Hearings

2141 Rayburn House Office Building

The Honorable Bob Goodlatte

Today we examine an important area of intellectual property – Trade Secrets.  Trade secrets occupy a unique place in the IP portfolios of our most innovative companies. They can include confidential formulas, manufacturing techniques, and even customer lists. But because they are unregistered and not formally reviewed like patents, there are no limitations on discovering a trade secret by fair, lawful methods, such as reverse engineering or independent development.  In innovative industries, that is simply the free market at work. 

Though trade secrets are not formally reviewed, they are protected from “misappropriation,” which includes obtaining the trade secret through improper or unlawful means, and “misappropriation” can take many forms, whether it is an employee selling blueprints to a competitor or a foreign agent hacking into a server. In addition, one could argue that even a foreign government’s policies to require forced technology transfer is a form of “misappropriation.”

Though most states base their trade secret laws on the Uniform Trade Secrets Act, the federal government protects trade secrets through the Economic Espionage Act (“EEA”). In the 112th Congress, this committee helped enact two pieces of legislation to improve the protection of trade secrets. As other ideas are developed to improve trade secrets protection, it is important that we take the time to ensure that any new measures do not increase frivolous litigation or discovery costs; do not negatively impact our international trade obligations or result in other negative unintended consequences; and that any measure ultimately provides a meaningful benefit to innovators and innovative companies.

On the international front, the theft of trade secrets does not just come from employee theft or industrial and economic espionage, but also from foreign governments themselves. Some of it is plain cyber-theft, but many countries have also begun adopting policies that severely undermine trade secrets. These policies, invariably designed to promote local innovation, result in forced technology transfers that open American companies to the blatant theft of their intellectual property.

These trade-distortive policies are anti-innovation, anti-competitive and prevent fair market access in foreign markets. If a country requires technology transfer as a condition for regulatory approval or market access – that is wrong. If a country uses their state-owned enterprises (“SOEs”) to seek non-commercial terms from American companies for their IP – that is wrong. Such policies amount to legalized theft.

In the 2014 USTR Special 301 report, China was specifically called out to take “serious steps to put an end to these activities and to deter further activity by rigorously investigating and prosecuting trade secret thefts conducted by both cyber and conventional means.” 

When a country fails to provide basic legal protections for IP, then we need to start thinking outside the box, looking at all of our trade tools. We need to start thinking creatively, utilizing our IP attachés in U.S. Embassies, ensuring they have sufficient authority and resources, and we need to start considering our options for action at the WTO. 

Intellectual property powers the engine of American innovation and creativity, it creates new jobs and helps grow our economy. I look forward to hearing from all of our witnesses on the issues surrounding trade secrets.

 

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