Trade secret theft costs U.S. businesses hundreds of billions of dollars each year. U.S. trade secrets laws need to catch up with technological changes to protect manufacturers in an increasingly complex and competitive global landscape.
Technology and digitization are increasingly important drivers of manufacturing innovation and competitiveness, but also create a host of challenges and vulnerabilities when it comes to trade secrets protection.
Trade secrets are a critical form of intellectual property for U.S. manufacturers, constituting as much as two-thirds of the value of companies’ information portfolio, according to a recent Forrester Consulting report. Yet even as they grow more important, they are ever more vulnerable to theft due to outdated U.S. laws.
Trade secrets are commercially valuable, confidential information and know-how that companies try to protect from theft. They take many forms — including industrial techniques, manufacturing processes, customer lists, product designs and formulas. While trade secrets are diverse, they share one common feature: their protection is critical for the competitiveness of manufacturers that are creating American jobs.
With increased digitalization, connectivity and globalization of supply chains, more openings exist for criminals to exploit. As a result, theft of trade secrets is occurring at an unprecedented rate. For example, broad industry surveys have found that as many as 60 percent of companies report attempted or actual trade secret theft in a given year.
Theft can come through cyberattack, disclosure by an employee, or misappropriation by a business partner, and is often state-sponsored. The cost of trade secret theft to the U.S. ranges somewhere between $160 billion and $480 billion a year, according to a recent report by PwC and the Center for Responsible Enterprise and Trade (CREATe). This cost will likely increase as organizations continue to place more and more value in information and data assets as a result of digitization.
Trade secret owners must do their part to protect their information, including requiring non-disclosure agreements, limiting exposure to business partners and restricting employee access, installing forensic software programs that track downloads, and educating employees on the basics of IP protection. However, even with reasonable measures taken, the theft of trade secrets is challenging to prevent. When it does occur, what manufacturers need are legal tools that will help them to act quickly to mitigate their damages.
Existing U.S. trade secret laws are not sufficient because they have not kept pace with technological changes. Unlike other forms of IP — including patents, trademarks and copyrights — trade secrets are not currently protected with a federal civil remedy. This is problematic because unlike other rights owners, the owner of a trade secret cannot protect its property by taking action in federal court — anywhere in the country.
Under the current system, trade secret owners are only protected under state civil law and federal criminal law. While this protection is sufficient when trade secrets are misappropriated and used in a new factory across town, it is inadequate when such misappropriation occurs across state lines. The U.S. Department of Justice has the authority (under the Economic Espionage Act of 1996) to prosecute cases involving the misappropriation of trade secrets in interstate commerce, but it lacks the necessary resources to prosecute all cases and react expeditiously to all instance of theft.
U.S. manufacturers need the ability to pursue fast action in a single court, as some recent legislative proposals would do, including the Defend Trade Secrets Act of 2014 and Trade Secrets Protection Act of 2014. Federal court will prove the more efficient forum when the threat is interstate.
Creating a civil federal remedy for trade secret misappropriation would be an effective way to safeguard America’s trade secrets, and the jobs that depend on them.
(This is part one of a two-part series exploring the challenges and complexities surrounding trade secrets protection in the U.S. and around the world. Top image: Courtesy of Thinkstock)
Nicole Y. Lamb-Hale is a Senior Vice President at Albright Stonebridge Group (ASG) where she provides strategic advice to companies as they develop and implement their global business objectives, including the expansion of their exports to, and presence in, international markets. Lamb-Hale also serves as Vice Chair of the National Alliance for Jobs and Innovation. Prior to ASG, she served as the Assistant Secretary of Commerce for Manufacturing and Services in the International Trade Administration. Lamb-Hale was previously the Managing Partner of the Detroit office of international law firm, Foley & Lardner LLP, where she specialized in business restructuring in the manufacturing sector.