Federalizing Trade Secret Law: A Cause Whose Time Has Come -- No. 20

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In the U.S. we have civil causes of action under federal law for infringement of patents, copyrights and trademarks. Alas, we do not have a federal civil cause of action for trade secret misappropriation! But we need one badly!

According to Mark Halligan, the main reason for the "step-child treatment of trade secrets" is the fact that "trade secrets did not find a solid home in intellectual property law" as a property right until the seminal Supreme Court decisions in Kewanee Oil Co. v. Bicron Corp. in 1974 and Ruckelshaus v. Monsanto in 1984. This even though trade secret protection dates back to Roman times, every patent is born as a trade secret and over 90% of all new technology is grist for trade secrets. In my view, however, there is another more consequential reason for the "black sheep" status of trade secrets, which has been conferred upon them by what can be called the "patent über alles/trade secrets are the 'cesspool of the patent system'" school of thought, headed by Professor Kayton. Their beef is grounded on the secrecy aspect. It is considered reprehensible to keep inventions secret, inasmuch as this supposedly flies in the face of the patent system, the essence of which is disclosure of inventions for the benefit of the public. But this is an untenable colossal misconception, which I have documented as such in prior blogs and most particularly in Trade Secret Blog No. 8 ("Trade Secrets are Not Secrets").

Now why do we need to federalize trade secret law as a civil matter in light of the fact that we already have three statutes on the law books to pursue trade secret misappropriation? We have 1) the Uniform Trade Secrets Act (UTSA), promulgated in 1974 by the National Conference of Commissioners on Uniform State Laws and adopted in 45 states, the District of Columbia and the U.S. Virgin Islands, 2) the Economic Espionage Act of 1996 (EEA), which makes trade secret misappropriation a federal criminal offense, as well as 3) the Computer Fraud and Abuse Act of 2006 (CFAA), which provides civil and criminal causes of action for trade secret misappropriation involving computers and which is being invoked more and more frequently.

The above statutes unfortunately have many significant barriers, limitations and shortcomings; hence, it is not surprising that there is a growing and justifiable clamor for a federal civil trade secret law.

A growing literature exemplifies this call for federalization. The most recent article was authored by Mark Halligan and published in The John Marshall Review of Intellectual Property (7 J. Marshall Rev. Intell. Prop. L. 656, 2008( under the title "Protection of U.S. Trade Secrets: Critical Amendments to the Economic Espionage Act of 1996." Earlier expositive publications are:

• Marina Lao, "Federalizing Trade Secrets Law in an Info Economy," 59 Ohio St. L.J. 1633, 1998 and
• Christopher Rebel J. Pace, "The Case for a Federal Trade Secrets Act," 8 Harv. J.L. & Tech. 427, 1995.

In his fresh-off-the-press John Marshall article, Mark Halligan recites a long list of problems, especially with the EEA.

• Under the EEA trade secret litigation is within the prosecutorial discretion of the Justice Department with decision-making in the hands of the Attorney General, Deputy Attorney General or Assistant Attorney General and concurrence from the President.
• EEA prosecutions have been targeted only to egregious and open-and-shut cases, evidencing a reluctance to resort to it. In fact, as of 2006 there have been only 34 EEA cases, mostly in the Northern District of California, and none in 80% of the 86 federal judicial districts.
• Under the EEA there is a high burden of proof requiring proof beyond a reasonable doubt to obtain a criminal conviction. This is further fraught with the 5th Amendment privilege against self-incrimination.
• The United States, it can be said, is not in compliance with the NAFTA and TRIPs Agreements, which require national standards for trade secret protection, i.e. a federal civil statute, inasmuch as some states (New York, Massachusetts, Texas and others) do not even have any state trade secret statute but merely rely on common law.

Anent the UTSA and the CFAA the problems are the following:

Under UTSA there is a lack of uniformity in state trade secret laws, with states varying widely in their treatment of trade secret misappropriation. Hence, trade secret cases are subject to procedural and other vagaries of litigation in state courts. And this is in addition to tricky choice-of-law issues.

And the CFAA is also a criminal statute of uncertain scope, which is primarily aimed at computer crimes.

To remedy this situation, Mark Halligan proposes a few "simple and straightforward" amendments to the EEA to provide also a private cause of action, as set forth in Appendix A of his article.

His EEA amendments would also provide for badly needed national service of process, statutory recognition of civil ex parte seizure orders as well as extend the benefits of extraterritorial jurisdiction to EEA civil actions for increased deterrence of economic espionage and trade secret theft and increased economic vitality of U.S. corporations both domestically and internationally.

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About this Entry

This page contains a single entry by Carol Ruh published on September 18, 2008 11:47 AM.

Patent/Trade Secret Complementariness -- No. 19 was the previous entry in this blog.

Trade Secrets and the "Best Mode" Requirement -- No. 21 is the next entry in this blog.

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