Last week, in a significant development in the simmering IP and technology dispute between the U.S. and China, the U.S. Department of Justice unsealed an indictment filed in the U.S. District Court for the Western District of Washington against Chinese telecommunications manufacturer Huawei for the theft of trade secrets from T-Mobile. This salvo is the latest in an increasingly high stakes confrontation between the U.S. and China arising from longstanding concerns in the U.S. about China’s involvement in and support for the theft of trade secrets from U.S. companies. Huawei, which was also the subject of a FBI sting last month in another unrelated trade secret investigation involving a U.S. smartphone screen manufacturer, is now at the center of this international IP superpower row. What’s the international context that led to this indictment, what did Huawei do to trigger the indictment, and what forces are now in play that will shape the prosecution going forward? Read on for my thoughts below. Continue Reading Tappy’s Revenge: What You Need to Know About the DOJ’s Momentous Trade Secret Indictment of Huawei
Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:
- Massachusetts is once again contemplating multiple bills regarding non-competes as well as a possible adoption of what appears to be the DTSA advises Russell Beck in his Fair Competition Blog. Russell and his team also have summaries of legislative activity in Maryland, Maine, Michigan, New York, Oregon, Pennsylvania, Washington and West Virginia, among others.
Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:
Trade Secret and Non-Compete Cases. Posts and Articles:
- “Connecticut Governor Vetoes Noncompete Statute Passed By Legislature,” reports Daniel P. Hart for Seyfarth Shaw’s Trading Secrets Blog. Last Friday, Governor Dannel P. Malloy vetoed Public Act No. 13-309, sending the bill to the legislature with a letter noting his concerns about a lack of clarity in the final version of the bill. The bill essentially required employers to provide some reasonable notice of a non-compete to an employee or prospective employee. David Popick has a post for Epstein Becker’s Trade Secrets & Noncompete Blog, as does Russell Beck in his Fair Competition Blog.
- “Texas Appeals Court Guts $40M Energy Trade Secret Verdict” against Southwestern Energy Group, reports Law360.
- “Elevator Sales Company and Former Employee in Interesting Non-Compete Fight,” reports Jonathan Pollard in the non-compete blog.
- “Are WWE Wrestling Results Trade Secrets?” asks Eric Ostroff in his Trade Secrets Protection Blog.
- “Recent Conflicting Decisions Make It Potentially Easier and Harder to Enforce Non-Competition and Non-Solicitation Covenants,” advises Choate Hall & Stewart’s Employment and Benefit Group for JDSupra.
- “Using Covenants Not to Compete in the Health Care Industry Part 1 – Understand the Basics,” advises Lee A. Spinks from Poyner Spruill.
- And while on the topic of non-competes and doctors, “Judges giving departing doctors new leverage,” reports Claire Bushey for Crain’s Chicago Business.
- “Restaurant Wars: Restrictive Covenants for Chefs & Tandoori Chicken Tikka,” reports Daniel Schwartz for the Connecticut Employment Law Blog.
- “California officials wrestle with handling trade secrets on fracking,” reports The Los Angeles Times.
- “Benefits of Early Discovery in Defending Trade Secret Misappropriation Claims,” advise Brent J. Gurney, Joshua T. Ferrentino and Alexander B. White for The New York Law Journal.
- “Factors to Consider in Cross-Border Trade Secret Protection,” recommends The IP Exporter.
- “Smoking Gun or Blowing Smoke? Five Tips to Make Sure That Computer Forensic Evidence of Trade Secret Theft Is What You Think It Is,” advise Thomas Gray and Elizabeth McBride for Orrick’s Trade Secrets Watch.
- “My Issue With PRATSA: The Rule of Lenity,” argues Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
- “Please, Do Not Trust Your New Employer to Interpret Your Non-Compete Clause,” pleads Laura Ellerman for Frith & Ellerman’s Virginia Non-Compete Law Blog.
- “Money, Money, Money: Top 10 Trade Secret Verdicts,” reports Rob Shwartz and Cam Pham for Orrick’s Trade Secrets Watch.
- “Five Things to Consider When Hiring an Employee From a Competitor,” recommends Benjamin Fink for Berman Fink Van Horn’s Georgia Non-Compete & Trade Secrets Report Blog.
Cybersecurity Posts and Articles:
- “U.S., Firms Draw a Bead on Chinese Cyberspies,” reports The Wall Street Journal. This fascinating articles details the recent cooperation between the Obama Administration and various technology and internet companies.
- “Nations Buying as Hackers Sell Computer Flaws,” reports The New York Times.
- “Cybersecurity Pros Call For Federal Breach Notification Law,” advises Law360.
Computer Fraud & Abuse Act Articles, Cases and Posts:
- As I briefly noted in my post last night, Congresswoman Zoe Lofgren (D-CA) and Senator Ron Wyden (R-OR) have introduced an amendment to the CFAA popularly known as “Aaron’s Law,” to narrow the CFAA, reports Wired. As readers of this blog know, Swartz had been charged under the CFAA after allegedly accessing the server of MIT to improperly download approximately 4.8 million academic journals; he committed suicide earlier this year after negotiations over his plea bargain broke down. The amendment would, among other things, define access without authorization and exclude online agreements, computer use policies and employment agreements from serving as a basis for a claim under the CFAA.
- For more commentary on Aaron’s Law, see Russell Beck’s post in his Fair Competition Blog, Robert Milligan’s post for Seyfarth Shaw’s Trading Secrets Blog, and Jason Weinstein’s take for Steptoe’s Cyberblog.
Trade Secret and Non-Compete Cases. Posts and Articles:
- “Obama Administration Issues New Strategic Plan for Intellectual Property Enforcement,” announces Russell Beck, who provides a fine summary in his Fair Competition Law Blog.
- The ITC and a Chinese court have come to opposite conclusions over the same basic trade secrets dispute, notes Orrick’s Trade Secrets Watch Blog. In, “Rubber Match? Resin Trade Secret Battle Results in a Multi-Jurisdictional Draw,” Mark P. Wine and Francis Cheever report that the ITC ruled in favor of American rubber manufacturer SI Group but that the Chinese court sided with Chinese manufacturer Sino Legend. For more on the ITC proceeding, see, “ITC judge rules for SI Group in intellectual property case,” in RubberNews.com.
- Speaking of long-running trade secret imbroglios involving Chinese companies, “Chinese Wind-Turbine Maker Sinovel Charged With IP Theft,” reports Law360. The U.S. Attorney for Wisconsin has indicted Sinovel for the alleged theft of source code from American Superconductor’s computer system. The New York Times also has an article covering the indictment.
- For those embroiled in a dispute over a forum selection clause in Georgia, “Atlantic Pacific Illustrates Impact of Georgia’s New Restrictive Covenants Law on Forum and Venue Selection Considerations,” advises Collin L. Freer for Berman Fink Van Horn’s Georgia Non-Compete and Trade Secret News Blog.
- “U.S. District Judge in Massachusetts Declines to Enforce Noncompetes Because the Jobs of Two Employees ‘Materially Changed,’” advises Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
- “Tyco Accused Of Smear Campaign In Trade Secrets Row,” reports Law360.
- For more on the new Connecticut non-compete statute, see “Non-Compete Legislation In Connecticut,” by David Popick for Epstein Becker’s Trade Secrets & Noncompete Blog, and, “Connecticut Law Restricts the Use of Non-Compete Agreements in Acquisitions and Mergers,” by Patricia Reilly, Matthew Curtin and Stephen Rosenberg for Littler’s Unfair Competition & Trade Secret Counsel Blog.
- “Rogue Employees – What to do?” asks Rob Radcliff for his Smooth Transitions Blog.
- “Takeaways From UK’s Vestergaard Trade Secrets Case,” advise Akash Sachdeva and Ben Hitchens of Edwards Wildman Palmer LLP for Law360.
Cybersecurity Posts and Articles:
- “Bank’s new cybersecurity audits catch law firms flat-footed,” reports Martha Neil for the ABA News.
- “Big Banks Worried About Outside Counsel Who BYOD,” advises David Hechler for Corporate Counsel.
- “FINRA Sees ‘Proliferation’ of Complaints About Cybersecurity Breaches, Official Says,” reports Maria Lockshin for Bloomberg BNA.
- “Federal Data Breach Legislation Introduced, But Will It Go Anywhere?” asks Christin McMeley of Davis Wright Tremaine for JDSupra.
The corrected version of today’s Thursday Wrap-Up post is posted below. A technical glitch caused the post to inadvertently launch last night so we apologize to our subscribers. We appreciate your loyalty and work hard to deliver valuable content. Thank you for your patience.
Now, to the noteworthy trade secret, non-compete and cybersecurity stories from the past week:
Trade Secret and Non-Compete Cases, Posts and Articles:
- For you sports fans, a budding dispute is emerging in the NBA over the enforceability of Boston Celtics coach Doc Rivers’ non-compete. Rivers, one of the more highly regarded NBA coaches, has been approached by the Los Angeles Clippers but a non-compete in his contract may prevent his move. For their take on the situation, check out Rob Dean’s post, “Calling Foul on Doc Rivers’ Non-Compete Contract,” for Frith & Ellerman’s Virginia Non-Compete Blog as well as Kenneth Vanko’s post in his Legal Developments in Non-Competition Agreements Blog.
- Wondering how the U.S. Supreme Court’s Myriad decision may affect the use of trade secrets? Then check out “In Setting Genes Free, Supreme Court Decision Will Put Greater Emphasis on Trade Secret Protection in Biotech,” by Michael Baniak for Seyfarth Shaw’s Trading Secrets Blog.
- For the latest on the high profile prosecution of Walter Liew and the Pangang Group, see “Trade Secrets Charges Survive Dismissal Bid In DuPont Case,” reports Law360.
- “Creators of 5-hour ENERGY file complaint against DOJ for requesting ‘trade secrets,'” advises Joyce DeWitt for the Statesman Journal Blog.
- In a surprisingly sympathetic article about Sergey Aleynikov’s legal travails entitled “Questions Linger in Case of Copied Code,” Reed Albergotti expresses concern about the most recent prosecution in The Wall Street Journal.
- “Google, Judges Duck Latest Version of Trade Secrets Case,” reports Law360.
- Looking for a “Broker Update” on trade secret and non-compete disputes in the financial industry? Then check out Rob Radcliff’s post in his Smooth Transitions Blog.
- “Enforceability of a Noncompete Agreement will Often Depend Upon Context,” advises Jason Shinn for the Michigan Employment Law Advisor Blog.
- “No, No, No – Your Independent Contractor Cannot Sign a Noncompete. Never. Ever,” exclaims Tiffany Hildreth for Strasburger’s Noncompete Blog.
- “No Sanctions For Text Message Deletion,” advises Christopher Brif for the IT-Lex Blog.
- “Trade Secret Suit Against Defense Co. Sent To Arbitration,” reports Law360.
- “The New Prior User Rights Defense: How Often Will It Be Asserted?” ask Robert A. Pollock and Matthew R. Van Eman for Finnegan’s America Invents Act Blog.
Cybersecurity Posts and Articles:
- “Why The NSA Leaks Will Lead To More Economic Espionage Against American Companies,” warns John Villasenor for Forbes Tech.
- “Why Your CEO Is a Security Risk,” cautions Rohyt Belani for the Harvard Business Review Network Blog.
- Looking for a concise summary of all the pending federal cybersecurity and trade secrets legislation? Then check out “Pols Gone Wild: Congress Discovers Trade Secret Theft and Cybersecurity are Problems; We Sort Through the Explosion of Legislation,” by Sophie Yu and Gabriel M. Ramsey for Orrick’s Trade Secrets Watch Blog.
- “5 Data Breach Risks You Can Prevent,” proclaim Clark Schweers and Jeffrey Hall for Law Technology News.
- “The Public/Private Cooperation We Need on Cyber Security,” advises Harry D. Raduege, Jr. for the Harvard Business Review Network Blog.
- “After Profits, Defense Contractor Faces the Pitfalls of Cybersecurity,” reports The New York Times.
Computer Fraud & Abuse Act Articles, Cases and Posts:
- “Minnesota Federal Court Dismisses Computer Fraud and Abuse Act Claim Based on Departing Employee’s Downloading of Customer List,” reports Erik von Zeipel for Seyfarth Shaw’s Trading Secrets Blog.
- For more on the recent decision denying a motion to dismiss the CFAA claim in the AMD trade secret case, see Erik Ostroff’s post “Computer Fraud and Abuse Act Applied Narrowly In AMD Case,” for his Protecting Trade Secrets Blog.
Trade Secret and Non-Compete Posts and Articles:
- “Can Business Relationships Be Trade Secrets? VA Federal Court Says No” advises Eric Ostroff in his Protecting Trade Secrets Blog. In Cablecom Tax Services v. Shenandoah Telecomms. Co., U.S. District Court Judge Michael Urbanski dismissed a tax consultant’s trade secrets claim against its telecommunications customers, reasoning that the consultant’s alleged relationships with tax authorities, a tax-law “accounting system,” and its ability to negotiate property tax discounts did not qualify as protectable trade secrets under Virginia’s Uniform Trade Secrets Act. Scott A. Schaefers also has a post on this case for Seyfarth Shaw’s Trading Secrets Blog.
- And while we are on the topic of trade secrets cases in Virginia, are you looking for a primer on the epic DuPont v. Kolon case? Then check out the superb post analyzing DuPont’s case by Eulonda Skyles and Michael Spillner for Orrick’s Trade Secrets Watch Blog.
- Speaking of DuPont and Kolon, “Kolon Succeeds in Getting Its Trade Secret Theft Arraignment Postponed,” advises Todd Sullivan in Sullivan’s Trade Secrets Blog.
- “Ex-Advanced Micro Workers Can’t Shake Trade Secrets Suit,” reports Law360 and Bloomberg. For more on the AMD trade secrets dispute, see my post from last month on the recent preliminary injunction restraining those same employees from misappropriating AMD’s trade secrets.
- “Newscaster tripped up by Non-Compete,” reports Dan Frith for Frith & Ellerman’s Virginia Non-Compete Law Blog.
- “It’s Not Just for Patents Anymore: Using the ITC to Combat Theft of Trade Secrets,” recommends Mark Memelstein and Misasha C. Suzuki for Orrick’s Trade Secrets Watch Blog.
- “Hey, I Thought We Had An Agreement: California Appellate Court Allows Party To Seek Attorney’s Fees In Trade Secret Case,” exclaims Paul Henson in a guest post for Seyfarth Shaw’s Trading Secrets Blog.
- Jason Cornell of Fox Rothschild has another post comparing different state’s non-compete laws, this time “A Comparison Of Illinois And Florida Law Governing Non-Compete Agreements,” for Mondaq.
- “UK Supreme Court Rules on Case Involving Misuse of Trade Secrets by Former Employee,” reports Ezra Steinhardt for Covington’s Inside TechMedia Blog.
- Jay Yurkiw of Porter Wright continues to churn out fine posts on e-discovery issues relevant to trade secret and non-compete disputes. For his latest, see “Court Relies on Proportionality to Deny Inspection of Defendant’s Computers, Cell Phones and Email Accounts” for Porter Wright’s Technology Law Source Blog.
- “Deter Cyber Theft Act Would Augment Federal Policy Against Industrial Espionage,” advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
- Interested in the interplay between “Liquidated Damages and Non-Competes”? Then check out Devin C. Dolive’s post for Burr & Forman’s Non-Compete Trade Secrets Law Blog.
Cybersecurity Posts and Articles:
- “Outside Law Firm Cybersecurity Under Scrutiny,” advises Catherine Dunn for Corporate Counsel.
- “China’s Cyber Stonewall: Beijing won’t stop until it pays a price for its Internet thievery,” thunders The Wall Street Journal.
- “How Vulnerable is Your Company to a Cyber Breach?” ask Clark Schweers and Jeffrey Hall for Corporate Counsel.
- “What If China Hacks the NSA’s Massive Data Trove?” ponders Conor Freidersdorf for The Atlantic.
- “Could Overreaction to Cybersecurity Threats Hurt Transparency at Home?” worries David S. Levine for Slate.
Computer Fraud and Abuse Act Posts and Cases:
- In an initial skirmish that will inevitably lead to a lawsuit against the prosecutors in the Aaron Swartz CFAA case, “Judge Rejects Aaron Swartz’s Estate’s Request to Release Names of Individuals Involved in his Prosecution,” reports Hayes Hunt in the From the Sidebar Blog.
- Last week’s report from the privately-funded IP Commission has triggered a lot of commentary on the issue of China, cybersecurity, and the international misappropriation of trade secrets. The Economist has chimed in, “Fighting China’s hackers: Is it time to retaliate against cyber-thieves?,” The New York Times has offered an Op-Ed “Preventing a U.S.-China Cyberwar,” as has Gerry Smith for The Huffington Post, “‘Hacking Back’ Could Deter Chinese Cyberattacks, Report Says.” Lisa Kilday also has a post for The IP Watchdog, as does Sophie Yu for Orrick’s Trade Secrets Watch Blog.
- For a contrarian view of the report and its authors, see TechDirt’s article, “Fear Mongering Report Suggests ‘IP Theft From China’ One Of The Biggest Problems America Faces.”
- “A primer on the keys to a complete cybersecurity incident response plan: Inside counsel that understand cybersecurity become defenders of their companies,” advises Daniel Lim for Inside Counsel.
- “Hackers Find China Is Land of Opportunity,” reports Edward Wong for The New York Times.
- “FTC Fires Back In Cybersecurity Case,” reports Brent Kendall for The Wall Street Journal’s Law Blog.
- “FTC Announces Information about Upcoming Mobile Security Forum,” advises Mike Nonanka for Covington’s Inside Privacy Blog.
- Rob Radcliff provides his take on BYOD policies in his Smooth Transitions Blog.
- “Employers Must Obtain Employee Consent For BYOD Programs,” recommends Yaron Dori and Jeff Kosseff of Covington & Burling LLP for Law360.
- “Kolon Asks 4th Circ. To Ax $920M DuPont Trade Secrets Award” reports Law360. In a summary of the oral arguments before the 4th Circuit Court of Appeals, Scott Flaherty reports that Kolon focused on Judge Robert Payne’s denial of its motion to recuse himself because of his former firm’s involvement in a patent dispute for DuPont and on what Kolon believed was DuPont’s failure to provide proof on a trade secret by trade secret basis.
- “Illinois Appellate Court Partially Reverses Broad Non-Compete Injunction Against Physicians,” reports Molly Joyce for Seyfarth Shaw’s Trading Secrets Blog.
- “Customer Lists as Trade Secrets: What Protections Are Sufficient?” asks Eric Ostroff in his Protecting Trade Secrets Blog.
- Brian Bialas suspects that the recent AMD v. Feldstein decision by the U.S. District Court of Massachusetts may have extended the inevitable disclosure doctrine in Massachusetts. In his post for Foley & Hoag’s Massachusetts Noncompete Law Blog, Brian notes the fact that Judge Hillman entered an injunction despite the defendants’ protestations that they had already turned over all confidential information to a third-party neutral after the lawsuit was commenced, reasoning that they, “must all remember large amounts of confidential AMD information that they learned during their employment.” (For more on the decision, see my take here).
- A case out of New York’s Fourth Appellate Department suggests that coupling a grant of stock options with a non-compete can be a messy affair if not done right, advises Jonathan Pollard in a recent post for the non-compete blog.
- “Former Outback Steakhouse Employee Not Necessarily ‘Down Under’ For Allegedly Breaching Fiduciary Duty” advises Amy Dehnel for Berman Fink & Van Horn’s Georgia Non-Compete & Trade Secret News Blog.
- In “Pennsylvania Appellate Court Orders Sanctions for Plaintiff’s Bad-Faith Trade Secret Misappropriation Claims,” Scott Schaeffers examines the recent Kraft v. Downey case for Seyfarth Shaw’s Trading Secrets Blog.
- Rob Radcliff provides his take on BYOD policies in his Smooth Transistions Blog.
- “Employers Must Obtain Employee Consent For BYOD Programs,” recommends Yaron Dori and Jeff Kosseff, Covington & Burling LLP for Law360.
- “Chinese Trade Secret Theft Hits Universities,” reports Press Millen for Womble Carlyle’s Trade Secrets Blog.
- “Non-Compete Agreements Aren’t for Everyone: The Necessity of Proving a ‘Legitimate Business Interest,’” advises Betsy Lensan Cook of Womble Carlyle for National Law Review.
- “Exercise Gym Instructor Enjoined By Non-Compete Agreement,” reports David Poppick for Epstein Becker’s Trade Secrets & Noncompete Blog.
- “Password Sharing and the Computer Fraud and Abuse Act, Revisited,” considers Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
A blue-ribbon panel issued a report on Wednesday focusing on trade secret theft by China and urging a number of executive and legislative reforms, including enactment of a federal trade secrets statute and providing American companies with some limited right to “hack back” against those that launch cyberattacks against them. The report has already generated a fair amount of media coverage and is sure to spark further debate on what to do about international trade secret theft and cyberattacks (for more on the report, see this Op-Ed piece in The Washington Post, as well as these articles in Forbes, the BBC and PCWorld).
The Commission on the Theft of American Intellectual Property by The National Bureau of Asian Research (that’s a mouthful) assembled the report. The panel that authored the report includes high profile figures such as the former Ambassador to China (Jon M. Huntsman, Jr.), the former Chairman and CEO of Intel Corporation (Craig R. Barrett), the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command (Retired Admiral Dennis C. Blair), and former U.S. Senator Slade Gorton from Washington state.
The Reasons for the Report: For those that have been following these issues, the report relies on many of the statistics and developments that are by now considered to be conventional wisdom or accepted as true: $300 billion estimated annual losses due to foreign trade secret and cybertheft, drag on U.S. GDP growth, American job losses, and corrosion of the incentives to innovate, among others.
However, unlike other reports and commissions, this one unambiguously singles out China “as the world’s largest source of IP theft” and quotes estimates that “China’s share of international IP theft” is “roughly 70%.” In this respect, the Commission differs substantially from other high profile reports — most notably, the Obama Administration’s Trade Secrets Initiative launched last February, which elected not to single out China (although that initiative did detail incident after incident of theft involving a China connection).
The report also addresses what it believes to be the root causes of this serious international problem, as well as the role of the Chinese government in allowing or promoting it. It posits that “much of this theft stems from the undirected, uncoordinated actions of Chinese citizens and entities who see within a permissive domestic legal environment an opportunity to advance with their own commercial interests. With rare penalties for offenders and large profits to be gained, Chinese businesses thrive on stolen technology.” However, the report does note that role of the Chinese government in some of these efforts, citing the recent Verizon risk report that found that “‘state-affiliated actors’ accounted for 19% of the 621 successful ‘breaches’ in the 47,000 attacks reported.”
The Commission’s Notable Recommendations: A number of short-term solutions are advocated to reorganize and finetune the federal executive branch’s focus and responsibility. However, it is the “medium-term solutions” proposal that I thought was the most noteworthy, which is the section that advocates for legislative and legal reforms.
In my view, the most important legislative reform proposed in the report is the very first one — the call for an amendment to the Economic Espionage Act (EEA) to provide for a private right of action to allow companies and businesses to sue for the theft of their trade secrets (readers of this blog already know that I have supported this effort). The report does not advocate a particular bill (such as the pending Protecting American Trade Secrets and Innovation Act) or particular remedy. Rather, the report focuses on the practical reasons that require that legislation: over-burdened federal prosecutors who lack the resources to pursue these actions under the EEA and the jurisdictional and evidentiary limitations of state court actions that may frustrate the ability of companies to protect their trade secrets overseas.
The Commission also recommends that the EEA be amended so that the Federal Circuit would serve as the Federal Court of Appeals for all federal trade secret actions, “since it serves as the appellate court for nearly all IP-related cases and thus has a high degree of competency on IP issues.” This is a good suggestion and would provide uniformity and clarity on any new statute as well as for future prosecutions under the EEA.
Finally, the Commission advocates two noteworthy but controversial cyber proposals. It supports the present Cyber Intelligence Sharing Protection Act (CISPA) that has passed the House of Representatives but faces opposition within the Senate and by the Obama Administration on privacy grounds.
The Commission also supports giving American companies the right to a some limited form of a “hack back” against foreign cyberattacks (for a fine and brief analysis of this provision, see the recent post of Steptoe’s Stewart Baker for The Volokh Conspiracy). This would likely require an amendment to the Computer Fraud and Abuse Act (CFAA), which as presently drafted, would expose American companies to civil claims or prosecution under the CFAA. (For a debate on the merits of allowing a hack back amendment, see the exchange between Stewart Baker (in favor) and Professor Orin Kerr (against) in The Volokh Conspiracy).
For those with the time, I would recommend reading the report which has a host of other comprehensive proposals that should be strongly and seriously considered by the Administration and Congress.
Following up on yesterday’s post, I would like to detail the terrific Trade Secret Law Committee Meeting we had on Thursday with Assistant U.S. Trade Representative (AUSTR) Stanford McCoy. AUSTR McCoy had spoken earlier in the day on a panel about protecting intellectual property through foreign trade agreements and emphasized how trade secrets had emerged from an “obscure” issue to a “big priority” within the Administration. Afterwards, I approached him in the hope that he might join our Committee meeting; he told me he would have liked to but he was committed to another meeting while in Seattle.
Peter Toren’s Presentation on the Obama Trade Secret Initiative and Strategy
At the Committee Meeting, Peter Toren provided a summary of the Obama Trade Secret Strategy announced on February 20, 2013 and shared his concerns that the Administration presently lacked the resources to prosecute trade secret theft under the Economic Espionage Act (EEA). He provided some sobering statistics that showed that there had been only 127 prosecutions under the EEA since its inception in 1996, and that with the exception of the Northern District of California, the majority of U.S. Attorney’s offices had not been vigorously pursuing those prosecutions (for example, less than 45% had prosecuted a single EEA case).
Peter emphasized that while the Obama Administration’s action items certainly represented a step in the right direction, its success would depend on whether the government actually followed through with the proposed action. Moreover, Peter noted that even if the Administration implemented the programs and increased protection of trade secrets, it could only do so much in this era of government cutbacks, a fact evidenced by his statistics on the EEA. Peter ultimately concluded that businesses must do more to protect their trade secrets. A copy of Peter’s blog post on the presentation and his PowerPoint can be found here.
The Panel Discussion and AUSTR McCoy’s Surprise Visit
After Peter’s presentation, I moderated a panel discussion with Peter, Dan Westman of Morrison & Foerster, John Durham of Poyner Spruills, and Seth Hudson of Clements Bernard regarding our thoughts over the recent Obama initiative. The concensus was that it was a welcome step but that a private right of action was needed.
About mid-way through the panel discussion, AUSTR McCoy joined us unexpectedly. He participated in the discussion and after listening to our initial comments, he advised that he appreciated our comments but indicated that the administration needed to hear from the Committee more often. He said the administration would like to have had our input on recent requests for input on Section 301 proceedings and he asked that we work with Victoria Espinel, the U.S. Intellectual Property Enforcement Coordinator (IPEC) to provide comments to legislation affecting trade secrets.
Dan Westman then spoke, emphasizing that there was a serious need for a civil remedy under the EEA. Dan said it was his understanding that the Administration might be privy to even more about China’s role in the cyberattacks and trade secret theft than had been reported or suspected in recent months. For this reason, Dan noted that the time was right, especially given the fact that leading IP associations like the AIPLA and IPO had supported the civil remedy in their public comments. AUSTR McCoy indicated that he obviously could not comment other than to note that the Administration was obviously very concerned and that trade secret theft was now a big issue for the Administration.
Consistent with his presentation, Peter echoed that the Justice Department simply did not have the resources or the manpower to pursue the trade secret claims that were out there and that a private right of action would be the most effective way to ensure that American trade secrets were protected. I of course eventually chimed in and noted that in my experience, foreign companies were not enamored with American litigation and discovery. I said that arming American companies and their attorneys with a private right of action would allow the Administration to unleash the proverbial army of private attorney generals to enforce American trade secret laws much to the chagrin of those foreign companies who so loathe and fear the American court system.
In terms of a timetable on the public comments, AUSTR McCoy said the IPEC was reviewing the public comments (13 of which were filed by the April 22 deadline), would circulate her thoughts to relevant constituencies within the Administration (with special emphasis with the Justice Department) and make a recommendation regarding the legislative proposals.
It was a marvelous and fun discussion. Members of the Committee that were present were active participants as well and asked questions not only of the panel but also AUSTR McCoy. We look forward to working with AUSTR McCoy and his office in the future.
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.