Introduction and Summary
Good afternoon Chairman Coble, Ranking Member Nadler, and Members of the Committee. Thank you for inviting me to testify today on the importance of trade secret protection for American companies.
My name is
Trade secrets are an increasingly important part of IPO members' intellectual property portfolios. IPO members have developed, at significant cost, a host of trade secrets that give each of us a competitive edge and help us outcompete in today's challenging global markets. These trade secrets are manufacturing processes, industrial techniques, proprietary technologies, formulas, codes, designs, and customer lists. Our competitiveness in the global economy depends on this information remaining confidential. In all, trade secrets constitute roughly two-thirds of the value of companies' information portfolios. n1
The value of our trade secrets is not lost on competitors here and around the world. Trade secret misappropriation is a large and growing problem. The threat comes from company insiders who would take our trade secrets and sell them to the highest bidder, and outsiders including both competitors who try to infiltrate our networks and foreign governments and companies overseas using their espionage capabilities against American companies. The rise of sophisticated technology, perpetual connectivity, and globalized supply chains has made it even easier for would-be thieves to access competitively sensitive information. And when that information lands in the hands of a rival, the rival can replicate market-leading innovations at a fraction of the cost, bypassing the years of research and development we put into our products.
We have raised our defenses and are employing the best technologies and strategies to protect our intellectual property. But federal law has not kept pace with the technological innovation that has enabled increased trade secret theft. IPO therefore supports the creation of a federal civil remedy for trade secret misappropriation, to enhance trade secret protection for innovators and give us the tools to protect ourselves. Owners of other forms of intellectual property - copyrights, patents, and trademarks - can enforce their rights in federal court. Trade secret owners should have a similar remedy. At stake are the continued competitiveness of market-leading American companies and the millions of jobs we provide.
I. The Current Legal Regime Does Not Provide Sufficient Trade Secret Protection
The current legal tools available to remedy trade secret theft are unnecessarily inefficient and inconsistent with other areas of intellectual property law. In
The EEA is an important law that makes it a crime to steal trade secrets for the benefit of a foreign government or for economic gain. But the EEA is a criminal statute, and criminal law to protect intellectual property has two important limitations. First, the
Federal statutes provide owners of other forms of intellectual property (patents, copyrights, and trademarks) the right to bring a civil action in federal court to recover damages and, in appropriate cases, enjoin further infringement. There is, however, no analogous federal right to enforce trade secrets. We believe there should be. A federal civil remedy would provide a consistent, unified framework for intellectual property protection at the federal level. The tactics employed by those seeking to steal trade secrets are becoming increasingly sophisticated and frighteningly effective; our law simply must keep pace.
Most states have adopted civil remedies based on the Uniform Trade Secrets Act. These laws work well to remedy local and intrastate trade secret theft, such as the case of an employee who takes a customer list to the competitor across town. But today, the increased digitization of critical data and increased global trade have made it easier than ever before to misappropriate vast quantities of data and transport it across state and international boundaries. As a result, trade secret misappropriation cases today often involve actors and witnesses in multiple jurisdictions within
The need for immediate action to remedy trade secret theft is perhaps most pronounced when the theft is by an individual looking to flee the country. State courts are not well equipped to respond to applications for urgent assistance in cases where the defendant has crossed state lines, and they lack the ability of the federal system to protect a trade secret stolen by such a defendant. Whatever the mode of misappropriation, once the trade secret has been divulged, or is made known to a competitor, trade secret protection may be lost forever and the harm from disclosure is often irreparable.
II. IPO Supports a Federal Remedy for Trade Secret Misappropriation
Innovative companies would benefit greatly from a uniform federal remedy that reflects the sophisticated nature of trade secret misappropriation today. IPO supports efforts to create a federal remedy that give trade secret owners access to federal courts to respond quickly to trade secret misappropriation. In IPO's view, an effective remedy would provide the advantages of federal service of process and provide for the speedy entry of orders, including on an ex parte basis when warranted to prevent an imminent misappropriation, the dissemination of a stolen trade secret, and to preserve evidence.
Any legislation should be balanced, however, and provide adequate protection against improper use of the statute - particularly when an ex parte process is used. While the federal civil remedy should authorize the seizure of a stolen trade secret in limited, appropriate circumstances, the provision must contain safeguards to prevent abuse, including damages in the event of wrongful seizure and protection of the information seized to protect against inappropriate access to the information.
A federal civil remedy will not lead to increased litigation. Businesses will never be shy about protecting our rights when our investments in research and development, protected by trade secret law, are stolen. We will act to protect our trade secrets, whether it means going to state court or federal court. But a federal remedy will be more efficient and effective. We will be able to go to a single federal judge, rather than running to multiple state courts to stop interstate and international misappropriation.
The need is urgent. The
The effect of trade secret misappropriation can be measured in dollars lost, jobs cut, new hiring not undertaken, and innovation stifled. For example, when a
The passage of legislation to create a federal civil remedy will provide an important additional tool to protect American innovation and promote investment in research and development, and the jobs and economic prosperity such R&D will generate.
III. Protection of Trade Secrets Abroad
The ability of American companies to access foreign markets is affected by the protection those markets provide for intellectual property.
IPO submitted comments earlier this year to USTR in response to USTR's request for public comment in preparation for the Special 301 Report. IPO's comments highlighted the problem of trade secret misappropriation overseas and discussed where there are significant problems around the world. Issues of concern include forced regulatory disclosure of trade secrets, compulsory licensing, uneven enforcement, difficulties in evidence gathering to prove trade secret theft, and an overall lack of effective intellectual property protection. Inadequate protection of trade secrets abroad harms not only companies whose property is stolen, but also the country where the theft occurs, because companies are then less likely to form joint ventures and make high-value global supply chain investments in those countries.
Despite the challenges, we see some near-term opportunities to strengthen the global framework for intellectual property rights.
The issue of trade secret protection has already been included in draft negotiating agendas for both U.S. and EU negotiators in the
IPO supports a federal civil remedy for trade secret theft because our member companies -- creators of innovative products in demand around the world and creators of good, well-paying jobs in
n2 Dep't of Defense, Strategy for Operating in Cyberspace, at 4 (
n6 See S. Rep. No. 104-359, at 9 (1996) (reporting how the source code of Ellery Systems of
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