Tuesday, January 2, 2018

Defending the DTSA

I'm excited to be a participant in the annual Evil Twin debate, coming this Friday in San Diego in connection with the AALS conference. The debate is sponsored by the University of Richmond Law School and will take place at 4:30 at the Thomas Jefferson Law School.

The topic this year is: "Is the Defend Trade Secrets Act Defensible?" I'm taking the "yes" side. My Evil Twin is Orly Lobel, the Don Weckstein Professor of Labor and Employment Law at the University of San Diego Law School.

As a prelude to give her a head start, I thought I would share a recent essay by Professor Lobel: The DTSA and the New Secrecy Ecology, available on SSRN. The abstract is here
The Defend Trade Secrets Act (“DTSA”), which passed in May 2016, amends the Economic Espionage Act (“EEA”), a 1996 federal statute that criminalizes trade secret misappropriation. The EEA has been amended several times in the past five years to increase penalties for violations and expand the available causes of action, the definition of a trade secret, and the types behaviors that are deemed illegal. The creation of a federal civil cause of action is a further expansion of the secrecy ecology, and the DTSA includes several provisions that broaden the reach of trade secrets and their protection. This article raises questions about the expansive trajectory of trade secret law and its relationship to entrepreneurship, information flow, and job mobility. Lobel argues that an ecosystem that supports innovation must balance secrecy with a culture of openness and exchanges of knowledge. This symposium article is based on Professor Orly Lobel’s keynote presentation at the March 10, 2017 symposium entitles “Implementing and Interpreting the Defend Trade Secrets Act of 2016,” hosted by the University of Missouri School of Law’s Center for Intellectual Property and Entrepreneurship and the School’s Inaugural Issue of the Business, Entrepreneurship & Tax Law Review.
The essay lays out a good background of the DTSA and points to some of its key drawbacks. It's a useful read for anyone looking for a relatively balanced synopsis of concerns about the DTSA some experience with it.

I have several little points to make about this essay, but I'll save them for the debate (I'll post a video afterward). But I thought that the general idea of the "New" Secrecy Ecology was worth a brief comment. I am, shall we say, skeptical. While it is true that the DTSA gives plaintiffs a new way to enforce their rights, and while there may even be some growth in trade secret claims (something unsubstantiated empirically), I wonder whether the phenomenon is either new or an ecology.

Let's start with new. I'll agree that there's a new push, especially through the DTSA, for the protection of trade secrets. But there have always been many trade secrets and trade secret cases. Back in 2009, the BRDIS survey by the NSF/Census Bureau highlighted the overwhelming preference of companies for trade secrets rather than patents in all sectors. These secrecy rights are harder to infringe than patents, and thus we might see fewer cases. But, as I noted in an essay about Silicon Valley worker mobility nearly 10 years ago, if companies were harmed by real misappropriation, they did not hesitate to assert themselves.

The next question is of ecology. Here, our differences are more subtle. After all, it's hard to say in one paragraph that trade secrets dwarf patents, and in the next paragraph say there's no ecology. But if it were easy, everyone would do it, so here goes. A core point of the argument is that making it easier to file (and win/bully with) trade secret claims represents a new "secrecy first" ideology that moves innovation out of patenting and into trade secrets. This can harm innovation by limiting worker mobility.*

I'm not so sure that the DTSA has created this ecology. A forthcoming study by Chris Seaman and David Levine presents some nice data about the first year of the DTSA. There were 486 cases filed under the DTSA, about 10% of the number filed for patents. While such cases surely affected the defendants, it is a really low number of cases, especially in comparison with the BRDIS data about reliance on trade secrets. Furthermore, in 13% of those cases, either patents or copyrights were also alleged, and another 20% alleged violation of the Computer Fraud and Abuse Act. In other words, at least 1/3 of the cases would have been brought under some other federal statute (with even more under the Lanham Act, which is surprising), and all of them could have filed under state trade secret laws.

In addition, as Professor Lobel points out, if you make trade secrets more valuable, then people will rely on them more than they do now. I agree wholeheartedly, and pointed out as much in my book chapter that compares the relative incentives between trade secrets and other IP. But there are two sides to the equation. If there is more reliance on trade secrets today, I think that the inability to protect software through patenting that is driving it, not the meager aid that the DTSA gives. More important, defendants can infringe patents without knowing about it, while trade secret defendants must have had at least some contact with the plaintiff. In short, even if the DTSA emboldened plaintiffs, I'm not sure we're at an ecology yet--at least not one in litigation. There may be a shift, but it's a dent in the armor of patent litigation.

Though I question whether there is a bigger movement afoot, I must recognize that something led to the passage of the DTSA. The question is: if it is not some new movement, then why the push? I've got some ideas, but that may have to be another post.

*I won't address whether worker mobility aids innovation; there is certainly evidence of that, and I'm no fan of noncompetes, inevitable disclosure, or wrongful claims, but I think the jury is out about the actual effect on innovation when employees move.

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