2017 3:40 PM 2 HASTINGS BUSINESS LAW JOURNAL [Vol. 13:1 and given its long wait for that kind of acceptance, it might be forgiven for saying thanks, but no thanks. Eventually, though, trade secret practitioners will find their way to federal court, if not by plaintiffs then by defendants through the removal process. And when they get there, they will find federal judges who no longer need to be worried about what the highest court in a particular state would say, as they usually must when sitting in diversity.8 Attorneys will find judges who are free to start creating a federal common law to support trade secret litigation just as they have done in other areas, such as under Title VII of the Civil Rights Act of 1964 over the last fifty years.9 Congress passes spare laws, leaving the work of interpretation to the Courts. So the work of these judges will be long-term and slow moving. The issue for these federal courts is the same issue facing the surprised parent: what are our hopes for this new addition and how might we correct the mistakes we made the last time? The answer to the first question should be simple: it should live up to its name and help trade secret owners stop theft. Their secrets might not be registrable in Washington like patents, trademarks, and copyrights are,10 but their competitive value is no less and in some instances much more. The answer to the second question is to decide soon what will be expected of litigants to win these cases. It has taken a half-century of litigating employment discrimination cases to determine what fundamental terms mean, starting with the word sex,11 and whether a defendant can be liable if it makes an employment decision for more than one reason and at least one of those reasons is lawful.12 Similarly, litigants waded through the federal courts for decades before the Supreme Court determined who can be liable for certain bad acts such as harassment.13 Even long after Title VII’s passage, it is fair to say that proving a discrimination case is neither orderly nor particularly understandable. In fact, it is a hodgepodge at 18 U.S.C. §§ 1831-1839 and amended by Defend Trade Secrets Act of 2016, Pub. L. No. 114-53, 130 Stat. 376). 8. See Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630, 633-35 (7th Cir. 2002) (applying Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). 9. As one example of federal common law creation under Title VII, see Meritor Savings Bank v. Vinson, 477 U.S. 57, 72 (1986) (instructing courts to “look to [common law] agency principles” in determining the scope of employer liability in hostile environment harassment cases). 10. Indeed, “[t]rade secrets often are unpatentable.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 497 n.3 (1974). 11. See Price Waterhouse v. Hopkins, 490 U.S. 228, 239-40 (1989) (interpreting "because of . sex" in Title VII to also prohibit employment discrimination based upon someone's "gender"). 12. See id. at 252 (discussing the switching burden of proof in mixed-motive cases). 13. See 18 U.S.C. § 1836(b)(3)(A) (2015). KEARNEY.DOCX (DO NOT DELETE) 2/9/2017 3:40 PM Fall 2016] BURDEN OF PROVING CAUSATION 3 of proof patterns and presumptions, and it would not be unfair to call it a mess. It does not have to be that way when it comes to federal trade secret cases. Federal courts may not have asked for this new law, and whether it has been welcomed may be disputable, but it is here now. At this point, the goal should be to raise it the right way and to avoid the mistakes learned after the passage of other major legislation. Courts can start by giving the Defend Trade Secrets Act causation standard that makes sense and gives plaintiffs a reasonable chance to prove their cases. When it comes to damages, that means shifting the burden to the defendant to prove that the plaintiff’s loss (or the defendant’s gain) would have occurred anyway, even without the defendant’s theft. As it presently stands and as discussed below, courts impose a “but for” causation standard that means a defendant can easily take advantage of the disruptive effects of its misappropriation. The change is simple: Where the plaintiff’s loss is the natural result of the defendant’s bad act, but the defendant points to other causes, it is the plaintiff who should get to say “prove it.” The new Federal Trade Secrets Act is an opportunity for federal courts to get things right the first time and avoid the mistakes that state courts have made in deciding trade secret cases. Big fixes should come first, which means admitting that the reason so many cases lose is because when it comes to causation we have it mostly wrong. II. STRAIGHT TO THE PROBLEM The first decision that a plaintiff typically makes in a trade secret misappropriation case is whether to try to stop the defendant immediately from disclosing or using the stolen trade secret or whether to treat the problem as a straightforward damages matter. If the disclosure or use can be stopped, and if an injury would be difficult to repair and compensate, then the plaintiff will pursue a preliminary restraining order and an injunction.14 Proceeding quickly to stop an injury before it takes hold makes sense, but it is also risky: a judge may just as quickly decide that what the plaintiff thought was a trade secret is not one after all, in which case the plaintiff is in a worse position because it has forfeited any deterrence leverage resulting from threatening the defendant with litigation.15 14. See 18 U.S.C. § 1836(b)(3)(A) (2015). 15. For that reason, if it is not a case where the Coke formula is at risk, a plaintiff often chooses to communicate with the misappropriator in writing by sending cease and desist letters.