Some Progress in the International Effort to Harmonize Trade Secret Protection

April 25, 2019

IP Watchdog

In 1994, the United States was winding up the Uruguay Round of trade negotiations leading to the establishment of the World Trade Organization (WTO). Tucked in among the toothbrush and rice tariffs was the Agreement on Trade-Related Aspects of Intellectual Property. The TRIPS Agreement was seen as a breakthrough, setting common standards for protecting IP, including provisions on trade secrets that closely aligned with U.S. law.

Twenty years later, I visited a friend at the WTO to find out what had actually been happening as a result of TRIPS. I was especially interested in what countries had done since 1994 to bring their national laws into harmony with the trade secret requirements. Because each member of the WTO was supposed to submit reports on its compliance, I asked about them. Yes, we have them, my friend told me. They were in boxes in the next room. But no one had ever read them.

Just months before my visit, the European Commission had received an industry report lamenting the legal chaos facing companies that tried to enforce their trade secret rights in Europe. Although every one of the 27 member states of the EU was also a signatory to the TRIPS agreement, virtually none of them was in compliance. In response, the Commission issued a “Directive,” instructing all member states to (finally) harmonize some basic aspects of their trade secret laws.

At about the same time, business interests in the United States were pushing Congress to enact the Defend Trade Secrets Act, and it passed almost unanimously. As part of the bill, Congress expressed deep concern about foreign misappropriation of American secrets, demanding regular progress reports.

It seems that governments have been waking up to the serious challenge of trade secret theft.

ICC Task Force on Trade Secrets Gets to Work

To better inform its members about this emerging phenomenon, the International Chamber of Commerce in 2017 established a Task Force on Trade Secrets, which has just issued its report, available here. I was privileged to serve as co-chair of this effort, along with Stefan Dittmer of Dentons in Berlin. Although the primary focus of our study was the push for new laws in Europe and the U.S., it includes observations and lessons relevant to leaders and policymakers across all jurisdictions.

One key aspect of our analysis focused on the challenge of dealing with trade secret disputes in countries with a civil law tradition, which is to say most of the world outside the U.S., the U.K. and the Commonwealth. Trade secret theft almost always happens without the victim’s knowledge, and so to present its case the owner needs access to evidence of what happened. But civil law jurisdictions do not provide for information exchange between parties to a lawsuit. Since changing their basic legal framework (and especially embracing the U.S. civil discovery system) is not an option, countries attempting to address the problem have to find other solutions.

Encouraging Developments

The most promising of these involves shifting the burden of proof in cases where the circumstantial evidence seems strong—such as the development of a similar product in an unusually short time after access to the plaintiff’s secrets—and requiring the defendant to prove independent development. This was considered in China last year as an amendment to its Anti-Unfair Competition Law (AUCL), but didn’t make it into the final version. However, very recently—perhaps influenced by ongoing trade negotiations with the United States—China has announced that this provision has been approved as part of new Article 32 of the AUCL, along with the right to seek quintuple damages as a deterrent. (Thanks to Jill Ge of Clifford Chance for the update). Although we need to see how the new law will be applied in practice, it is a very encouraging development.

Countries can also turn to a more classical approach by treating trade secret theft as a crime, which allows the state to gather evidence through a seizure. In 2013, Taiwan added criminal remedies to its trade secret statute, and in 2016 Japan expanded the scope of its existing criminal law to theft of Japanese secrets committed outside of Japan. Both of those changes came as a result of highly publicized civil cases brought by leading domestic companies.

An Uptick in Cross-Border Criminal Prosecutions

Back in the United States the Trump administration has recently signaled an increased enthusiasm for criminal investigations involving foreign actors. In November 2018, UMC, a leading semiconductor company in Taiwan, was indicted along with a Chinese partner Jinhua, for allegedly stealing secrets from U.S.-based Micron. For the first time since the Economic Espionage Act was passed in 1996, the government also requested an injunction barring imports of certain devices. And in January 2019, the Justice Department indicted China’s Huawei for stealing trade secrets from T-Mobile, even though a jury in the civil case brought by T-Mobile had declined to award any damages. In addition to trade secret theft, the government charged obstruction, based on Huawei’s having engaged in a “bogus investigation” of the incident.

We’ve come a long way since the 1994 TRIPS Agreement, which didn’t seem to generate much interest in trade secret laws. Now, with industry’s increased reliance on data and the willingness of international businesses to plead their case to policy makers, governments around the world are recognizing trade secrets as an asset class that demands special treatment. The Report of the ICC Task Force on Trade Secrets provides a checklist of leading issues to inform efforts to improve domestic laws: (1) give trade secrets their due as a form of “intellectual property;” (2) provide the victim access to proof of misappropriation; (3) ensure that secrets are protected during litigation; (4) award full damages and costs; and (5) avoid creating broad exceptions to trade secret rights.

It’s unfortunate that no one read any of those TRIPS reports years ago. I urge you to take a look now at the ICC report. You’ll come away with a better understanding of how data assets, which travel the world at the speed of light, demand a coordinated approach from governments and industry

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