Testimony of James Pooley
“Protecting Trade Secrets: the Impact of Trade Secret Theft on American Competitiveness and Potential Solutions to Remedy This Harm”
United States Senate Committee on the Judiciary
December 2, 2015
Watch the video and fast forward to minute 52:00
Learn more about the Defend Trade Secrets Act.
Good morning Chairman Grassley, Ranking Member Leahy, and Members of the Committee. My name is James Pooley. Since beginning my legal career in 1973, I have handled hundreds of trade secret disputes, representing mostly smaller companies, startups and individuals in the technology industry, and acting for both plaintiffs and defendants.
Thank you for holding this hearing and examining this critical subject. Recent studies have shown that businesses increasingly protect their competitive information through trade secrets, rather than through patents. This is particularly true for small businesses.
While trade secrets have become more important, advances in electronics like flash drives and smartphones have made data theft almost infinitely easier and faster. And unlike the threats of a generation ago, when trade secret theft typically benefited a local competitor, globalization of business means that today’s insiders often steal on behalf of companies located in other states or countries.
Traditional state remedies for trade secret misappropriation are too inefficient to fully meet this new challenge. The Uniform Trade Secrets Act has been widely adopted, but with many deviations. In addition, state procedural laws were not designed for efficiency in cross-border litigation. If a case in Illinois requires testimony of a witness in California, getting the required orders from each state can take weeks or months.
The Economic Espionage Act makes some trade secret theft a federal crime, but relying on the U.S. Attorney to file criminal actions would only deal with a tiny fraction of the cases.
So it should be apparent that neither state law nor the EEA offers a satisfactory solution to the time-critical nature of interstate and international misappropriation of a company’s know-how. Federal courts, however, can provide the necessary resource. They can apply a single, national standard for trade secret misappropriation and a transparent set of procedural rules, allowing nationwide service of process and enabling quick action by trade secret owners even when confronted with actors in multiple jurisdictions.
American businesses – small and large – operate across state and national borders, and they deserve a federal civil remedy when their know-how is stolen.
I strongly disagree with those who argue that we don’t need federal legislation because state laws are uniform enough; that the DTSA’s seizure provisions are too broad; or that the legislation would burden small companies with higher costs and interfere with the right of individuals to change jobs.
First, the state-by-state variations in the UTSA today are in some cases worse than had existed before it was proposed. These inconsistencies burden companies – including small ones – that have interstate or international business. Enacting the DTSA will provide a level of uniformity across the federal system that we had hoped for but didn’t get with the UTSA.
Second, the ex parte seizure language in the DTSA is narrow and carefully designed to avoid abuse. The application must clearly and specifically demonstrate all the required facts. Only property “necessary to prevent the propagation or dissemination of the trade secret” can be seized. The order has to minimize interruption to the defendant’s related business and avoid any disruption to unrelated business. These protections are greater than exist for the other ex parte form of relief – a TRO.
Getting any ex parte order under these restrictions will be extremely difficult. And the consequences of a careless petition can be severe, including damages for wrongful seizure that are not limited by the amount of the required bond.
Third, the DTSA will not increase the cost of trade secret litigation. We have had decades of experience with federal courts handling state-law trade secret cases under supplemental or diversity jurisdiction, and there is no evidence of any difference in costs.
Finally, the DTSA presents no danger to the mobility of labor. It uses precisely the same language as the UTSA in permitting injunctions against “threatened” misappropriation. And it adds language barring injunctions against taking a job “under conditions that avoid actual or threatened misappropriation.” This provides additional assurance and is consistent with the law in every state that has enacted the UTSA, including California.
In conclusion, we need the DTSA, to fill a gap in remedies available to U.S. businesses operating in an information-based, globalized economy. The DTSA has been carefully fashioned to deter and punish abuse. Using well-established definitions and norms, it provides businesses a choice to file a familiar claim in an effective forum. And it does this without creating any new risks for small companies or individuals.
I applaud the authors, cosponsors, and the Chairman and Ranking Member for their leadership on this issue. As a practitioner, I can say that the DTSA will improve the efficiency of trade secret litigation.
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