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.