A fear of trade secret trolls is completely unfounded

Last week Senator Orrin Hatch (R-UT) and Senator Chris Coons (D-DE) came together on the Senate floor to urge passage of their bipartisan, Defend Trade Secrets Act of 2015. Senators Hatch and Coons noted that the legislation has robust industry support and is ready to advance through the Senate Judiciary Committee and the Senate as a whole.

The Senate bill is co-sponsored by Senator Jeff Flake (R-AZ), Senator Dick Durbin (D-IL), Senator Thom Tillis (R-NC), Senator Tammy Baldwin (D-WI), Senator Roy Blunt (R-MO), Senator Mike Crapo (R-ID), and Senator James Risch (R-ID). Congressman Doug Collins (R-GA) and Congressman Jerrold Nadler (D-NY) have similarly introduced companion trade secret legislation in the House of Representatives. Little serious opposition has surfaced to these bills, which would create a uniform federal regime for trade secret protection, which frankly is long overdue.

That there is little serious opposition does not mean that there is no opposition. Several law professors are stoking fears by tapping into the public sentiment against patent trolls. These professors proclaim that if federal trade secret legislation is enacted it will lead to a rise of trade secret trolls, which they argue would be horrible for the system.

No one likes trolls, but the worry about trade secret trolls is much ado about nothing. Truthfully, fears about trade secret trolls are based in mythology, not on fact. If those claiming federal trade secret legislation would lead to trade secret trolls actually understood trade secret law they simply couldn’t possibly come to a conclusion that there is any risk there will be a single trade secret troll, let alone some kind of zombie-like rise. Simply stated the fear is pure fiction. You simply cannot commoditize trade secret litigation in the same way patent trolls can and do commoditize patent litigation.

First, there is a long history of trade secret protection at the state level in the United States, but we have never seen any shred of evidence that a trade secret troll model exists. If trade secret trolls were a real problem there would be at least some evidence of the existence of a problem in the States already. Without any evidence of a trade secret troll problem in the various States there is no credible reason to suspect that a federal law would give rise to such a problem nationally. Indeed, all a federal trade secret regime would do is allow for jurisdiction to attach in a different forum, a federal forum. Without evidence of a problem in any State it is nothing more than a wild, unsupported fear that attempts to tap into existing public angst over the issue of abusive litigation in order to derail the legislation.

Moreover, the very nature of a trade secret dispute simply would never allow for the commoditization of abusive litigation. “All trade secret claims require fault, this is not something you can do as a mass market business,” said Jim Pooley, the author of the recently published book on trade secrets titled Secrets: Managing Information Assets in the Age of Cyberespionage, and the author of a well known treatise on trade secrets. Speaking during an LES webinar on the pending trade secret legislation on Wednesday, October 14, 2015, Pooley went on to say: “Trade secret claims just do not work that way.”


Let’s peel back the layers of the onion even further and explore the differences between patents and trade secrets, after which it will be clear that there is absolutely no legitimate reason to worry about trade secret trolls.

Under the patent laws innovators are granted rights to a claimed invention. Those rights are against the world. That means that once a right is given to an innovator in a patent that innovator can prevent others from making, using, selling, offering for sale or importing. These rights attach regardless of whether the alleged infringer knew about the patent and regardless of whether infringement was intentional. Patent infringement is a strict liability offense, requires no fault, and it requires no previous relationship or tie between the parties. That anyone could knowingly or unknowingly infringe a patent is at the heart of the patent troll model. The same is simply not true for trade secrets.

Unlike patents, trade secrets do not provide a right against the world. Trade secrets protect valuable business information that is not generally known. This doesn’t mean that trade secrets cannot be known by anyone, but rather that all those who know of the secret information have a legal obligation to maintain the information as confidential. Therefore, trade secret actions are by their very nature between parties that have some kind of business relationship, or at the very least operate within the same business industry, or with some nexus.

The patent troll model has thrived by threatening many thousands of individuals and companies with patent infringement and then preying on the fact that these individuals and small companies have no real way to know whether they have infringed. Bad actors use judicial inefficiencies and scare tactics to force small payments from numerous people and companies they don’t know and have had no relationship with.

It is also critical to understand that trade secrets do not protect information in and of itself. If I create valuable information and keep it secret then I own a trade secret. If you create the same valuable information and keep it secret you likewise have a trade secret. My trade secret rights cannot prevent you from doing anything on your own independently. A trade secret properly preserved protects the owner of the secret information from misappropriation (i.e., taking of the information) through some kind of improper means. “You cannot sue someone unless they have stolen the information from you or they were a party to a confidential relationship,” Pooley explained. “That personal relationship that is required means that it is simply not possible to build a troll business.”

Indeed, the pending legislation specifically states that reverse engineering and independent derivation are not legally actionable as a trade secret misappropriation. That means in order to be liable for trade secret misappropriation there must be some improper behavior based on a relationship or nexus with the party claiming ownership of the trade secret. The proposed legislation specifically requires misappropriation of the trade secret by improper means (i.e., theft, bribery, espionage). Therefore, a fear of widespread litigation and the rise of trade secret trolls is not only wholly unfounded, but fundamentally misunderstands the very nature of a trade secret dispute.

A trade secret is a very different kind of right. You simply can’t use a trade secret in the same way that patent trolls have used patents to pursue people. Anyone who suggests otherwise isn’t being honest.


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Join the Discussion

7 comments so far.

  • [Avatar for Night Writer]
    Night Writer
    October 16, 2015 12:22 pm

    What I think is that Google wants to lock-up employees so they can’t easily transfer their skills to another company and lock down all their inventions and not share. That is a good goal for a monopoly to keep its monopoly.

    And, I would ask if any of you have ever been a real high-tech worker (like me) and had to sign a draconian non-compete that made it hard to go and get a job with another company in the same area I was working in. (communication).

    It gives the company you are working for enormous leverage over you. I ended up leaving and going to graduate school. I was painfully aware how hard it would to a job in a related area without risk of a lawsuit. Also, I had to learn to keep my mouth shut. I was young, but could be sued for everything I had and plus some, if I discussed what I was doing with my friends or on bulletin boards.

    That is what life is like under trade secrets. Plus, I think there many imaginative ways this could be used to Google’s advantage that we haven’t discussed.

  • [Avatar for Night Writer]
    Night Writer
    October 16, 2015 12:14 pm

    Moreover, Paul, trade may be used as weapons against the individual. So, all your arguments about cost etc. are not relevant.

  • [Avatar for Night Writer]
    Night Writer
    October 16, 2015 12:11 pm

    >>Nor should trade secrecy suits be confused with suits over even more restricted employment “non-compete” clauses.

    They shouldn’t be confused but they are not separate. Moreover, I am highly suspicious of this trade secret legislation. It appears to be another step away from patents and towards trade secrets. Moreover, the legislation doesn’t “overrule” California law, but it would create causes of action in federal courts that go beyond what California law provides.

    I actually predicted this legislation about 5 years ago. I said as the Googles broke down the patent system, they would also ask for greater trade secret protection. This –to my mind–is on the road to locking up employees to lower the cost of the employees and entrench monopolies ever further. Let’s not forget that the California companies have already been in trouble for colluding on who to hire.

    That’s my take on this. I think it would be OK, if patents weren’t under so much attack. But the stronger trade secrets are made, the more likely it is that we are going to get a company like Google break off from the patent system and become a dark company. We’ll get no information out of the employees or company. There will be proprietary everything built. That is my prediction of what is going to happen. We saw the start of that in the 1980’s before patents.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    October 16, 2015 11:32 am

    False arguments used to oppose IPL legislation from those who should know better never cease to amaze. Thanks for noting this one.
    Besides the above distinctions re patents, there is no legal presumption of trade secret validity, much less a requirement of clear and convincing evidence, which greatly enables patent trolls to impose much higher litigation cost burdens on patent suit defendants with much lower odds of S.J. relief. There are also limitations and employee protections imposed on trade secret suits by state laws, such as in CA, which are NOT being overruled in this proposed trade secret legislation. Nor should trade secrecy suits be confused with suits over even more restricted employment “non-compete” clauses.

  • [Avatar for Paul Morinville]
    Paul Morinville
    October 15, 2015 07:51 pm

    @2. Good point.

  • [Avatar for Night Writer]
    Night Writer
    October 15, 2015 07:50 pm

    @1: also trade secrets make it harder for employees to move to other jobs which all economist agree is one of the biggest enablers of innovation.

  • [Avatar for Paul Morinville]
    Paul Morinville
    October 15, 2015 02:11 pm

    Trade secrets are just that – secrets. This is the inverse of a patent in the sense that a patent lays the invention open to the public. Trade secrets have a place becasue many things that can only be protected except by a trade secret.

    That is changing as Congress has over the last few years strengthened trade secret protection while weakening patent protection. This encourages more and more secrets and discourages patenting which makes the invention public.

    Importantly, this change of balance favors incumbents with a place to hide their inventions over startups and inventors who need the public disclosure to attract capital.

    From a larger perspective, an invention secreted cannot be built upon by others because it is a secret, thus innovation is discouraged overall. Conversely, a patent can be built upon by anyone and this encourages an economy of innovation like we have had for centuries.

    Strengthening trade secrets without a corresponding strengthening of patent protection is bad policy. It will lead to slowed economic growth and less jobs.