James Pooley is one of the world’s foremost experts in trade secret law and management. His first volume, “Trade Secrets,” updated semi-annually, is the leading lawyer’s desk reference on the subject. His latest business book is “Secrets: Managing Information Assets in the Age of Cyberespionage” (Verus Press, 2015).
Mr. Pooley’s career as a sought-after advisor, IP litigator, and information security expert spans over 45 years. His many leadership roles include his tenure as president of the American Intellectual Property Law Association and as chairman of the National Inventors Hall of Fame.
On the international stage, Mr. Pooley served as Deputy Director General of the World Intellectual Property Organization in Geneva from December 2009 to November 2014, where he was responsible for the international patent system.
Having returned to Silicon Valley, Mr. Pooley established a private law practice where he specializes in litigation strategy, expert witnessing, and information security counseling.
When Adam Smith spoke about an “invisible hand,” he was talking about a good thing – the way that free markets harness the laws of competition, supply and demand and self-interest to improve the economy. But he also could have been thinking of another law. The law of unintended consequences: that actions of people, and especially of governments, always have unanticipated effects. Sometimes these effects can be perverse, reflecting a profound failure of “second-order thinking” (in other words, thinking ahead about “how could this possibly go wrong?”). On January 5, 2023 – a day that may go down in IP infamy – we saw two bold actions. First, the “Protecting American IP Act” became law; and second, the Federal Trade Commission (FTC) proposed a new rule that would invalidate noncompete agreements across the United States. But wait, you might say, that actually sounds great! What’s the problem with protecting American IP, and making the rest of the country join California in unleashing talent to go where it likes? Well, don’t be too hasty. Stay with me on this, and you will see just how shortsighted our government can be.
Trade secret jurisprudence, originally conceived in the common law of torts as a way to enforce confidential relationships, now has a sharper focus directed at the property interest of businesses in the data that forms the major portion of their asset base. In the process, trade secrets have taken their place of respect alongside the “registered rights” of patents, copyrights, trademarks and designs. But just because we now enjoy statutory guidance through the Uniform Trade Secrets Act (“UTSA”), enacted with some variations in every state but New York, and national uniformity in federal courts through the Defend Trade Secrets Act of 2016 (“DTSA”), the law continues to evolve much as it did a century ago—that is, through the opinions of judges deciding individual cases on their facts.
It was February 2017 when Waymo, Google’s self-driving car unit, sued Uber in what would become the biggest trade secret case of the century. Waymo alleged that its former manager, Anthony Levandowski, had organized a competing company while still at Waymo, and before leaving had downloaded 14,000 confidential documents. As it turned out, Uber had known about this when it agreed to pay $680 million for Levandowski’s brand new startup; and we’ve already looked at how the hubris of that hasty transaction provides lessons for hiring in new markets driven by emerging technology.
I was recently reminded of a contest that we often played in Scouts, called Kim’s Game. Derived from a story in Rudyard Kipling’s 1903 novel Kim, it gave you a few minutes to stare at a tray full of diverse objects you might find in a junk drawer – things like a key, pocketknife, nickel, compass, button, crystal. At the end of the allotted time, you were challenged to write down as many as you could remember. My recollection was triggered by a court order. Silicon Valley startups Wisk Aero and Archer Aviation have been slugging it out in trade secret litigation over “flying taxis” that are designed to take off and land like helicopters but fly with wings and propellers. The basic technology has been around for quite a while but making it practical as a battery-powered (and ultimately autonomous) taxi service demands a lot of creative engineering. Wisk, a joint venture between Boeing and a company owned by Google founder Larry Page, has been developing its models for more than a decade. Aero, which has a relationship with United Airlines, is a more recent entrant, and ramped up its workforce by hiring away 17 of Wisk’s engineers, including its vice president of engineering. For more salacious details, see this piece in Fast Company.
One of the most frustrating questions I get from clients asks “what is the difference between ‘confidential’ and ‘proprietary’ information?” Or, “how do I help employees distinguish between either of those terms and real ‘trade secrets?’” Then there are people, including some judges, who trivialize the importance of some useful business information by saying it doesn’t “rise to the level of a trade secret.” That last one makes no sense these days, as we’ll see shortly. But first let’s identify the source of this nomenclature problem: it’s an outfit you’ve probably never heard of called the American Law Institute.
At this moment, there is a fellow riding a bus in London who will determine the fate of your secrets. To be more precise, he’s on the Clapham bus; but he has no name. In fact, he’s a fictional character originally imagined by 19th Century journalist Walter Bagehot, who thought that “public opinion” was best described as the “opinion of the bald-headed man at the back of the omnibus.” The idea was picked up by the English courts as a metaphor for the “reasonable person” standard that is applied in all sorts of cases, from criminal to personal injury to contract interpretation. It also has special application to trade secrets, which we’ll get to in a minute.
What does the invasion of Ukraine have to do with COVID-19? Would you believe intellectual property is the link? Stay with me on this; it’s an interesting story. Recently, it was confirmed that the Main Intelligence Department of the Ministry of Defense of Ukraine – apparently with some help from volunteer hackers – managed to breach the network of Russia’s most guarded nuclear power facility and make off with extremely valuable trade secrets. The Beloyarsk Nuclear Power Plant contains the world’s only two operational “fast breeder” reactors. More than 20 countries, including the U.S., Japan and France, have been working for decades on this technology, which is supposed to be able to extract close to 100% of the energy from uranium, compared to about 1% for light water reactors. In other words, this is a process that can produce large amounts of energy while completely consuming the fuel and creating virtually no nuclear waste. Whoever is able to commercialize it will make a fortune. So far, no one has come close to the Russians.
Trust is getting a lot of attention these days. Of course, it’s always been important in the United States. We declare trust in God on our currency, Scouts have to be trustworthy, and we even seem to trust the algorithm behind cryptocurrencies. On the other hand, we worry about what feels like a decline, if not complete rupture, in social trust. For businesses that depend on controlling the confidentiality of data shared with employees and outsiders, these are perilous times. Our most important assets are stored and transmitted through digital systems that are imperfect; and that’s without accounting for the frailties of the people with access to those assets. Information security has come a long way since I started my career in the 1970s. There were no networks to worry about then, no powerful computers in the pockets of employees. Data was transmitted on paper. You just needed to watch the front door and photocopier. Employees with their badges as markers of trust could go pretty much anywhere they wanted within the facility.