Time for lawmakers to protect America’s secret sauce

This week lawmakers came together on a bi-partisan basis to introduce the Trade Secrets Protection Act of 2014 to protect American workers from those who would steal the “secret sauce” that gives them a hard-won edge over their rivals.

America’s competitive edge is not based on cheap labor. Rather, companies like GE, Caterpillar, Microsoft and Monsanto lead the world in their industries because of the creativity of their scientists, engineers, designers and marketing professionals. One reason innovators have always led the way to prosperity in America is because the founders wrote an incentive for creativity into the Constitution by empowering Congress to enact patent and copyright laws. Over time Congress not only revisited these laws to keep them up-to-date, but also used its powers under the Commerce Clause to establish a national trademark regime, the Lanham Act, that protects the brand identity of goods and services so that consumers can make knowledgeable comparisons of the many offerings in the marketplace.  But in the hyper-competitive world today, this triad of intellectual property laws is no longer enough.

{mosads}There have always been businesses who broke or stretched the rules, but regretfully, some of our country’s international competitors routinely cheat, with well-organized schemes to steal America’s trade secrets. A study by the U.S. Department of Defense has concluded that theft of trade secrets has become a national security concern. In 2012, while serving as head of the National Security Agency and the U.S. Cyber Command, General Keith Alexander warned that cyber espionage is the “greatest transfer of wealth in history,” estimating that U.S. companies lose $250 billion per year due to theft of proprietary industrial information. Today, thousands of proprietary business documents can be accessed electronically and illegally downloaded in seconds. The new technology of theft requires new laws and policy makers have begun to come to terms with this.

Congress first addressed the problem by giving the Attorney General jurisdiction over the theft of trade secrets when it enacted the Economic Espionage Act (EEA) in 1996. While this has enabled the FBI and federal prosecutors to expand national security-oriented investigations to encompass the economic dimensions of foreign spying, it is inadequate to address the exploding use of information theft as an unethical business practice that distorts fair competition whether between American competitors or from foreign commercial rivals.

State courts and legislatures developed a patchwork of common law and statutory remedies for theft of business secrets beginning in the 19^th Century. Then, the problem was usually confined to a disgruntled employee taking insider information to his boss’s rival down the street or across town. The interstate nature of the problem was recognized by the 1980s when states began to harmonize their differing approaches by adopting the Uniform Trade Secrets Act (USTA). Today, 48 of the 50 states have adopted some form of the USTA.

These state laws may have been effective when the problem was confined to someone purloining a customer list or a blueprint that could be stuffed into a briefcase and sold to a competitor in the same or a nearby state, but today computer files containing proprietary formulas, analytic algorithms, manufacturing processes and marketing plans can be accessed without authorization, downloaded and transmitted to an unscrupulous rival across the continent or an ocean with a few keystrokes.

While the threat of criminal prosecution under the EEA may be a deterrent, the resources available to the FBI and federal prosecutors are limited, and they must focus on the most serious cases, usually involving national security or organized crime. Moreover, it is not reasonable to expect the taxpayer to defend a business from every unscrupulous competitor. That is why, even though copyright and patent infringements can rise to the level of criminal law enforcement, most cases are handled as civil disputes adjudicated in federal trial courts where it is up to the infringed party to bring an action and prove his case. The time is now ripe for a similar civil remedy in trade secrecy cases.

The proposed Trade Secrets Protection Act will not supersede existing state remedies under the USTA, just as the federal trademark law, the Lanham Act, does not interfere with state registration and enforcement of trademarks. But, like the Lanham Act, it will provide an efficient and effective way for the private sector to police itself, through civil enforcement, where disputes over trade secrets impact interstate and international commerce. If a federal court finds that a trade secret has been misappropriated, it will be able to issue a permanent injunction and impose monetary damages, including treble damages where the trade secret has been “willfully and maliciously misappropriated”.

The proposed Act authorizes surprise seizure of evidence or property necessary to prevent the dissemination of a trade secret when an applicant has demonstrated to a federal judge that immediate and irreparable injury would otherwise occur and where the party subject to the seizure would evade or fail to comply with a normal request for a temporary injunction. To prevent abuse, the party asking for the seizure must deposit a bond for payment of damages if the seizure is later found to have been wrongful or excessive. And, to avoid unfair damage to anyone’s reputation, the court is required to take action to prevent a plaintiff from publicizing his request for a seizure.

The Trade Secrets Protection Act will set the stage for international agreements with our trading partners to provide a harmonized system of cross border enforcement. The European Union is currently considering a unified approach to the problem for its member states that could mesh with a new federal law in the United States.   A new U.S. law will provide a model for all of our trading partners, including those in Asia, where the problem of trade secret theft is particularly acute.

At the end of the day no one – even our international competition – is harmed be adoption of an efficient national and global mechanism for enforcing honest behavior. No one can make money and create jobs where there is anarchy in the marketplace. The rule of law essentially is the rule of prosperity for everybody. The economy of the 21^st Century is the economy of the information age where the labors of the mind create value. Intellectual property laws make orderly commerce in products of the mind possible. The sponsors of the Trade Secrets Protection Act are to be congratulated. It is rare to have a consensus on anything in Washington these days. That there is such broad bi-partisan support for a federal trade secrets act speaks to its obvious need. There is no reason for the House and Senate to delay in getting this modernization of our national IP laws to the President’s desk for signature as soon as possible.

Lehman was assistant secretary of Commerce and commissioner of Patents & Trademarks in the Clinton administration. He is currently chairman of the Board and president of the International Intellectual Property Institute.