Time for Action on Defending Trade Secrets

The proposed Defend Trade Secrets Act or DTSA (S.1890/H.R. 3326) will help protect America’s trade secrets by raising the financial and legal consequences applicable to theft of trade secrets. In some cases, DTSA would enable quick recovery of the stolen secrets, thereby preventing irreparable damage to the victims.

Trade secrets “include any useful formula, plan, pattern, process, program, tool, technique, mechanism, compound, or device that is not generally known or readily ascertainable by the public.” Those secrets need to be protected from espionage that can be reasonably anticipated and prevented. Trade secrets can be revealed to agents and employees, so long as they understand that the information is confidential and disclosure is forbidden. As long as the nature of the confidentiality obligation is understood, employees are not permitted to use those secrets against the employer’s interest.

The value of a trade secret hinges on enforcing the secrecy (e.g., Coca Cola formula). Copying of the secret undermines its economic value and when a secret is stolen or copied, the economic value can be protected only through rapidly preventing its dissemination or use. Slow forensic work or apprehension of the thief or even court delays can dissipate a trade secret’s value.

Unlike trade secrets, patents are registered and reveal to the public the parts and mechanisms that make the invention effective and unique. The protection afforded to patents comes from law unique to patents, trademarks and copyright. Trade secrets are different from patents because they are neither registered nor are the innovation’s important elements revealed to the public.

The US Chamber of Commerce estimates that publicly traded companies own $5 trillion worth of trade secrets, and that these trade secrets are being stolen at a pace of $160 to $480 billion per year, costing the economy 2.1 million jobs. Much of trade secret theft has been through cyber-theft and an alarming amount has been conducted on behalf of foreign governments.

Currently, protection available for trade secrets comes from the federal Economic Espionage Act and from state laws modelled on the Uniform Trade Secrets Act (UTSA). States’ adoption of UTSA have not been “uniform” so when a trade secret prosecution must collect evidence from several states or involves criminals in several states or countries, the process bogs down and becomes exceedingly expensive.

The EEA treats as criminal any trade secret theft conducted for the benefit of foreign governments or for economic gain. Three shortcomings exist; there is currently a shortage of federal investigators and prosecutors with trade secret experience. the EEA lacks an open discovery process that applies to lawsuit participants in foreign locations, an omission that encourages destruction or withholding of evidence, and the EEA also lacks any provision for the victim to be compensated for damages.

The proposed DTSA “creates a uniform standard for protection of trade secrets nationwide, improving the efficiency and predictability of litigation and allowing companies to create one set of best practices to protect their intellectual property in every jurisdiction. The legislation will also provide a mechanism for obtaining expedited relief when a company’s trade secret is threatened with imminent destruction or dissemination.”

Persisting high losses through trade secret theft, the ensuing job losses, and the flaws in current trade secret protection laws make a compelling case for enactment of the Defend Trade Secrets Act.

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