Thursday, November 19, 2015

Defending a Federal Trade Secrets Law

This last week, 42 professors sent a letter to Congress opposing the Defend Trade Secrets Act. This same week, James Pooley, a well-known attorney and former Deputy Director General of WIPO, released a draft of The Myth of the Trade Secret Troll: Why We Need a Federal Civil Claim for Trade Secret Misappropriation, forthcoming in the George Mason Law Review.

Jim Pooley is the author of a treatise on trade secrets, and I respect him greatly. He has forgotten more about trade secrets than most people will ever know, and it should be no surprise that this support of the DTSA is the most well-reasoned that I've seen. He considers each of the studies one by one and and addresses their concerns: that the UTSA is not that uniform, that the seizure provision is narrow, that global trade secret risks require federal jurisdiction, and that state trade secret laws will not be preempted.

The paper is worth a read. It is likely to be persuasive to those who are on board. It might sway those that are undecided.

I'm right in the middle on this one. I signed on the professor's letter, but barely. I think the latest version of the proposed law is much improved from before, but I have concerns about inevitable disclosure and the seizure rules.

Here is my take on four of the primary defenses of/needs for the new act:

It's a cyber world that needs federal procedures: A big part of the push for a federal law is that it opens up federal courts to trade secret cases and thus better procedures. While I understand this, I wonder whether the argument proves too much. If the concern is about foreign actors acting over the network, then federal courts will have diversity jurisdiction, and all the procedural hurdles melt away. Further, if it's about procedure, then a simple solution would be to allow filing of trade secret actions in federal court. Furthermore, the procedural advantages are not a panacea; sometimes state court judges are more accessible and move faster than federal judges. Pooley argues the opposite, but my own, admittedly more limited, experience is that it depends on the judge, not the forum. Furthermore, the procedures are improved in a federal system, but it was only in 2014 that out of district subpoenas could issue in the local district court, and one must still file motions in the remote district to enforce them.

The UTSA is not really that uniform: This is true. Indeed, I wrote an empirical essay and book chapter showing that courts routinely fail to cite other state court Uniform Trade Secrets Act decisions. But it is not clear that the non-uniformities, either in statute or in practice, are of the type that will affect important outcomes when there is a real trade secret misappropriation. I've yet to hear of a case where the venue's peculiar trade secret laws made a difference to the types of "global cyber-espionage" type misappropriation that Pooley is concerned with.

Seizures rules are narrow, and they are narrower than they were in prior drafts: In my studies, injunctions were the types of decisions least likely to result in citation to UTSA cases, as opposed to "general" injunction law. This seems to favor the need for a specialized procedure. That said, I've yet to hear a convincing reason why TRO practice is insufficient or why they must be in federal court. I've represented clients on both sides of seizures, and I've seen how court papers can be manipulated to get desired results. This is not to say that we shouldn't have ex parte seizures; just that the case for a specialized procedure is not clear. I've yet to hear of a case with a real misappropriation of the "global cyber-espionage" type where a TRO was refused and the bad guys got away. I also think that the seizure laws are not quite as narrow as they could be - there is still plenty of room for abuse. [UPDATE: Eric Goldman provides good analysis--and critique--of the seizure provisions.]

The proposed act is neutral on inevitable disclosure: The paper makes a good point: inevitable disclosure is not substantive trade secret law, but instead how courts apply "threatened" misappropriation injunctions. This is true, but it doesn't answer the concern. Some states have a stronger policy of employee mobility than others, and thus require more evidence of a threat. The concern with a federal law is that precedent in one circuit (or district court) will be applied in other district courts. That state trade secret law is not preempted is no answer, because the supremacy clause will dictate how federal law applies. State trademark laws aren't preempted either, and we don't see those applied very often-and never to allow more use by the defendant, only less. Thus, the standard for what constitutes a "threat" could be weakened, and that concerns those who view employee mobility important for competition policy. While I agree with Pooley on the doctrine, I don't think the doctrinal view is enough to persuade that this is not a concern.

So, where does that leave us? Quite frankly, I don't know. I think that the case for a federal trade secret law is not that strong. There are benefits to such a law, but I'm not convinced they are so great that we should supplant 150 years of state regulation of trade secrets. On the other hand, I don't think the case for keeping state trade secret laws is that great either. I like the federalist experiment argument, but there are a whole lot of states that have rules that I don't like (such as the inevitable disclosure doctrine). In my view, no one has made the case that one system is better than the other.

What I do think would be helpful - to me, at least - would be to hear the horror stories of trade secret misappropriation where current law and procedure failed, and the misappropriator got away because we did not have this law. I bet there are some such stories, but I haven't heard one yet.

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