Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:
Trade Secret and Non-Compete Cases. Posts and Articles:
Cybersecurity Posts and Articles:
California | Cybersecurity | Economic Espionage Act | Florida | International | Legislation | Massachusetts | Non-Compete Enforceability | Restrictive Covenants | Texas | Trade Secrets | Weekly Wrap-Up Posts
Computer Fraud & Abuse Act Articles, Cases and Posts:
China | Computer Fraud and Abuse Act (CFAA) | Criminal Proceedings | Cybersecurity | Georgia | International | International Trade Commission | Legislation | Massachusetts | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets | Weekly Wrap-Up Posts
The corrected version of today's Thursday Wrap-Up post is posted below. A technical glitch caused the post to inadvertently launch last night so we apologize to our subscribers. We appreciate your loyalty and work hard to deliver valuable content. Thank you for your patience.
Now, to the noteworthy trade secret, non-compete and cybersecurity stories from the past week:
Trade Secret and Non-Compete Cases, Posts and Articles:
California | China | Computer Fraud and Abuse Act (CFAA) | Criminal Proceedings | Cybersecurity | Discovery Issues | Economic Espionage Act | Patents | International | Massachusetts | New York | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets | Weekly Wrap-Up Posts
Trade Secret and Non-Compete Posts and Articles:
Computer Fraud and Abuse Act Posts and Cases:
DuPont v. Kolon | International | Non-Disclosure Agreements | Weekly Wrap-Up Posts | International Trade Commission | Uniform Trade Secrets Act (UTSA) | China | Cybersecurity | Massachusetts | Non-Compete Enforceability | Criminal Proceedings | Legislation | Injunctions | Discovery Issues | Computer Fraud and Abuse Act (CFAA) | Florida | Illinois | California | Trade Secrets
China | Cybersecurity | DuPont v. Kolon | Illinois | Injunctions | International | Massachusetts | Non-Compete Enforceability | Pennsylvania | Restrictive Covenants | Trade Secrets | Weekly Wrap-Up Posts
A blue-ribbon panel issued a report on Wednesday focusing on trade secret theft by China and urging a number of executive and legislative reforms, including enactment of a federal trade secrets statute and providing American companies with some limited right to "hack back" against those that launch cyberattacks against them. The report has already generated a fair amount of media coverage and is sure to spark further debate on what to do about international trade secret theft and cyberattacks (for more on the report, see this Op-Ed piece in The Washington Post, as well as these articles in Forbes, the BBC and PCWorld).
The Commission on the Theft of American Intellectual Property by The National Bureau of Asian Research (that's a mouthful) assembled the report. The panel that authored the report includes high profile figures such as the former Ambassador to China (Jon M. Huntsman, Jr.), the former Chairman and CEO of Intel Corporation (Craig R. Barrett), the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command (Retired Admiral Dennis C. Blair), and former U.S. Senator Slade Gorton from Washington state.
The Reasons for the Report: For those that have been following these issues, the report relies on many of the statistics and developments that are by now considered to be conventional wisdom or accepted as true: $300 billion estimated annual losses due to foreign trade secret and cybertheft, drag on U.S. GDP growth, American job losses, and corrosion of the incentives to innovate, among others.
However, unlike other reports and commissions, this one unambiguously singles out China "as the world's largest source of IP theft" and quotes estimates that "China's share of international IP theft" is "roughly 70%." In this respect, the Commission differs substantially from other high profile reports -- most notably, the Obama Administration's Trade Secrets Initiative launched last February, which elected not to single out China (although that initiative did detail incident after incident of theft involving a China connection).
The report also addresses what it believes to be the root causes of this serious international problem, as well as the role of the Chinese government in allowing or promoting it. It posits that "much of this theft stems from the undirected, uncoordinated actions of Chinese citizens and entities who see within a permissive domestic legal environment an opportunity to advance with their own commercial interests. With rare penalties for offenders and large profits to be gained, Chinese businesses thrive on stolen technology." However, the report does note that role of the Chinese government in some of these efforts, citing the recent Verizon risk report that found that "'state-affiliated actors' accounted for 19% of the 621 successful 'breaches' in the 47,000 attacks reported."
The Commission's Notable Recommendations: A number of short-term solutions are advocated to reorganize and finetune the federal executive branch's focus and responsibility. However, it is the "medium-term solutions" proposal that I thought was the most noteworthy, which is the section that advocates for legislative and legal reforms.
In my view, the most important legislative reform proposed in the report is the very first one -- the call for an amendment to the Economic Espionage Act (EEA) to provide for a private right of action to allow companies and businesses to sue for the theft of their trade secrets (readers of this blog already know that I have supported this effort). The report does not advocate a particular bill (such as the pending Protecting American Trade Secrets and Innovation Act) or particular remedy. Rather, the report focuses on the practical reasons that require that legislation: over-burdened federal prosecutors who lack the resources to pursue these actions under the EEA and the jurisdictional and evidentiary limitations of state court actions that may frustrate the ability of companies to protect their trade secrets overseas.
The Commission also recommends that the EEA be amended so that the Federal Circuit would serve as the Federal Court of Appeals for all federal trade secret actions, "since it serves as the appellate court for nearly all IP-related cases and thus has a high degree of competency on IP issues." This is a good suggestion and would provide uniformity and clarity on any new statute as well as for future prosecutions under the EEA.
Finally, the Commission advocates two noteworthy but controversial cyber proposals. It supports the present Cyber Intelligence Sharing Protection Act (CISPA) that has passed the House of Representatives but faces opposition within the Senate and by the Obama Administration on privacy grounds.
The Commission also supports giving American companies the right to a some limited form of a "hack back" against foreign cyberattacks (for a fine and brief analysis of this provision, see the recent post of Steptoe's Stewart Baker for The Volokh Conspiracy). This would likely require an amendment to the Computer Fraud and Abuse Act (CFAA), which as presently drafted, would expose American companies to civil claims or prosecution under the CFAA. (For a debate on the merits of allowing a hack back amendment, see the exchange between Stewart Baker (in favor) and Professor Orin Kerr (against) in The Volokh Conspiracy).
For those with the time, I would recommend reading the report which has a host of other comprehensive proposals that should be strongly and seriously considered by the Administration and Congress.
China | Computer Fraud and Abuse Act (CFAA) | Cybersecurity | Economic Espionage Act | International | Legislation | Trade Secrets
Following up on yesterday's post, I would like to detail the terrific Trade Secret Law Committee Meeting we had on Thursday with Assistant U.S. Trade Representative (AUSTR) Stanford McCoy. AUSTR McCoy had spoken earlier in the day on a panel about protecting intellectual property through foreign trade agreements and emphasized how trade secrets had emerged from an "obscure" issue to a "big priority" within the Administration. Afterwards, I approached him in the hope that he might join our Committee meeting; he told me he would have liked to but he was committed to another meeting while in Seattle.
Peter Toren's Presentation on the Obama Trade Secret Initiative and Strategy
At the Committee Meeting, Peter Toren provided a summary of the Obama Trade Secret Strategy announced on February 20, 2013 and shared his concerns that the Administration presently lacked the resources to prosecute trade secret theft under the Economic Espionage Act (EEA). He provided some sobering statistics that showed that there had been only 127 prosecutions under the EEA since its inception in 1996, and that with the exception of the Northern District of California, the majority of U.S. Attorney's offices had not been vigorously pursuing those prosecutions (for example, less than 45% had prosecuted a single EEA case).
Peter emphasized that while the Obama Administration's action items certainly represented a step in the right direction, its success would depend on whether the government actually followed through with the proposed action. Moreover, Peter noted that even if the Administration implemented the programs and increased protection of trade secrets, it could only do so much in this era of government cutbacks, a fact evidenced by his statistics on the EEA. Peter ultimately concluded that businesses must do more to protect their trade secrets. A copy of Peter's blog post on the presentation and his PowerPoint can be found here.
The Panel Discussion and AUSTR McCoy's Surprise Visit After Peter's presentation, I moderated a panel discussion with Peter, Dan Westman of Morrison & Foerster, John Durham of Poyner Spruills, and Seth Hudson of Clements Bernard regarding our thoughts over the recent Obama initiative. The concensus was that it was a welcome step but that a private right of action was needed. About mid-way through the panel discussion, AUSTR McCoy joined us unexpectedly. He participated in the discussion and after listening to our initial comments, he advised that he appreciated our comments but indicated that the administration needed to hear from the Committee more often. He said the administration would like to have had our input on recent requests for input on Section 301 proceedings and he asked that we work with Victoria Espinel, the U.S. Intellectual Property Enforcement Coordinator (IPEC) to provide comments to legislation affecting trade secrets. Dan Westman then spoke, emphasizing that there was a serious need for a civil remedy under the EEA. Dan said it was his understanding that the Administration might be privy to even more about China's role in the cyberattacks and trade secret theft than had been reported or suspected in recent months. For this reason, Dan noted that the time was right, especially given the fact that leading IP associations like the AIPLA and IPO had supported the civil remedy in their public comments. AUSTR McCoy indicated that he obviously could not comment other than to note that the Administration was obviously very concerned and that trade secret theft was now a big issue for the Administration.
Consistent with his presentation, Peter echoed that the Justice Department simply did not have the resources or the manpower to pursue the trade secret claims that were out there and that a private right of action would be the most effective way to ensure that American trade secrets were protected. I of course eventually chimed in and noted that in my experience, foreign companies were not enamored with American litigation and discovery. I said that arming American companies and their attorneys with a private right of action would allow the Administration to unleash the proverbial army of private attorney generals to enforce American trade secret laws much to the chagrin of those foreign companies who so loathe and fear the American court system. In terms of a timetable on the public comments, AUSTR McCoy said the IPEC was reviewing the public comments (13 of which were filed by the April 22 deadline), would circulate her thoughts to relevant constituencies within the Administration (with special emphasis with the Justice Department) and make a recommendation regarding the legislative proposals.
It was a marvelous and fun discussion. Members of the Committee that were present were active participants as well and asked questions not only of the panel but also AUSTR McCoy. We look forward to working with AUSTR McCoy and his office in the future.
Economic Espionage Act | International | Trade Secrets
The American Intellectual Property Law Association's (AIPLA) Spring Meeting in Seattle has wrapped up and I thought an update would be in order, especially of the Trade Secret Committee Meeting, in which we had an unexpected visit from Assistant U.S. Trade Representative (AUTR) Stanford K. McCoy. During that meeting, AUTR McCoy very patiently listened to the members of our panel vent and share their concerns that the Administration needed to engage the private sector by supporting enactment of a civil cause of action to the Economic Espionage Act.
To do the meeting justice, I will divide it up into two posts with the summary of the Committee meeting to follow in my next post. Today, I'll provide a summary of a genuinely entertaining afternoon session on the Computer Fraud & Abuse Act (CFAA) as well as fine presentations on litigating trade secrets before the International Trade Commission and an in-house perspective on protecting trade secrets overseas. Computer Fraud & Abuse Act Debate (a/k/a "The Thrilla in Seattle")
I had hoped that Professor Eric Goldman (whose Tech & Marketing Law Blog is a mainstay in the AmBlawg 100) and Morrison & Foerster's Dan Westman's program would turn into a spirited debate and it did not disappoint. (Before the battle, Eric warned me that he was not going to hold anything back; I told him I couldn't wait). It evoked memories of the classic 60 Minutes debates between James Kilpatrick and Shana Alexander (or, better yet, the brilliant SNL spoof by Dan Akroyd and Jane Curtin). Josh Durham played the moderator role splendidly, playing Dan and Eric off against each other and letting it rip. Dan opened with a discussion of the emerging Circuit Court split within the CFAA and emphasized the importance of retaining the broader interpretation of the CFAA espoused by the Fifth, Seventh and Eleventh Circuits. He emphasized the importance of having a federal remedy in the event that a state court might not hospitable to a particular claim or out-of-town client. Eric came out swinging, challenging Dan on the problems with the CFAA, the fact that it was not drafted to address trade secrets and identified the problems with its overuse. Eric rejected the idea of "computer exceptionalism," that the mere fact that a computer might be used to steal trade secrets should result in a criminal statute being created solely for that manner of stealing trade secrets.
Dan survived the initial flurry, and counter-punched effectively by emphasizing that the advances of technology and mobility rendered the computer a "very scary" thing in the hands of the wrong employee. He argued that the fact that the CFAA had both civil and criminal remedies had contributed to the present confusion, because courts would apply the rule of lenity (i.e., construe the CFAA's language narrowly) in criminal cases but that those narrower holdings in criminal cases would then be used in later civil proceedings. Eric weathered Dan's volleys, and emphasized that the CFAA remedy was something that Dan wanted, but not something that he truly needed.
Like Rocky and Apollo Creed, the two exhausted panelists agreed there "ain't gonna be no rematch." At the close, Dan tendered an olive branch, offering that his position for the CFAA in civil cases would be vitiated if the claim could be effectively moved into a federal trade secret statute where it would better fit. Eric magnanimously considered the proposal, noting that the Economic Espionage Act would be a better fit for the types of claims that Dan was seeking. A heart-warming hug followed and there was nary a dry eye in the room. Extra-Territorial Protection of Trade Secrets and Mobile Employees
Jay H. Reiziss of Brinks Hofer Gilson & Lione spoke next and he addressed international trade secret misappropriation, focusing on remedies within the Federal Trade Commission (FTC). Jay and his firm represented the American company Armsted, which prevailed in the Federal Circuit's seminal opinion in TianRui Group v. FTC. In TianRui Group, the Federal Circuit held in 2011 that the FTC could issue rulings for disputes involving the misappropriation of trade secrets or other unfair competition that took place entirely overseas. (For more on the ruing, see my post here). Jay discussed the uptick in trade secret cases before the FTC and also addressed the pros and cons of a FTC action, as compared to a traditional litigation. In fact, Jay described one very interesting advantage favoring a FTC proceeding -- namely, the leverage Jay said that comes from an ITC proceeding to force a foreign firm to open its plant to inspection to see if an American company's trade secrets have been incorporated or integrated into processes or equipment at that facility.
Jay noted that in traditional civil litigation, a party may find itself hamstrung by the limitations upon discovery imposed by the Hague Convention that could limit, interfere with or prevent the inspection of a foreign plant. However, he indicated that Administrative Law Judges have been persuaded to threaten to impose an adverse inference against a foreign company that refuses to allow such an inspection, which inevitably forces the foreign company to open their plant.
Paik Saber of IBM Corporation spoke next and began with some sobering statistics about employee mobility, an important factor in any trade secret protection program: U.S. employees change jobs on average every 4.6 years, and those between the ages of 25 to 34 change jobs every 3.2 years (these statistics come from the U.S. Census). For multi-national corporations, Paik said the turnover rate was 25% of the workforce.
As a former IT manager, Paik emphasized that an ounce of prevention was worth a pound of cure, especially in emerging markets. Paik noted that there remained a lack of cultural appreciation for IP in those emerging markets and that because laws and enforcement procedures remained a concern in some of those markets, it was critical to have a strong trade secret protection program overseas.
Paik emphasized the importance of implementing traditional safeguards in overseas operations, such as written agreements, ongoing and thorough education, monitoring of employees' use of confidential information, and notification of confidentiality policies. He emphasized the importance of clearly communicating a commitment to confidentiality and he shared an effective anecdote: at the start of each employee's tenure, a foreign manager would send him or her a polite but direct letter clearly spelling out the importance of preserving the confidentiality of the company's trade secrets. This letter, -- firm, cordial and clear -- was some times more effective to these employees than the perceived "legalese" accompanying any comprehensive policy or agreement drafted by an attorney.
Finally, Paik noted the importance of employee retention as part of a company's program of protecting trade secrets. He noted the tremendous financial investments made by companies in their overseas employees. He cited lack of career growth and money as the two main reasons for losing employees and he identified Google and Zynga as examples of two companies that had minimized the loss of trade secrets beecause they effectively retained key employees.
Again, a special thanks to Seth Hudson for organizing a tremendous panel and presentation.
Computer Fraud and Abuse Act (CFAA) | International | International Trade Commission | Trade Secrets
As promised, I am posting my intended letter to the Obama Administration's U.S. Intellectual Property Enforcement Coordinator, Victoria Espinel, in response to her recent request for public comments on potential trade secret legislation.
Executive Summary: Regular readers of this blog will not be surprised as I advocate that a civil cause of action be added to the existing framework of the Economic Espionage Act (EEA), preferably by enacting a modified version of the Protecting American Trade Secrets and Innovation Act (PATSIA) proposed last year by U.S. Senator Chris Coons.
I have proposed three modifications to PATSIA (explained in greater detail in my letter below):
(1) that the statute be confined to international trade secret misappropriation;
(2) that objections to venue, such as forum non conveniens, be prohibited so long as the requirements of 28 U.S.C. §1391 are met; and
(3) that PATSIA's ex parte seizure order be scaled back and modelled after what are commonly known as Anton Piller orders which are used in Commonwealth nations to prevent the destruction of evidence.
For those that have not provided their comments to the Administration yet but wish to do so by Monday, April 22, 2013 (tomorrow), the link to provide comments can be found here.
Here is my letter:
The Honorable Victoria Espinel
Re: Response to Request for Public Comments for “Trade Secret Theft Strategy Legislative Review” (78 Fed. Reg. 16875, March 19, 2013)
Dear Ms. Espinel:
I am submitting this letter in response to the Administration’s “Request for Comments and Notice for Trade Secret Theft Strategy Legislative Review” as published in the Federal Register (the “Notice”).
The Growing International Trade Secret Threat and The Need for Further Legislative Action. The rise in the theft of trade secrets from U.S. companies by foreign hackers and international misappropriation has been widely reported and is well documented. Last year, the National Security Agency described trade secret theft as the greatest transfer of wealth in history, estimating the losses of theft of trade secrets and cyber breaches to be in excess of $334 billion per year. In February 2013, the security company Mandiant Corporation reported that the Chinese government was sponsoring cyber-espionage to attack top U.S. companies. Likewise, CREATE.org has recently released a white paper that highlights how far-reaching and challenging the risks of trade secret theft are for companies operating on a global scale.
The Missing Component: A Federal Civil Cause of Action. For these reasons, I believe that the Administration should use its considerable influence and resources to support legislation creating a federal civil cause of action and remedy for international trade secret misappropriation utilizing the existing framework of the Economic Espionage Act (“EEA”).
This federal civil cause of action or remedy should not undermine, preempt or disturb existing state law causes of action and remedies, which are more than adequate to address domestic trade secret theft. Rather, the federal civil cause of action would be directed exclusively to remedying situations involving the theft of trade secrets by international misappropriation. Any federal civil cause of action should provide remedies similar to those provided in the Uniform Trade Secret Act (“UTSA”), including providing for appropriate injunctive relief, unconditional royalty damages, attorneys’ fees, and exemplary damages equal to at least the twice any award of damages.
A federal cause of action empowering companies to protect their own trade secrets from international misappropriation would help relieve the federal government, in this time of limited government resources, of sole responsibility for the protection of American trade secrets abroad. In addition, enforcement would be enhanced because U.S. companies understand their own technology and trade secrets best and they are incentivized to litigate aggressively to protect those assets. In addition, despite their best efforts, government agencies and prosecutors may not be able to move as quickly or with the nimbleness of a private litigant in some circumstances. Given the importance of speed and injunctive relief in trade secret cases, a federal private right of action would be a powerful tool in the case of international trade secret misappropriation.
While state trade secret laws afford U.S. companies many protections, they cannot match the potential international scope and procedural remedies or protection that a federal court can provide in the case of international trade secret misappropriation. The ability to issue and serve subpoenas throughout the U.S. and the broad jurisdictional powers of federal courts would greatly assist many trade secret claimants in cases of international misappropriation.
The Administration Should Support the Protecting American Trade Secrets and Innovation Act with Three Modifications. Senator Chris Coons previously introduced legislation (S. 3389, 112th Congress), known as the Protecting American Trade Secrets and Innovation Act of 2012 (“PATSIA”), that seeks to amend the EEA to provide, among other things, a private civil cause of action for trade secret theft.
The Administration should support enactment of PATSIA. In addition, I would respectfully propose the following three modifications:
1. PATSIA should be focused and confined to international trade secret misappropriation. Existing state law trade secret remedies are more than adequate to protect domestic trade secret misappropriation.
2. To ensure that the civil cause of action’s remedial purpose (i.e., providing American companies with a federal forum for international misappropriation) is not frustrated, PATSIA should preclude objections to venue, such as challenge on the grounds of forum non conveniens, so long as the action satisfies the venue requirements of 28 U.S.C. §1391.
3. The ex parte seizure order proposed under PATSIA should be narrowed and additional safeguards should be added to ensure that it is not misused. I would propose that the seizure order be modeled on Anton Piller orders that have been utilized by courts in Australia, Canada and the United Kingdom to seize and protect evidence. To secure an ex parte seizure order, I would propose that an applicant be required to establish the following by clear and convincing evidence: (a) a strong prima facie case against the defendant; (b) that the alleged misappropriation is serious and that there is a probability of irreparable injury; and (c) that there is a possibility that the defendant will destroy or remove relevant evidence or misappropriated product. Finally, to ensure protection and preservation of the material to be seized, a judicial officer should be appointed to oversee execution of the order and to retain possession of any evidence or product that is seized until the defendant has an opportunity to challenge the seizure.
Thank you for the opportunity to be heard. If I can provide any further assistance or information, please do not hesitate to let me know.
Very truly yours,
John F. Marsh
Economic Espionage Act | International | Legislation | Trade Secrets
Wow, it was a busy week. Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:
Trade Secret and Non-Compete Posts and Articles:
Cybersecurity Posts and Articles:
Computer Fraud & Abuse Act Posts and Cases:
China | Computer Fraud and Abuse Act (CFAA) | Cybersecurity | Economic Espionage Act | Florida | IP Litigation | International | Legislation | Non-Compete Enforceability | Restrictive Covenants | Texas | Trade Secrets | Weekly Wrap-Up Posts
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