Debunking Myths About the Proposed Federal Trade Secrets Act

By Mark Schultz

Today, CPIP is proud to release a paper authored by the nation’s preeminent expert on trade secret law, James Pooley. Mr. Pooley’s paper explains the arguments in favor of the Defend Trade Secrets Act of 2015 (“DTSA”), which is currently being considered by Congress. To download the paper, please click here.

The DTSA would create a federal cause of action for trade secret misappropriation. The legislation has been proposed via identical House (H.R.3326) and Senate (S.1890) bills. While trade secret theft has been a federal crime since 1996 pursuant to the Economic Espionage Act, civil claims have been left to state laws. The new bill would provide nationwide federal jurisdiction, while retaining the parallel state laws.

Trade secrets have become increasingly important at the same time they have become more vulnerable. Research in the US and Europe shows that trade secrets are the kind of IP most widely and universally relied upon by businesses. They are particularly important to small businesses. However, they can be stolen more easily than ever. Vital proprietary information that once would have resided in file cabinets and that would have taken days to copy now can be downloaded at the speed of light.

The DTSA is needed to improve the speed and efficiency of trade secret protection in the US. By some measures, as my own research for the OECD with my co-author Doug Lippoldt showed, the US has the strongest laws protecting trade secrets in the world. However, the multi-jurisdictional approach taken by the US presents a unique challenge to enforcing trade secrets quickly and efficiently. Investigating claims, conducting discovery, and enforcing claims in multiple states takes time. In an ordinary tort or contract case, such delays are usually manageable. In a trade secret case, even small delays can make the difference between rescuing a multi-million dollar secret and seeing its value destroyed utterly.

The proposed DTSA has enjoyed broad support from a coalition of large and small businesses. The bill has been largely uncontroversial, except among some legal academics. We have become accustomed to reflexive academic skepticism of improving IP rights, but some of the arguments against the DTSA have been truly puzzling.

The most puzzling academic argument against the bill is the claim that adding federal jurisdiction to trade secret enforcement will give rise to a new class of trade secret “troll.” It’s hard to see this claim as anything other than a mere rhetorical attempt to piggyback on the (largely specious) patent “troll” issue. According to research conducted for the European Commission, as well as widespread anecdotal evidence, firms routinely forego litigating trade secret claims for fear of revealing their proprietary information. It is thus hardly credible that they would expose their secrets in order to “troll,” especially merely because they now have easier access to federal courts.

Mr. Pooley’s paper explains the benefits of the DTSA while carefully refuting the “troll” myth and other arguments against the bill. The article includes a timely response to an academic letter released today expressing opposition to the DTSA.