On December 2, 2015 the Senate Judiciary Committee is holding hearings on whether it is time to move forward national-level trade secret protection. Those testifying include three pro-reformers, including Jim Pooley and one on the other side – Prof. Sharon Sandeen. The following guest post comes from Prof. Sandeen and is a response to Jim Pooley’s recent Trade Secret post. – DC.
Guest Post by Sharon K. Sandeen
As a person who has been researching, writing and speaking about trade secret law for nearly twenty-five years, I am very happy that it is finally getting the attention it deserves, both in terms of increased scholarship and legislation introduced in the U.S. Congress. Thus, I read James Pooley’s recently released article, The Myth of the Trade Secret Troll: Why We Need a Federal Civil Claim for Trade Secret Misappropriation,[1] with great interest, particularly since it provides a critique of some of the arguments that David S. Levine and I discuss in our article, Here Come the Trade Secret Trolls.[2]
In truth, Jim and my views on trade secret law do not vary much. We both believe that trade secrets are important assets and that a robust and largely uniform set of laws is needed to protect legitimate trade secrets from misappropriation. However, we do tend to see trade secret law from different perspectives. Whereas Jim, and many others who advocate for ever-stronger intellectual property rights, primarily views trade secret issues from the perspective of IP owners and the asserted need for incentives to encourage innovation and creativity, my principal perspective is through the lens of information diffusion. Consistent with the longstanding policy of the United States, including the disclosure purpose of patent law, I do not think it is possible to have the optimal amount of innovation and creativity without the diffusion of information and knowledge. Call me old-school, but I am also concerned about the use of putative IP rights for anticompetitive purposes.
The difference in perspectives manifests itself in a number of ways, raising along the way many issues that are deserving of more scholarly attention. For instance, in his recent article, Jim argues that the existing system of state trade secret laws is not uniform, thereby justifying federal legislation. While I acknowledge that various differences in state laws do exist, I believe that those differences are minor, particularly as the laws are actually applied and that differences in application are often due to the fact-specific application of the elements of a trade secret claim. We also disagree on the likely impact of a federal civil cause of action. Jim thinks it is only a modest change, whereas I think it will mark a major disruption in U.S. trade secret law because there is no existing federal jurisprudence related to civil trade secret claims.
Jim’s article does highlight two issues, in particular, that I believe need to be discussed and addressed directly; differences that arise when one looks at trade secret law from the perspective of information diffusion instead of through the eyes of trade secret owners.
The first issue concerns the purpose of trade secret laws. In addition to the traditional purpose of maintenance of business ethics, Jim correctly points out that the U.S. Supreme Court in Kewanee cited the incentive purpose, recognizing trade secret law as a supplement to the incentives provided by patent protection. However, he downplays the third purpose cited by the Supreme Court; namely, the disclosure purpose. I happen to believe that this purpose is very important with respect to the diffusion of information and knowledge in our society.
Second, and related to the disclosure purpose of trade secret law, is the fact that trade secret protection is intentionally limited. This too is a point upon which Jim and I apparently disagree since he repeats the oft-stated claim that the UTSA expanded trade secret rights. However, my research into the drafting history of the UTSA reveals a more nuanced story, one that limited the scope of trade secret protection for at least three reasons.[3] First, trade secret rights were limited out of concern that they would conflict too much with patent law, including its disclosure purpose. Trade secret rights are also weak, and therefore limited, because society benefits when trade secrets (i.e., information and knowledge) leak out. Third, trade secret protection is weak (or balanced) due to concerns that trade secret litigation can be used for anticompetitive purposes.
Jim and others can disagree with the conclusions I have drawn after my evaluation of scores of source documents, but the more important point is that we need to have an open and honest debate about the extent to which trade secret law should be used to restrict the free flow of information and knowledge that is needed for innovation, creativity, and competition. Jim, at least, is the first proponent of the federal legislation to acknowledge that one of its purposes is the desire of some companies to protect more of their inventions as trade secrets instead of pursuant to patent law. If this is a purpose of the Defend Trade Secrets Act, it is time that we have an open and honest debate about whether it is wise to drive more and more companies toward trade secret protection instead of patent protection and , thereby, locking down more and more information.
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[1] 23 George Mason L. Rev. ___ (forthcoming 2016).
[2] 71 Wash. & Lee L. Rev. Online 230 (Jan. 21, 2015).
[3] Sharon K. Sandeen, The Evolution of Trade Secret Law and Why Courts Commit Error When They Do Not Follow the Uniform Trade Secrets Act, 33 Hamline L. Rev. 493 (2010).
The push for tighter trade secret law is what I’ve been saying big international corporations were going to do.
The one thing that real economists agree upon is that the free movement of tech workers in CA is critical to innovation.
Back in the early to mid 1980’s tech companies would make you sign draconian employment contracts to lock up the IP. Basically, it would forbid you from working in an area for 3 years after you left their employment and forbid you from sharing anything with anyone in anyway outside the company (plus you had to respect company secrecy boundaries.) Microsoft had a super-duper secret areas with locks and all. I guess that was the golden age for tech companies. Pretty much patents broke all this down.
Also, we can be sure the so-called “junk” and “business method” inventions will become super valuable and need to locked down once trade secret law gets strengthened.
This is all pretty predictable.
Actually a good case to think about might be Marissa Meyer and Yahoo. Would she have been able to jump from Google to Yahoo post strong trade secret law? Probably not. I think that is a bad thing. I think as the patent system crumples and the trade secret regime rises that we are all going to be the worse off for it (except the giant monopolies that will use it to further entrench themselves.)
Can we agree that if a employer could not prevent an employee from leaving employment at his own initiative and going to work elsewhere and there being able to use his full skill and knowledge, even if that skill an knowledge involves technical know how derived from the employer, and so that the only thing the employer could prevent is the taking of things like schematics and documents with him, employers would more be more likely to invest in patents on processes that could not be kept proprietary in such an environment?
And if this is the case, would not the advance in the useful arts better be promoted by such a regime? Cf, Kawanee Oil. link to supreme.justia.com
Also consider a world where the hiring of anybody from a competitor might bring a trade secret suit based on inevitable use and disclosure. This would tend to severely retard the employment opportunities of engineers, and turn them into virtual wage slaves. One only has to look at Japan to see what such a system can do to a person. It certainly does not promote invention as the more one invents, the more he cannot move.
The one thing that gives me pause is that US patents are not given effect worldwide, such as by registration after prosecution in the US is closed, and the USTR seems oblivious to the problems this causes and makes no effort in this regard. I surely think that we could begin by doing bilateral deals with the likes of Japan and England whereby we respect each others patents.
Blocking this is the lack of harmonization in patent laws caused perversely by the AIA that made “patent applications” prior art for obviousness purposes, placing the US once again outside the law of the ROW. How such a thing could have happened given that Armitage was purportedly aiming for harmonization is a puzzle, but I know that balancing collations to get legislation passed is a difficult and thankless task. I know Hal Wegner said at the time that what we had done was a mistake.
Ned, on patent applications available from their publication date as obviousness prior art, I have a question.
There is indeed disharmony between USA and ROW, as to the date from which these applications are effective. ROW says it’s their publication date whereas USA says it’s their earliest effective declared Paris Convention priority date.
But in the Trans-Asia IP Harmony just signed, has not Asia just agreed to the US line? How about TTIP? Asia today, Europe tomorrow?
On trade secrets, as far as I know, the line you urge is seen in England as a given, long-established law. To use trade secret law to deny a skilled person the freedom to make a living and improve themselves by moving to a different job is not promoting but impeding the progress of society and the general welfare. This has been understood in Europe since at least medieval times. See:
link to en.wikipedia.org
Max, can you post the TPP language at issue here?
I see this from a draft:
“Each Party shall provide that where an invention is made independently by more than one inventor, and separate applications claiming that invention are filed with or for the relevant authority of the Party, any patent granted for the claimed invention shall be granted on the application [US/VN/MX propose; AU/NZ/CL/MY/CA/PE oppose: which has been found to be patentable and] which has the earliest filing or, if applicable, priority date [AU/NZ/PE/BN/CL/CA95 propose;96 US/VN/MY/MX/SG oppose: and which is published].[US: 97] ”
I see your point about “patentability.”
link to ipkitten.blogspot.de
Ned that is a Link to the IPKat blog on patents in the TPP. I can’t find what I had in mind either. Perhaps it was, in QQE2, the lumping together of novelty and obviousness, that triggered the notion that treating them differently might not be in confornmity with the TPP.
There was something more concrete, I thought, but I can’t find it now.
Max, on movement of labor, yes, the Inevitable Use and Disclosure Doctrine is antithetical to European and traditional American values wherein a worker has an essential and fundamental right to work for whomever he pleases. The skills and knowledge he learns from the Master are his and not the Masters.
Federal Courts handling trade secret litigation will be required to apply state law absent overriding Federal law, just as they have been since 1938 for other contract suits and many other issues. It is required by the fundamental Sup. Ct. Erie v. Tomkins decision, and subsequent Sup. Ct decisions. So, what is in this proposed federal legislation that would make substantive changes in trade secrecy law rather than just provided an alternative forum? [None, as far as reported elsewhere.]
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Now for an actual, real and present, direct clash between patents and trade secrets that should be considered by authors with interests like this author: See “The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act” 2011 Patently-O Patent Law Review 29″ for details and case law re the ongoing debate as to whether or not AIA 102 made a trade secret commercial use of a manufacturing process which cannot be detected from the sold product no longer a personal equitable bar to the trade secret user additionally also obtaining a patent on that secret process an unlimited number of years later. [An equitable forfeiture doctrine judicially created by J. Learned Hand in Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F. 2d 516, 520 (CA2 1946), and adopted by the Fed. Cir.]
Metallizing is gone.
Just because you don’t like it, does no make it “ambiguous.”
I’m with Paul on this. I don’t think the statute is especially clear.
I’m with Congress on this. They made it explicit.
Paul, Hand did not “create” the equitable bar. Pennock v. Dialogue did. And that was a Supreme Court case authored by Story. The case was decided in 1829, and its holding that sale of the invention by the inventor or by those under his authorization was a forfeiture of the inventor’s right to obtain a patent was enacted into the statutes in 1836 when “on sale and public use” was first incorporated.
Hand’s contribution was to recognize the error that had crept into the law that third party secret use could be prior art. It cannot.
The facts of Pennock illustrate the doctrine. The “inventor” made and sold the later-patented fire hose seven years before filing for a patent. He filed only when the public began to figure out his secret manufacturing techniques. Thus the doctrine is that a patent on the commercial manufacturing technique is barred from a time when a product made by that technique is sold to the public. Ditto a patent on the product.
Subsequent legislation created the grace period that is maintained in the AIA.
As I have instructed you previously, Ned, read again how the Court in that case referenced the will of Congress.
Then (for good measure), read again the Holder case on the same constitutional clause.
Lastly, please recognize the error that I have elucidated on the mixing of different time frames under different IP protective regimes.
You are welcome.
Anon, you’re doing that thing again referring to prior conversations without actually saying what you mean. No one reading your post could possibly understand what you’re talking about. And because I can’t remember that prior conversation, neither do I.
Ned,
You are doing that thing again wherein asking in a Merry-Go-Round fashion long and detailed conversations be replayed time and tiem and time again.
Sorry – pay better attention the first time around and STOP running away from conversations instead of wanting full and detailed explications each and every time you come back to a discussion point that you refused to engage in earlier.
Paul,
See link to papers.ssrn.com
However, I will point out that Prof. Sandeen makes the same (easy) mistake as what had gone before in conflating the two different types of IP (time) protections.
Glibly (and incorrectly) stating as if “it must thus be,” “Rather, it is fully consistent with the well-established principle that inventors should not be able to have it both ways; they cannot use or profit from their inventions in secret for a period of more than a year and then seek to patent their inventions.”
As I have pointed out previously, this simple mistake, once rectified, is quite easily seen as mirrored in the Soliloquy and the notion that “new to you” is still in fact “new” in the patent sense.
Anon, thanks for the link to that article. It does illustrate that at least some drafting the new legislation did not understand the fundamentals of U. S. patent law – and its distinction between prior art and statutory bars, the former being set forth in § 102(a) and the latter being set forth in § 102(b).
The article also illustrates just how sloppily drafted the 1952 patent act was when § 103 referred back to prior art in § 102 and § 102 did not clearly state that the prior art being referenced by § 103 was contained solely within § 102(a).
This poor drafting led to a number of very unfortunate decisions both by the Supreme Court in by the C.C.P.A. and the Federal Circuit expanding the scope of § 103 to include a lot of subject matter in § 102 that was not intended to be “prior art.” The language of § 103 itself should have provided the clue that only § 102(a) was intended to be included because the language of § 103 specifically referenced “at the time of invention” which is relevant only to § 102(a).
I do not agree with the (many) implicit assumptions you are making here Ned.
102 was NOT just about any type of “pure” prior art, but also included that which was to be deemed prior art.
I do not “get” what you are trying to do with attempting to obfuscate this intentional aspect of the law.
Sandeen appears to be talking sense as opposed to these other fellows. And in fact, her article D cites to below is a good one to consider. Bottom line, it’s all about people wanting a possibly cheaper, and certainly new, trade secret route to enforce such, but it’ll likely just turn out to be a nightmare and more costly save perhaps in a handful of situations.
Nevermind whether it is constitutional. You’d think if it was constitutional they’d probably have started writing such laws sooner. But they didn’t, and I wouldn’t be a bit surprised if it is literally because the congress lacks that power since it was never granted such by the states (except perhaps where it involves interstate commerce, which has been absurdly interpreted by the supremes).
6, I haven’t seen the draft law, but to the extent the trade secret is used in interstate commerce, and remedies are limited to such, then certainly the statute would be constitutional.
Wickard comes to mind
If Wickard comes to mind, you know you’ve gone off the deep end. Poor guy just wanted to have a garden.
But if that’s the case then they’d make it a whole lot less useful than they’re wanting it to be.
The elephant is in the room. Maybe someone should mention it? Okay, I will.
Sandeen writes: we need to have an open and honest debate about the extent to which trade secret law should be used to restrict the free flow of information and knowledge that is needed for innovation, creativity, and competition.
Left unsaid are the following key facts:
(1) patents can not be used to protect information, knowledge or data, whether that data is credit card data or data about your medical history. Patents are for protecting non-abstract (physically transformative) processes and physical things.
(2) you can’t “own” data. All you can do is keep the data to yourself and hope that nobody else discovers it.
Because computer technology allows massive amounts of information to be stored and its distribution to be “tracked”, certain entities have become obsessed with “owning” data so that they can “monetize” it. And if they can’t “monetize” the data with a business (which would require work other than just pushing paper around), they’d prefer to be able to “monetize” their “secret” data by sueing businesses who are (apparently) using that same data successfully. To the extent any set of laws makes it easier to drag that successful business into court with a claim of “misappropriation”, the ability to “monetize” that data is enhanced.
Imagine, for instance, the “trade secret” claims of a business that does nothing but assert junky patents against large corporations. Maybe that business has “secret data” about potential litigation targets or “secret data” about trends in courts. The business goes under water, outcompeted by a similar business. The “investors” are furious! Now they want to know how they can get some of their money back. Wait — didn’t one of the attorneys move to a different patent firm … a firm with a lot of money? Take it from there.
MM, the purpose here is to be able to lock up employees from moving to a competitor for a time.
While I think that it should be illegal for a competitor to target for hire specific employees for their knowledge of trade secrets, it should not be unlawful for employees in one company to move to another company in response to publicly announced positions regardless of their knowledge.
Ditto employees establishing their own businesses.
The only way to stop employees using the skill and knowledge gained from working for one employer is to protect the trade secret process with patents. And, IF that were the only way to protect trade secrets from exiting employees, patents would be filed.
MM it is true that many traditional inventions other than some manufacturing methods are not even protectable as trade secrets, by being on products than can be reverse-engineered as soon as are sold.
But nowadays there are huge investments in software source code that can be protected by trade secrecy law [and copyright law] even if the functions they perform publicly cannot be, and are not appropriate for, or adequately protectable by, patenting.
Also, that kind of trade secret should not normally interfere with employment transfers as long as the employee does not take it out with them. Nobody can carry thousands of lines of code in their head.
The elephant that Malcolm sees is of the “pink elephant” variety.
There are many possible differences between trade secrets and patents. To so glibly want to ig nore that in order to “press his point” as it were, well, is nothing more than the usual Ends justifies whatever means type of “reasoning” that Malcolm is used to.
I’ll place this here: W&L has hosted a set of articles on DTSA:
Christopher B. Seaman, Introduction: The Defend Trade Secrets Act of 2015, 72 Wash. & Lee L. Rev. Online 278 (2015). link to lawreview.journals.wlu.io
Eric Goldman, Ex Parte Seizures and the Defend Trade Secrets Act, 72 Wash. & Lee L. Rev. Online 284 (2015). link to lawreview.journals.wlu.io
Sharon K. Sandeen, The DTSA: The Litigator’s Full-Employment Act, 72 Wash. & Lee L. Rev. Online 308 (2015). link to lawreview.journals.wlu.io
David S. Levine, School Boy’s Tricks: Reasonable Cybersecurity and the Panic of Law Creation, 72 Wash. & Lee L. Rev. Online 323 (2015). link to lawreview.journals.wlu.io
In addition, two other contributions to the online Roundtable will be forthcoming later this month. They’ll be posted on this website: link to lawreview.journals.wlu.io
Lol, the litigator’s full employment act.
I think the debate over the inevitable use and disclosure doctrine that seems peculiar to California illustrates the point being made here very well. The doctrine over-protects trade secrets by preventing employees who have knowledge of trade secrets (confidential information generally) from working for competitors. That is clearly anti-competitive and not in the interests of workers.
I think the whole point of the Federal Trade Secret Law is to end run California’s law and to overprotect trade secrets.
I think [a federal civil cause of action] will mark a major disruption in U.S. trade secret law because there is no existing federal jurisprudence related to civil trade secret claims.
It would only mark a major disruption if federal case law significantly diverged from existing state case law. If, as the author claims, “the differences [between state laws] are minor”, then I would be surprised if the federal courts went in a significantly different direction, especially if the goal of the Defend Trade Secrets Act is uniformity.
it is time that we have an open and honest debate about whether it is wise to drive more and more companies toward trade secret protection instead of patent protection and , thereby, locking down more and more information
There is a push-pull aspect to this, though. Yes, companies may be driven toward trade secrets by the availability of better trade secret protection. But they can also be driven away from patent protection by a weakening of patent protection (and I think it would be hard to argue that post-KSR case law and the AIA have not, on balance, weakened patents, for better or worse). It is not clear to me which effect is greater in this case.
James, eBay, Seagate, Medimmune, and IPRs have weakened the patent system far more than KSR. I give you Apple v. Samsung as a poster child. An admitted pirate copies your product and you cannot even get enhanced damages or an injunction?
Ah, my timeline was off. I thought KSR was earlier than it was. I should have said post-eBay case law (although Seagate was after KSR).
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