Stemming the Rising Tide of Trade Secrets Misappropriation

It seems like every week there is another trade secrets case or investigation making headlines.  Just this month, Christopher Wray, director of the FBI, in a speech titled, “Responding Effectively to the Chinese Economic Espionage Threat,” explained that “the FBI currently has about 1,000 investigations into Chinese technology theft.” As recent news reports and cases show, state actors misappropriate trade secrets not only through cyber means, but also through partnerships with an insider, such as an employee, and otherwise seemingly legitimate business relationships. Indeed, studies show that the vast majority of the threats—even those without a state actor involved—are from some kind of insider—current and former employees or trusted business partners (e.g., joint venture partners, suppliers, customers and the like). This is corroborated in speaking with many in house counsel about these issues, as I do, as they tell me it is insider threats that keep them up at night, far more than whether their cybersecurity protection is adequate (although that’s certainly an important consideration as well).

Some may wonder why trade secrets are so much more in the news these days. That’s a complicated question for which there are numerous possible explanations. One factor is the impact of patent eligibility law on key technology areas such as software, business methods and medical diagnostic testing. Another factor is the increasing mobility of the workforce and the heightened level of electronic connectivity among people (such as social media and workplace communication services such as Slack), which creates situations ripe for both inadvertent and intentional trade secret loss. Of course, we cannot underestimate the impact of now having a federal trade secret law with the enactment of the Defend Trade Secrets Act in 2016 and similar laws in Europe with the implementation of 2016 EU Directive. And we also can’t ignore the impact of attacks on the enforceability of restrictive covenants in certain jurisdictions. To me, however, the most important reasons are the ubiquitous nature of trade secrets—all businesses have them—and their high business value, which is being increasingly recognized. Indeed, some studies show that many businesses consider their trade secrets to be their most important form of intellectual property, even more so than their patents (which seems contrary to most IP lawyers’ perspectives).