On Wednesday, the Obama Administration announced its five point initiative, “Strategy on Mitigating the Theft of U.S. Trade Secrets,” for combating the increasing threat posed by international trade secret misappropriation. I was in the midst of gearing up for a preliminary injunction hearing, so while I was able to briefly report on the press conference and resulting media reports, I didn’t have the opportunity to carefully review the report and its specific strategies. I now have had the weekend to look at it; while there is a lot to like, there is some significant room for improvement, particularly on efforts to engage and unleash the private sector.
The Plan: The Administration’s roll out of the strategy on February 20, 2013, was accompanied by statements from senior administration officials covering six agencies with economic and security responsibilities. The report identifies five action items: (1) focused diplomatic efforts to protect trade secrets overseas; (2) promoting voluntary best practices by private industry to protect trade secrets; (3) enhanced domestic law enforcement operations; (4) improved domestic legislation; and (5) public awareness and stakeholder outreach.
The Good: This Administration has built up some credibility based on its willingness to use the Economic Espionage Act to prosecute offenders. It has been assertive in its criminal prosecutions to date (the Liew/Pangang Group prosecution, the Aleynikov prosecution, the Hanjuan Jin prosecution, etc.) and has been thoughtful and considered in identifying the problem. It also deserves credit for using the bully pulpit to acknowledge the problem and commit its resources to remedying it.
The Elephant in the Room: Curiously, the Administration’s report does not explicitly identify China, althought it repeatedly references prosecutions involving Chinese nationals. To its credit, the Justice Department has not hesitated to push ahead against Chinese nationals and companies — most notably, its indictment of the Pangang Group, a company owned and controlled by key members of the Communist party. However, it was a little disappointing that the Administration was reluctant to identify China as the prime culprit and catalyst for the initiative.
What Hasn’t Worked Yet and Probably Won’t Work in the Near Term: Diplomatic engagement is important, but if a nation’s policy is to affirmatively steal trade secrets, it is going to take a fair amount of time to dissuade it from that course. In the meantime, trade secrets and know how will be usurped and the the misappropriators will be the first to market. 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 cyberbreaches to be in excess of $334 billion per year. With numbers like that, don’t expect any offending nation to go gently.
Criminal prosecution, if you have the individuals detained here in the U.S., can be effective but we have seen that service of process and extraterritorial complications have bedevilled prosecutors and can limit the effectiveness of this approach (the Pangang Group prosecution has been effectively derailed because of this problem and this same approach is now being used in other high profile prosecutions).
Likewise, the renewed emphasis on best practices should be commended. But sophisticated companies like DuPont, Ford and GM certainly have these safeguards in place and have still been victims of trade secret theft, as the report notes. Public awareness and training can only protect companies so much. A determined and committed competitor (especially one supported by its government) will probe, and ultimately find, either cyber or employee weaknesses and exploit them. Prevention is important but it is simply not enough.
Private Attorney Generals? More can and should be done. Not surprisingly, the report is fairly heavy on reliance on governmental administration. This doesn’t come as a great surprise given the political philosophy of the Administration and the fact that this is a report that is after all being issued by the government. But frankly my jaw dropped when I looked at the section of the report emphasizing legislative priorities, and there was no mention of the Protecting American Trade Secrets and Innovation Act (PATSIA), the civil remedy that was sponsored by three Democratic senators. This is a pretty serious omission.
There are limits to what the government can achieve on this front. Public enforcement by nature lacks the nimbleness and expertise that one will find when private companies commence litigation to protect their own commercial interests.
No one would expect the federal government to prosecute a patent infringement as effectively as the patent owner and its lawyers. Trade secret litigation is no different; a company and its lawyers will understand the technology best and will have the incentive to litigate hard and aggressively over a coveted invention.
I remember from law school that the Sherman Act’s civil remedy was enacted to create an incentivized “private army of attorney generals” to enforce the antitrust laws and challenge the monopolies of that day. The problem of international cyberattacks and trade secret theft is no less important, and that same aggressive approach should be encouraged here through enactment of PATSIA.