Trade Secrecy Rising

by Dennis Crouch

A continuing trend in American law is the rise of Trade Secrecy as a powerful form of intellectual property.

The FTC and Biden Administration have called for eliminating employee non-compete agreements, which will strengthen the hard push for trade secrecy.  Most trade secret claims involve former employees moving to competitors.  If contracts limiting those transitions are unenforceable, more weight will almost certainly fall on trade secrecy rights.

Recently, President Biden also signed into law the Protecting American Intellectual Property Act of 2022.  Despite its broad name, the new law focuses entirely on international trade secrecy issues.  In particular, the law authorizes the US President to place sanctions on foreign entities that engage or benefit from “significant theft of trade secrets of United States persons.”   The law has a two-step approach: (1) the President must provide Congress with a report of violators; and (2) the President must then put sanctions on the violators (with the exception that sanctions can be waived if in the national interest).  Potential sanctions include blocking and prohibiting “all transactions in all property and interests in property of the entity.”

The new law is set to Sunset in 7 years and so will not be codified within the United States Code (USC).  However, the law does rely upon the DTSA definition of trade secret found in 18 U.S.C. 1839:

[T]he term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Under Federal Law, the theft of trade secrets held by US persons for the purpose of taking information out of the US is also a felony. See, Economic Espionage Act.

But, for the most part the practice of trade secrecy law is radically different than that of patent law.  I’m wondering the extent that patent attorneys are engaging in the transition.

46 thoughts on “Trade Secrecy Rising

  1. 8

    Plenty of youtubes videos of scholars discussing the Woke.

    Right, plenty of people discuss the concept of “woke,” but the discussions are not consistent. That is the problem.

    If I tell you that my car is green, you will have only an indistinct impression (forest green or avocado green?), but you will have a consistent impression. The assertion is falsifiable, at least. If I drive over to give you a ride and my car is the color of an egg yolk, you will know that my earlier assertion was false.

    This can never happen with “woke.” The ways “woke” is used are so inconsistent that it is never possible to refute the assertion “John is acting so woke.”

    1. 8.1

      Clearly Greg is wrong, and several of us have provided plenty of context for understanding the term.

      If so desired.

      Greg simply does not desire to understand the term.

  2. 7

    The word “theft” for a trade secret may be legally debatable as well as the word “property”. After all, in economists’ parlance, information is a non-rival asset. And for it to be protectable under trade secrets law, it requires reasonable precautions from its possessor. However, the word “theft” is very effective in business. A CEO hates to be called a “thief”. It implies at the very least you are trustworthy. The emotional reaction is thus quite different from a patent infringement allegation.

    As to the case of an employee joining a competitor, in the absence of a no-compete, the ex-employer may take inspiration from the inevitable disclosure doctrine and write a very polite letter (no threat, even thinly veiled) to the competitor to signal that risks of misappropriation will be avoided if the employee is not assigned to work in the same field as in his/her previous employment.

    1. 7.1

      An unfortunate typo in my comment. Writing : “A CEO hates to be called a “thief”. It implies at the very least you are trustworthy” looked like a joke. Being called a thief makes someone untrustworthy.

  3. 6

    No comments yet on this point, but why a Sunset provision?

    This typically indicates a window of low-hanging fruit (or a specific targeted entity or circumstance) that won’t be around beyond the sunset period.

    Who, or what is the ‘real aim’ of this legislation?

    And why?

  4. 5

    That final word “transition” seems to be doing a lot of work.

    By patent application numbers perhaps a better word would be “augmentation”.

  5. 4

    You have to know all the different IP regimes and use them when the situation is most appropriate. Sometimes it is easier to get back at a competitor with a trade secret misappropriation claim than to claim patent infringement given the facts. You don’t want to slam a square patent peg into a round trade secret hold or you will waste a fortune in litigation cost. You want to stay flexible in your thinking IMO.

  6. 3

    But, for the most part the practice of trade secrecy law is radically different than that of patent law. I’m wondering the extent that patent attorneys are engaging in the transition.
    Trade secrets are limited to a very small subset of technology. Anything client facing isn’t amenable to trade secrets. Anything that can be reversed engineered isn’t amenable to trade secrets. Moreover, even if it is a process that a buyer/client is never exposed to, can the unique parts of that process be reasonably protected from prying eyes (and that includes your own employees)? If not, then it also isn’t amenable to trade secrets.

    Trade secrets is an exceptionally niche field — so niche that I spend an exceedingly small amount of time thinking about it.

    Trade secrets best protect information and information per se is rarely protectable by patents.

    1. 3.1

      All true. The biggest factor that makes trade secret claims less common and less applicable is that a trade secret (unlike a patent) is not enforceable against anyone who happens to use the trade secret. Misappropriation generally requires some kind of confidential relationship under which the trade secret was conveyed by the plaintiff to the defendant, such as an employer-employee relationship, joint venture governed by an NDA, etc. In patents, by contrast, a defendant can infringe someone’s patent even if the two parties are complete strangers.

      1. 3.1.1

        Good points. While trade secrets may have some (very limited) usefulness, I don’t see them as an alternative to patents. And to continue my answer to the question posed by Dennis, there is no “transition” for me.

  7. 2

    “If contracts limiting those transitions are unenforceable, more weight will almost certainly fall on trade secrecy rights.”

    Agreed, but let’s make it clear that trade secrets are always protectable by agreements that are specific to, well, trade secrets. That has nothing to do with keeping an employee from going to a similar job in a similar industry. Sign one document that requires the person to keep trade secrets confidential, and that’s it. Move on.

    Non competes for lawyers are not allowed under our ethics rules. We can go off and compete, but the ordinary working person can’t? Yeah, that’s just. The proposed rule seems fine.

  8. 1

    Under Federal Law, the theft of trade secrets held by US persons for the purpose of taking information out of the US is also a felony.

    It is best not to use “theft” for this situation. The essence of theft is that the victim is deprived of something. When A wrongfully acquires secret information from B’s server/laptop/file cabinet (etc), B is not deprived of that information. The act is wrongful, but it is not “theft” (except in the case where the spy actually physically carries off the laptop or whatnot). There are all sorts of acts that would result in criminal culpability under the economic espionage act that would not satisfy any state’s criminal code definition of “theft” or “larceny” because the victim is not deprived of the res.

    1. 1.1

      Thanks. While I agree that we can make a distinction between taking physical items and taking information, the reason I used theft here is because that is the language used by the statute. 18 USC 1832 –
      Theft of trade secrets.

      1. 1.1.1

        Well, fair point, that. That is a good reason for you to use “theft,” even if it is not a good reason for Congress to have used that word.

        Indeed, Congress’ drafting for this particular statute seems very poor. The act provides that it applies to anyone “[w]hoever, with intent to convert a trade secret… to the economic benefit of anyone other than the owner thereof…” etc. and so-forth.

        “Convert” is a common law term. Congress is presumed to incorporate the well-settled meaning of the common-law terms it uses unless the statute otherwise dictates. Neder v. United States, 527 U.S. 1, 23 (1999). But at common law, “conversion” requires that a tortfeasor intend to deprive the other party of the thing converted. See, e.g., Blackstone book 3, chapter 9.

        Why should Congress use a word that carries the sense of depriving the owner of possession when they clearly (see, §1832(a)(2)) do not mean to require that the owner be deprived of possession as an element of the crime prohibited here? That is just setting things up for misunderstanding. I grant that one can discern the Congressional intent notwithstanding, but there are other words that one could use besides “convert” that would not have carried the common law baggage that muddles this particular phrasing.

      2. 1.1.2

        So, Dennis you think you “own” your house is more of “own” than an IP right. You only “own” your house because of laws that say you have the right to exclude other people from your house.

    2. 1.2

      You could argue that the “theft” (used in its legal sense) is the value of the information, not the taking of the information itself. A trade secret derives its value from being secret, so the theft of the trade secret deprives the owner of its value. With that kind of definition, theft would be appropriate. Granted, it would be much harder to prove because proving the loss of value in the trade secret would be much more nebulous.

      1. 1.2.1

        Rape is wrong and murder is wrong, but that does not mean that rape is murder. Arson is wrong and kidnapping is wrong, but that does not mean that arson is kidnapping.

        In order to think clearly and act prudently, it Is necessary to perceive distinctions and adjust accordingly. I just do not see the advantage one hopes to achieve by forcing that which is appropriately classed as “espionage” into the framework of “theft,” even when the espionage lacks the essential features of theft.

        To be sure, there are occasions where theft and espionage overlap—e.g., when the spy carries documents away, thus depriving the owner of possession. Where the spy, however, merely photographs the documents and leaves them in place, that is wrongful—to be sure—but it makes no sense to call it “theft,” any more than to call it “murder” or “arson.”

        Words only work usefully if we imbue distinct words with distinct meanings. When we conflate different wrongs into a single vocabulary category, that becomes an obstacle to clear thinking.

        1. 1.2.1.1

          Would piracy do?

          Big Media have LONG portrayed the taking (in a non-possessory manner) of goods to which possession is not lost as theft.

          Not sure why this upsets Greg so much. There is clearly more in line than his examples of rape murder and arson.

          1. 1.2.1.1.1

            Further to the point above, most ALL digital goods can be “taken” with the original possessor never losing possession of the original items.

            Can there then be NO theft of digital goods?

    3. 1.3

      Greg, you are so Woke. Theft is the right term. It is a taking of something that belongs to someone else. The victim is deprived of the right to have exclusive ownership of the intellectual property that they worked so hard to own.

      This blog becomes more and more communist. Just remember people that the only people that live well under Marxism is the elites. 99% of the population become slaves. The Woke do have a great idealism to sell but it doesn’t work in practice.

      1. 1.3.1

        Plus, the misrepresentation from Greg is that something physical somehow has magical properties. The only reason one “owns” say a car is because the government has laws that say you “own” the car. Otherwise, it is just an object on the Earth that anyone can take.

        So, in both cases, the ownership derives from laws.

        Be afraid of the Woke. They aren’t playing. They are the extremist that will use mass violence and will end our Constitution. Be afraid of these people. Just read some history about what happened in Germany, Russia, and China. That is what these people are leading us to.

        1. 1.3.1.1

          [T]he misrepresentation from Greg is that something physical somehow has magical properties. The only reason one “owns” say a car is because the government has laws that say you “own” the car… [I]n both cases, the ownership derives from laws.

          I deny that I have “misrepresented” anything, although I do not dispute your point about all ownership being a legal convention. It is true that “ownership” of a physical good and “ownership” of real estate and “ownership” of IP are all matters of law, but the law treats them each differently.

          If you think back to law school, you will no doubt recall a tedious amount of time spent learning about defeasible fees in real property. The common law, however, does not recognize a category of defeasible ownership for chattels. The law, in other words, distinguishes between ownership of real estate and ownership of chattels, and imbues these different classes of ownership with different rights and properties.

          The difference between the tangible and intangible affects how the law treats ownership and property. It is no slight against property rights or ownership to acknowledge as much, nor is it the first step onto a slippery slope to communism. It is simply an accurate statement of the law.

    4. 1.4

      Deprived of economic advantage.

      1. 1.4.1

        If I independently discover the formula for Coca-Cola’s syrup, I will have deprived Coca-Cola of an economic advantage, but no one will name me “thief” on account of my independent discovery. Clearly, then, deprivation of economic advantage cannot be the basis for a charge of “theft.”

        Not all crimes are the same crime. Just because one uses a word other than “theft” to describe the malum prohibited in 18 U.S.C. §1832 does not mean that violation of that statute is a good thing. It is not helpful to clear thinking, however, to conflate different crimes together into a single, undifferentiated term.

        1. 1.4.1.1

          >>It is not helpful to clear thinking

          Is this a parody? You have changed the facts. What you have stolen is the fruit of the labor that was promised to the person or company based on laws. Same as if you built a house expecting to be able to “own” the house and another family decided they would just move in.

          Note too the game with physical being played here. IP is always physical. Everything is always physical.

          1. 1.4.1.1.1

            Night Writer,

            I “get” that you think it to be a bit of dissembling to try to put “physical” into the equation, and I do get your other views on “information being physical” (as in, belonging to the reality of the universe and not mystical).

            That being said, those picking up this discussion will most likely not understand that context, and it may be better off simply noting that patents are a Negative right and that intellectual property laws simply are not limited to protecting “hard physical” goods of property.

          2. 1.4.1.1.2

            Same as if you built a house expecting to be able to “own” the house and another family decided they would just move in.

            Right, and once again, the law does not class that as “theft.” Indeed, at common law the tort of conversion cannot be brought for disputes over real estate. What you are describing is “trespass.”

            Trespass is wrong. Conversion is wrong. Theft is wrong, and murder is wrong, espionage is wrong, and IP infringement is wrong. That does not mean that theft is murder, or trespass is espionage, or infringement is conversion. There are different sorts of wrongs in this world, and while they may frequently overlap, that does not mean that they are all the same thing. It is useful to clear thinking to keep the categories neatly distinct, as far as one is able.

            I am not—as you seem to imagine—trying to argue that trade secret misappropriation is not wrong. It is wrong. I am merely trying to keep straight what sort of wrong it is.

        2. 1.4.1.2

          “Woke” is whatever Night Wiper doesn’t like.

          Lots of politically unsophisticated people cling dearly to beliefs about politics that are…in anon’s mantra…..just wrong.

          link to washingtonpost.com

          As to trade secrets & conversion:

          If it’s so unjusticable to determine lost (stolen) value from loss of information exclusivity, than isn’t much of the patent damages regime implicated as equally impossible?

          As to Wiper’s assertion that ownership is merely words on paper: If you try to take my car without the legal right to do so, at least while I’m in it, you may experience the discouragement of hot metal flying toward your center-mass. That’s a somewhat less likely to happen if you grab my customer list from my database.

          1. 1.4.1.2.1

            If it’s so unjusticable to determine lost (stolen) value from loss of information exclusivity, than isn’t much of the patent damages regime implicated as equally impossible?

            I do not see that anyone up or down this thread has argued that loss of value is too speculative to be justiciable. My point in 1.4.1 is that “economic advantage” is not a res that can be “stolen.”

            If there is only one grocery store in town, that grocery store has an “economic advantage” from its status as the only one in town, but we do not say that a new market entrant “steals” that advantage when it opens a second grocery store in the town. As I noted above, no one would say that someone who independently re-invents Coca-Cola’s syrup has “stolen” the economic advantage that Coca-Cola presently derives from their trade secret. There exists such a category as “economic advantages whose value can be computed,” but that does not mean that the items in that category can qualify as the “res” at the heart of a theft or conversion charge.

            1. 1.4.1.2.1.1

              Greg, “trade secrets” are defined as include “whether tangible or intangible”.

              Most of your comments are just an attempt to push all IP into some nebulous murk.

              Conversion makes sense as the owner of the Trade Secret has lost an economic advantage–an opportunity to plant the whole field.

            2. 1.4.1.2.1.2

              but that does not mean that the items in that category can qualify as the “res” at the heart of a theft or conversion charge.

              Lol – all this talk about res has stolen my heart.

              But wait, does this mean that I no longer possess a heart that has been stolen? Am I heartless?

          2. 1.4.1.2.2

            Martin, quoting the WaPo is like quoting the Star. A total joke publication. Tell us the one about the Russian disinformation again.

            link to youtube.com

            1. 1.4.1.2.2.1

              Yes, the Washington Post is known as a tabloid outfit, with low-rent reporters.

              Geez. Every ‘winger accusation is a confession.

              1. 1.4.1.2.2.1.1

                WaPo is not only as bad as Fox, but comments like Marty’s make the use of it worse than Fox.

              2. 1.4.1.2.2.1.2

                Martin, I am a liberal D. I used to think like you. I woke up and started watching alternative news sources. I found that the WaPo, NY Times, and so forth have changed and now are activist outlets and not news.

          3. 1.4.1.2.3

            Your comments are projection, Martin.

          4. 1.4.1.2.4

            “Woke” is whatever Night Wiper doesn’t like.

            Ah, the logical fallacy of asserting a word means everything and thus means nothing.

            Sorry Marty, but no, you are incorrect in both the assertion and the attempt to remove meaning from the term.

            1. 1.4.1.2.4.1

              Define woke

              This should be fun, but you wont. You will evade with word salad and your usual non sens e.

              1. 1.4.1.2.4.1.1

                Asked and answered.

                You just are not that clever with the Bre’er Rabbit attempt.

                In fact, the answer provided then spun into a detailed discussion of the third party source that I provided.

                More attention from you and less baseless accusation about things you simply do not like.

                1. Aaannnnd of course. Non answer.

                  Your “asked and answered” shuffle answers the question, naturally.

                  “Woke” means something you don’t like, and nothing more.

                2. Martin, I posted a link that talks about the Woke movement. Woke is a movement.

                  Plenty of youtubes videos of scholars discussing the Woke. The link above is one of them.

                3. The thing is anon the Woke like Martin are cult-like. They can’t think and get angry and try to defame you if you don’t agree with them.

                  Look at Martin’s behavior. It is typical of the Woke. Martin has written many posts where I could literally file a complaint against him in his local court and win. The Woke use defamation to try to silence people. And many of the youtube videos Martin talk about that.

                4. [T]he Woke… are cult-like. They can’t think and get angry and try to defame you if you don’t agree with them.

                  Don’t be so woke, NW. This cultural Marxist aggression will not stand, man. Your Maoist denunciations of Martin are so woke that I can drink them in my morning coffee.

                5. Cute Greg.

                  But criticizing someone for repeatedly defaming you is not Woke.

                  My goal is to get someone to conform to the law and act decently. His goal is to silence me with defamation.

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