[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
TRADE SECRETS: PROMOTING AND PROTECTING
AMERICAN INNOVATION, COMPETITIVENESS
AND MARKET ACCESS IN FOREIGN MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COURTS, INTELLECTUAL PROPERTY,
AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JUNE 24, 2014
__________
Serial No. 113-97
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
88-436 WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Courts, Intellectual Property, and the Internet
HOWARD COBLE, North Carolina, Chairman
TOM MARINO, Pennsylvania, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York
Wisconsin JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas JUDY CHU, California
STEVE CHABOT, Ohio TED DEUTCH, Florida
DARRELL E. ISSA, California KAREN BASS, California
TED POE, Texas CEDRIC RICHMOND, Louisiana
JASON CHAFFETZ, Utah SUZAN DelBENE, Washington
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia ZOE LOFGREN, California
RON DeSANTIS, Florida SHEILA JACKSON LEE, Texas
JASON T. SMITH, Missouri STEVE COHEN, Tennessee
[Vacant]
Joe Keeley, Chief Counsel
Heather Sawyer, Minority Counsel
C O N T E N T S
----------
JUNE 24, 2014
Page
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Intellectual Property, and the Internet........................ 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Courts, Intellectual
Property, and the Internet..................................... 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 3
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on
Courts, Intellectual Property, and the Internet................ 4
WITNESSES
Richard A. Hertling, Of Counsel, Covington & Burling LLP, Protect
Trade Secrets Coalition
Oral Testimony................................................. 7
Prepared Statement............................................. 10
David M. Simon, Senior Vice President for Intellectual Property,
salesforce.com Inc.
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Thaddeus Burns, Senior Counsel, Intellectual Property & Trade,
General Electric
Oral Testimony................................................. 33
Prepared Statement............................................. 35
Chris Moore, Senior Director, International Business Policy,
National Association of Manufacturers
Oral Testimony................................................. 44
Prepared Statement............................................. 46
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Doug Collins., a
Representative in Congress from the State of Georgia, and
Member, Subcommittee on Courts, Intellectual Property, and the
Internet....................................................... 68
TRADE SECRETS: PROMOTING AND
PROTECTING AMERICAN INNOVATION,
COMPETITIVENESS AND MARKET ACCESS
IN FOREIGN MARKETS
----------
TUESDAY, JUNE 24, 2014
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 2:49 p.m., in
room 2141, Rayburn House Office Building, the Honorable Howard
Coble (Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Marino, Goodlatte, Issa,
Holding, Collins, DeSantis, Nadler, Conyers, Chu, DelBene,
Jeffries, Cicilline, and Lofgren.
Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee,
Clerk; (Minority) Heather Sawyer, Minority Counsel; and Jason
Everett, Counsel.
Mr. Coble. The Subcommittee on Courts, Intellectual
Property, and the Internet will come to order.
Without objection, the Chair is authorized to declare
recesses of the Subcommittee at any time.
I want to additionally apologize to all of you for the
delay. We had several House votes. They do come--claim
precedence over the rest of us, so thank you all for
understanding.
I will give my opening statement now. The intellectual
property comes in a variety of flavors. This Subcommittee works
regularly on issues concerning patents, trademarks, and
copyrights when considering IP in both the domestic and
international context, but today we are here to talk about
trade secrets. Trade secrets are another important part of the
IP landscape.
For example, one of the most famous trade secrets in the
world is the formula for Coca-Cola, and I am being very
provincial now, but I am certain that there are a number of
Carolina BBQ spices as well. Hopefully.
Trade secrets require no formal registration and can be
protected for an unlimited time, but unlike patent protection,
once a trade secret is disclosed, it instantly loses its value
and the property right itself ceases to exist.
Further, there is no protection if a trade secret is
uncovered unlawfully by others through reverse engineering or
independent development. So there are definite tradeoffs
between secured patent protection or could be an innovation of
a trade secret. The United States has many laws in place to
protect trade secrets, and in fact, we passed two trade secret
bills during the last Congress; one fixing a loophole regarding
computer source code and the other involved some criminal
penalties for economic espionage. And as folks consider other
ideas, in the future, we need to be mindful of unintended
consequences and ensure that improvements to the code are
meaningful and necessary and not being done simply because we
can do it.
But as our companies operate on a global scale, at issue,
most pressing concern to Congress is how certain foreign
governments have begun adopting policies that determine trade
secret protection and create an unlevel playing field for
America's most innovative companies. Six countries promote
trade secret theft by producing policies that result in forced
technology transfer. These trade-distorted policies may seem
benign but are nothing more than legalized theft, it seems to
me, since policies force U.S. companies to provide trade secret
information to a local partner or government agency as a
condition of investment or market access.
Some countries have begun looking for a compulsory
licensing of trade secrets to a third party. This is done to
help a local competitor that claims it needs access to the
trade secret to compete. Generally, this is just not right, it
seems to me. The Administration needs to be using all of its
trade tools, including action at the WTO, to help ensure that
countries that promote such policies are held to account. I
hope to hear more today from our witnesses in the steps that
need to be taken to promote trade secret protection,
America's--American innovation, economy, and create jobs.
I am now pleased to recognize the distinguished gentleman
from Michigan, Mr. Conyers, for his opening statement
Mr. Conyers. Thank you, Chairman Coble.
I join in welcoming the witnesses and look forward to this
hearing. We are examining the trade secret laws and consider
whether there should be revisions or updates in the law.
Let me say that copyright, patent, and trademark owners can
enforce their rights in Federal court. Trade secret owners
should have a similar remedy. Indeed, trade secrets are
critical intellectual property rights and should receive
protection of Federal laws in addition to the State laws that
have traditionally protected them.
People are now able to travel across the State and national
borders more easily, and many United States companies are
finding that reliance on State laws and procedures is no longer
adequate for trade secret protection. The inability of private
parties to protect trade secrets in Federal court has generated
calls for legislation to create such a right. Those who support
such a right have noted that a Federal cause of action would
give companies a critical tool to enforce their rights. A
Federal civil cause of action would create national standards
and allow companies to craft one set of nondisclosure policies
on a 50 State basis.
I want to hear the witnesses discuss the benefits and
potential down side of a Federal cause of action as well as any
specific issues that we should address in such legislation. We
should consider what we can do to bolster the Administration's
efforts to increase protection for trade secrets at home and
abroad.
In 2013, the Administration, through the U.S. Intellectual
Property Enforcement Coordinator, released the Administration
strategy on mitigating the theft of U.S. trade secrets, a five-
pronged strategic approach to addressing trade secret theft.
That secret strategy calls for coordinated international
engagement with trading partners, promotion of voluntary best
practices by private industry, enhancement of domestic law
enforcement operations, improvement of domestic legislation
regarding trade secrets, and increased public awareness. The
Administration also has expressed concerns about new reports,
suggesting that some countries, most notably China, are playing
an increasingly active role in theft of U.S. trade secrets. In
response, the Administration has increased its enforcement
efforts in this area as well.
In May of this year, for example, the Justice Department
indicted five Chinese military hackers for economic espionage
and trade secret theft for ongoing offenses involving six
American companies. That indictment is a step in the right
direction, but of course, much more remains to be done.
I look forward to hearing more about this from our
witnesses and what we can and should do to strengthen trade
secret laws. I thank the Chairman and yield back the balance of
my time.
Mr. Coble. I thank the gentleman.
The Chair recognizes the distinguished gentleman from
Virginia, the Chairman of the House Judiciary Committee, Mr.
Goodlatte for an opening statement
Mr. Goodlatte. Thank you, Mr. Chairman.
Today we examine an important area of intellectual property
trade secrets. Trade secrets occupy a unique place in the IP
portfolios of our most innovative companies. They can include
confidential formulas, manufacturing techniques, and even
customer lists, but because they are unregistered and not
formally reviewed like patents, there are no limitations on
discovering a trade secret by fair lawful methods, such as
reverse engineering or independent development. In innovative
industries, that is simply the free market at work.
Though trade secrets are not formally reviewed, they are
protected from misappropriation, which includes obtaining the
trade secret through improper or unlawful means. And
misappropriation can take many forms, whether it is an employee
selling blueprints to a competitor or a foreign agent hacking
into a server. In addition, one could argue that even a foreign
government's policies to require forced technology transfer is
a form of misappropriation. Though most States base their trade
secret laws on the Uniform Trade Secrets Act, the Federal
Government protects trade secrets through the Economic
Espionage Act.
In the 112th Congress, this Committee helped enact two
pieces of legislation to improve the protection of trade
secrets. As other ideas are developed to improve trade secrets
protection, it is important that we take the time to ensure
that any new measures do not increase frivolous litigation or
discovery costs, do not negatively impact our international
trade obligations, or result in other negative unintended
consequences, and that any measure ultimately provides a
meaningful benefit to innovators and innovative companies.
On the international front, the theft of trade secrets does
not just come from the employee theft or industrial and
economic espionage but also from foreign governments
themselves. Some of it is plain cyber theft, but many countries
have also begun adopting policies that severely undermine trade
secrets. These policies, invariably designed to promote local
innovation, result in forced technology transfers that open
American companies to the blatant theft of their intellectual
property. These trade distortive policies are anti-innovation,
anti-competitive, and prevent fair market access in foreign
markets.
If a country requires technology transfer as a condition
for regulatory approval or market access, that is wrong. If a
country uses their State-owned enterprises to seek
noncommercial terms from American companies for their IP, that
is wrong. Such policies amount to legalized theft. In the 2014
U.S. Trade Representatives Special Report 301--Special 301
Report, China was specifically called out to take serious steps
to put an end to these activities and to deter further activity
by rigorously investigating and prosecuting trade secret thefts
conducted on by both cyber and conventional means.
When a country fails to provide basic legal protections for
intellectual property, then we need to start thinking outside
the box, looking at all of our trade tools. We need to start
thinking creatively, utilizing our IP Attaches in U.S.
Embassies, ensuring they have sufficient authority and
resources, and we need to start considering our options for
actions at the WTO.
Intellectual property powers the engine of American
innovation and creativity. It creates new jobs and helps grow
our economy. I look forward to hearing from all of our
witnesses on the issues surrounding trade secrets.
Thank you, Mr. Chairman.
Mr. Coble. I thank the gentleman.
The Chair now recognizes the distinguished gentleman from
New York, the Ranking Member of the Subcommittee, Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chairman, for holding this
hearing to examine the ongoing importance of trade secrets as a
means of safeguarding intellectual property interests at home
and abroad. With the need to focus on patent reform last year
and the ongoing comprehensive review of the Copyright Act, it
would be easy to neglect trade secrets, but doing so would be a
major mistake.
Trade secrets proprietary business information derives its
value from being and remaining secret, make up approximately
two-thirds of the value of U.S. companies' information
portfolios. American businesses own an estimated $5 trillion of
trade secrets with roughly $300 billion of that stolen per
year; $300 billion worth of theft a year.
In a 2012 speech, former national security director Keith
Alexander described cyber espionage as the greatest transfer of
wealth in history, and many businesses view trade secret
protection as more critical than any other form of intellectual
property protection. The 2008 National Science Foundation
survey, for example, show that firms with significant research
and development activity reported trade secrets as the most
important form of intellectual property protection. Even
companies without R&D activity rank trade secrets as the second
most important form of intellectual property protection, only
slightly behind trademarks and ahead of copyrights and patents.
The value of trade secrets to U.S. companies is matched
only by their tremendous vulnerability to theft. Innovative
technologies have made it easy to obtain information and
transfer it across the globe with the click of a cell phone,
tablet, or computer key. At the same time, U.S. companies are
increasingly targeted for trade secret theft by competitors
with some foreign governments actively encouraging and
facilitating the theft of U.S. trade secrets.
Just this mast May, for example, the Justice Department
charged 5 members of the Chinese military with economic
espionage. The defendants are accused of targeting six American
companies and conspiring to steal information useful to
competitors in China, including enterprises owned by the
Chinese government. This indictment represents a mere tip of
the iceberg. According to FBI Director James Comey, while this
case is an important step forward, ``There are many more
victims, and there is much more to be done.''
In light of their value and vulnerability, it is critical
that our laws provide robust protection for trade secrets.
Unfortunately, that does not seem to be the case. What we
increasingly hear--what we increasingly are hearing from a
diverse array of companies ranging from traditional
manufacturers to leading-edge technology firms is that that
lackluster legal protection is a major cause of concern.
Congress has acted before to protect trade secrets at the
Federal level. In 1996, we passed the Economic Espionage Act in
response to increased incidents against American companies, and
just this last Congress, we took steps to improve this law,
closing a loophole that allowed the theft of certain trade
secrets and increasing penalties for economic espionage. The
Economic Espionage Act publishes trade secret theft and
economic espionage, which is a misappropriation of trade
secrets for the benefit of a foreign power.
The EEA can only be enforced by the Attorney General. There
is no Federal cause of action for a private party seeking to
enforce the law. As of 2008, fewer than 60 prosecutions had
been brought, leading to concern that the act is an ineffective
weapon against economic espionage.
Lacking a Federal cause of action, companies currently use
State laws to protect trade secrets. While these laws were
initially developed through particular case decisions in their
articulation of governing American principles by the American
Law Institute, nearly every State has now enacted the Uniform
Trade Secrets Act. The Uniform Act provides key definitions in
a civil cause of action for misappropriation of trade secrets.
A prevailing party may obtain injunctive relief, damages, and
reasonable attorney's fees in certain cases.
While this system appears to have worked relatively well
for local and intrastate disputes, it has not proven efficient
or effective for incidents that cross State and sometimes
international borders. As you will hear from our witnesses
today, our 50 State system does not work in our increasingly
mobile and globally interconnected world. Former employees and
industrial spies are likely to carry or transfer secret
information across State borders or overseas.
The limited jurisdiction of the State court system makes it
more difficult to obtain discovery or to act quickly enough to
enforce an order that might stop the immediate loss of company
secrets. As a result, our witnesses, who represent a wide range
of key stakeholder interests, all support creation of a Federal
cause of action for trade secret theft. Along with several of
my colleagues on both sides of the political aisle, I similarly
favor doing and we are working on, legislation to achieve this.
It would be helpful to hear from our witnesses today
regarding any particular issues that should be addressed or
avoided in such a bill. I believe that we have an opportunity
to work quickly and in a broadly bipartisan basis to ensure
that our trade secrets law more robustly protects America's
innovators and businesses. We already protect trademarks,
copyrights, and patents through civil--through Federal civil
remedies. It is time to do the same for trade secrets.
With that, I look forward to hearing from our witnesses
today, and I yield back the balance of my time.
Mr. Coble. I thank the gentleman for his opening statement.
Statements from all other Members of the Subcommittee will be
entered into the record without objection.
The witnesses written statements will be entered into the
record in its entirety as well.
Gentlemen, prior to introducing you, I would like for you
to stand and be sworn, if you will.
[Witnesses sworn.]
Mr. Coble. Let the record reflect that all responded in the
affirmative. You may be seated.
We have a very distinguished panel today, and I am pleased
to welcome you with us. I, again, apologize for the belated
response.
Our first witness this afternoon is Mr. Richard Hertling,
Counsel of the Washington law firm of Covington & Burling, LLP.
He is here today to testify on behalf of the Protect Trade
Secrets Coalition. In his position, Mr. Hertling advises
clients in the technology, intellectual property, and defense
of cybersecurity legislative matters. Prior to his position at
Covington, Mr. Hertling served this Committee with distinction
for almost 5 years, most recently as Staff Director and Chief
Counsel. He has also held numerous leadership positions in the
Department of Justice and the U.S. Senate throughout his 23-
year career in the Federal Government. He was awarded his J.D.
degree from the University of Chicago School of Law and his
bachelor's degree, magna cum laude with honors, from Brown
University. We welcome Mr. Hertling back to the Committee and
back to the Hill.
Our second witness, Mr. David Simon, Senior Vice President
of Intellectual Property of Salesforce.com. In his position,
Mr. Simon is responsible for the company's intellectual
property portfolio worldwide. Prior to his position at
Salesforce.com, he served as Chief Patent Counsel at Intel
Corporation and Vice President of IP Strategy and Licensing at
Rovi Corporation. Mr. Simon received his J.D. degree from
Georgetown University Law Center and his S.B. in Electrical
Engineering and Political Science from the Massachusetts
Institute of Technology.
Mr. Simon, good to have you with us as well.
Our third witness is Mr. Thaddeus Burns, member of the
Trade Secrets Committee at IPO, the Intellectual Property
Owners Association. IPO focuses on providing practical
education on the topic of trade secrets to the organization's
membership and to the public. Mr. Burns is currently Senior
Counsel for Intellectual Property and Trade at General
Electric. Prior to GE, he has served as Senior Counsel at Akin,
Gump, Strauss, Hauer & Feld, the Intellectual Property Attache
in Geneva with USPTO and a law clerk with the U.S. Court of
Appeals for the Fourth Circuit. Mr. Burns received his J.D.
from the Catholic University of America, Columbus School of Law
and his bachelor degree from Oberlin College.
Mr. Burns, good to have you with us.
Our final witness is Mr. Christopher Moore, Senior Director
of International Business Policy at the National Association of
Manufacturers. Prior to his position at NAM, Mr. Moore served
as Director of Strategic Planning and Deputy Director of Policy
with the United Nations World Food Programme. He also held
senior positions in the State Department and the Office of the
U.S. Trade Representative. He is an alumnus of Emory University
and the London School of Economics.
Mr. Moore, good to have you with us.
Gentlemen, you will note there is a timing machine on your
table, and we would ask for you to comply with the 5-minute
rule, if you can. When the green light changes to amber, that
is your notice that you have 5 minutes on which to wrap up. You
won't be severely punished if you don't make that minute cut,
but do the best you can.
Mr. Hertling, we will start with you.
TESTIMONY OF RICHARD A. HERTLING, OF COUNSEL, COVINGTON &
BURLING LLP, PROTECT TRADE SECRETS COALITION
Mr. Hertling. Thank you very much, Chairman Coble, Ranking
Member Nadler, Ranking Member Conyers. Thank you for inviting
me to testify before this Subcommittee today on trade secrets.
It is indeed a distinct honor and privilege for me to be here
to discuss this important topic. I appreciate that my written
statement will be included in the record of the hearing, and I
will focus my oral testimony on the background to the existing
Federal legal landscape on trade secrets, as Committee staff
requested.
My firm represents the Protect Trade Secrets Coalition, a
cross-industry-sectors coalition of companies supporting
legislation to complement the criminal penalties provided by
the Economic Espionage Act of 1996 and protect the property
interest that exists in trade secrets by creating a Federal
civil remedy for trade secret misappropriation, similar to the
remedies available for other forms of intellectual property.
As you know, immediately prior to joining Covington &
Burling, I was staff director of this Committee, but among the
matters with which I was involved earlier in my congressional
career was the bill that became the Economic Espionage Act of
1996. As far back as the mid-19th century, State common law
provided protection of state--of trade secrets from
misappropriation, and the traditional means of enforcing the
law has been through a private civil lawsuit. Trade secrets, as
several members have described, are commercially valuable
information subject to reasonable measures to protect the
confidentiality of that information.
The protection of trade secrets in the United States has
been left largely to State laws. The ad hoc pattern of 50
different State laws started to change in the 1980's when
States began to codify their trade secret laws by adopting
provisions of the Uniform Trade Secrets Act, a model law
developed by the National Commission on Uniform State Laws.
The development of an economy driven by technological
advances, however, and increasing globalization of businesses
and supply chains made trade secrets more valuable in
interstate and international commerce and also more susceptible
to misappropriation. Industry in the U.S. started to recognize
that some foreign governments and firms were competing unfairly
with U.S. competitors by stealing their trade secrets. Domestic
firms were seeing their crown jewels stolen and taken overseas
where firms with no investment to recoup could make the product
and sell it for much less than the victimized U.S. firm.
Investment and jobs were at stake in the United States.
The remedy for this form of theft, however, remained
entirely in the hands of State law. In effect, the same tools
available in the 1890's were the only ones still available in
the 1990's, and so Congress came to consider the issue and
ultimately enacted in 1996 the Economic Espionage Act.
During congressional consideration of that act, a number of
firms requested that the bill include a private Federal civil
remedy for the misappropriation of a trade secret to complement
the criminal and civil injunctive remedies the bill gave to the
Federal Government. That request, however, was made at the very
end of the process, after a consensus on the bill had been
achieved.
Although the addition of a private Federal civil remedy was
seen as valuable, it was thought that the proposal needed to be
vetted on its own terms and for its own merits. The intent was
that Congress could turn to it the following year. The failure
to include in the EEA, essentially a criminal statute, an
ability for victimized firms to seek a civil remedy in Federal
court was due only to the timing and not in any way to the
merits of the proposal to include Federal civil remedy. For a
variety of reasons, primarily that congressional attention on
intellectual property was taken up first by what became the
Digital Millennium Copyright Act and, subsequently, by patent
reform, the addition of a civil trade secrets remedy wound up
lying dormant for a number of years only to be renewed recently
by Members of both Chambers, including Members of this
Committee.
Since enactment of the Economic Espionage Act, the problem
with trade secret theft has grown dramatically. Foreign
competitors continue to try to steal their way to success on
the back of intellectual property developed here in the United
States. The FBI, however, has many priorities and limited
resources and cannot respond to every reported theft of trade
secrets, even by foreign individuals and firms. Just as we rely
on both criminal law and civil litigation as complementary
tools to protect property interests in other areas, we should
do so in this area as well.
A Federal civil remedy for trade secret misappropriation
would provide an important addition to existing protections for
trade secrets at the Federal and State levels and could bolster
our economy and save U.S. jobs at no additional cost. In
addition, it would help protect and promote U.S. interests
around the world. Many countries do not provide adequate legal
protection for trade secrets, and these weak regimes present
significant risks for U.S. firms seeking to expand operations
globally. Enhancing our own legal protections for trade secrets
would serve as a model for other countries and arm our trade
negotiators with a model they could point other countries to
and encourage them to follow.
I thank you for your attention and will be pleased to
respond to any questions. If I might just very briefly be
permitted an additional moment to recognize Chairman Coble, who
will be retiring at the end of this year, and thank him very
much for his kindness to me during my service on the Committee
and acknowledge his lifetime of dedicated service to our
country, his State, and the people of the Sixth District of
North Carolina, and particularly his work on IP issues during
his career. Thank you.
[The prepared statement of Mr. Hertling follows:]
__________
Mr. Coble. Mr. Hertling, I thank you for that. I was going
to recognize you and welcome you back to the Hill, whether you
had made that comment or not, but I thank you for that. I think
you are the only witness, Mr. Hertling, who did have Hill
experience, so it is good to have you back on the Hill.
Mr. Hertling. Thank you.
Mr. Coble. Good to have the other three witnesses as well.
Mr. Simon, you are recognized for 5 minutes.
TESTIMONY OF DAVID M. SIMON, SENIOR VICE PRESIDENT FOR
INTELLECTUAL PROPERTY, SALESFORCE.COM INC.
Mr. Simon. Thank you, Mr. Chairman.
Mr. Coble. Mr. Simon, pull that mike a little closer to
you. I'm not sure you're on yet.
Mr. Simon. Okay.
Mr. Coble. That is better.
Mr. Simon. Thank you, Mr. Chairman, Ranking Member Nadler,
and Members of the Judiciary Committee. I want to thank you for
the opportunity to discuss the need for a Federal trade secret
law on behalf of Salesforce.com.
Trade secrets are vital and important to us. Having been
named Forbes magazine's most innovative company for the last 3
years, trade secret law is central to protecting our
intellectual property. Unlike conventional software, almost all
our software stays in our data centers. Our customers entrust
their own and their user status for storage by us so their data
can be processed by our servers. Yet it is vital and important
to us that any legislation take into account some fundamental
differences that have arisen as a result of Internet business
models, such as the ones we use, in contrast to old rules based
on seizure for physical goods.
Trade secrets differ from other forms of IP in several
respects, as many have noted. No government agency needs to
examine our secrets to obtain protection as opposed to patents
or trademarks. Unlike copyrights, no registration is required
before filing a lawsuit. Protection is immediate. As long as
our secret information is not accessible to others, has actual
or potential value, and is subject to reasonable efforts to
keep it secret, the law in the U.S. provides, while disparate,
powerful civil and criminal remedies to stop others who try to
steal our own or our customers secrets. Given the simplicity of
this protection and these strong sanctions, it is little wonder
that the National Science Foundation found by a factor of two,
U.S. managers believe trade secrets are the most important form
of IP protection available.
We appreciate the need for both a strong trade secret
protection and strong remedies. I was involved in one of the
earliest Economic Espionage Act prosecutions and the ability to
seizure the stolen trade secrets hidden in the thief's house
was key to the success of the prosecution. However, many of the
proposals that we have seen provide a seizure power to private
civil litigants that we view is far too strong. They fail to
take into account the differences between trade secrets and
other IP that I just outlined and the difference between
physical goods and the Internet economy.
The seizure provisions fail to even take into account that
often what is involved is third party's property. If one
assumes that one of our 100,000 customers has misappropriated
someone's secrets, that does not justify having marshals enter
our storage networks and starting to seize our disk drives. Not
only are these drives our property, but the way our proprietary
workload and security protocols for data storage work, the data
for any one customer is highly likely to be intermixed with the
data of hundreds of other customers on any one disk drive. Any
drive that were seized would probably also include dozens, if
not hundreds of third party secrets. Seizure of the drives also
is likely to result in business interruption for the dozens or
hundreds of innocent customers whose data is seized. For these
reasons alone, we believe that ex parte seizures of innocent
third parties who host data for others should be prohibited.
Further, proposed in these overly generous ex parte
provisions point too often to counterfeit marks and copyrights
to justify their position regarding seizures from third
parties. However, that ignores fundamental differences between
trademarks and trade secrets. Marks and copyrights in seizure
matters are almost invariably concerning physical things. Trade
secrets, by their very nature, ethereal. Unlike trademarks and
copyrights, trade secrets do not require any form of government
approval or registration. Judging on counterfeit marks and
copyrights do not require technical expertise. Seizure by
marshal requires, on the other hand, of trade secrets also--
excuse me--on trademarks also does not require technical
expertise. Seizure of computer information stored on disk
drives clearly does.
With few district court judges or marshals trained in the
details of how computer storage networks work, the right
procedures to obtain through secret and unbalanced ex parte
hearings needs to be carefully cabined. Nor does the emergency
application for relief from a seizure order provide an adequate
remedy. District court judges, as this Committee knows, are
tremendously overburdened, and Federal Rule of Civil Procedure
65 permits a judge to keep a seizure order in place for up to
14 days without a hearing. The Internet economy often provides
the interruption of a customer service, can no--can last no
longer than a total of 5 minutes in an entire year, so current
seizure rules permit an interruption that is approximately
4,000 times longer than what is often contractually mandated
for business on the internet.
In short, trademarks and copyright cases involve physical
things that are well understood generally by the legal system.
Internet business models of hosting together all sorts of third
party information are little understood and need different
models. We look forward to working with the Committee on
achieving the right balance for a strong trade secret law that
also balances the needs of the Internet economy.
Thank you, and I will be happy to answer any questions you
may have.
[The prepared statement of Mr. Simon follows:]
__________
Mr. Coble. Thank you, Mr. Simon.
Mr. Burns.
TESTIMONY OF THADDEUS BURNS, SENIOR COUNSEL, INTELLECTUAL
PROPERTY & TRADE, GENERAL ELECTRIC
Mr. Burns. Good afternoon, Chairman Coble, Ranking Members
Nadler and Conyers, and Members of the Committee, thank you for
inviting me to testify today on the importance of trade secret
protection for job-creating companies in America. My name is
Thaddeus Burns, and I am Senior Counsel, Intellectual Property
and Trade, at General Electric, a company that has been at the
forefront of innovation since 1892. I am here today on behalf
of the Intellectual Property Owners Association, a trade
association representing more than 200 companies and 12,500
individuals in all industries and fields of technology. Trade
secrets are an increasingly important form of intellectual
property for IPO members. We invest significant resource to
develop proprietary know-how, such as manufacturing processes,
industrial techniques, formulas, codes, and designs. The value
of our trade secrets is not lost on competitors here and around
the world, and the theft of our intellectual property has
become a growing problem.
The threat comes from numerous sources, and the rise of
global supply chains and perpetual connectivity has made it
even easier for would-be thieves. And when our trade secrets
land in the hands of a rival, we are put at a competitive
disadvantage. Trade secret theft has become more sophisticated,
and companies have responded by raising our internal defenses,
but the law also needs to keep pace. The current legal tools
available to remedy trade secret theft are unnecessarily
inefficient and inconsistent with other areas of intellectual
property law.
The Economic Espionage Act is the Federal law that protects
trade secrets but, as a criminal law, has its limitations. The
FBI and Department of Justice do an excellent job, but they
have limited resources, numerous priorities, and would never be
in a position to bring charges in all instances of trade secret
theft.
Most States have adopted civil remedies based on the
Uniform Trade Secrets Act. These laws work well to remedy local
and intrastate trade secret theft, such as the case of an
employee who takes a customer list to the competitor across
town, but State courts are not well suited to respond to the
nature of trade secret theft today, which is increasingly
likely to involve the movement of trade secrets across State
and even international lines and requires swift action by
courts to preserve evidence and protect the trade secret from
being divulged.
IPO, therefore, supports the creation of a Federal civil
remedy for trade secret misappropriation which would allow a
trade secret owner to act more quickly across State lines.
Owners of other forms of intellectual property, copyright,
patents, and trademarks can enforce their rights in Federal
court. IPO urges this Committee to consider effective and
balanced legislation to create a similar remedy for trade
secret owners that responds to the increasingly sophisticated
nature of trade secret theft today.
Importantly, a Federal civil remedy will not increase
litigation. Businesses will never be shy about protecting our
property rights when our investment in R&D are stolen. We will
act to protect our trade secrets, whether it means going to
State court or Federal court, but a Federal remedy will be more
efficient and effective.
A Federal civil remedy is also important to our global
competitiveness. The ability of American companies to access
foreign markets is affected by the protection those markets
provide for intellectual property. The U.S. Trade
Representative's Office prepares a Special 301 Report each year
identifying trade partners in marketplaces that have inadequate
IP protection. IPO submitted comments earlier this year as part
of that process which highlights the problem of inadequate
trade secret protection.
If the United States leads by example, however, we have an
excellent opportunity to raise and harmonize the global
framework for trade secret protection. Enacting legislation
that creates the gold standard for trade secret protection will
be important as the EU considers its trade secrets directive
and as the United States negotiates multilateral trade
agreements and bilateral investment treaties.
In conclusion, IPO supports a Federal civil remedy for
trade secret theft because our member companies, creators of
innovative products and demand around the world, and creators
of good well-paying jobs in the United States, know that our
value is in our ideas and our creativity. We are increasingly
being targeted by sophisticated efforts to steal our
proprietary information. A Federal civil remedy will provide
important tools we need to safeguard our valuable know-how and
to continue to lead the world in creating new and innovative
technologies, products, and services.
Thank you for the opportunity to testify today, and I look
forward to your questions.
[The prepared statement of Mr. Burns follows:]
__________
Mr. Coble. Thank you, Mr. Burns.
Mr. Moore.
TESTIMONY OF CHRIS MOORE, SENIOR DIRECTOR, INTERNATIONAL
BUSINESS POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS
Mr. Moore. Chairman Coble, Ranking Member Nadler, and
Members of the Subcommittee, thank you for your focus on the
protection of trade secrets and for the opportunity to testify
today. My name is Chris Moore, and I am Senior Director for
International Business Policy at the National Association of
Manufacturers. The NAM is the largest industrial trade
association in the United States with more than 12,000 members
in all 50 States.
Mr. Chairman, U.S. global leadership in manufacturing
depends on the strong protection and enforcement of
intellectual property rights, including trademarks, copyrights,
patents, and trade secrets, both at home and abroad. Today,
trade secrets are more important than ever before to
manufacturers small and large. Trade secrets are acquired and
developed at significant cost and through many years of company
experience and investment. They provide a powerful business
advantage in highly competitive sectors, like manufacturing,
but trade secrets are not exclusive rights. Once disclosed,
their value is lost forever. Theft has a measurable real world
impact. It costs good-paying American jobs and can even put
entire businesses at risk.
Trade secrets are particularly vital for small- and medium-
sized businesses that account for the vast majority of NAM
members. For many of these firms, trade secrets are their
intellectual property, but trade secrets increasingly are at
risk in today's more mobile and interconnected global economy.
Trade secrets theft is increasingly interstate and
international in scope. Manufacturers, small and large, are
doing everything they can to harden their networks and
safeguard their trade secrets. Congress and the Administration
also have critical roles to play in ensuring America's laws and
policies are equal to today's threats.
Specifically, NAM urges the Committee to support
legislation that would provide access to Federal civil
enforcement for trade secret misappropriation. Such access is
vital because State courts are not always well suited to
working quickly across State and national boundaries to
facilitate discovery, serve defendants or witnesses, or prevent
a party from leaving the country. The time it takes to bring
action in multiple State courts gives thieves the advantage and
prevents trade secret owners from acting promptly to protect
proprietary information and preserve evidence. The cost of
taking action across jurisdictions can effectively bar
businesses and especially small businesses from using a key
tool to defend their rights.
Mr. Chairman, the fact that trade secret owners don't have
the same access to Federal civil enforcement as owners of every
other intellectual property right leaves them without an
essential means to deter theft and recover losses. It also
makes it harder for the United States to lead internationally
and to work with our overseas trading partners to improve trade
secret protection and enforcement around the world.
Trade secret protection and enforcement is still inadequate
in many countries and regions, putting industrial know-how and
technology at risk. But with access to Federal civil
enforcement, along with effective criminal protection of trade
secrets already provided for under the Economic Espionage Act,
there are concrete opportunities to strengthen protection and
enforcement overseas. Through trade agreement negotiations and
through ongoing engagement in bilateral and multilateral
forums, the United States can make common cause with Europe,
with Japan, and others around the world that are facing similar
challenges and beginning to pursue their own solutions.
Chairman Coble, Ranking Member Nadler, and Members of the
Subcommittee, manufacturers need your help to ensure they can
effectively and efficiently protect and enforce their trade
secrets at home and abroad.
Thank you for the opportunity to testify this afternoon. I
look forward to answering any questions you may have.
[The prepared statement of Mr. Moore follows:]
__________
Mr. Coble. We have a distinguished panel, and I thank you
all for your contribution and being here.
Gentlemen, we try to comply with the 5-minute rule as well,
so if you all can be terse in your response, we would be
appreciative.
Mr. Burns and Mr. Moore, with the recent elections in India
bringing in a new pro-business, pro-reform prime minister, we
are hopeful that the IP environment in that country will
improve. What steps should the new government take to promote
greater protection for trade secrets, Mr. Burns and Mr. Moore?
Mr. Burns. Well, I think you have--this is an excellent
question, Mr. Chairman, and I think you have pointed out one of
the very bright spots right now when it comes to the world of
intellectual IP diplomacy. I think the first step is going to
be engaged in dialogue because it has been for many months that
there has not been an effective dialogue between the government
of India and the United States on key intellectual property
issues. I think we all anticipate that this new administration
in India will begin that process again and will allow us to
begin to better understand where those key differences are and
where there are opportunities to move forward in a mutually
advantageous spirit.
Mr. Coble. I thank you, sir.
Mr. Moore, you want to add to that?
Mr. Moore. Thank you, Mr. Chairman.
I agree with my colleague. As you may be aware,
manufacturers across many different sectors have faced a number
of different challenges in the Indian market over the last
couple of years, and we are very pleased and encouraged by what
we are hearing from India's new government, their commitment to
a good business environment, to open trade and investment,
agree that beginning that conversation and having that dialogue
will be critical as a first step and something that we hope to
see early on in the new Indian administration as a way to begin
to address some of the challenges and look at opportunities to
work together constructively on issues like trade secrets.
Mr. Coble. I thank you, sir.
Mr. Hertling, what are the limits of relying solely on the
criminal provisions of the Economic Espionage Act at the
Federal level?
Mr. Hertling. Well, you can look at the limits in a couple
of different ways. First of all, I would reiterate that there
is very few, in fact, no area of law that I can think of, in
which the sole remedy is limited to criminal enforcement,
particularly for IP, the misappropriation or however--whatever
the term of art would be used in patents. Of course, it is not
misappropriation in that field. Everybody--owners of any form
of intellectual property have the ability to enforce their
rights through civil litigation as well as, in some instances,
you can have criminal prosecution, depending on the nature of
the theft or misappropriation if it violates other criminal
laws.
So, it is, in part, a question of equivalence here to
provide trade secrets the equivalent rights--trade secret
owners the equivalent rights of the owners of other forms of
intellectual property. It is also, like now, trade secret
owners have a civil remedy. It is at State law, and as we are
finding, as owners of trade secrets are finding, that remedy in
the modern world where much of the theft is international in
nature and doesn't respect national borders, much less State
borders, a remedy limited to State law is inefficient and
ineffective in many instances.
So, this is not a question of criminal law versus civil
law, per se, but it is taking the existing civil remedies and
making them more effective and more efficient. Looking purely
at the criminal law context, of course, one of the reasons why
in other areas of the law we don't rely solely on criminal law
as the enforcement mechanism is that law enforcement is busy.
The FBI has many priorities, very important ones. They can't
respond to every claim to bring their investigative resources
to bear. Prosecutors have to make the same kind of call as to
what kind of cases they are going to file, and then, finally, I
would say the criminal law is very good at punishing acts that
have already occurred. But the goal here, particularly in
seeking civil remedies, including seizure remedies, is to
prevent the information from being used wrongly in the first
place by the thief or the company on whose behalf the thief is
operating. So the criminal law is fine. It is post hoc
punishment, but you want to bar the--you want to close the barn
door before the horse gets out, and the civil law is a much
more effective remedy in that respect.
Mr. Coble. Thank you, sir.
Mr. Simon, let me try to get one more question in before
the red light turns one. Could you speak more, Mr. Simon, to
the unique role that trade secrets play in your business and
the issue that cloud and Internet-based companies face when it
comes to trade secret protection, specifically when you are
contacted by the authorities regarding misappropriated--
appropriated data that is put in the, quote, ``cloud,'' close
quote, by a customer?
Mr. Simon. Thank you. So, you know, from our perspective,
there are certain things that are relatively easy to do, such
as securing data, denying access to data. There are other
things that are very difficult to do, like giving possession to
physical media, as I testified earlier. So, from our
perspective, what we are really focused on is wanting to make
sure that whatever remedy exists, and we understand there may
need to be a remedy, and we are not opposed to that, that it
take the businesses into account and the security of both our
data and our customer's data into account. If I may, I just
would like to interject one additional somewhat of a short
comment----
Mr. Coble. Sure.
Mr. Simon [continuing]. On criminal procedures in trade
secret context. So criminal trials, by their very nature, tend
to be much more open than civil trials, and having been through
on behalf of a former client, and Economic Espionage Act case,
one of the difficulties is, once that case goes to trial, a lot
of information is going to be available in the public that
would not ordinarily be available in a civil trade secret case.
So, because of the constitutional issues that are involved,
there are also some shortcomings to criminal prosecutions under
the EEA.
Mr. Coble. I thank you, Mr. Simon.
My time has expired.
The gentleman from Michigan, Mr. Conyers.
Mr. Nadler, you would--who? Okay. Mr. Nadler from New York
is recognized for his questions.
Mr. Nadler. Thank you. Everyone's testimony supports a
creation of a Federal civil cause of action. Does anyone know
of anyone who opposes that? We know of no opposition to that
proposal.
Mr. Hertling. Ranking Member Nadler, let me start on behalf
of Protect Trade Secrets Coalition. We represent a lot of
different industry sectors, and we have also been undertaking,
on behalf of the Coalition, outreach to other industry sectors,
to public interest organizations, trade associations and the
like, and we have not yet encountered anybody who opposes the
concept of a Federal civil remedy for the misappropriation of
trade secrets.
Mr. Nadler. So it is all the details. Would creation of a
Federal civil cause of action lead to increased litigation?
Anybody?
Mr. Hertling. I will take that again. I don't believe so.
We--I think, as Mr. Burns testified, companies are already
using civil legal proceedings.
Mr. Nadler. You simply move the litigation from civil to--
--
Mr. Hertling. I would use the local----
Mr. Nadler. From State to Federal, it might eliminate
duplicative of the State----
Mr. Hertling. And in fact, Mr. Nadler, it might even
reduce, at the margins, litigation because you would no longer
need to file in multiple States to enforce.
Mr. Nadler. And so, as you say, reduce that.
Mr. Simon has raised some concerns about seizure
provisions, ex parte provisions in existing legislative
proposals. Does any--do you believe that this is an issue that
can be resolved in a manner that strikes an appropriate balance
and satisfies all stakeholder interests, and what would be the
key elements of such an agreement with respect to ex parte
proceedings or seizures? Anyone? Mr. Simon?
Mr. Simon. Thank you. So, I think it is possible. It--but
it requires somewhat different thinking. Like the example I
gave of the current rules regarding seizure for physical goods,
where you have 14 days before you--up to 14 days before you are
going to be in front of the judge. When you are having hundreds
of millions of dollars per hour go by that are being lost
because a business is down, 14 days is way too long. There are
other things that----
Mr. Nadler. Fourteen days for what?
Mr. Simon. Fourteen days. So under the Federal Rule of
Civil Procedure 65, you have up to--the Court can say that it
will keep a TRO in place for up to 14 days. From what--before
you get a hearing in front of the judge as to whether or not--
--
Mr. Nadler. That's obviously too long.
Mr. Simon. Sorry. So that is an example of a concern. It
requires thinking on a different timeline, and I understand
with an overburdened judiciary, that is difficult.
It is a question of how do you fashion the remedies, what
is the right set of remedies, and it is also technically
complex because different companies, even different companies
in our own industry when we have been talking to several about
this, have very different approaches to how they handle
customer data and what they do with the customer data, and as a
result, that has to be taken into account
Mr. Nadler. So as we seek to develop legislation, if we
were going to do so on a Federal cause of action, the
controversies, if any, are going to be on what limitations and
so forth we put on seizures?
Mr. Simon. I think that will probably be one area. There
may be some others, but to our company, that is probably the
most serious.
Mr. Nadler. Does anyone else want to answer this?
Yes, Mr. Burns.
Mr. Burns. Yeah, I can certainly elaborate on that, and I
am very much in agreement with you. I think when we started
having this discussion, all of us were thinking with a Lanham
Act headset on, and we know the Lanham Act is really aimed at
essentially seizing goods, so you are trying to find the
infringing embodiment of a Lacoste shirt, right?
Mr. Nadler. A what?
Mr. Burns. This is a--a Lacoste shirt, you know, this is a
very different environment that we are in. What we are really--
our objectives here are really about preserving evidence so
that you can have a proceeding on the merits that looks at all
the facts and also to prevent further leakage beyond what has
already taken place, whether it is in a digital environment or
a physical environment.
So I fully agree with you, if there is going to be a
seizure provision, it needs to be a very narrowly tailored one,
something of last resort that is aimed at that bad faith
individual who is about to get on a plane, fly to another
country with a PIN drive full of confidential data.
Mr. Nadler. Thank you. Mr. Burns, China is often identified
as a problem with regard to theft of U.S. trade secrets. In
fact, I saw something I think I read recently that I saw that
there was a national holiday in China a few weeks ago and that
hacking of American companies went down 40 percent that day.
People were entitled to their day off, I suppose. Now, I assume
the problems are not limited to China. How has the lack of
protection impacted U.S. companies seeking to expand operations
globally, and what do you think can be done to encourage other
countries to provide more robust protection?
Mr. Burns. Well, I think you are absolutely correct. This
is a global problem that we experience in all the jurisdictions
in which we are doing business, and the challenge is to take
the kinds of steps that are in our power today to try to
improve the situation.
And my sense is that when the United States Government is
dealing with foreign trading entities, whether it is China or
India or the European Union, if we come to a discussion from a
position of strength and can say with a clear conscience that
we have done our very best, that we have a strong Federal civil
cause of action in place within our own jurisdiction, we are
much more likely to be taken seriously by interlocutors from
other governments.
Mr. Nadler. Does anyone else want to answer that?
If not, my time is expired, and I yield back. Thank you.
Mr. Coble. I thank the gentleman.
The distinguished gentleman from North Carolina.
Mr. Holding. Thank you, Mr. Chairman.
Is anyone able to quantify the amount of litigation
currently going on in State court regarding trade secrets?
That might be a little bit difficult, but the--I am sure
our friends in the Federal courts would want to know what type
of a wave of litigation is headed to Federal court if we give a
Federal cause of action.
Mr. Simon. So, in California, obviously, particularly in
Silicon Valley, many key trade secret cases have been brought
over the years, but it is a relatively small percentage of
cases in a year, at least from what I have heard. I would say
it is in the order of 10's to maybe 100 per year in, you know,
in the Bay area, is you know, probably the number I heard in
talking to judges. Actual reliable statistics, I am not sure.
Mr. Holding. And the creation of a Federal cause of action
would not preclude the States from continuing to have State law
causes of action for trade secrets, would they? Mr. Burns?
Mr. Burns. That is exactly right.
Mr. Holding. And of course, how would removal work? I mean,
just to get into the--I mean, I don't know if anyone has
thought through this, but as I sit here and since we have
complete agreement that there needs to be a Federal cause of
action, I started to think about some of the more nuances of
it, so having spent my legal career prior to sitting in Federal
court, you know, sometimes, you know, certain parties want
their action to be in Federal court.
Defendants, you know, in a plaintiff's action, often want
to try to get removal into Federal court, so how would you see
that playing out? Would you see plaintiffs going into State
courts? Are there any particularly favorable State courts that
we would be seeing plaintiffs going to and then removal
actions, trying to get those removed to Federal court? Has
anyone thought that through?
Mr. Simon.
Mr. Simon. It has been a long time since I removed a case
to Federal court, but I think the one way it may play out is
plaintiffs, in seeking to avoid having to deal with the delay
of a removal petition, may just go straight to Federal court
first, and that is from a timing standpoint since you are
generally as a plaintiff seeking emergency relief, you do not
want to file in State court and then have you know, start to
get your emergency relief and then have somebody remove it to
Federal court.
Mr. Holding. All right.
Mr. Burns. If I could just----
Mr. Holding. Mr. Burns.
Mr. Burns [continuing]. Add one point. I also think if
there is Federal court jurisdiction in this case, we would tend
to see much more local cases being the subject of State court
litigation. So, purely intrastate type cases, and in those
cases, there is very little--there is probably very little
incentive to remove to Federal court because both parties are
locally situated and are comfortable probably with dealing with
a local State court.
Mr. Holding. All right. Well, you know, the variances
between discovery, you know, local rules, you have got your
State rules and then your Federal rules, and then you have got
your local rules of these particular district court, it could
get interesting.
The--you know, we have spoken a lot about the challenges
that our U.S. companies are facing abroad, so, if anyone wants
to talk about extra-territoriality, and you know, how the
statute could be composed in such a way to try to protect our
companies doing business abroad, you know, and take it through
where maybe the instance of the infringer, you know, the
violator you know, has no assets here in the United States that
we could get to or that question.
Mr. Simon, you want to take a hack at that or Mr. Hertling?
Mr. Simon. Well, I think there probably is a balance that
can be struck there. I certainly don't think we want to go
where at one point U.S. antitrust enforcement seem to have gone
to which was the extreme being U.S. courts trying to tell Swiss
watchmakers what they can do in Switzerland doesn't work too
well. There are analogues in the antitrust area that may be
worth taking a look at. There is a difficulty, though, if you
have somebody who is a bad actor and is completely outside the
jurisdiction of the U.S. courts, has no assets that are subject
to U.S. courts, that can become very difficult if you have to
go to a country that may be hostile to the remedy that you are
seeking.
Mr. Holding. Mr. Hertling, you want to chime in there.
Mr. Hertling. Yeah, the other point I would make is I think
one of the important values, as a number of us have alluded to,
of having a Federal civil cause of action is that it would
provide a model for other countries, and I think ultimately the
most effective relief for the problem you have identified, is
to get other countries to improve the quality of their legal
systems and the protections that they can provide in their own
courts.
And I think if we can achieve that through the intercession
of our trade negotiators and if our trade negotiators have an
effective national level remedy in the United States, it will
make them more effective at achieving sound national level
remedial systems globally.
Mr. Holding. Good.
Mr. Chairman, I yield back.
Mr. Marino [presiding]. Thank you.
Mr. Conyers.
Mr. Conyers. Thank you very much.
This has been very important, gentlemen. We thank you for
your testimony. Is, Mr. Simon, the seizure issue one of the
things that when we start putting together a bill, and some of
us are going to do that, that we have to be careful of, since
there has been so much increasingly new and modern technology
coming into the digital era?
Mr. Simon. Yes. You know, there are a couple of things, and
it is you know, I have to admit, you know, because some people
have asked me for suggestions, and I am struggling with them
right now, quite frankly. Part of it is because you have to
deal with many different ways that people do things. Part of it
is you also have to try to have as much vision as you can as to
what is going to happen 3, 4, 5, 10 years out, and that is not
easy, particularly with the speed with which technology is
moving.
But, you know, from our perspective, the one thing we don't
want to end up having, is to have legislation and 3, 4, 5 years
out, it is we are looking at what we would like to do from a
business purpose and we are looking at what the law requires,
and there is an inconsistency there that prevents us from
changing the way we want to do business.
So, you know, we hope that whatever remedies can be
fashioned can be very flexible because that is what we think we
need.
Mr. Conyers. Do I get out of your response that we might
make things worse if we don't carefully create a Federal civil
law on this subject?
Mr. Simon. I am not sure you would necessarily make things
worse. I think what might happen, though, is that there might
be individual business models that otherwise might make a lot
of sense, but because of, for example, some remedy that
Congress has mandated, is required, the technology just won't
work for that purpose.
So, I want to be very careful with what I would say because
I think overall getting a Federal legislation would be very
helpful, but I also want to say that, you know, we have to try
to do the best job we can on the remedies.
Mr. Conyers. Uh-huh. Thank you.
Mr. Moore, small businesses, I think, are very up against
it. In the first instance, under the present circumstances, it
is just my suspicion that most of them can't even afford to
deal very seriously at this stage with this whole question of
secrecy. Now, is there--will we be able to help them when we
finally come together on a secrecy law between both ourselves
and the Senate? And I understand the Senate has--at least has a
bill, and we are going to be working on one.
Mr. Moore. Thank you very much.
Small businesses really don't have a choice about
addressing this challenge. It is there. They need to address
that it is something that affects them as well as large
companies. I do think that you see the challenge of trade
secrets theft affecting smaller businesses more acutely.
Certainly for many of those businesses, trade secrets make up a
larger share of their intellectual property portfolio than you
might find in some larger businesses that might rely more
heavily on patents, for example.
You see that small business owners are busy running their
businesses and less focused on the threats and some of the
challenges that are out there, and of course, for small
businesses, the cost of protecting and enforcing their rights
may be higher relative to their total revenue than you might
find in a larger firm.
Certainly we think that having a Federal civil cause of
action for trade secrets theft would be very important to
enable them to effectively secure and enforce their rights
domestically.
Thank you.
Mr. Conyers. Uh-huh. Mr. Hertling, it is good to see you
again, have you back in your old digs once more.
It seemed like to me that it took us quite awhile to get
around to trade secrets, and yet, now that we are around to it,
everybody says it is very important that we deal with it. I am
amazed that it hadn't come up before as a matter of importance.
Mr. Hertling. Well, I think it did. I mean, it was brought
up in the context of the 1996 Economic Espionage Act, and it
was just brought up relatively late in the process, and so I
think that the notion was, at the time, let's do the criminal
statute first and then we will get around to it, but then all
of a sudden the issue surrounding--that prompted the ultimate
enactment of the Digital Millennium Copyright Act took over,
and then, from there, the Committee's IP focus turned to patent
reform.
So, the issue has been lingering out there, but now we
think the time is ripe. We know obviously the Committee is
conducting its broad copyright review and those are important
issues, and of course, the patent issue, the House passed the
patent litigation reform bill last year, and those issues are
still out there, but we think that these issues are now ripe
for legislation.
And we think, unlike perhaps some of those other issues, as
we have heard, while there needs to be great care taken with
striking the appropriate balance, this is an area in which
there do not appear to be any significant disputes that should
derail the adoption of legislation.
Mr. Conyers. And I am excited about getting this moving,
and I really appreciate the bipartisan tone of the discussion
that we are entering in around here. That is important as well.
And I thank Chairman Coble and yield back the balance of my
time
Mr. Coble [presiding]. I thank the gentleman.
The distinguished gentleman from California, Mr. Issa is
recognized for 5 minutes.
Mr. Issa. Thank you, Mr. Chairman.
Fourteen years ago when I came here, they called me
distinguished, too, but I was younger, and Richard, it is good
to see you back.
You know, there are two things that worry me around here.
One of them is when a major piece of legislation or initiative
is immediately bipartisan, I wonder, well, who is protecting
the other side and secondly, whenever we are talking about
expanding intellectual property, I think back to a time before
I got here when the powers that be decided to retroactively
expand patent rights so that some people whose patents were
about to expire got extra time, and it was envisioned in the
bill, for God only knows what reason, and then, of course, in
copyright, we retroactively made ``I Got You Babe'' last longer
along with black and white Mickey Mouse. No comment other than
it just happened to be a symbol.
And so as I look at federalizing, if you will, the civil
cause of action, I have a couple of questions--more than a
couple of questions and because I am one of the non-lawyers
here on the Committee, I will put my spectacles on so I will
look more lawyerly and I will read just quickly. ``To promote
the progress of science and useful arts by securing for a
limited time to authors and inventors the exclusive right to
the respective writings and discoveries.''
A trade secret is in fact a discovery; would you-all agree?
It is what you know that somebody else doesn't know, Mr. Burns,
right? Just yes or no.
Mr. Burns. I think it--I think in some instances,
absolutely. In other instances, it could be something distinct,
yeah, but it is not a discovery in the sense that a discovery
of--in the technical----
Mr. Issa. It is what you know that someone else doesn't
know.
Mr. Burns. Absolutely. Yes, sir.
Mr. Issa. So you know something somebody else doesn't know,
and the basic concept of trade secret is, as long as you can
keep it a secret, you can keep it in perpetuity and monetize
the benefit; is that right? I just want to make sure we define
the term here. So----
Mr. Burns. If I could respond----
Mr. Issa. Well, these are yes or nos, please. The Chairman
is very indulgent, but I have only got a couple of minutes.
Mr. Burns. Okay. Please.
Mr. Issa. Yes, these are in fact that. So, the questions as
we federalize the civil action are, do I give you the future
revenue stream you have lost in perpetuity, do I give you what
you would have gotten had you disclosed it under patent rules
and gotten anywhere from 19 to 12 years, depending on--or 10
years depending upon the time it takes before it is granted, do
I give you the copyright equivalent.
So, as we federalize, the first question is, the loss is a
monetized loss, and that is what you are here seeking. How do I
fairly make sure that what you deprived everyone from knowing
because you knew and they didn't know, and you did not enter it
into commerce for mutual benefit only for your own benefit--how
do I fairly assess since there is no constitutional mandate?
Trade secrets don't exist under the constitution. The right
doesn't exist. This is a statutory giving to people who keep
something a secret and have a loss as a result of that entity,
that secret being stolen from them. I understand the criminal
part. That is settled. How do I come up with the monetary one?
Richard, I would start with you. Put a dollar figure on it,
and it has got to be probably more than you made here as a
staffer.
Mr. Hertling. Probably more than that.
Mr. Issa. And no litigation.
Mr. Hertling. More than I make in the private sector. I
think those are very--that is a very good question, Chairman
Issa. I know you are not Chairman of this Committee, but I will
still use----
Mr. Issa. I am a patient man.
Mr. Hertling. But I think the--and I am not an expert on
this, and I said earlier to Mr. Simon, benefit of sitting next
to a real lawyer, but I think the question you have raised is
one that courts today have to struggle with because, again,
these sorts of remedial actions are being brought every day in
the State Courts around the country.
Mr. Issa. Right.
Mr. Hertling. And so----
Mr. Issa. And so I guess my question is, before we--as we
proceed to looking at a national and hopefully a global policy,
is it, in your opinion, critical that we look at what is being
done throughout the various States and perhaps foreign
countries and we figure out where we are comfortable monetizing
the loss of a secret, in other words, the formula for it so
that we can issue the kind of guidance to the courts in the way
of damages, because I can certainly envision that the future
revenue of Coca-Cola lost, if that secret formula is disclosed,
can bankrupt almost anybody.
And if I am the recipient of it, maybe harmlessly from the
thief but in fact the recipient, I can see my entire wealth run
out.
So, my question to all of you is, shouldn't we embark on an
analysis, not of do we do it, because harmonizing that which is
disparate throughout the States is appropriate for us to
consider, but in harmonizing, isn't our most important task to
figure out how it is going to be valued, including calculation
of length, value, and the societal balance between your rights,
if you will, for your secret and the lack of benefit as a
result of it not being ever made public otherwise?
And Mr. Chairman, if you would let them answer, I would
appreciate it.
Mr. Coble. Without objection
Mr. Simon. Thank you.
If I may, Mr. Chairman, if you look at the case law under
the Uniform Trade Secret Act, at least the one that comes to
mind, there are a couple of things that I think address your
concern about a perpetual remedy, if you will.
First of all, injunctive relief is generally--
misappropriation of trade secrets is generally given only for
the reverse engineering period, whatever that would be deemed
to be. Normally, I rarely seen it be longer than a few years. I
am not saying there isn't a case that goes longer than that,
but it is rarely longer than that a few years.
When you go to the monetary relief, which is actually the
way these cases play out, much rarer, because normally the
injunction ends the case, when typically the grant--it is like
trademark law, 99 percent of the cases settle after preliminary
injunction is granted or denied.
Mr. Issa. I have been before the ITC. I know these things.
Mr. Simon. Yeah. So the way it works from the damages
standpoint, the question is, what are you going to be able to
convince the trier of fact, be it judge or jury, you are
entitled to either for a reasonable royalty, which is available
sometimes, for lost profits or for unjust enrichment. I am not
aware of--I mean, there have been some very stiff trade secret
awards recently. I think DuPont got one close to a billion
dollars not too long ago for some pretty heinous acts, as I
understand it.
Mr. Issa. Outside of here, that is real money.
Mr. Simon. Yeah. But you know, that is a very exceptional
case and involved very egregious acts with, if I recall
correctly, actors from outside the United States.
Mr. Issa. Thank you, Mr. Chairman. I appreciate your
indulgence, and I appreciate our--this direction toward
harmonizing these trade secrets.
Mr. Coble. You are indeed welcome.
I believe the distinguished lady from California is next in
line, Ms. Lofgren.
Ms. Washington, were you here earlier?
Okay. I stand corrected. The gentlelady from Washington
is----
Ms. DelBene. Thank you.
Thank you, Mr. Chair, and thank you-all for being here
today. I think everyone has been advocating for creating a new
Federal civil cause of action for trade secret
misappropriation, and I appreciate the interstate nature of
this issue and believe that there is merit to having a Federal
cause of action. I think it is important that we also don't
take away any rights from States in this process, too, as we
put together legislation.
One of the things that I believe Mr. Holding touched on
earlier was the amount of litigation, and I think Mr. Goodlatte
also mentioned potential frivolous litigation, and so maybe,
Mr. Hertling, I was wondering, you know, what do you think
about the issue of increased litigation or frivolous litigation
if we had a Federal cause of action, and do you believe that we
would see increased litigation as a result?
Mr. Hertling. Thank you very much, Ms. DelBene.
I don't think that you would see an increase in litigation
or an increase specifically in frivolous litigation. Of course,
frivolous litigation is always in the eye of the beholder. To
the defendant, it is always frivolous, right, but I think here
the net result of the creation of a Federal civil remedy would
be in appropriate cases, particularly those would have to be at
least of an interstate nature, but of an interstate or
international nature, you would shift the locus of the
litigation from State courts to Federal courts.
The cases are going to be filed anyway. Today, they are
being filed in State courts or they are being filed in Federal
court under diversity jurisdiction. I don't think you would see
a dramatic change in the number of cases or in the quality of
cases being brought as a result of the creation of a carefully
crafted, well balanced Federal statute.
Ms. DelBene. Mr. Burns, I think you mentioned that our
trade negotiators would be in a better position to use a
Federal civil cause of action to show the U.S. is setting a
high standard when it comes to trade secret litigation or trade
secret protection. Can you talk a bit more about how you think
our leadership on this issue would be helpful when it comes to
negotiations of trade agreements?
Mr. Burns. Absolutely. I think there are a number of
ongoing negotiations right now, and then also some things we
call ``bilateral dialogues'' that take place with important
trading partners.
So, in the context of the Trans-Pacific Partnership, having
such a statute on the books in the United States, I believe,
puts us in a much stronger position to be advocating a robust
trade secret, if not chapter, paragraph within an IP chapter,
within a TPP negotiation. I also think that, particularly with
respect to the bilateral negotiations that are between the
United States and the European Union on what is called the TTIP
treaty, this is a very good timing to have this legislation
come forward.
As we all know, the European Union has already began the
legislative process of a directive that would harmonize trade
secret protection within the EU, so the Commission, in November
of last year, introduced its proposal. That proposal was
adopted by the counsel of the European Union, and then will be
forwarded to the new parliament some time in the next couple of
months with the likely adoption by the early next year.
The idea of having trade secret language in the TTIP
agreement is to in a sense codify an understood best practice,
an understood Transatlantic best practice, and bringing the
United States into the realm of best practice when it comes to
protecting trade secrets is a very important part of delivering
that entire package.
Ms. DelBene. So I would say we need to figure out what we
would be doing in legislation before that would happen.
Mr. Burns. I would say ideally sooner rather than later. It
is always better to come to a negotiation from a position of
strength with legislation that is not--that cannot be easily
criticized by a trading partner with whom we are trying to
enter into a treaty. We would be likely to get other
consideration in exchange for that, as part of that
negotiation.
Ms. DelBene. Thank you.
I yield back, Mr. Chair.
Mr. Coble. I thank the gentlelady.
The gentleman from Florida, Mr. DeSantis.
Mr. DeSantis. Thank you, Mr. Chairman. Thank you to the
witnesses.
Just as I am reading through some of the--I know the
Administration put out a report last year about trade secret
theft. I mean, is it safe to say that China, in terms of
international theft, is overwhelming the biggest culprit?
Mr. Simon. I don't feel qualified to comment on that. I
have no basis for it. I can read the same reports that you do.
You know, it--but I do want to point out China is not alone.
Mr. DeSantis. No, and there is not, but it seems like there
were a lot of people who were either investigated or prosecuted
for passing information to Chinese universities and companies,
and I know India appeared a number of times.
So, when you are in a situation where you have trade
secrets stolen from a U.S. company, somebody maybe who is
working there, they pass it along to a company overseas, you
know, yeah, we prosecute the individual who did it, but what
are the potential remedies for the company once the information
has actually been passed, and what do you suggest that Congress
do to make that more effective?
Sure.
Mr. Burns. Let me comment on that.
I agree with you. I think that it is really important to
recognize this as the global issue that it is.
And by the way, it is also important to recognize that
China has a Federal trade secret law that has national
application that can be used in China, and we have used it
quite, with some success in China.
So, countries around the world are in the process of
examining their own sort of trade secret conscience, as it
were, and making sure that that they have a system in place
that makes it likely that people who have their trade secret
stolen from them get a serious opportunity to get to justice.
So, from our perspective, in order to globalize that best
practice, again, the most constructive thing that this
Committee can do is to go back and look at our own system and
take the action that I think, in pretty much unanimity, U.S.
industry is asking for, and that is, a Federal civil cause of
action that will improve our legislative situation in the U.S.
and also just bolster our prestige when it comes to negotiating
better trade secret protection in other countries around the
world.
Mr. DeSantis. Can you describe this move in some countries
to compulsory licensing and how that affects the ability of
American businesses to operate overseas?
You want to take that?
Mr. Burns. Compulsory licensing is a measure that is
understood under international law, that allows for governments
to engage in the transfer of intellectual property rights to
another party. It is something that exists in international
law. It is provided for in the TRIPs agreement, so that is the
reality of international law.
It is not--I think countries that engage in it on a regular
basis, it is not like putting the welcome mat out for foreign
investment. It is like saying to people, ``come invest in our
country, oh, and by the way, your property rights are at
risk,'' but it is something that is legally cognizable under
the international treaties that are in place today.
Mr. DeSantis. Very well. Well, I appreciate it.
And I yield back the balance of my time.
Mr. Coble. I thank the gentleman.
The distinguished lady from California is recognized.
Ms. Lofgren. Thank you, Mr. Chairman.
This has been very helpful, and I am wondering, I think I
saw Mr. Simon on the flight out, so I especially appreciate
that he came all the way from the Bay area to be here today.
And here is a question I have for you or anybody else on
the panel. You can't quantify it, but I do think that there is
sort of a growing trend, maybe is not quite the right word, in
the valley where people are shying away from the patent system.
A lot of engineers feel that it is--that the patent system
is actually a drag an innovation, and also it takes so long to
get anything patented, and I think, this may not be true, but
not every trade secret is patentable but probably everything
that is patentable could be a trade secret, and so that leads
me to wonder about, as you know, I have a kind of a very skimpy
bill on it, a civil action. I think it needs a lot more work,
but it was a marker at least. Whether we might be getting into
a situation, I don't want to create another patent troll
situation. I don't want to create another situation where
unenforceable noncompete agreements are gone around through
another cause of action that we have created. Do you have
thoughts or guidance on those two issues, Mr. Simon?
Mr. Simon. Sure. Thank you. You know, obviously, as you
know, there is a lot of concern, particularly in the software
industry about patents.
A couple of things to point out that are different
fundamentally from trade secrets, to patents. One is that you
with a trade secret, unlike a patent, you don't start out with
the premise that it has to take clear and convincing evidence
to disprove that the invention is patentable. It is the other
way around. The owner of the right has to prove by a
preponderance of the evidence generally that you in fact have
the trade secret, not always the easiest thing in the world to
do.
The second thing is that there are things that are
patentable that make very little sense to patent. There are
things that are patentable that make very little sense to keep
as a trade secret. Just by way of example, my understanding,
the pharmaceutical industry, because of the disclosure
requirements of the FDA----
Ms. Lofgren. Right.
Mr. Simon. Almost all----
Ms. Lofgren. Yes.
Mr. Simon [continuing]. Formulations----
Ms. Lofgren. I am thinking more in the IT areas.
Mr. Simon. Yeah. In the IT area, it plays back and forth.
There is a lot of stuff we deliberately do not want to patent
because we do not want to tell our competitors how to do it and
there is no way to figure it out from our products. In other
areas, it may make much less sense to take that approach.
The other thing I just want to go back to a point Mr.
Conyers raised earlier if I may, very briefly, is that one of
the nice things about trade secrets is the protection is much
cheaper to acquire----
Ms. Lofgren. Right.
Mr. Simon [continuing]. Than a patent, so it is much more
readily usable by a small business, and from that standpoint,
yeah, I think it is actually a pro-small business perspective,
too.
Ms. Lofgren. I want to--I don't know if anybody else has
comments on this point. I don't see anybody leaping forward. I
am interested in your comment about China's cause of action and
the capacity to gain relief in China. I think that the theft of
intellectual property, and most especially trade secrets, is
severe in the valley, and China is a major offender, and in
many cases, it is quite obvious it is not just an individual
person going back to China. It is the Chinese Government that
is actually sponsoring this activity.
Have you seen success in Chinese courts when it is the
Chinese Government that is actually behind the theft?
Mr. Burns. I am not aware of any cases of that nature.
Ms. Lofgren. Okay. I am.
Mr. Moore, do you have any advice on that?
Mr. Moore. I am not aware of any cases brought in China
against the Chinese Government.
Ms. Lofgren. Right.
Mr. Moore. But certainly our members report a number of
different challenges with protecting their trade secrets in the
Chinese market, not least because of how their confidential
business information may be treated, both as it is coming into
the country but also during a court proceeding.
Ms. Lofgren. Okay. Well, it is also that there is a lot of
theft going on in the valley itself where information is
vacuumed out.
I just think that this is an excellent panel. I see that it
is just the, what we call the ``nerd caucus'' left here
listening, but I certainly appreciate the information. I look
forward to further work on it.
And yield back, Mr. Chairman.
Mr. Coble. I thank the gentlelady.
The distinguished gentleman from Georgia is recognized.
Mr. Collins. Thank you, Mr. Chairman.
Again, it is like I said, these are the ones where you sort
of separate those or are willing to sit and listen, and I was
listening when I was in over at another meeting to your opening
statements and others, and I think this is something that it
may not make the front pages the, you know, I will say
``sexiest headlines'' and all, but it matters to real
Americans, it matters to real jobs, and I think that is an
impact that we can't ignore.
Mr. Hertling, do you have a sense of the loss to the U.S.
economic--to U.S. economy caused by this trade secret theft?
Mr. Hertling. There are a couple of recent estimates that
are relatively consistent. Last year, as it has been noted I
think in Mr. Moore's testimony, written testimony, General
Alexander, the former head of the National Security Agency,
estimated the cost at approximately 250 billion with a ``B''
dollars per year.
And then earlier this year, an organization called ``The
Center for Responsible Enterprise and Trade'' joined with PWC
to publish a report called ``Economic Impact of Trade Secret
Theft,'' in February 2014 in which they estimated somewhere
between 1 and 3 percent of GDP is the value of the theft of
trade secrets, which puts it at what I would guess to be about
$160 to $480 billion per year.
Mr. Collins. So even Washington, D.C., we are talking real
numbers. I mean, this would are Bs that we could lead to Ts in
trillions and numbers that most of us when we were in--at least
my age in, you know, kindergarten and others, you know,
trillion was a number we didn't even talk about. I mean,
billions were those numbers.
So this is real economic hurt to our economy that we have
to----
Mr. Hertling. There are a lot of zeroes on the back of
those numbers, and behind each of these zeroes is U.S.
investment foregone and U.S. jobs lost.
Mr. Collins. Yes. I can see that. Mr. Burns, were you going
to say something about that?
Mr. Burns. Otherwise stated, I believe the CREATE report
assesses this as somewhere between 1 to 3 percent of GDP.
Mr. Collins. In fact, Mr. Chairman, I ask unanimous consent
to enter the Economic Impact of Trade Secret Theft study which
was just referenced into the record.
Mr. Coble. Without objection.
[The information referred to follows:]
__________
Mr. Collins. Mr. Burns, could you elaborate further on why
both a strong patent system and a Federal civil right of--
private right of action are important for the continued
dominance basically of the U.S. IP industry?
Mr. Burns. Absolutely. You know, patents and trade secrets
are complimentary forms of intellectual property, and there is
this constant interplay within enterprises, within members of
IPO asking the question, is this something that is better
classified as a trade secret or as a patent.
They deliver tremendous value for our enterprises in just a
countless number of ways. You know, obviously patents, although
they have limited duration, are exclusive rights, and that
means that they have a certain kind of value that is different
from trade secrets.
Trade secrets are oftentimes the manufacturing techniques,
the what we call the special sauce----
Mr. Collins. Okay.
Mr. Burns [continuing]. That is linked to the patented
right. Used together, they are a very powerful tool for
generating revenue flows, for allowing our business leaders to
make intelligent capital allocation decisions about where to
invest within our companies, and they create certainty that we
are going to be able to reap some kind of benefit from that R&D
investment that in and of itself is so risky.
But if it actually leads to patented subject matter and a
panoply of trade secrets that accompany it, it is much more
likely that that is going to be a successful technology
business enterprise, so----
Mr. Collins. And I think that is true, and I think one of
the things that I wanted to add to it, I think one of our
discussions that we enter into is we take the property right
ownership, we take thus in what I call ``esoteric terms.'' We
talk about intellectual property, patentable items, trade
secrets, and really the bottom line is whether you are talking
across the board from manufacturing to music to wherever.
We have taken it away from actually there is an ownership
interest in here, and I think that is something that we lose
and we've got to get back to talking about it being the
building block of folks' dreams, ideas that are actually
tangible as--just as tangible as this phone sitting on this
desk, and if we don't do that, then both Democrats,
Republicans, all of us are going to be hurting because people
are going to tune out to what we are talking about.
Very quickly, a lot of different groups support this
Federal right of--civil right of private action, but at the
same point had two very different approaches to patent reform.
Very quickly, anyone that wants to--to Mr. Moore or anyone, is
there--why is there a consensus over trade secret legislation
more so than IP or the intellectual property or patentable
items?
Mr. Moore. Thank you, Congressman. We are one of the
organizations that did not take a position on the patent reform
bill, in part, because we had members on very different sides
of that issue.
We have a very broad membership, lots of different business
models and approaches, but I am here, and I am here because our
members agree on this issue. They all have trade secrets, they
all are seeing a rising threat both at home and abroad, and
they all want to make sure that those trade secrets are
effectively protected.
Mr. Collins. Well, I appreciate that, and Mr. Chairman, I
know I am out of time, but I think it goes back to this issue
that as my friend from California put it, the ``nerd caucus''
is here, and we appreciate this because in the end, a lot of
those nerds have great ideas and dreams and hopes that we want
to protect for future generations, and I think this is a great
part of this hearing for that.
And Mr. Chairman, with that, I yield back.
Mr. Coble. I think, folks, in all candor, truth in
advertising, I am not sure I am qualified to be a member of the
``nerd caucus'' but----
Mr. Collins. All Ernest Tubb fans can be classified as in a
``nerd caucus.'' You and I--bluegrass will get us there, Mr.
Chairman.
Mr. Coble. I thank you for that.
The distinguished gentleman from New York, Mr. Jeffries is
recognized
Mr. Jeffries. Thank you, Mr. Chairman.
Mr. Burns, there was reference made to General Alexander's
observation as it relates to the nature of and scope of the
problem that we confront in this area, and I just wanted to get
some clarification. I gather it was in a 2012 speech he stated
that IP theft due to cyber espionage is the greatest transfer
of wealth and history, estimating that U.S. companies lose 250
billion per year due to IP theft.
Are you aware as to whether he was speaking specifically
about trade secret theft or is that $250 billion number all
encompassing and inclusive of patent infringement, copyright
infringement, counterfeit and/or piracy, as well as trade
secret theft?
Mr. Burns. It is my belief, sir, that he is referring
specifically to trade secret theft.
Mr. Jeffries. Okay. And that would be consistent with other
studies that have been done in this area in terms of that
particular amount?
Mr. Burns. Absolutely. Those numbers fall within the range
that was put forward in the CREATE study of between 180- and
$400 billion in losses, yes.
Mr. Jeffries. And I think everyone has testified either
explicitly or implied in their remarks that there has sort of
been a recent explosion of trade theft activity and it is
become more sophisticated over time. What accounts for that
phenomenon? And if anyone else on the panel wants to weigh in,
that would be fine as well.
Mr. Moore. Well, just to share with you some of the things
that we hear from our member companies. I think part of the
issue is the greater mobility of our workforce.
One of our member companies, a small business from
Maryland, testified in the other chamber last month and said,
``look, you know, I have six international airports within 100
miles of my facility in Baltimore, and you know, by the time I
realized what has happened and take action in my home state and
in the other States where these other airports, the five other
airports are located, these can be long gone and so the
mobility of our workforce, the ability of people to get on a
plane and be out of the country quickly, I think, is big
challenge.''
Second, we certainly face a technological challenge. As I
pointed out in my prepared testimony, what might have taken a
moving truck to move out of a company in terms of documents,
records, different types of information kept secret, can now go
out the door on a thumb drive, can stick it in the back of your
pocket, nobody knows you have it, and that is, I think,
enabling some of the challenges as well.
Mr. Jeffries. Thank you.
Mr. Hertling, as you understand it, does the Department of
Justice civil division currently have any authority under law
to address the trade secret issue?
Mr. Hertling. The Economic Espionage Act provides to the
Attorney General an injunctive remedy to go into Federal court.
I don't know whether that right, whether that ability is
exercised by the Civil Division. I suspect, because the nature
of getting the department involved in these sorts of instances,
that you are probably actually looking at the Criminal Division
or, of course, typically the U.S. Attorney's Office actually
being the entity that would enforce that right rather than the
Civil Division, but I don't honestly know.
Mr. Jeffries. Okay. Right. And most U.S. Attorneys'
Offices, certainly the ones that are located in the City of New
York, have both a criminal division and a civil division
present in the same office. Perhaps that is an issue in terms
of greater enforcement relative to that injunctive provision
that this Committee could also look at.
And I think all four of you have indicated that you support
a private right of action in the trade secret area, it
certainly is something that I look forward to working with my
colleagues on both sides of the aisle on.
If one is created, when would it be appropriate for a
company to go into Federal court, and in what instances would
you envision companies taking advantage of the State court
remedies that will remain on the books?
Mr. Hertling. Well, I think obviously for a company to get
into Federal court in the first instance, there would have to
be at a minimum an interstate nexus, an effect on interstate
commerce and certainly an effect with--instances in which there
is an international nexus.
Otherwise it would be left to the--the choice of forum
would be left typically to the plaintiff, and I think it would
depend on the particular circumstances if there is--in an
interstate or international case, if the concern is the thief
absconding with the information physically, it probably is a
benefit to file in Federal court, because the process that
would be issued by Federal court could be enforced by a U.S.
Marshal anywhere, whereas if you go into the State court, the
process issued by a justice of Kings County Supreme Court, for
example, doesn't mean anything to a sheriff executing a process
in California.
So whereas the U.S. Marshal in San Francisco would enforce
an order of a Federal District Judge from the Eastern District
of New York, just as he would process issued by a Judge of the
U.S. District Court for the Northern District of California,
but if the matter is one in which the mis-appropriator absconds
from Brooklyn to Staten Island, you probably wouldn't need to
go to Federal court. It is a question whether you could. If he
absconds to New Jersey, it would be up to the plaintiff to
decide what the best forum is, and the factors would be the
ease of relief, the comfort with the judiciary in the location.
So there would be nothing in a Federal civil remedy that
would preempt state law or preclude the plaintiff in choosing
the forum in which to file.
Mr. Jeffries. Thank you.
I yield back.
Mr. Coble. I thank the gentleman.
The distinguished gentleman from Pennsylvania, Mr. Marino,
is recognized.
Mr. Marino. Thank you, Chairman.
Gentlemen, I am pretty much a States rights guy and the
less Federal Government in my life, the better. Tell me what,
and anyone can speak to this. Tell me what requires fixing? Why
do we need the Federalization here?
Mr. Hertling. Well, I think initially, as I mentioned to
Mr. Jeffries, one of the things that needs fixing is, of
course, each State enforces the judicial process issued by the
judges of that particular State, and process issued by a judge
in Pennsylvania is typically not going to be enforced by a
sheriff in California. So if you have a big company in
Harrisburg and somebody walks out with a thumb drive with some
important trade secrets and drives from the facility, gets on a
plane and flies to San Francisco, and from San Francisco, he is
going to abscond to Beijing, if the owner of that business
finds out that the person has walked out with a trade secret,
he runs to common pleas court in Gotham County, the judge is
going to issue process.
You get that process out to the San Francisco sheriff, and
the sheriff in San Francisco who's going to--because you are
looking to seize the thumb drive.
Mr. Marino. I was reading some cases preliminarily just
before I got here. And let's take, for example, the
international court of justice gets involved. I think there was
a case that--a case, a preliminary case that started out in one
of the States here in the U.S. and it involved Canada, and I
am--are you familiar with this case that I am talking about?
And----
Mr. Hertling. I am not. I was under the impression that the
ICJ only heard cases between sovereigns, so I--but I am not an
expert in international law.
Mr. Marino. Also the U.S. Federal court stepped in and
raised an issue about a State having a right to hand down the
decision that pertained to another country, and I am thinking
it was Canada. Have you heard of that? I am trying to get more
information on that explanation.
Mr. Hertling. I am----
Mr. Marino. Is anyone else familiar with it?
Mr. Hertling. I am not----
Mr. Marino. I will do some research on it, then.
Mr. Hertling. I am not familiar with it, but again, I think
it is important that nothing--obviously there is no House bill
that has been introduced yet, a broader bill, Ms. Lofgren, of
course, has a barebones bill. So this would be something that
the House would take and create, but nothing, say, in the bill
that has been introduced in the Senate would preempt State law,
foreclose the ability to go into State Court. This is a--a
Federal remedy would be a complement to the existing State
Court remedies, but not a replacement for them.
Mr. Marino. Do you only get one bite at either or--or a
venue? If you lose in one, can you go to the other?
Mr. Hertling. Well, typically, obviously, unless it is a
criminal case where you have--you know, the dual sovereign
doctrine applies, but in the civil litigation context, you
would generally have claim preclusion so that if you lose in--
if you lose on those issues or issues that you could have
raised in a previous suit, and you go to a different court,
whether State or Federal, you are precluded if there is
identity of parties between the two suits.
Mr. Marino. Mr. Simon, you have raised an issue, but I am
sorry, I have been going in and out meeting with people, on
seizure. Could you repeat that again for my benefit that I may
not have heard concerning your concern with seizure?
Mr. Simon. Sure. I would be happy to. So we have a lot of
people's data in our systems. That data, because of the way our
security algorithms and others mix, work, the data between the
customers is mixed together. There is no one disk drive for any
one customer, generally speaking. There are some exceptions, to
be clear.
The point being that under the current--some of the current
proposals, the ability to come in and seize physical property
would permit somebody to say, we think there is a mis-
appropriator's information here, go get that physical drive.
That is the issue that we are concerned about.
Mr. Marino. All right. Thank you.
I see my time has expired and I yield back. Thank you.
Mr. Coble. I thank the gentleman.
This concludes today's hearing. I appreciate those of you
in the audience who stayed with us. Particularly appreciate the
panelists for your contributions.
Without objection, all Members will have 5 legislative days
to submit a written--additional written questions for the
witnesses or additional materials for the record. This hearing
stands adjourned.
[Whereupon, at 4:38 p.m., the Subcommittee was adjourned.]