This month, the Defend Trade Secrets Act (DTSA) turned eight years old. Signed into law by then-President Barack Obama on 11 May, 2016, the DTSA significantly shifted the needle in IP enforcement rights in the United States. Crucially, it gave trade secret holders the option to file civil claims over a trade secret theft in federal courts, without having to include a related federal claim or prove that the parties were citizens of different states.
IAM spoke to a Silicon Valley lawyer and international trade secret expert James Pooley – described as being “instrumental” in the creation and establishment of the DTSA – to reflect on the changes it has brought in and what is coming next.
According to Pooley, getting access to federal courts in cases that have some interstate dimension was a “massive improvement in the suite of tools” that were available to trade secret owners. The DTSA has made the process of enforcement much more efficient in many ways and promoted a more unified view of what trade secret law is all about, he tells IAM.
The DTSA provided much-needed uniformity across all US states – an ambition that the Uniform Trade Secrets Act (UTSA), a piece of legislation created by a non-profit organisation Uniform Law Commission (ULC), had largely failed to achieve. Historically, the law governing trade secret misappropriation developed separately in each state at the cost of uniformity and predictability.
Statistics show that every year hundreds of trade secret owners turn to the DTSA as a means of seeking redress when their most valuable business secrets are misappropriated. In the first year of enacting the new law, the number of court cases filed in the US district courts under the DTSA amounted to 173, but already a year later in 2017, it jumped to 600, an increase of 247%, and as of 2023 grew to 749 cases, up by 333% compared to 2016. According to Docket Navigator data, as of 13 May this year, the US district courts received a total of 5,159 case filings involving DTSA claims, of which 4,097 or 79% have been terminated and 1,062 or 21% are still active.
In addition to domestic concerns over uniformity and harmonisation, the DTSA was meant to help address challenges related to trade secret misappropriation globally.
“In around 2014, there were fairly pressing issues around trade secret theft internationally and industry coalition started to come together to make sure that there were available sufficient tools,” Pooley recalls. “There was a push for legislation in the US and in the EU simultaneously, so in 2016 we got the DTSA and the European Union got the EU Trade Secrets Directive.”
While the DTSA includes no explicit provision on the law’s extraterritorial application, the fact that the DTSA was enacted as an amendment to the Economic Espionage Act of 1996 (EEA), which does have extraterritorial reach, gives an important clue on the intentions of the Congress.
In 2020, Motorola Solutions Inc v Hytera Communications Corp, became the first case where a US federal court held that a civil action for private damages under the DTSA could arise from acts of misappropriation that occur completely outside the US as long as they have connection with some activities within the US. Importantly, that ruling by the Northern District of Illinois is on appeal currently. The outcome from the US Court of Appeals is being closely watched.
“The general rule against extraterritorial application of the law is normally measured against any contrary intent from Congress,” explains Pooley. “When you read the Bill that was passed and see all of that language, you come away with the sense that Congress expected that this law would apply extraterritorially, otherwise it wouldn't help resolve some of the major dimensions of the problem that it had identified.
For example, the DTSA includes recommendations of legislative and executive branch actions that “may be undertaken” to reduce the “threat of and economic impact caused by the theft of the trade secrets of United States companies occurring outside of the United States”.
Additionally, if the intent of the Congress plays a role in how courts interpret the law, it might have an extra weight that the DTSA was passed amidst a rare bipartisan support: the Bill was unanimously approved in the Senate by a vote of 87-0, and in the House of Representatives by a vote of 410-2.
The next big thing occupying the minds of the trade secret community will be a change in how this vital form of IP is managed, Pooley expects: “Trade secrets represents an area of commercial concern that still does not get adequate attention because it happens below the awareness of the executives in a company, and I think where we're headed is a major shift in that direction.”
It's a slow-moving shift, however, which started with the America Invents Act which brought about two major changes in trade secret protection when it came into force in 2011. Although it was a patent reform statute, it introduced two impactful changes on trade secrecy and around the comfort level that companies have in treating innovations as a trade secret rather than patenting them, Pooley stresses.
“One of those important changes was the effective elimination of best mode requirement, which used to threaten the validity of patents and required companies to throw all related information into their patent applications, which would get published and thereby destroy any trade secret status,” he says. “And the other one was the prior user right, which gives companies that have been using a particular technology the assurance that they can continue to use it if they've been protecting it as a trade secret, even if some later inventor comes along and tries to patent it.”
These changes, along with companies’ struggles in terms of enforcing their patent rights, are seen as motivators pushing businesses to strengthen trade secret management. “And when there is a decision made to patent something and not to patent something else, that ‘something else’ no longer just falls on the floor and everyone forgets about it, but people recognise it is an asset. So, somebody needs to be in charge of overseeing it, making sure that it is monetised and protected,” underlines Pooley.
His feeling is that this “next big thing” – normalisation of trade secret management – will happen more slowly but it will have a “profound effect” on trade secrets protection. “My professional mission has been to elevate trade secret law and practice to the same level as the registered IP rights,” he adds.
I recently returned from a ten-day trip to China, the first time I’ve visited since before the COVID-19 pandemic. Late last year my business book Secrets had been translated into Mandarin by Fang (Helen) Liu, a lawyer/scholar at the Beijing office of law firm TianTai, and published by the Tsinghua University Press.
Liu had arranged a ‘book tour’ for me to talk about US trade secret law and management to eight of the country’s leading law schools, as well as business executives.
I had been to China quite a few times before. My first ‘official’ (that is, not tourist) visit was in 1998, to mark the opening of the Beijing IP training centre, where we were told that 600 people a month from around the country were being taught the basics of IP.
And we visited the national office of SIPO, where China’s relatively new patent system was obviously in expansion mode.
This was at the time that the country had submitted its application to join the World Trade Organization (WTO), and despite the hopeful implications for global trade, there were some in our delegation that doubted China’s intentions.
They wondered aloud whether China was really serious about building IP systems, given then-current concerns about counterfeiting. I didn’t share that perspective; while there we met with judges and government officials who obviously were deeply engaged and very well informed about the importance of IP. (They also had a good sense of humour—one judge joked that they were in the process of calculating accrued royalties owed by the rest of the world for paper, printing, gunpowder and the compass!)
I returned again in 2010, this time representing the World Intellectual Property Organization and the Patent Cooperation Treaty (PTC). China had been a member of the WTO for eight years, and any doubts about the intensity of its IP focus had disappeared. That single SIPO office in Beijing was now one of two dozen throughout the country, with PCT windows like bank tellers where patent applicants could walk up for help with filing their international applications.
China’s PCT filings were growing faster than any other country, and the quality of patent examination by China as an International Searching Authority was viewed as world class.
Specialty IP courts were established. And the related promise of rapidly expanding global commerce seemed to be realised, as the number of countries for which China was their largest trading partner increased from 10 to 50 (it’s now around 80).
As we all know, trade tensions between the US and China have increased significantly in recent years, reinforced by other aspects of their geopolitical rivalry. Some believe that a slow and inexorable ‘decoupling’ is taking place. Suspicions and disruptions caused by the pandemic have not helped.
Perhaps ironically, in January 2020, just before that global crisis took hold, the two countries had signed the ‘Phase One’ trade agreement as part of a multi-year effort to reduce trade friction. And intellectual property—specifically trade secrets—was front and centre in that document.
Much more recently, I was preparing for my ‘re-entry’ into China, and I admit to having felt some apprehension about it. Not only was (and is) the US political relationship with China at the lowest ebb I can remember, but at the end of February China had just expanded its state secrets law (for the first time since 2010) to include ‘work secrets’ in the category of restricted confidential information.
No official interpretation of this new phrase was provided. And the month before, reports had surfaced about a British businessman having been detained and charged with spying. I was now going there to lecture about ‘secrets’: what could go wrong?
Such is the grasp of (mild) paranoia on our minds. As it turned out, my visit to China was enjoyable and fascinating, and I look forward to going back. Thanks to the tireless efforts of Liu and her colleagues, I was able to meet students at the top law schools in the country: Tsinghua, Renmin, Beihang, Peking University and China University of Political Science and Law; and (in Shanghai) East China University of Political Science and Law, Shanghai Jiaotong, and Fudan.
In each of these schools, the rooms were packed, with 40 to 60 students and professors. I spoke in English, only occasionally with translation. And when I was done with my talks, the questions posed by the students were unusually insightful and sophisticated, in some instances beyond what I have experienced with my students in the US.
The TianTai law firm also organised a conference in Beijing where my remarks were supplemented by business and government representatives, all focused on practical aspects of IP protection and enforcement. And my time in Shanghai included a discussion with companies at the Commercial Mediation Center.
A significant takeaway from these events and conversations was that, even though the US-China pre-pandemic trade talks seem to have broken off, China continues to work on refining its implementation of the Phase One agreement.
As I have noted elsewhere, China started surprisingly quickly on transforming its promises into relevant changes in its laws. What I learned on this trip is that those efforts are continuing today.
Even more impressively, the scholars and soon-to-be lawyers at its law schools are deeply engaged and curious about how in the US we handle issues as specific as shifting the burden of proof in a trade secret case. Clearly, they are thinking deeply about how their domestic laws can be improved. They seem equally intrigued by how US businesses view the day-to-day management of trade secret assets.
Most frequently and consistently, however, the message I heard was that those in China who deal most directly with IP—executives, scholars and students—lament the precipitous reduction in personal contacts that began with the pandemic but continues due to geopolitical and trade tensions.
Repeatedly I heard a plea for expanded, personal engagement from people who recognise that China, like all other industrial countries, needs robust IP laws not just to encourage inbound investment but as an essential support for domestic innovation.
Global trade is important. When it involves any sort of technology, trade relies largely on aligned IP laws. This was true in 1883 when the Industrial Revolution drove agreement on the Paris Convention, and even more so now that the vast majority of business assets are intangible.
Bilateral agreements such as Phase One and plurilateral arrangements like the IP5 have led to higher quality and more reliable protections. Those good outcomes start with engagement. That doesn’t mean we should let down our guard and accept misbehaviour. But just drawing into our own corners and nursing suspicions won’t move us forward.
I’m now feeling rather embarrassed that I harboured any concerns about this trip. I absolutely plan to return again. There’s too much at stake not to continue to explore our common interests in IP.
This is what international trade secrets expert, IP Hall Of Famer, and attorney Jim Pooley refers to as “progressive incremental disclosure.” There’s a conundrum, he points out, when you’re up against someone who doesn’t want to sign an NDA and you need to encourage them to do so without spilling what it is that you want to keep confidential.
So, here’s what he tells people to do.
“Tease the recipient with information about whatever it is that you have that doesn't have to be kept secret. So, for example, you can tell them what the output is and be very precise about it in a way that will be enticing to the person,” he explains. “You sort of peel back the various layers of sensitivity going down towards the kernel of what's really innovative. You can get people to the point where they'll say, okay, boy, that sounds really interesting and to get any farther, I'm going to have to sign an NDA.”
(This strategy won't work with certain classes of people, like venture capitalists, he added, who are famous for never signing NDAs.)
Basically, what you’re trying to do is build trust as you approach each other. Imagine a middle school dance, Pooley said, with girls and boys lined up on opposite ends of the gymnasium floor, slowly figuring out how to engage by reading each other’s body language until the point where they’re holding hands and dancing. The process of getting an NDA signed is not that different.
NDAs that include language regarding reverse-engineering are becoming more common, Pooley said. “But it is an aggressive ask depending on the circumstances,” he added.
NDAs help set a professional tone. I highly recommend having a legal professional draft an NDA that addresses all of your needs. Pooley laments that NDAs are often treated as a form to fill out, when in reality they are a contract — and “contracts have consequences.” A lot of the terms can vary, including the definition and breadth of the confidential information.
SRS' complaint alleged that PNC employed Tsarnas, formerly its managing director for global business development and head of sales, and Kelly, senior vice president and relationship manager who reported to Tsarnas to break into this market. Both had "intimate knowledge" of how SRS' innovative platforms operated and were subject to strict confidentiality agreements, the plaintiff said.
The company initially sought a preliminary and permanent injunctive relief, a jury trial, exemplary and punitive damages, and attorney fees.
But PNC fought back hard. By 5 January this year, when the parties informed the court that they had reached a settlement, there were almost 700 docket entries recorded. During the rocky course of the case, decisions differed as to which party they favoured. Trade secret expert James Pooley says that a high level of uncertainty, like that seen in SRS v PNC is a "classical driver" of settlement.
When parties find themselves facing an imminent jury trial, it is a moment of realisation that the hard facts need to be looked at. "And rather than having a third party, particularly a jury - that does not know the business - decide on what the outcome of the trial should be, the parties have a dawning awareness that this is the last chance for them to control their own destiny in fashioning the outcome in a way that they can live with,'' Pooley notes.
According to Pooley, that must have been exactly one of those moments when parties to the conflict feel responsibility to take sober decisions about their respective companies. "If they are thinking clearly as rational actors, then what they should be doing is minimising the uncertainty and risk, addressing it and moving on where they can control things,'' he said.
SRS commented that "trade secrets are central to its competitive advantage, and we will always do what we must to protect them". SRS declined to comment on how the case was funded.
Pooley notes that "a really good settlement is one in which both sides can interpret it for themselves as a form of victory because they have withdrawn from a very risky situation." However, given the high cost of litigation, Pooley suggests it might have been wiser for the parties to settle earlier.
James Pooley, frequently serving as a lead counsel in trade secret disputes, was an expert witness for Dril-Quip. He says that this case sends an important message to companies that they should think carefully about their strategies when looking to protect key innovations.
Pooley told the courts that while FMC favoured a patenting strategy as a whole, and had “some infrastructure in place” to secure that type of IP protection, he could not recognise a clear strategy for protecting trade secrets. He believes it may be the case that, because FMC was aiming to rely ultimately on patenting, it failed to “carefully police whether the patent applications were stamped confidential”.
FMC was selling large pieces of equipment that went out to the market where they could be viewed, examined and reverse engineered easily, meaning that pursuing patent protection was an understandable choice, Pooley says. But along the way, some significant mistakes were made in protecting its innovation.
In the case, the court heard FMC had opened up its engineering database “to everybody, instead of partitioning it for those who needed to have access to confidential information”, Pooley explained. All FMC engineers had remote access to TeamCenter, where many of those documents Murphy was working on were stored.
Pooley argues that “neither FMC's code of business conduct nor anything else at the company prohibited FMC's employees from copying confidential company documents onto an external drive” and that large companies would not make “engineering documents containing trade secrets available to every engineer in the company”.
Pooley believes that the case sends a strong message to the industry that the requirement for “reasonable efforts” is a very serious one. “It requires focus on the trade secrets that you are trying to protect as opposed to general security issues, such as having a very good IT system, requirements for using passwords, having a front desk and so on,” he told IAM. “When you go to the court to protect your special information because it has extremely high value, the courts would expect you to have behaved in a way that reflects that high value.”
Pooley told the court that soon after the chief engineer left, FMC tightened up its safeguarding measures, introducing more focused procedures and policies around trade secret protection. This included new practices to label trade secrets “highly confidential” or “highest level of sensitivity” and ban remote access to such information.
But as a saying goes, that’s like closing the stable door after the horse has bolted, Pooley mused.
James Pooley, a trade secrets expert and attorney who has represented companies including Adobe, GE, and Qualcomm, said the high-profile (and high dollar value) nature of the Apple case is part of the reason issues like talent poaching are being explored so thoroughly.
“Cases like this have many dimensions,” Pooley said. “You get treated to a number of different issues that wouldn’t necessarily come up in cases where people couldn’t afford to turn over every rock and assert every possible argument.”
For Pooley, the Apple case illustrates an age-old Silicon Valley adage.
“There’s the story of the small-time innovator, Masimo, versus Apple, which has an innovation factory,” Pooley said. And in that David and Goliath scenario, the question, he said, becomes, “Who is the innovator?”
James Pooley, an independent attorney in San Francisco, says people don’t fully understand the capabilities of the technology yet.
But he points out that this is by no means the first time that businesses have had to consider new technologies when refining their trade secrets strategies.
“When I first started out, there were no networks or internet. The only thing you needed to do to make sure your information was protected was watch who walked out the front door and guard the photocopier. The environment since then has changed dramatically,” Pooley notes.
He adds that there are now almost “infinite” ways for employees and others trusted with confidential details to communicate them externally.
“To the extent that generative AI encourages more communication, I suppose you might say it presents another dimension of risk for control over company data. But it’s not at the same scale as some of the changes we’ve seen in the past.”
Trade secret expert James Pooley believes the leak could represent a “major crisis” for the social media platform and suggests that the drastic loss of staff could be a factor.
“For a software-based company like Twitter, publication of any significant part of its source code represents a major crisis,” he tells WIPR.
“That said, it’s difficult to discern the impact when we don’t yet know what portions of the code were posted, what significance they have to the functioning or security of the platform, and how long they were available on GitHub.”
He adds: “We don’t know who might have grabbed a copy of the code during the months that it was there. In any event, the theft implies some level of failure of the company’s information security programme.
“How was it that someone was able to get access to exfiltrate the information? Why was it not discovered sooner? A reasonable assumption is that the rapid contraction in Twitter’s workforce, with so many experienced people being made redundant or resigning, caused the company’s security controls to degrade.
“One can only hope that, in addition to its effort to find the culprit, Twitter also focuses on assessing the cause of this breach and shoring up its procedures and oversight.”
There may be broader implications, too, according to Pooley.
“Although a partial or temporary disclosure of confidential information will not necessarily destroy its status as a trade secret, an extreme breakdown like this could support an argument that Twitter has lost trade secret protection for some or all of its source code because it has failed to engage in ‘reasonable steps’ to protect it, as required under TRIPS Article 39 and related national laws.”
The proposed ban would upend companies’ approach to protecting their proprietary information, several IP and trade secrets attorneys said. Businesses across the economy would be forced to lean on other mechanisms, such as expensive, time-consuming, and harder-to-prove trade secrets litigation instead, they said.
“This is an absolute disaster when it comes to intellectual property protection,” trade secrets attorney James Pooley said. “And it’s absolutely contrary to the stated objective of this administration of robust trade secrets rights.”
Requiring companies to provide recruits a pre-hire notice of a noncompete agreement—as some states require—is also broadly considered a fair practice, he said.
California has already demonstrated that eliminating noncompetes entirely leads to more trade secrets litigation, Pooley said.
Jim Pooley was recently interviewed as a guest on the Understanding IP Matters podcast about how companies are increasingly using trade secrets as the basis for competitive advantage. Jim spoke about the value of trade secrets, how they differ from patents, and what companies should do to protect their trade secrets.
You can listen to the full podcast episode below: