The Defend Trade Secrets Act: IP legislation ready to move forward now

It’s a lesson most of us learn in grade school. You confide to a trusted friend a juicy tidbit of private information (a failing grade, a schoolyard crush) before the first bell only to find that, by recess, it is the subject of ubiquitous discourse—and the worst part is: once the secret is out, there’s no controlling who gets access or how it is used.  For American businesses relying on trade secrets, often as part of a multi-pronged IP strategy alongside patents, trademarks and copyrights, the same principle applies.  Once a trade secret becomes known, its proprietary status is eviscerated.  Anyone can use it, and the competitive advantage it gave (which incentivized the often substantial investment in developing and protecting the technology in the first place) is lost and—without adequate legal recourse—irredeemable.

{mosads}The Defend Trade Secrets Act of 2015 (DTSA), for which identical bills were proposed with bipartisan support in both the House and Senate on July 29, 2015, would significantly improve federal protections to curb trade secret theft and thus secure the value of trade secrets.  In our modern knowledge economy where (no surprise) knowledge is a source of immense value, American companies are finding themselves the victims of trade secret theft at an alarming rate.  Unscrupulous business practices free-riding off of the investment of innovative competitors is hardly a recent phenomenon.  But the impact of mass digitization has enabled theft on an unprecedented scale.  A 2013 U.S. Chamber of Commerce study estimated the cost of cybercrime to the United States was upward of $120 billion; a 2014 PricewaterhouseCoopers/CREATe.org report estimated that theft of trade secrecy amounts to 1-3 percent of U.S. GDP.

Until recently, protections against theft of trade secrets have been a predominantly state law matter, developing against the backdrop of primarily localized and almost universally domestic incidents of misappropriation.  Yet the dumpster-diving, employee raiding and, as in one famous case, aerial photography that characterized misappropriation in the era of state law development seems almost quaint in the digital era, when a single bad actor can abscond with the equivalent of hundreds of dumpsters’ worth of valuable documents in a fraction of a second.  This is what happened with former Ford employee Yu Xiang Dong, sentenced in 2011 for copying some 4,000 documents onto an external hard drive as he was preparing to jump to a Chinese automotive company. And an even graver threat is posed by cybercriminals, who accomplish their feats of grand theft without even setting foot on American soil—making it hard to get jurisdiction and collect evidence, elements indispensable to private actions for misappropriation under the current legal regime.

The DTSA would authorize private civil actions in federal court for trade secret misappropriation.  Development of a uniform approach to trade secrecy at the federal level, with expanded remedies for misappropriation, would put the protections afforded to trade secrets in line with protections for other categories of IP.  At the same time that the U.S. Congress is considering federalizing trade secrecy protection, the European Commission is working to harmonize the divergent laws of trade secrecy across the EU.  Given America’s preeminence in the global innovation ecosystem, the sizeable contribution of IP to our economy and jobs, and the brazen (and increasingly state-sponsored) acts of theft perpetrated in the international arena, it is imperative that the United States lead rather than follow on this critical issue.

Federal trade secret legislation is ready for prime time. Literally every minute of every day, American companies are fending off attempts to gain unauthorized access to valuable secrets—secrets that, once disclosed, can never again be harnessed to sustain competitive advantage.  Congress has with the DTSA a meaningful and politically viable opportunity to send a message to American companies investing in innovation (and the nefarious actors who would steal it) that the United States will vigorously and unambiguously protect that investment.

Kappos is the former director of the United States Patent & Trademark Office. He is widely recognized as one of the world’s foremost leaders in the field of intellectual property. He is a senior advisor to the Partnership for American Innovation.