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Friday, 18 March 2016

The U.S. Defend Trade Secrets Act of 2015: What Are the Rationales? [Part 2]

This is the second part of a two-part post on the U.S. Defend Trade Secrets Act of 2015 (DTSA).  The first post asks whether the DTSA will result in enforcement abuse.  This post examines some of the rationales for the DTSA in academic scholarship.  Some rationales for the law include: a more effective remedy against mass theft by foreign entities; accomplishing uniformity in trade secret law; pushing more trade secret cases to federal court; and generally promoting innovation.

I don't need a stinkin' rationale! I am cat!
Importantly, access to federal courts allows for: 1) wider jurisdiction over foreign defendants,
2) federal subpoena power that is broader and more efficient than having to deal with different state law in cases involving contacts with more than one state,
3) better discovery rules,
4) and more experienced judges who handle complex intellectual property and commercial cases.

The arguments for pushing more cases to federal court may be the strongest in light of possible evidence of mass theft by foreign entities.  Notably, some trade secret cases are already brought in federal court because of federal diversity jurisdiction or federal supplemental jurisdiction.  [However, I have heard that the mass "cybertheft" by foreign entities argument is not being pursued as a justification for the DTSA. The federal Economic Espionage Act provides a criminal remedy for cybertheft, although the Department of Justice must pursue cases.]

The rationale concerning promoting innovation cuts both ways.  While it may harm small business, strong trade secret laws may help small businesses because they rely on trade secrecy as it is relatively inexpensive.  Again, the new trade secret law may chill collaboration (particularly because of the ex parte seizure order, see below), but trade secrecy itself is designed to lead to collaboration.  Trolls could arise, but the cause of action ordinarily includes a confidential relationship without strict liability such as patent infringement.  This may mean there will not be widespread litigation against multiple defendants.  There is also reverse engineering and independent creation to avoid trade secret liability.  (Essentially, it is not trade secret misappropriation to lawfully acquire a product and reverse engineer it to discover trade secrets, or to independently discover a trade secret.)  However, a court may enforce contract restrictions preventing reverse engineering.

The law could impede employee mobility; however, it contains provisions to protect against that, and a provision prohibiting conflict with state law which restricts restraints on employment.  The law could result in parties choosing trade secrecy over patents and hurt the disclosure function of patents; but trade secrets do not receive the robust protection of patents, in part due to the independent creation and reverse engineering exemptions from improper means.  Perhaps the strongest argument for anticompetitive abuse is the ex parte seizure order; however, similar orders are already available and the DTSA creates a cause of action against wrongful seizure.  Notably, the harm may already be done by that time--the trade secret may have been disclosed, thus destroying the competitive advantage of the trade secret.  (Professor Goldman provides an excellent critique of a prior version of the ex parte seizure order, and the vagueness in its potential application.)  The law could lessen the availability of states as laboratories of experimentation for trade secret law.  At the same time, states could experiment in developing their own doctrine and statutes, and the various circuits could interpret the law in different ways. 

Uniformity? 61 is better than 50. . . ?
Finally, in a related argument, accomplishing greater uniformity in trade secret law is not entirely convincing because the law does not preempt state law (perhaps in order to comply with Congress' power to regulate under the interstate commerce clause; although that power is relatively broad).  Instead of the development of 50 different views of state law you may have 61 potentially varying interpretations of the law--by adding 11 federal circuits.  Moreover, the problem of uncertainty through lack of uniformity is mitigated, in some cases, by contract through choice of law clauses.  You could argue there is substantial uniformity in trademark law because of federal legislation. This is despite states' ability to develop their own law, and circuits interpreting the law differently.  However, trademark uniformity is arguably moored to a federal registration system with substantial benefits.  This is not true with respect to the federal trade secret law. 

There is strong support from both Republicans and Democrats for the new trade secret law.  Notably, if the law doesn't change much, why is it being considered?

N.B. For additional discussion of the arguments, see: Christopher B. Seaman, The Case Against Federalizing Trade Secrecy, 101 Va. L. Rev. 317 (2015); James Pooley, The Myth of the Trade Secret Troll: Why We Need a Federal Civil Claim for Trade Secret Misappropriation, 23 George Mason L. Rev. __ (2016); and the previously linked articles.

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