Academic journal article Stanford Law & Policy Review

A Federalist Account of the Law of Trade Secrecy

Academic journal article Stanford Law & Policy Review

A Federalist Account of the Law of Trade Secrecy

Article excerpt

In May 2016, President Barack Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law. (1) Prior to the passage of the DTSA, trade secrets--unlike patents, copyrights, and trademarks--were protected largely by a patchwork of state laws. (2) Observers have described the passage of the DTSA--which, for the first time, creates a private cause of action under federal law for the misappropriation of trade secrets--as the most significant development for intellectual property law since the passage of the Lanham Act, which effectively federalized the law of trademarks in 1946. (3)

Even by the standards of intellectual property, trade secrets are especially vulnerable to theft. They are easily accessible and generally portable--and often, they are carried away in the mind's eye. (4) Their misappropriation is estimated to cost American firms as much as three percent of Gross Domestic Product--a figure that easily exceeds $300 billion. (5) And former FBI Director Louis Freeh once testified that stolen intellectual property resulted in the loss of more than one million American jobs--a substantial percentage of which, presumably, were attributable to the misappropriation of trade secrets. (6)

The DTSA amends an already-existing federal criminal statute--the Economic Espionage Act of 1996 (EEA)--to incorporate a private cause of action for misappropriation. (7) At the same time, the DTSA also expressly provides that already-existing state laws will not be preempted. (8) This decision is significant for two reasons. As a practical matter, it permits owners to retain the protections of the patchwork of state laws that previously served as their sole line of defense. In functional terms, moreover, this dynamic likely creates a novel federal-state system of protection, as well as an untested arrangement that will implicate significant doctrinal questions that pertain to federalism.

This paper asks what the DTSA can tell us about federal and state relations, what we call "Our Federalism" and vice versa. It proceeds in four parts. The first traces the history and the evolution of the law of trade secrecy from its beginnings in the nineteenth century through the development and widespread adoption of the Uniform Trade Secrets Act (UTSA). It also explores the subsequent passage of the EEA, as well as the debates that preceded the enactment of the DTSA. The second part examines the DTSA's jurisdictional element, which ostensibly limits what claims may proceed under federal law. It determines the available evidence--including both principles of statutory construction and albeit limited case law--does not answer how narrowly or broadly the jurisdictional element should be construed.

The third part takes up two values of Our Federalism--uniformity and experimentation--to argue for a narrow reading of the DTSA's jurisdictional element. Although it acknowledges that the DTSA likely will create what amounts to a "floor" for trade-secret protections, the third part argues that the anti-preemption provision will undercut the uniformity in protection and enforcement sought by the statute's proponents. Moreover, the third part takes up the example of so-called "inevitable disclosure" to contend that additional space for innovation at the state level is warranted. The fourth part offers some brief observations on likely trends in the law of trade secrecy.

PART ONE: THE PATH OF THE LAW

Scholars treat the law of trade secrecy as the "youngest sibling" among intellectual property's four major disciplines. (9) Unlike protections for patents and copyrights--whose longstanding statutory predicates ensured prominent placement within the American Constitution (10)--the law of trade secrecy, much like the law of trademarks, emerged from a handful of common-law torts during the nineteenth century. (11) The emergence of trade secrets, in particular, followed the Industrial Revolution, which undermined well-established contractual norms. …

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