What is the Defend Trade Secrets Act and How Does it Affect Fashion?

The House of Representatives voted on Wednesday, 410-2, in favor of passing the Defend Trade Secrets Act on the heels of it being unanimously passed by the Senate earlier this month. Having been approved by both bodies, the legislation – which aims to create uniform standards for what constitutes trade secret theft – is awaiting President Obama's signature at which point it will become a federal law. While trade secrets (any confidential business information that provides an enterprise with a competitive edge) are commonly viewed as manufacturing processes, formulas, computer algorithms, and industrial designs, they also encompass business strategies and customer lists – the latter couple of which heavily affect the workings of the fashion industry.

Speaking about the legislation on Wednesday, House Judiciary Committee Chairman Bob Goodlatte said it "will help American innovators protect their intellectual property from criminal theft by foreign agents and those engaging in economic espionage." Theft of intellectual property, including trade secrets, is estimated to cost American firms more than $300 billion a year, according to a 2013 report by the Commission on the Theft of American Intellectual Property.

While trade secret theft already is a federal crime, without the right to sue in federal court, companies must seek redress in state courts amid a patchwork of state laws, and corporations such as Boeing Co and Johnson & Johnson, as well as the U.S. Chamber of Commerce and computer software lobbyists representing companies, such as Apple and Microsoft Corp, have pushed for the enhanced protections.

HOW IS THIS RELEVANT FOR FASHION ENTITES?

In speaking about intellectual property in fashion, trademarks, designs patents, and in some cases, copyrights, seem to be the most relevant or at least, the most heavily referenced. However, trade secrets play a crucial role in the running of fashion businesses. Per the World Intellectual Property Organization (“WIPO”), “Trade secrets may range from a list of key suppliers and/or buyers, to use of software tools for fashion design, to logistics management of the en- tire value chain. In some fashion businesses, core trade secrets serve to protect the computer-implemented, software-based business models, which underpin an entire business strategy, based on stealth and speed, to supply a limited quantity of fashion products.”

WIPO looked to Zara, the Spanish fast fashion giant, as a demonstrative case of the importance of trade secret law: “Zara, uses a proprietary information technology system to shorten their production cycle – i.e. the time from identifying a new trend to delivering the finished product – to a mere 30 days. Most of their competitors take from 4 to 12 months. The company receives daily streams of e-mail from store man- agers signaling new trends, fabrics and cuts, from which its designers quickly prepare new styles. The fabric selected is immediately cut in an automated facility, and sent to work shops. A high-tech distribution system, with some 200 kilometers of underground traces and over 400 chutes, ensures that the finished items are shipped and arrive in stores within 48 hours.”

But Zara is not the only fashion company that benefits from the protections offered by trade secret law. You may recall that Nike’s reliance on trade secret came to the forefront a couple of years ago when three employees jumped ship to addias, allegedly taking with them years worth of trade secrets, including but not limited to: Nike's future strategic development plans, products offerings and product launches, which Nike classifies as "extremely confidential and commercially sensitive master plans for the next three to for years," unreleased product design materials for the "next two to three years," unreleased product technology, financial product performance information, including "a non-public financial breakdown of the footwear sales, including past performance data, gross margin expectations, and projected growth for the next 12 to 18 months," marketing campaign materials, virtual testing methodologies, and blueprints for product launches, including "step-by-step instruction manuals for conducting a successful product launch."

In short: trade secrets range from sales and distribution methods to consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes, and often make up a very significant portion of any business - including fashion ones - which is makes their misappropriation particularly problematic.

As for how exactly the Defend Trade Secrets Act aims to help American innovators to protect their intellectual property, a few key takeaways are as follows. The Act will …

• Create federal court subject matter jurisdiction with appeals going to the regional federal circuit courts;

• Model the definitions of "trade secret," "misappropriation," and "improper means" after those in the Uniform Trade Secrets Act;

• Provide for ex parte seizures of misappropriated trade secrets in "extraordinary circumstances where necessary to preserve evidence or prevent dissemination of a trade secret;”

• Award attorneys' fees to the prevailing party if the defendant's misappropriation was "willful and malicious" or if the plaintiff makes a meritless claim of misappropriation in "bad faith;” and

• Create immunity for whistleblowers and require that employment contracts provide employees with notice of this immunity.