The DTSA’s Federalism Problem: Federal Court Jurisdiction over Trade Secrets

The Defend Trade Secrets Act of 2016 (“DTSA”) greatly expanded federal protection of trade secrets. But how many trade secrets were “federalized”? The short answer is: many, but not all. At the heart of the DTSA lies a mammoth jurisdictional problem: Congress only federalized certain trade secrets. Unlike copyrights and patents, Congress has no independent constitutional basis to regulate trade secrets. Instead, like trademarks, trade secrets are regulated under the commerce clause and must satisfy a jurisdictional element, which requires a nexus between interstate commerce and trade secrets. But unlike trademarks, Congress chose not to legislate to the fullest extent of its commerce clause power, excluding some trade secrets from federal protection. In short, the DTSA’s jurisdictional element ensures that only “technical” trade secrets—i.e., formulae, manufacturing processes, etc.—qualify for federal protection. “Business information” secrets are protected, if at all, only under state law. This Article is the first to explain the DTSA’s jurisdictional element in depth and explore its practical and theoretical implications. Interpretation of the jurisdictional element in the DTSA is the Act’s key judicial dilemma. The jurisdictional element imposes two requirements on a federal plaintiff’s trade secret: (1) that the trade secret closely relates to a product or service; and (2) that the product or service actually flows in interstate commerce. As a practical matter, the old trade secret tort has been split in two—with technical trade secrets federalized and business information remaining protected solely by state law. Theoretically, this interpretation brings trade secret policy in line with other species of federal intellectual property policies

The Role of Trade Secrets in Innovation Policy

[Excerpt] This report provides an overview of the law and policy of trade secrets. It discusses the role of trade secrets in U.S. innovation policy. It then reviews the sources of trade secret law and the substantive rules that they provide. The report then provides a more detailed review of existing federal legislation that pertains to trade secrets. In its next section, the report then discusses the relationship between patent law and trade secret law. The report closes with an identification of congressional issues and options within this field

What\u27s It Worth to Keep a Secret?

This article is the first major study of protection and valuation of trade secrets under federal criminal law. Trade secrecy is more important than ever as an economic complement and substitute for other intellectual property protections, particularly patents. Accordingly, U.S. public policy correctly places a growing emphasis on characterizing the scope of trade secrets, creating incentives for their productive use, and imposing penalties for their theft. Yet amid this complex ecosystem of legal doctrine, economic policy, commercial strategy, and enforcement, there is little research or consensus on how to assign value to trade secrets. One reason for this gap is that intangible assets in general are notoriously difficult to value, and trade secrecy by its opaque nature is ill-suited to the market-signaling mechanisms that offer at least some traction in other forms of valuation. Another reason is that criminal trade secret law is relatively young, and the usual corrective approaches to valuation in civil trade secrecy are not synonymous with the greater distributive concerns of criminal law. To begin to fill this gap, we examine over a decade of trade secret protection and valuation under the U.S. Economic Espionage Act of 1996. From original data on EEA prosecutions, we show that trade secret valuations are lognormally distributed as predicted by Gibrat’s Law, with valuations typically low on the order of $5 million but reaching as high as$250 million. There is no notable difference among estimates from various valuation methods, but a difference between high and low estimates on one hand and the sentencing estimates on the other. These findings suggest that the EEA has not been used to its full capacity, a conclusion buttressed by recent Congressional actions to strengthen the EEA

What's it worth to keep a secret?

This article is the first major study of protection and valuation of trade secrets under federal criminal law. Trade secrecy is more important than ever as an economic complement and substitute for other intellectual property protections, particularly patents. Accordingly, U.S. public policy correctly places a growing emphasis on characterizing the scope of trade secrets, creating incentives for their productive use, and imposing penalties for their theft. Yet amid this complex ecosystem of legal doctrine, economic policy, commercial strategy, and enforcement, there is little research or consensus on how to assign value to trade secrets. One reason for this gap is that intangible assets in general are notoriously difficult to value, and trade secrecy by its opaque nature is ill-suited to the market-signaling mechanisms that offer at least some traction in other forms of valuation. Another reason is that criminal trade secret law is relatively young, and the usual corrective approaches to valuation in civil trade secrecy are not synonymous with the greater distributive concerns of criminal law. To begin to fill this gap, we examine over a decade of trade secret protection and valuation under the U.S. Economic Espionage Act of 1996. From original data on EEA prosecutions, we show that trade secret valuations are lognormally distributed as predicted by Gibrat’s Law, with valuations typically low on the order of $5 million but reaching as high as$250 million. There is no notable difference among estimates from various valuation methods, but a difference between high and low estimates on one hand and the sentencing estimates on the other. These findings suggest that the EEA has not been used to its full capacity, a conclusion buttressed by recent Congressional actions to strengthen the EEA

Open secrets

The law of trade secrets is often conceptualized in bilateral terms, as creating and enforcing rights between trade secret owners, on the one hand, and misappropriators on the other hand. This paper, a chapter in a forthcoming collection on the law of trade secrets, argues that trade secrets and the law that guards them can serve structural and institutional roles as well. Somewhat surprisingly, given the law’s focus on secrecy, among the institutional products of trade secrets law are commons, or managed openness: environments designed to facilitate the structured sharing of information. The paper illustrates with examples drawn from existing literature on cuisine, magic, and Internet search.