Oct 272014

OCTOBER 11, 2010 - Law professor David Levine. (Photo by Kim Walker)Trade secrecy, arguably the most active but least understood and studied of intellectual property’s doctrines, is on the rise. Over the past two years, there has been increased legislative activity in this space — the most since the revision of the Uniform Trade Secrets Act in 1985. Most prominently, it has been the subject of an alarming report out of the White House documenting increasing risk to US corporations from state-sponsored cyberespionage. Based upon those significant but hard to quantify harms, bills have been introduce in Congress over the past few years designed to amplify the options for aggrieved companies. The perceived inadequacies in the current law have spurred the most recent legislation, known as the Defend Trade Secrets Act and Trade Secrets Protection Act.

Additionally, recent news reports involving high damage awards in trade secret misappropriation cases have reminded those who were not paying close attention that trade secret awards can be significant. Moreover, access to trade secrets remains an issue in the ongoing battles over hydraulic fracturing regulations. It stands as a barrier to public and even regulatory access to the chemical composition of fluids used and put into the ground. Those fluids generate some of the main concerns about fracking from an environmental, health and safety perspective. As if that wasn’t enough, it has even appeared as an issue in efforts to abolish the death penalty. Thus, it remains one of the most powerful exemptions in federal and state access to information laws.

Trade secrecy is generally viewed as the least powerful of intellectual property law (IP) doctrines because its protection for information is deemed “thin.” As it can be lost by reverse engineering and independent discovery, conventional wisdom suggests that patents are often a better option to protect trade secret information, if available. But even if true to an extent, measured by its ability to prevent access to information, trade secrecy is the most powerful of IP doctrines. As I’ve been telling anyone who would listen over the past several years, trade secrecy is — by far — the most powerful of IP’s access to information weapons, precisely because it is an exemption to freedom of information laws and extolls the value of the secret over almost all other values, including sunshine, transparency and a range of external harms, from environmental to health. Thus, in general, trade secrecy deserves far more attention than its gotten in its long life as an IP doctrine.

TPP Background

The lack of attention appears to be changing, which is, overall, a good thing. The elevation of trade secrecy is baked into the most recent leaked May 2014 IP chapter from the Trans Pacific Partnership Agreement (TPP). TPP, which is concluding yet another negotiating round today, is bringing trade secrecy to the international stage through efforts to harmonize IP law across continents and cultures. The role of secrecy is varied from country to country, but that has not stopped the TPP negotiators from apparently proposing language that would require criminal sanctions for unauthorized access to trade secrets. The language warrants close analysis.

TPP has been negotiated in an information vacuum that has prevented meaningful input from all but the USTR’s “cleared advisors,” made up almost exclusively by representatives of the entertainment and pharmaceutical industries. I’ve had grave concerns about that secrecy and structure and have written and advocated about it extensively. Primary among the concerns is that the lack of a broad range of meaningful input can and would lead to imbalanced law.

Indeed, the public does not know whether the leaked draft represents the current negotiating text, as rounds of negotiation have occurred since May 2014. Nonetheless, although potentially a waste of time for all involved in this post as the negotiators may have moved beyond this language, I will assume that it is accurate. [I am also writing on this topic, as you might imagine, and will have a publicly-available article on this issue soon].

TPP Trade Secret Article Analysis [again, assuming that this leak reflects current information]

So what can we learn from the trade secret article (Article QQ.H.8 on pages 56-57 in the linked document?) As it turns out, quite a bit. Point one generally requires TPP signatories to follow the TRIPS trade secret language, which generally mirrors the UTSA. The use of “honest commercial practices” may orient the article around the tort basis for trade secrecy, which I also see as a good thing given the increased propertization of trade secret law in recent years. As the focus of the article is undoubtedly driven by increasing concern over state-sponsored trade secret misappropriation, it makes sense to focus on whether acquisition was unauthorized, rather than pointing the needle at the property interests of trade secret holders. The language should also make absolutely clear that reverse engineering and independent discovery are not actionable.

I have some concerns about the UTSA’s lack of consideration for public interest in trade secrets, which TPP does not address. Consideration of a narrow exemption for trade secret information of significant public interest — like the formula for fracking chemicals actually injected into the ground — should be part of the discussion. Indeed, it would further the first objective listed in the leaked IP Chapter: “Enhance the role of intellectual property in promoting economic and social development, particularly in relation to the new digital economy, technological innovation … and dissemination of technology and trade.”

As reported by Inside US Trade, points two and three, which require “criminal procedures and penalties” for certain activities, are a compromise position so as to allow some negotiating countries the flexibility to diminish burdens on their criminal justice systems. Indeed, the leaked draft notes that the parties are still “reflecting” on the proposed language. Assuming that they are still “reflecting” on this language, and that the reflection has not ended, point 2(a) appears to allow countries to target mere “access to a trade secret held in a computer system,” without requiring disclosure. Undoubtedly, access to a trade secret can lead to its internal use by a competitor, but this language has the possibility of being an overbroad dragnet covering activity that is not anti-competitive (i.e., access for purposes of analysis by civil society or watchdog groups, journalists, and the like).

Indeed, “access” is itself an ambiguous word and could include receiving trade secret information that is “held in a computer system” from a third party. Is that “access” actionable as well? It is unclear from the language. Thus, the negotiators should clarify and/or narrow this language to prevent recipients of information from being held liable for unknowing access to trade secret information. In many cases, with the dispersal of information via technology, a recipient of information would not even know that the received information was considered a trade secret by its original source, much less that access to it might be “unauthorized” and/or “willful.” Enforcing sanctions against entities with structural blind-spots is never a good idea.

Points 2(b) and (c) appear to reflect more traditional forms of trade secret misappropriation, although footnote 206 allows countries to equate “misappropriation” with “unlawful acquisition.” This footnote arguably broadens actionable activity, as the “acquisition” of a trade secret may not lead to its use or disclosure (i.e., “misappropriation.”) Of course, this broadening may be the very purpose of the language. Nonetheless, the negotiators should consider choosing one term so as to prevent confusion as to the intended scope of the Article.

The above suggests that the primary concern of the negotiators is to criminalize unauthorized access to as computer system, regardless of whether any information or data retrieved ever sees the light of day. That concern animates much of the discussion today about trade secret reform in the United States. To the extent that the United States is attempting to get signatory countries to take unauthorized intrusions into computer systems seriously, trade secret law is not the best route. The negotiators should consider focusing more narrowly on unauthorized intrusions into computer networks, rather than broad pronouncements against “access” to trade secrets that can encompass socially-valuable activity like news reporting and public oversight and accountability.

Point three lays out five “conditions” that a country may employ to “limit the availability” of the aforementioned criminal procedures or penalties. The first limitation “for purposes of commercial advantage or financial gain” is, of course, the basis of trade secret misappropriation generally. However, other limitations, like intention “to injure the owner of” a trade secret or impact on a “Party’s … international relations” seem to go well beyond competitive misappropriation of trade secrets. Indeed, these are areas about which trade secrecy says little or nothing, or which are extraneous. To the extent that the Article is attempting to allow flexibility, such discretion should be limited to the more narrow areas in which trade secrecy is designed to operate, lest TPP introduce confusion and disunity into international law and practice generally.

Finally, and perhaps most significantly, the Article seeks to move trade secrecy squarely into the realm of criminal law. Nor does it orient trade secrecy within other limiting features of civil law, like regulation of covenants not to compete. This is a fundamental change in the primary focus of trade secret law to date, and therefore deserves consideration across the broad range of interests impacted. Indeed, while some misappropriations, like state-sponsored cyberespionage, may require such sanctions, the bulk of trade secret disputes are the bread-and-butter commercial kind involving individuals in some sort of fiduciary relationship with trade secret holders. Whether such activities — which have fallen squarely on the civil side of the law — should be criminalized is a highly controversial and complex question that warrants significant discussion and debate by academic experts, civil society, labor, criminal justice, and other impacted constituencies.

Where to go from here? Make the TPP negotiating text public.

Of course, after many rounds of negotiation, such wide-ranging public debate and discussion is not happening within the TPP negotiation framework. This is the primary design flaw of the TPP negotiations (and, so far, the Transatlantic Trade and Investment Partnership (TTIP) is following a similar course, although there may be a greater need for secrecy in very early rounds of negotiation). The information vacuum created by TPP’s hyper-secrecy, in which Wikileaks arbitrates when the public will know what language is being negotiated, has a tendency to lead to one-sided and poorly-analyzed law.

The trade secret article reflects this problem. While it has some good points, it contains more that are potentially problematic. Public and expert input might help improve the language. But instead, so long as the negotiators prevent open and critical formal analysis of the draft text, trade secret law will be among the many victims of a process that prevents meaningful input, analysis and discussion. Legitimate issues won’t be addressed thoroughly, granular analysis will likely suffer, and the world will be worse off as a result.

We can and should do better. At this very late date, the TPP negotiating text should be made public. I may wind up awaiting Wikileaks’ determination of when I’ll be able to get timely information, but meanwhile I’ll join the community of interested members of the public offering input into the void.



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