Trade secrets: Promise of federal protection brings new hope for critical IP law

U.S. companies protect their intellectual property through various legal tools, including patents, copyrights, trademarks and trade secrets. Despite accounting for an average of two-thirds of U.S. companies’ information value, trade secrets suffer from extremely limited recognition under federal law. This lack of protection has led to a host of problems that threaten U.S. companies’ competitiveness at home and abroad.

As was confirmed at Tuesday’s Judiciary Subcommittee hearing, the lack of strong federal protection for trade secrets has become a real competitive weakness for the U.S. economy and American companies, with victims of trade secret misappropriation forced to seek redress through a patchwork of other, ill-suited protections. But a new bill called the Defend Trade Secrets Act, introduced this April by Sens. Chris Coons (D-Del.) and Orrin Hatch (R-Utah), offers major improvements that would finally provide strong federal protection for companies and inventors.

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U.S. company trade secrets are commonly misappropriated by domestic and foreign entities, both in the U.S. and in countries lacking strong IP protection. These stolen secrets are then used to unfairly compete with the trade secret owner. The problem has become systemic. According to recent industry surveys, nearly 60 percent of respondents reported having been victims of attempted or actual trade secret theft. Estimates place the annual cost of trade secret misappropriation to U.S. companies in the range of $160 billion to $480 billion.

The first federal effort to address trade secret misappropriation came in the form of the Economic Espionage Act of 1996, which made trade secret theft a federal crime. Because the Act was limited to criminalizing misappropriation – rather than allowing for civil causes of action – U.S. companies must rely on the government to enforce their rights for them. Due to finite resources, the Department of Justice initiated just 25 trade secret theft cases in 2013.

Other than this single federal criminal statute, there are scant options for companies to defend themselves. Most individual states have statutory civil causes of action and a few have unfair competition laws that attorneys general have threatened or filed suits under. But because these actions only address violations state-by-state; issues such as discovery, witness production, and even fleeing defendants are nearly impossible to manage. Additionally, companies have utilized actions under Section 337 of the Tariff Act before the ITC. But, because Section 337 actions require plaintiffs to prove importation, these actions only cover the limited circumstances in which goods embodying a stolen trade secret are imported.

The Defend Trade Secrets Act addresses the drawbacks of the existing system. The Act would amend the Economic Espionage Act to include a federal civil cause of action for the theft and misappropriation of trade secrets. Specifically, it would harmonize U.S. law by creating a single federal standard for misappropriation. It would enable discovery, witness production, and flight-risk defendants to be handled effectively through well-established federal processes. And it would provide the same nationwide remedies for trade secret misappropriation as are already available for patent, copyright and trademark infringement. This would allow U.S. companies to combat trade secret misappropriation without any of the inefficiencies and jurisdictional problems that plague the existing system.

Importantly, the Defend Trade Secrets Act would mark a strong and clear statement that the U.S. government stands behind U.S. business—in a world where thieves are systematically attacking American innovators on a scale never before seen. A private federal cause of action can be utilized on a far larger scale than DOJ criminal actions limited by strained government resources. And a private federal cause of action carries considerable advantages to scope, scale, and flexibility as compared to ITC and state attorney general actions.

It is time for our country to put in place a federal trade secret system providing the same protections to trade secrets as the federal government provides to other forms of intellectual property. Our current patchwork invites theft, under-values trade secrets, reduces the incentive to invest in U.S.-based R&D, and puts American jobs at risk. The Defend Trade Secrets Act would provide much-needed relief to U.S. innovators that have been harmed for too long. The Partnership for American Innovation applauds Sens. Coons and Hatch for introducing the Defend Trade Secrets Act, and supports its early enactment to extend our country's gold standard IP protections to trade secrets.

Kappos, a former director of the U.S. Patent and Trademark Office, is senior adviser for the Partnership for American Innovation.