Repeal the Defend Trade Secret Act: Why Congress Can't Rely on Trade Secret Law to Protect America's Trade Secrets

Repeal the Defend Trade Secret Act: Why Congress Can't Rely on Trade Secret Law to Protect America's Trade Secrets

Steven Miller

University of Georgia School of Law

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REPEAL THE DEFEND TRADE SECRET ACT: WHY CONGRESS CAN'T RELY ON TRADE SECRET LAW TO PROTECT AMERICA'S TRADE SECRETS

Steven Miller^*

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I. Introduction..............................................................................................216

II. Background................................................................................................217

A. Trade Secret History - An Intellectual Property Enigma..................................................................................................217
B. What is a Trade Secret?................................................................218
C. Trade Secret Protection v. Patent Protection..............220
D. Evolution o f the Defend Trade Secrets Act...................221

1. The Uniform Trade Secrets Act (UTSA)..................................222
2. The Economic Espionage Act....................................................223
3. Congress Takes Action: The Defend Trade Secrets Act........224

E. DTSA Provisons................................................................................225

1. Unifying Trade Secret Definitions..............................................225
2. DTSA Statute of Limitations.......................................................226
3. DTSA's Private Right of Action.................................................227
4. DTSA Civil Remedies...................................................................227
5. Deterring Trade Secret Trolls......................................................229
6. Ex Parte Seizure..............................................................................229

F. Trade Secret Law Criticisms.......................................................230

1. Cyber Espionage............................................................................230
2. Trade Secrets Should Not be Federalized.................................231

G. DTSA Criticism...................................................................................232

1. DTSA's Failure to Preempt State Law.......................................232
2. DTSA Invites Trade Secret Trolls..............................................233
3. Ex Parte Seizure Inappropriate in Trade Secret Context........234

H. Empirical DTSA Analysis..............................................................235
I. A Snapshot of DTSA Case Law...................................................237

1. In re Patriot National Inc..............................................................237

J. Proposed DTSA Amendment in the Senate.........................239

III. Analysis.........................................................................................................239

A. Situation One: Business Transactions..................................240
B. Situation Two : Departing Employees...................................240

1. Non-Compete Agreements..........................................................240
2. Protecting Competition for Labor and Business.....................242

C. Situation Three: Competitive Intelligence.......................243

1. Trade Secret Law Incentivizes the Wrong Behavior...............244

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a. "Break the woks and sink the boats".................................245

2. Federal Interest Properly Lies in Improper Conduct..............246

IV. Conclusion..................................................................................................248

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"[T]here are only 'two categories' of companies affected by trade secret theft — '[T]hose [sic] that know they've been compromised and those that don't know yet.'"¹ Whether you imagine a cyber thief subverting a company's network defenses or an employee selling secret information to a competitor, trade secret theft is a real threat. The epidemic has ballooned to such proportions- $600 billion —that combatting trade secret theft enjoys bipartisan congressional support.² Despite Congress's best efforts, there is no evidence the bleeding has slowed, much less stopped.³

By its very nature, trade secret protection requires a delicate balance, unlike traditional intellectual property. Within the intellectual property framework, trade secrets are an enigma. Traditional intellectual property law grants inventors and artists legal protection for sharing their innovations; however, the government grants protection to trade secret owners who withhold their innovations.⁴

The term "trade secret" likely brings to mind something like Coca-Cola's secret formula; however, the law extends protection to less-obvious examples, such as a list of customer names or employee know-how.⁵

If you accept Attorney General Holder's position that every company has been compromised from trade secret theft, then Coca-Cola deserves a "shout-out." Hundreds of years after the popular syrup was invented, the secret formula remains a secret. The lengths Coca-Cola has gone to protect the formula is legendary.⁶ For example, the company retreated from India to avoid disclosing the formula to the government.⁷ Coca-Cola defied a court order requiring them to produce the formula during a lawsuit between the company and its bottlers.⁸ Coca-Cola illustrates the true value of its secret formula through its extraordinary efforts to protect it. Instead of relying on a legal safety net, the company itself guards its most precious treasure.

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Not all companies are as successful as Coca-Cola. In 2016, thieves siphoned an estimated $600 billion worth of trade secrets from United States companies; in response, Congress passed the Defend Trade Secrets Act (DTSA).⁹ The DTSA gives trade secret owners powerful tools to prevent their secrets from being disclosed and provides a private right of action for trade secret owners in federal court.¹⁰ Despite Congress's noble intentions, the DTSA fails to protect America's trade secrets and actually harms domestic innovation. This Note argues for the repeal of the DTSA.

Trade secret law attempts to protect unfair competitive advantages by preventing disclosure of the secret itself; however, companies rarely litigate over secrets like the Coca-Cola formula.¹¹ Instead, employers predominantly use trade secret litigation as a means to limit employee mobility and reduce legitimate competition.¹² As a result, trade secret law reduces innovation while also failing to deter trade secret theft. Trade secret owners themselves, not Congress or the courts, are in the best position to prevent their secrets from being stolen.

This Note briefly describes trade secret history, as well as the DTSA's legislative history and two legislative sources: the Uniform Trade Secrets Act (UTSA) and the Economic Espionage Act (EEA). Secondly, this Note describes DTSA's major provisions and analyzes how the law is used, and reviews how the courts interpret the Act. Finally, this Note argues that trade secret law disproportionately and negatively affects employees and small businesses. Congress must repeal DTSA, shift its paradigm from preventing trade secret theft, and focus on actual trade secret theft as an unfair method of competition.

A. TRADE SECRET HISTORY - AN INTELLECTUAL PROPERTY ENIGMA

Compared to traditional intellectual property law, trade secrets were born an oddity.¹³ Although some scholars trace trade secret law to the Roman empire,¹⁴ modern trade secret law emerged from common law roots in Massachusetts

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during the early 19th century.¹⁵ Trade secret law evolved from tort and contract doctrines, where conflicts usually involved a breach of a confidential relationship between employer and employee, or a trade secret owner and a bad-faith actor.¹⁶

The argument that trade secrets do not belong under the intellectual property "umbrella" at all is a strong one. Intellectual property law encourages public disclosure of scientific advancements in exchange for legal protection.¹⁷ The government incentivizes innovation by granting exclusive rights to inventors, for a limited duration, so the world can build upon the advancements and creativity of others.¹⁸

In contrast, as the name implies, trade secret owners are entitled to legal redress for not disclosing their innovations. "Indeed, the very assumptions underlying patent and copyright laws—that government-granted rights can serve to incentivize the creation and sharing of new ideas and expression—are diametrically opposed to the notion of keeping information secret to gain a competitive advantage."¹⁹ A "trade secret owner is rewarded for keeping information . . . away from the public for an unlimited duration."²⁰ Despite these differences, and as this Note highlights, trade secret law plays an important complementary role to patent law.

B. WHAT IS A TRADE SECRET?

Generally, a trade secret is anything not commonly known by those within the industry and derives independent economic value;²¹ however, a trade secret owner must take reasonable steps to protect the secret before they can assert a claim for misappropriation.²² Misappropriation claims require allegations that a defendant improperly acquired, used, or threatened to acquire or use, the trade secret.²³ Unlike a patent owner, a trade secret owner has no claim against a

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defendant who obtained the same secret through independent research, or even reverse engineering.²⁴

Generally, trade secret issues arise in three contexts: "competitive intelligence, business transactions, and departing employees."²⁵ Competitive intelligence describes attempts to acquire information about a competitor, and courts must determine if the conduct used was "improper."²⁶ Usually, improper conduct invokes an independent legal wrong in the form of trespass, theft, bribery, and so on.²⁷

Trade secret litigation that stems from a...