“It is impossible to unsign a contract, so do all your thinking before you sign.”
— Warren Buffett
You may remember 2014 as the year when we all discovered a plague of noncompete agreements threatening our economy. No? Let me help you.
In June that year, the New York Times published an expose of sorts relating the story of a 19-year-old summer camp counselor who couldn’t get hired by a certain camp because the year before she signed a contract with another camp that blocked her from working for any nearby competitor. Noncompete contracts, the article suggested, had previously been reserved for high level corporate executives, and suddenly (and “increasingly”) they were being foisted on rank and file employees engaged in event planning, investment management, and even yoga instruction. A follow-on piece in the Times confirmed the emerging crisis by revealing that the Jimmy John’s fast food chain had forced noncompete clauses on all its sandwich makers (acknowledging, however, that there was no evidence that the company had ever tried to enforce the contracts).
The inspiration for this concern may have come from a then-recent book published by Orly Lobel, a California law professor, called Talent Wants to be Free. She argued not only the unsurprising point suggested by the title, but also that it was actually in the interest of businesses to release departing employees from all restrictions, because in some organic way that would redound to the companies’ benefit. Unfortunately, as I reported in a review at the time, this hypothesis was unsupported by any serious evidence.
Nevertheless, the anecdotes about preventing low-level employees from competing caught the attention of other journalists and academics, as well as politicians. Some of those stories were compelling, especially when the employee had no idea that a noncompete would be required until they showed up the first day on the job. A movement to reform the law began to grow. Massachusetts, which for years had resisted tamping down on noncompete agreements, radically amended its law to prohibit them for lower salaried employees, and to require notice to the employee at least 14 days in advance of starting work. Other states have joined in. According to the leading blog on employee contracts, just through the first six months of this year there were 66 bills filed in 25 states.
The federal government has also entered the ring. On July 9, President Biden issued an executive order designed to increase competition in the national economy. Among many other directives to government agencies, he commanded the Federal Trade Commission to examine what action it might take to rein in the negative effects of employee noncompete agreements (a responsive letter crafted by Russell Beck and signed by dozens of practitioners, including myself, has urged caution on the issue).
Why doesn’t everyone see this as a form of social crisis? After all, it looks like a new example of corporate overreach in an economy that has already discounted almost to irrelevance the dignity of work. But in fact, businesses have been using noncompete agreements for more than a century, subject to strict limitations imposed by state law. California, North Dakota and Oklahoma have long refused to enforce them at all. And in the rest of the country, they are enforced only when a judge agrees that they are reasonable in time, subject matter and geography.
There’s no doubt that restricting an employee’s ability to leave and compete can impose serious costs on the individual. And although studies show that it’s impossible to measure any loss of innovative capacity or output, it’s probably safe to assume that some situations prevent competition that might benefit the community. But that doesn’t necessarily mean that the competition would be fair.
In the digital economy, more and more employees have to be trusted with sensitive information in order for the enterprise to succeed in an increasingly competitive environment. To maintain that success a company has to be able to protect its information assets from flowing out the door to the competition. In the U.S. we enjoy robust laws, at both the state and federal level, that are designed to reduce that risk by providing remedies for trade secret misappropriation.
But companies often don’t – and can’t – know when a former employee is using what they know to benefit their new employer. Surveys show that a large percentage of employees, perhaps a majority, are so unsure of their secrecy obligations that they are willing to use sensitive information at the next job. And even if the left-behind company suspects foul play, trade secret litigation can be messy, unpredictable and expensive. It’s certainly not the most efficient way to resolve misunderstandings. So, from the company’s point of view, simply preventing the risk for a limited time with a noncompete clause can seem very attractive. This is especially true for smaller companies whose trade secrets consist of information about customers, in other words the sort of goodwill built up over time that sustains the business.
For the employee, of course the constraints of a noncompete will feel like a blunt weapon, prohibiting not only trade secret theft but also preventing fair competition. And it’s entirely legitimate for a community – say, a state like California – to decide that the obvious individual costs and the possible detriment to the collective economy are not worth preserving the private interests of individual employers. Indeed, some have pointed to the astonishing success of Silicon Valley as proof that the broad social benefits of “knowledge spillovers” from free movement of labor vastly outweigh the private losses from those spillovers.
Unfortunately, the empirical evidence so far doesn’t permit a firm conclusion on that larger point. But it’s clear enough that noncompete agreements have been abused to some extent. States – and perhaps the federal government – will likely continue to press for reforms, especially for categories of employees who are not practically in a position to cause a company damage when they leave.
In the meantime, what’s a business to do? First, you should consider whether noncompete agreements are right for the culture of your company. Do you really need them to protect yourself? What might be the cost in decreased trust and increased resentment among a workforce that expects to enjoy career flexibility? Consider imposing these restrictions only on those senior employees who have access to your most sensitive information. Be prepared to consider relaxing or eliminating constraints in special situations where taking a bit of calculated risk might help establish or improve an important relationship.
Second, whatever you decide to do about noncompete agreements, don’t depend on them as the primary way to protect your trade secrets. Be sure that you have established a comprehensive information security program, including continuous training and robust enforcement. The most reliable way to reduce the risk that you might lose control of your secrets is through active management, not passive dependence on post-employment restrictions.
Third, if you do use noncompete agreements, watch out for changes in state laws that might affect you. If any meaningful reforms emerge from the federal government, you will certainly hear about them. In any event, pay attention and be ready to adjust so that you comply with any new standards.
Outrage over imposition of restrictive contracts on teenage camp counselors or sandwich makers is understandable, but it can lead to careless thinking. Not all employee restraints are unreasonable. We expect that the workplace should provide not only a job but also the opportunity for learning and advancement. In the information economy, that often leads to greater exposure to secrets. And preserving those secrets sustains competitive advantage and creates more jobs.
“Some circumstantial evidence is very strong, as when you find a trout in the milk.”
— Henry David Thoreau
I know that some of you want to dive right into how Thoreau came up with that sardonic and mystifying line. We’ll get there, but let’s start with my high school. I was terrible at math in general, but loved geometry and solving problems about things that you could see or easily imagine. At university, I satisfied my math requirement with a course in logic, which similarly relied on deductive reasoning. And finally, in law school, the reverse engineering of human behavior was fully and elegantly explained in Evidence class, where Judge Weinstein (a beloved jurist in the Eastern District of New York who recently passed away) taught us about the difference between direct and circumstantial evidence.
The job of the trial lawyer starts with figuring out what happened and collecting evidence to use in telling a compelling story to a judge or jury. Direct evidence takes you immediately to the fact you’re trying to prove and is most commonly seen in eyewitness testimony. Betty saw John shoot the gun at Phil, who collapsed on the floor. That’s direct evidence that John murdered Phil. But if Betty had been outside the bar, heard an argument and then a gunshot before entering and seeing John holding a smoking gun, that’s indirect, or circumstantial, evidence of the murder.
People generally think that direct evidence through eyewitnesses must be better than any kind of indirect evidence. They are wrong. Eyewitness testimony in particular is known to be fallible, whether due to bias, or perhaps to a limited capacity to observe. Who can ever forget the scene in My Cousin Vinny (one of the greatest lawyer movies of all time) in which Joe Pesci, playing a brash but inexperienced New York lawyer, successfully cross-examines the sweet old lady who had identified his clients as the perpetrators of a convenience store robbery and murder? If you have forgotten, take a moment to watch it here.
Perhaps the popular preference for eyewitnesses, and the general discounting of “mere circumstantial” evidence, is what Thoreau had in mind when he wrote that line about the trout in 1850. He never explained it, so there’s no direct evidence of what inspired him. But the circumstances are persuasive, as there had been a public scandal the year before, centered on dairy farmers accused of adding water to their milk in order to increase profits.
The quote shines a light on how some indirect evidence can be so convincing, because the inference it calls for – someone poured water from a stream into the milk – is so much more plausible than the only other explanation—that the trout somehow swam into the milk can.
But it’s not typical that a set of facts offers only one logical conclusion. And our search for explanations – especially when we are intent that others accept our interpretation – can be fraught with risk. In these more typical situations, the basic facts are few, but they form the predicate from which we want our audience to reach a conclusion. We see this phenomenon regrettably often in today’s sharply divided political culture, in which a factoid here or there is pumped up with assumption and conjecture to demonstrate the malevolence of some public official. That’s the danger with circumstantial arguments: the mosaic image may have some pieces that represent known facts, but the connections among them are actually obscure.
Sometimes I wonder if the ancient Greeks were playing jokes on us by suggesting that the constellation Canis Minor, which basically comprises two stars, represents a celestial dog. Or that Ursa Major is a bear, instead of a (pretty obvious) big dipper with a lot of other stars scattered around. Scorpius, on the other hand, has enough stars in the right positions that you don’t have to squint too much to imagine the stinging arachnid.
Here’s the point: known facts are like stars in the sky, or dots on a page. You can connect them in various ways to construct a picture. But the one you see, or that you want to see, may not be the only picture that can be made with those dots, especially if there aren’t many of them or they’re far apart. In fact, there may be another way to link them that produces something entirely different, or even contrary to your interpretation.
In the realm of trade secret disputes, there are special challenges in trying to sort out the truth because one side knows the facts and the other doesn’t. As one court famously put it, in Greenberg v Croydon Plastics Co., Inc., 378 F. Supp. 806 (E.D. Pa.1974):
Plaintiffs in trade secret cases, who must prove by a fair preponderance of the evidence disclosure to third parties and use of the trade secret by the third parties, are confronted with an extraordinarily difficult task. Misappropriation and misuse can rarely be proved by convincing direct evidence. In most cases plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what plaintiffs allege happened did in fact take place. Against this often delicate construct of circumstantial evidence there frequently must be balanced defendants and defendants’ witnesses who directly deny everything.
Imagine the common case in which a company has just seen a highly-placed, trusted employee depart for a competitor. A casual remark to a colleague morphs into a threat, and attempts by the employee to clean up her computer on the way out are interpreted as theft. A senior manager, intent on promoting a reason for the departure that doesn’t involve his management style, urges immediate action, and a lawsuit is filed. Crafted like a press release but with more adjectives, the complaint invites the court – and the public – to see the former employee as a thief.
Let’s freeze the action for a moment and look at what has just happened. The former employer can justify its behavior as a rational response to the facts as it knows them. After all, trade secret misappropriation rarely happens in broad daylight, and the complaint is properly based on reasonable suspicion. But although suspicion is enough to permit a lawsuit, it may not be the prudent thing to do. As I have frequently argued, trade secret cases more so than other commercial disputes may be driven by fear, anger and resentment. And those emotions can profoundly affect how otherwise reasonable actors connect the dots to reach a conclusion.
Naturally, this tendency for inference to align with emotion can distort the view of either side. Just as the company may perceive malicious intent due to a few selected circumstances, sometimes innocent explanations offered by the defendant are really excuses wrapped in justification. But it’s because the former employer at the outset knows relatively little about what actually happened that we need to exercise caution and investigate carefully, so as not to mislead ourselves into thinking that the only option is to launch an attack.
When confronted with an emerging story where we don’t have, and maybe can’t have, all the facts, it behooves us to slow down and consider carefully the inferences we are drawing from what we do know. If we believe we’re seeing a trout in the milk, it may be helpful to rub our eyes and take another look.
DTAS (Defend Trade Secrets Act) claims now constitute almost three-quarters of those filed in suits. The DTSA, signed into law on May 11, 2016, provides litigants a private right of action in federal court for trade secret misappropriation claims.
“It’s no surprise that many plaintiffs favor the federal option, with nationwide service of process and harmonized rules,” says James Pooley, a leading trademark attorney, author and ex-Deputy Director General of WIPO. “Many still choose state court for essentially local cases, where it is generally easier to get your case to trial.
“As for the high percentage of judgments resulting in injunctions, that statistic should be understood in context of how few cases actually get to a judgment after trial. Those that do would naturally tend to present strong facts that justify injunctive relief.”
“Never mistake activity for achievement.”
— Coach John Wooden
We’ve all seen him when driving by the strip mall. Trying to focus on the traffic, our eyes are diverted by “Tube Man,” a 10-foot tall hollow, collapsible stick figure with a fan at the bottom, adjusted so that the body repeatedly folds and then jumps upright, with arms whipping around in a constant frenzy, trying to grab our attention. And that’s the point. Tube Man accomplishes nothing except to demand that we look at what he’s doing.
I was led to Tube Man by a search for “flailing,” a word that seemed an apt label for a spate of new legislation introduced by politicians climbing on top of each other to showcase their zealous antipathy to China. More on that in a minute; but first let’s consider what “flailing” means. It’s a pretty interesting word, and it makes a perfect metaphor.
The original use of “flail” was as a noun, derivative of the Latin flagellum, to describe a threshing tool made of a handle with a “free-swinging stick” loosely attached to the end. The idea was to just wave the thing around and it would end up knocking the grains off the stalk. It didn’t much matter exactly how you moved, so long as you did it with a lot of energy. Now we use machines for threshing, and most of us are not farmers; but we have kept the word, to describe “aimless or ineffectual efforts.”
And that, in my view, describes very well the recent rush of legislative attempts to punish China. That is not to say that China is our best friend. We are in serious competition, and it’s obvious that our leading position in some critical technologies has been targeted. That “giant sucking sound” you hear in the direction of China may be some cutting-edge secrets being displaced. We should be deeply concerned. We need a thoughtful, long-term strategy to respond.
Instead, what’s happening looks more like theater. Here’s the playbill. Early this year, Senator Chris Van Hollen (D-MD) re-introduced the “Protecting American Intellectual Property Act of 2021,” which had passed the Senate in December. It would require the President to impose trade sanctions on “foreign persons” engaging in “significant theft” of U.S. trade secrets, including freezing property and banning visas of individuals and putting companies on the “Entities List” (which makes it hard to do business in the United States). It did not include any path for appeal to the courts.
In April, Senator Lindsey Graham (R-SC) proposed “The Combating Chinese Purloining (CCP) of Trade Secrets Act.” (In his press release he included that parenthetical in the title, presumably to draw attention to the clever word choice that matched the acronym for the Chinese Communist Party.) This bill would have increased jail time for trade secret theft from five to 20 years, and companies found to have participated in or benefited from such theft would be barred from applying for any U.S. patents (any patents, not just related ones). It would also have denied visas to Chinese nationals wanting to pursue graduate studies in certain technical fields.
In May, Senator Chuck Grassley (R-IA) introduced the “Stop Theft of Intellectual Property Act of 2021,” which would bar admission to the United States (or deport them, if already here) of anyone who violates or evades export control laws or commits trade secret misappropriation.
Many aspects of these proposals came together earlier this month, when the Senate passed, with a large bipartisan majority, the “United States Innovation and Competition Act.” Weighing in at 2,376 pages, the omnibus measure contained other bills that were directed at increased government investment in cutting-edge technologies: the “Endless Frontier Act” and the “Strategic Competition Act.” But plenty of room was left for the “Meeting the China Challenge Act of 2021,” which followed the approach of the Van Hollen bill, only with a longer list of sanctions and a requirement that the President must choose at least five from the list (I’m not making that up.)
Separately from this massive omnibus bill, Senators John Cornyn (R-TX) and Chris Coons (D-DE) introduced legislation to create a new committee within the International Trade Commission with the power to perform a very quick (30 days) investigation and then block imports into the country that “contain, were produced using, benefit from, or use any trade secret acquired through improper means or misappropriation by a foreign agent or foreign instrumentality.” Lest we wonder what specific countries the authors had in mind, they inelegantly named the bill the “Stopping and Excluding Chinese Rip-offs and Exports of the United States Trade Secrets Act.”
Even state politicians are jumping on the bandwagon. In the last few weeks, the Florida legislature passed by unanimous vote the “Combating Corporate Espionage in Florida Act,” which makes trafficking in trade secrets a serious felony, with enhancements if it is for the benefit of a foreign government. While lawyers express concern about how the risk of false accusations will discourage labor mobility and harm the economy, Florida’s governor announced his support for the law as a “major pushback against China” in response to its alleged coverup of the origins of the COVID-19 pandemic, as well as to its “infiltration” of universities and companies to steal trade secrets.
Back in 1998, I was part of a delegation of officials, scholars and industry representatives that visited China to help celebrate the opening of its Intellectual Property Training Center in Beijing. The facility was very impressive, and we were told that 600 people a month were receiving instruction in how to work with the country’s new IP systems. This was in the run-up to China’s bid to join the new World Trade Organization (WTO), and I can remember some in the U.S. group who were skeptical that all this activity was just for show, and that China didn’t really intend to make IP a priority.
As it turned out, not only did China join the WTO but it also built a world-class legal and administrative framework for IP rights. Nevertheless, a lot remains to be done, and special challenges persist, particularly in securing even-handed treatment of foreign companies that want to do business in China. Concerns about economic espionage and forced transfer of know-how are legitimate and need to be addressed. It seemed that we were on our way to dealing with a number of these issues through the negotiations that led to the Phase One Agreement early in 2000.
But at the multilateral level – that is, at the WTO, where sovereign countries are supposed to meet, iron out trade problems, and actually sue one another through a carefully negotiated dispute resolution process – the United States has more or less walked away. We have also withdrawn from the one regional trade agreement, the Trans Pacific Partnership (TPP), that we had proposed in order to offset China’s growing economic power in Asia. Simply put, we are not engaging with China.
Some commentators in and outside government suggest that the rise of China will necessarily lead to a “decoupling” of the world’s two largest economies, and that this is appropriate, given China’s anti-democratic approach to governance. But before we allow things to slip that far, we should consider very carefully how the world has benefited from increased trade in the years before tariffs were imposed, and the value of working within institutions like the WTO and agreements like the TPP.
Passing laws that can impose new trade sanctions, freeze property, and even deny companies access to our patent office might help us feel as though we’re solving a serious problem. But we could be creating more problems, as other countries like China watch what we’re up to and pass similar laws targeting U.S. businesses.
Addressing serious issues of IP theft should not lead us into our own corners where we vent and issue pronouncements, making political points with strong rhetoric. To actually achieve progress, we need to engage directly with China, ensuring that it keeps its commitments to respect IP rights and provide fair enforcement. Nothing less than global prosperity is at stake.
The Biden administration recently announced its support for a proposal before the World Trade Organization that would suspend the intellectual property protections on Covid-19 vaccines as guaranteed by the landmark TRIPS Agreement, a global trade pact that took effect in 1995.
The decision has sparked furious debate, with supporters arguing that the decision will speed the vaccine rollout in developing countries. The reality, however, is that even if enacted, the IP waiver will have zero short-term impact—but could inflict serious, long-term harm on global economic growth. The myopic nature of the Biden administration’s announcement cannot be overstated.
Even if WTO officials decide to waive IP protections at their June meeting, it’ll simply kickstart months of legal negotiations over precisely which drug formulas and technical know-how are undeserving of IP protections. And it’s unthinkable that the Biden administration, or Congress for that matter, would actually force American companies to hand over their most cutting-edge—and closely guarded—secrets.
As a result, the inevitable foot-dragging will cause enormous resentment in developing countries. And that’s the real threat of the waiver—precisely because it won’t accomplish either of its short-term goals of improving vaccine access and facilitating tech transfers from rich countries to developing ones. It’ll strengthen calls for more extreme, anti-IP measures down the road.
Experts overwhelmingly agree that waiving IP protections alone won’t increase vaccine production. That’s because making a shot is far more complicated than just following a recipe, and two of the most effective vaccines are based on cutting-edge discoveries using messenger RNA.
As Moderna Chief Executive Stephane Bancel said on a recent earnings call, “This is a new technology. You cannot go hire people who know how to make the mRNA. Those people don’t exist. And then even if all those things were available, whoever wants to do mRNA vaccines will have to, you know, buy the machine, invent the manufacturing process, invent creation processes and ethical processes, and then they will have to go run a clinical trial, get the data, get the product approved and scale manufacturing. This doesn’t happen in six or 12 or 18 months.”
Anthony Fauci, the president’s chief medical adviser, has echoed that sentiment and emphasized the need for immediate solutions. “Going back and forth, consuming time and lawyers in a legal argument about waivers—that is not the endgame,” he said. “People are dying around the world and we have to get vaccines into their arms in the fastest and most efficient way possible.
Those claiming the waiver poses an immediate, rather than long-term, threat to IP rights also misunderstand what the waiver will—and won’t—do.
The waiver petition itself is more akin to a statement of principle than an actual legal document. In fact, it’s only a few pages long.
As the Office of the United States Trade Representative has said, “Text-based negotiations at the WTO will take time given the consensus-based nature of the institution and the complexity of the issues involved.” The WTO director-general predicts negotiations will last until early December.
That’s a lot of wasted time and effort. The U.S. Trade Representative would be far better off spending the next six months breaking down real trade barriers and helping export our surplus vaccine doses and vaccine ingredients to countries in need.
When this waiver inevitably fails to boost production, supporters won’t meekly back off. No, they will step up their haranguing of the United States for having failed to deliver on its supposed promise. There will be lots of yelling and recrimination, and what the Biden administration surely intended as a relatively toothless show of solidarity will instead end up being seen as just another rich country head fake.
That’s a problem for all of us who deeply care about the state of global IP policy, because the damage will be worse and longer-lasting than a diplomatic donnybrook. The United States worked for many years to ratify TRIPS, and since then has been pushing back on the populist anti-IP agenda and trying to convince the rest of the world that robust IP regimes can deliver economic development over the long run. Now much of that work will be undone in the process of this chaotic, and ultimately fruitless, waiver discussion.
“Be careful what you ask for because you just might get it.”
— Anonymous
All the fuss surrounding the proposal by India and South Africa to suspend the TRIPS Agreement to help them produce vaccines to fight COVID-19 has obscured some critical truths. In spite of the rallying cry “Patents versus People,” it’s not really about patents. And merely lifting TRIPS obligations will do nothing to address the current suffering of the world’s poorer populations. In fact, it would hamper efforts to secure global distribution of vaccines, as well as cause real harm in the long term.
The Biden Administration has embraced the proposal in principle and has received plaudits for what many see as a humanitarian and diplomatic breakthrough: choosing people over patents. So how could something that looks so right be so wrong?
First, we have to understand what the TRIPS Agreement is and isn’t. Stay with me here. I know that treaties can be boring, but this one is more important than you may realize.
Since their introduction in 15th century Venice, patents have been strictly territorial, a grant of rights that stops at the country’s border. Indeed, if you found some invention being used in another country, you could bring it back home and get a patent even though you weren’t an inventor at all. We didn’t care much about what was going on next door, just what would benefit the local economy.
Beginning in the late 19th century, as global commerce got seriously underway, a spate of treaties made it easier to claim inventions – and other intellectual property – in multiple countries. For patents, the high-water mark of this business-driven improvement came in 1978 with the Patent Cooperation Treaty (PCT), which bound all signatory countries to accept the priority date of an invention filed in another member country, so long as it was presented within 30 months. This is one of those international treaties that actually works in a practical way to speed the spread of innovation around the world.
But still, patents and other IP protections are decided under national laws, and variations from one country to the next in the scope of rights – especially in enforcement – continued to cause a lot of inefficiency for companies trying to build global markets. So back in the early 1990s, when we all thought tariffs were bad and globalization was good, when everyone seemed to believe that a rising tide of cross-border commerce would lift all national economies, the United States led an effort to establish the agreement that would come to be known as TRIPS, for Trade-Related Aspects of Intellectual Property Rights.
Here’s the thing to remember about TRIPS: it only creates obligations of governments to pass laws supporting intellectual property rights of various kinds: patents, copyrights, designs, trademarks, and trade secrets. It doesn’t affect the private ownership of those rights. That’s an important distinction, especially for trade secrets (or “undisclosed information” as it’s called in TRIPS), because unlike the other “registered” rights, it doesn’t depend on a government grant. It just requires a legal system that enforces confidentiality.
The provisions of TRIPS were not new for industrialized countries. But for the developing world the agreement represented a tradeoff: adopt our framework for protecting IP (including our own, like drug patents), and you’ll get the benefit of increased wealth and productivity that comes with joining the club we’re going to call the World Trade Organization.
What seemed to sell this deal was the expectation that “technology transfer” from industrial north to agricultural, extractive south would happen as a result. Remember that phrase “technology transfer,” because it’s at the hidden heart of the current waiver proposal. You see, published patents are available for anyone to read and learn from, and developing countries still have the option to compel licenses from patent owners if needed to address serious domestic needs, including pandemics. But patents are only a part of most stories of technology transfer, because in order to actually build the factory and produce the goods, you need to know more than what’s in the patents.
When I managed the PCT in Geneva, I heard a lot about this from developing country delegates to WIPO. They expressed great disappointment in how TRIPS seemed to be a “bait and switch” scam, in which the promised benefit never materialized. Patents are fine, but that doesn’t tell you how to adjust the dials on the machines to get the best outcomes. They thought they would be getting all that “know-how,” too.
For some traditional pharmaceuticals, this lack of know-how may not be a showstopper. The patent claims may describe a particular small molecule that provides a certain therapeutic effect. If you already know how to make pills, then manufacturing it can sometimes be relatively straightforward. Sometimes, but not always.
Moreover, biopharma generally, and mRNA vaccine technology in particular, are quite different from traditional drugs. Developing a process to reliably produce these medications at scale is astonishingly difficult and depends on years of experimentation involving cell growth times, temperatures, and other variables. That body of knowledge represents the trade secrets of the developers. It is enormously valuable, and not just for making COVID-19 vaccines. Creating other therapeutics based on the mRNA platform would be much easier and quicker with the benefit of knowing what tends to work and what doesn’t.
So, this is why a temporary waiver of TRIPS—which would suspend national obligations to enforce IP rights—can’t possibly help countries like India get more vaccines to its citizens. The know-how required to manufacture at scale is owned by the companies like Pfizer and Moderna that are producing doses in record volumes. To effect the demanded “technology transfer,” governments would have to secure the agreement of those companies not just to hand over their entire “cookbook” but also to send qualified scientists and technicians to spend time at the foreign facilities, basically consulting on how to implement the secret processes to produce a safe vaccine. And even if that transfer happened tomorrow, getting to the point of actually manufacturing in volume would take more than a year.
Not only would the TRIPS waiver not produce the results the proponents want, it would likely reduce the current level of international distribution of vaccines, by interfering with access to the limited supplies of required ingredients. In fact, this supply chain disruption was recently cited by none other than the government of India in pushing back against popular demands for a compulsory license on Gilead’s Remdesivir and other COVID-19 treatments, noting that the “main constraint” was not intellectual property rights but preventing competition for scarce “raw materials and other essential inputs.”
But there’s more. A waiver would result in even greater harm over the long haul. Drugs typically are not discovered by governments. Instead, we rely on the private sector to respond to new diseases. It seems deeply ironic that while our IP system succeeded in incentivizing the development of a new vaccine only months after the SARS CoV-2 virus appeared, we would now be considering suspending that system. Congratulations and thank you! Now, hand over your trade secrets!
Another irony relates to the fact that these companies have not been producing all the vaccine on their own. Instead, they planned ahead and established collaborative relationships with other manufacturers, leading to quick and effective voluntary technology transfers through licensing. Those who clamor for a waiver seem to ignore that robust, reliable trade secret laws enable such transactions. It may seem counterintuitive, but it’s well established that enforceable secrecy leads to more dissemination of technology, not less. Indeed, without it there would be hoarding of know-how, slowing production of vital medications and other innovations.
It takes more than $1 billion to engage in the risky business of producing a new drug. The willingness of shareholders to invest that kind of money requires a predictable IP system, one in which rights are not imperiled just because some people mistakenly believe those rights are in the way of achieving some laudable goal. Broadly removing IP protections is something governments can do, but they can only do it once, because the next time there may be no innovations available to claw back. Without reliable incentives, private industry simply won’t be able to prepare us for the next pandemic.
Trying to suspend IP rights clearly will not solve the problem and, indeed, risks making it worse. Instead, the international community – including the United States – should focus on diplomatic solutions to the immediate problem by lifting export controls by rich countries and forcing more equitable distribution of the available supplies of vaccines.
For decades, the United States has been vigorously promoting the value to society of a strong, globally harmonized IP system. The success of Operation Warp Speed has demonstrated the value of that system. This is no time to see what it might be like without one.
Five years after legislation significantly improved trade secret protection in the US, Jim Pooley
tells IAM in an interview, more policymakers on Capitol Hill are advocating tough policing of
potential IP theft by Chinese entities - for good and not so good reasons
The current US Congress is still in its early days but if the first few months are anything to go by we can expect plenty of discussion and proposed legislation on the subject of IP theft and specifically on protecting their trade secrets.
Last week, Senators Grassley and Whitehouse issued the Stop Theft of Intellectual Property Act 2021. If enacted, this would see foreign nationals who engage in IP theft facing potential deportation from the US.
Another proposed bill comes from Senator Graham. He put out a news release last month about his introduction of “The Combating Chinese Purloining (CCP) of Trade Secrets Act”. Among other things, the bill would include “prohibition on applications for patent protections by US Patent and Trademark office” for foreign persons who misappropriate a trade secret.
“My legislation is designed to deter behavior, much of it from China, that results in the loss of trade secrets, intellectual property, and sensitive government research,” Graham announced.
Senators Van Hollen and Sasse have also had their say with their “Protecting American Intellectual Property Act”, which passed the Senate late last year and, last month, was reintroduced in the new Congress. That proposes levying economic penalties on companies or individuals who have been found to have engaged in the theft of US IP.
Whether any of these bills actually become law remains to be seen. It has only been five years since the Defend Trade Secrets Act (DTSA) was passed, handing rights owners a powerful new route to bring cases under federal law. There hasn’t been an indication yet that
this legislation hasn’t given US authorities enough powers to tackle the problem of IP theft - a message that trade secrets expert Jim Pooley reiterated in a recent interview with IAM.
“These [bills] were not generated from a sense of concern that trade secrets in general are not being sufficiently supported or that the DTSA is not working or that prosecutions under the Economic Espionage Act are somehow not hitting the mark,” Pooley remarked.
Perhaps not surprisingly, Pooley stressed that what had changed the dynamic are the geopolitical tensions between the US and the world’s most populous country. “China was a concern five years ago, now it’s an almost rabid concern on the part of a number of politicians for good reasons and not so good, in my view,” Pooley said.
“I think the elevated concern over China is largely justified but that part is more performative - that you want to be seen to be tough on China - and this is what has me worried because of the unintended consequences,” Pooley commented.
The danger, should some of the proposed legislations’ more radical ideas become law, is that it will prompt a tit-for-tat response.
“Whenever you take measures that are designed to punish and discourage behavior by a foreign country or coming from a foreign country, what you risk is that that country or other countries will enact similar legislation of their own,” Pooley stressed.
In recent years legislators on Capitol Hill have been making ever more radical suggestions around how the US could use the IP system to get tough on China’s leading tech players. In 2019 Senator Rubio even floated the idea of preventing Huawei from seeking damages in patent litigation after it emerged that the Chinese tech giant had asked Verizon to pay $1 billion in licensing royalties.
Graham’s proposal that transgressors should be prohibited from filing for US patents might raise alarm about a similarly harsh response affecting the legions of US companies that have significantly increased their Chinese patent portfolios in recent years. That may not be an appealing prospect for a business like Qualcomm which makes a huge chunk of its revenue from device makers in China.
The risk, Pooley underlined, is that ideas around a balanced playing field and rights owners being given due process in overseas courts, which have traditionally underpinned US policy, might be undermined if the US pursues lopsided measures.
“We want our companies that are engaged in litigation in China to be treated appropriately but what we’re risking here is that by putting up these kinds of barriers without due process we’re basically sending a contrary message,” he stated.
Pooley, who was a key voice in the passage of the DTSA, underlined that the legislation was working largely as was hoped when it was enacted in 2016. He pointed to the large number of trade secrets cases now being filed in federal courts and to developments in the case law such as the decision in Motorola v Hytera, which found that the DTSA could apply to IP theft outside of the US.
“At the moment we don’t need to fix the existing tool in some way to make it more effective,” Pooley insisted. “What I do think we need to do is, a little more broadly speaking around intellectual property, come up with a national strategy for innovation that will increase our competitiveness in a way that hoping additional blocking or punishment mechanisms might not.”
Pooley stressed that he is happy to see a focus on strengthening IP rights, particularly in trade secrets, but added that: “At the same time I worry that the long-term effects of these kinds of proposals may not be what we really want.”
Patents themselves are publicly accessible, noted James Pooley, intellectual property attorney and former deputy director general of the United Nations' World Intellectual Property Organization. But trade secrets developed by Pfizer/BioNTech, Moderna and others, "cook books" of manufacturing processes such as temperature and growing conditions, have not been made public. That may ultimately be a dual problem for negotiators. Before they protect the knowledge, U.S. officials would have to ensure access to it.
Those companies would need to be persuaded to come to the bargaining table to give up such trade secrets.
“What happens when it turns out that the U.S. can’t actually deliver the information that is critically important to implementing the inventions?” Pooley asked. “This will be seen as another failure by the U.S. and other rich countries to keep their promises.”
“In a networked world, trust is the most important currency.”
— Eric Schmidt
I recently finished Gen. Stanley McChrystal’s book, Team of Teams, in which he describes organizational lessons learned as Commander of the Joint Special Operations Command in Iraq. Arriving in 2003, when Al Qaeda in Iraq (AQI) was outsmarting the best special forces that NATO could muster, McChrystal later switched out the traditional military approach of hierarchical control over information and authority to a “shared consciousness” system that pushed authority “to the edges of the organization.” Within two years they had eliminated the head of AQI, Abu Musab al-Zarqawi.
This feat was made possible, McChrystal argues, because the various elite units making up this special force had been transformed into a single organization capable of making decisions without orders from headquarters. While the separate teams of Navy SEALs, Army Rangers and CIA analysts had each proven themselves the best at their particular tasks, they trusted only their own members, and coordination among them was a matter of top-down control by the generals. But to meet the challenge of the elusive, loosely-networked AQI, the Command had to empower these individual teams to work together seamlessly. And that required extreme transparency: each team was aware of the whole mission.
“Need to know” is a bedrock tenet of information security. You only get to see it if you need to see it. The reasoning is that the fewer people who know the details, the lower the risk that information will be compromised by reaching the competition. Another term used among professionals is the “principle of least privilege,” borrowed from the notion in computer science that a user account should be given only that level of privilege that is absolutely necessary to its operation within the system, making failures less likely. By whatever name, the principle increases control by limiting access.
The idea that any one person in an organization probably doesn’t need to know much is rooted in the industrial revolution. When we moved from the age of craftsmen who made an entire product to the assembly line, the worker mounting the wheel didn’t have to know anything about the rest of the car. In fact, mass production efficiency (and profits) resulted from breaking down every process into its predictable steps and assigning each step to a separate worker. The chief architect of this reductionist view of human behavior was Frederick Winslow Taylor, whose 1911 The Principles of Scientific Management has been described as the most influential management book of the 20th century.
Keeping secrets has long been viewed through the same lens: compartmentalization helps keep things under control. But interestingly, it doesn’t always make things more efficient or productive. For example, consider what may have been one of the most important government secrets of the modern age: the wartime Manhattan Project to develop the atomic bomb. Operators of uranium centrifuges at the military headquarters in Oak Ridge, Tennessee knew how to operate the machinery, but didn’t know why they were doing it, until the weapon had been dropped on Japan. In parallel, at the Los Alamos, New Mexico, labs where the physicists and engineers were racing against time and the Nazis, the complex calculations for their work depended on manual punch card inputs to IBM calculators. When management revealed to those clerical workers what all the numbers were for, productivity soared, and they even invented programs to speed the process.
What McChrystal learned in Iraq was that the long-held assumptions of the military about command and control started to break down in the complex, unpredictable environment of modern insurgent warfare. Despite having the best equipment, the most advanced technology and the most thorough training, his finely tuned teams couldn’t match the adversary’s lithe adaptability. The traditional approach of anticipating and carefully planning for every eventuality didn’t work when nothing was predictable, especially when permission had to come from headquarters and each team was operating independently. Instead, he had to scramble the organization chart and develop trust among the teams that equaled the trust they had for one another, so they could act together as a single, responsive organism.
Building trust requires sharing information, and that’s where the lessons lie for modern industry. The adversary is not AQI, but a global swarm of disrupters bent on displacing your business. They operate in a flexible, data-rich, technology-driven environment where the rules of engagement are neither clear nor static.
This is not to say that “need to know” is dead. Not at all. But we shouldn’t think that just because information is not immediately required for a task it should not be widely accessible. Let’s consider a couple of examples.
First, a member of the sales team is attending an industry show (yes, we are going to do those again). She runs into the representative for an important potential customer, who as it turns out has a need for what the company is offering, but only the new, as-yet-unannounced version with some compelling features would suffice. Should she reveal the confidential information she knows, even though there’s no nondisclosure agreement in place? Or should she pass on the potential sale?
Now consider the engineer who has left the company to join a competitor. He’s working in the same general technology. At a meeting with his new colleagues, they describe a challenge they’re facing to decide among several options that seem like fairly straightforward engineering choices. But this employee knows from his most recent experience that one of those options will likely lead to failure. Is that knowledge part of his general skill and experience that he can share, or does he need to take himself out of the conversation?
Whether or not the answers to these questions seemed straightforward to you, the issue is what that employee will decide in the moment. More specifically for management, the question is what you would want them to do, and whether you are confident they will make the right choice.
If your business applies the “need to know” principle in its restrictive sense, it’s possible that your training program does not prepare employees for these kinds of decisions. Companies that tend to lock down information across the board also tend to assume that employees know what to do about confidential information. And anyway, if they don’t have access to it, there can’t be any risk, right?
One of McChrystal’s innovations in Iraq was to conduct mandatory daily briefings with all relevant units connected by video, including back at the Pentagon. It took some time before everyone from the various branches and agencies attended, but they came to understand the value of broadly sharing information. Trust improved, and the previously independent teams began to work organically, anticipating each other’s moves and making on-the-ground decisions. In short, greater access to information made them more effective.
What does this mean for your organization? You likely will benefit from rethinking your approach to access controls. More restrictive is not always better. Trusting people with broader information can improve performance. But to open things up and take full advantage of the capabilities of your workforce, you’ll need to take a hard look at your education program. Expecting employees to exercise good judgment about business secrets requires more than just sharing detailed plans for the next quarter.
McChrystal started with some of the best-trained soldiers in the world. If you want an adaptable workforce able to make smart decisions about when and how to share information in a complex world, you need to educate them thoroughly and continuously. They need to know what the company’s most valuable data assets are. They need to know their role in protecting them. They need to know what everyone else is doing and how they can help. Then you’ll have a team of teams.
When COVID-19 came ashore, glaring gaps in the government’s pandemic preparedness became painfully obvious. Everything from inadequate stockpiles of personal protective equipment to confusing and uncoordinated guidance regarding closures hampered our early response.
But while the government floundered, America’s research scientists sprang into action. Moderna actually invented its vaccine mere weeks after the virus was genetically sequenced in January — though of course, it took months of clinical trials to prove the vaccine was safe and 94% effective.
Now, tens of millions of Americans have been vaccinated, and the end of the pandemic is in sight. The credit belongs to strong intellectual property protections, as they enabled scientists to move quickly and raise ample funding for vaccine research.
As a post-pandemic world nears — and we begin to prepare for future pandemics — bolstering America’s IP infrastructure will help equip us for whatever challenges lie ahead.
Decades of expensive and risky research projects have paved the way for today’s breakthroughs. Over the last 10 years alone, drug companies invested more than $1.5 trillion on global pharmaceutical research. And some of that went toward developing the technologies underpinning the leading COVID-19 vaccines.
Notably, that includes mRNA technology. mRNA directs our bodies to produce proteins. And for nearly three decades, researchers have posited that they could use synthetic mRNA to guide the production of proteins that help treat specific diseases.
When COVID-19 started spreading, pharmaceutical company researchers were actively working on mRNA vaccines for the flu, rabies, and Zika. The pandemic necessitated a shift in priorities — and within weeks, Moderna, a small biotech in Massachusetts, and BioNTech, a small biotech in Germany that had partnered with Pfizer a few years prior, began working on mRNA vaccines that essentially instruct cells to create a harmless version of the “spike” protein found on the surface of the coronavirus.
This, in turn, triggers an immune response, which produces antibodies and teaches our body how to fight off future infection. The FDA granted emergency use authorization to the mRNA vaccines from BioNTech/Pfizer and Moderna in December.
The fight against deadly diseases won’t end with COVID-19, of course.
Fortunately for us, America remains at the forefront of the global biopharmaceutical landscape. America is home to less than 5% of the world’s population but roughly half of all international pharmaceutical R&D spending.
That’s largely because of strong IP protections. These protections, including patents, give innovators a fair opportunity to recoup their investment costs before generics firms can manufacture copycat medicines. It takes years to develop a new medicine, conduct clinical studies, and navigate regulatory review. And it costs $2.6 billion, on average, to bring a new drug to market.
Patent protections make it possible for companies to chase state-of-the-art ideas. Ultimately, if a drug maker wants to stay in business, it’s imperative they manufacture innovative products that provide considerable benefit to patients. Those are the types of products that end up changing the world for the better — just like mRNA vaccines are doing right now.
Yet, inexplicably, some have proposed weakening — or outright dismantling — these critical protections. On the home front, these attacks have come from Sen. Bernie Sanders, I-Vt., and Rep. Jan Schakowsky, D-Ill.
It’s not an accident that the overwhelming majority of drugs are developed in countries with strong IP rights. Quite simply, there would be no COVID-19 vaccines without them. America’s pharmaceutical companies delivered the greatest breakthroughs in modern history precisely because our ecosystem incentivizes firms to pursue cutting-edge research.
When the next pandemic arrives, we will have no hope of defeating it if we weaken the one industry that’s best prepared to develop innovative treatments.