A US-UK trade agreement post Brexit - The implications for Trade Secrets

A US - UK Trade Agreement post Brexit:

British Prime Minister Boris Johnson has pegged a trade deal with the United States of America as a way to ease the pain of breaking away from the EU, Britain’s largest trade partner.

U.S. President Donald Trump, has promised a 'massive' trade deal to support Brexit.

This short paper explores the implications for trade secrets in any such US - UK trade agreement, from the perspective of UK companies.

Intellectual Property and Trade Agreements:

Firstly, it is important to realize that many trade agreements set baseline standards for the protection of intellectual property.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (i.e. The TRIPS Agreement) is an international legal agreement between all the member nations of the World Trade Organization (WTO). It sets down minimum standards for the regulation by national governments of many forms of intellectual property as applied to nationals of other WTO member nations.

The TRIPS agreement introduced intellectual property law into the multilateral trading system for the first time and remains the most comprehensive multilateral agreement on intellectual property to date.

Trade Secrets & Trade Agreements:

These baseline standards in trade agreements for the protection of intellectual property are not limited to registered forms of IP like patents and trademarks. In fact, I suggest that in recent times, it is unregistered forms of IP like trade secrets that are getting the most attention, especially if the US is involved.

US China Phase 1 Trade Agreement (Jan 2020)

The recently signed US China Phase 1 Trade Agreement addresses trade secrets in page 2 of the 96 page document. That section starts as follows ...

"The United States emphasizes trade secret protection. China regards trade secret protection as a core element of optimizing the business environment. The Parties agree to ensure effective protection for trade secrets and confidential business information and effective enforcement against the misappropriation of such information."

The United States-Mexico-Canada Agreement (Nov 2018)

The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement negotiated among the three parties to update and replace the 1994 North American Free Trade Agreement (NAFTA). On November 30, 2018, President Trump and the leaders of Mexico and Canada signed USMCA.

The USMCA trade agreement also contains IP provisions and also specifically makes mention of trade secrets.

"A trade secret is confidential business information (e.g., formula, customer list) that is commercially valuable. USMCA requires criminal procedures and penalties for trade secret theft, including through cyber-theft and by state-owned enterprises."

The UK must understand when it sits down to negotiate a US - UK Trade Agreement that the US views IP as a key source of US comparative advantage and that advancing IP protection globally is a key US trade negotiating objective. This most definitely includes trade secrets and trade secret protection.

The US Defend Trade Secrets Act:

I suggest that in order to understand the US position with respect to a baseline standard when it comes to trade secrets and trade secret protection, one needs to analyse the US Defend Trade Secrets Act.

This is a US federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated. The act was signed into law by President Barack Obama on May 11, 2016.

This important new legislation created a federal, private, civil cause of action for trade-secret misappropriation in which 'an owner of a trade secret that is misappropriated may bring a civil action if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce'

The DTSA enjoyed wide, bipartisan support leading up to its enactment, passing in the House by a vote of 410-2 and passing unanimously in the Senate.

For the first time, the DTSA gives companies the opportunity to protect against and remedy misappropriation of important propriety information in federal court.

The DTSA aligns closely with the Uniform Trade Secrets Act, which had been adopted in some form in almost every US state. Technically, the DTSA extended the Economic Espionage Act of 1996, which criminalizes certain trade secret misappropriations.

Interestingly, after the DTSA's passage by the Senate, Forbes magazine called the law the 'Biggest Development in Intellectual Property in Years'.

The long reach of the US DTSA:

UK trade negotiators also need to understand and appreciate the long reach of the US DTSA.

The DTSA has indeed a long reach, a reach so long that this relatively new law should be as much of a concern to British companies as it is to US companies. The new law’s reach has also been extended by tethering it with the US federal racketeering law. By the way, British companies have already appeared in US courts as either defendants or plaintiffs in DTSA cases.

So how would a UK company possibly get snared by the DTSA? Well there are a number of ways in which a UK company could.

In order to understand how, it is important to first understand that filing a DTSA complaint in a US federal court requires both “subject matter jurisdiction” and “personal jurisdiction”.

UK companies also need to understand the concept of "extraterritorial jurisdiction". Extraterritorial jurisdiction is the legal ability of a government to exercise authority beyond its normal boundaries.

And last but not least, UK companies need to appreciate that the DTSA's reach has also been extended by tethering it with the US federal racketeering law.

Subject matter jurisdiction:

For subject matter jurisdiction, the civil provisions of the DTSA apply to the misappropriation of trade secrets if the “interstate commerce or foreign commerce” requirement of the law is satisfied.

The provision is spelled out in 18 U.S. Code § 1832 of the former Economic Espionage Act that served as the basis for the DTSA:

(a) Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly—

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.

(b) Any organization that commits any offense described in subsection (a) shall be fined not more than the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.

The DTSA differs from its predecessor Economic Espionage Act in that the DTSA, among other things, provides for a civil cause of action for parties harmed by a trade secret theft.

Personal jurisdiction:

Personal jurisdiction under the DTSA, for the most part, resembles personal jurisdiction under the bulk of US federal law. So, for example, personal jurisdiction against a UK company might be established in these situations for example:

• The company sell products or services in the US and runs into a trade secret dispute there;
• The company has a business relationship with a US company (e.g., supplier, distributor, partner, subcontractor, customer, etc.), and the trade secret dispute involves the US company;
• The actual theft of the trade secret takes place in the US;
• An employee of the company leaves and goes to work for a US business, and takes the trade secret with them, or
• An employee of a US company leaves and goes to work for the UK company, and takes the trade secret with them.

Personal jurisdiction is often a litigated factual and legal matter (as well as often requiring a constitutional analysis under cases such as the US Supreme Court’s decision in International Shoe Co. v. Washington (1945) and its progeny). So, cut and dried answers to personal jurisdiction can become complicated and require individual analysis by legal counsel.

Extraterritorial jurisdiction:

The DTSA also retains the extraterritorial jurisdiction of its predecessor Economic Espionage Act where:

• The offender is a U.S. citizen or permanent resident; or
• The offender is an organization organized under the laws of the United States or any State or political subdivision thereof; or
• An act in furtherance of the offense was committed in the United States

Civil Jurisdiction under the Racketeer Influenced and Corrupt Organizations Act:

The DTSA also amended the RICO Act by adding theft of trade secrets under DTSA sections 1831 and 1832 as a racketeering activity, also known as a “predicate act.”

RICO provides civil plaintiffs with a separate cause of action related to trade secret misappropriation with different elements and damages. In some cases, a civil RICO claim could possibly bring higher damages than a trade misappropriation claim.

Among other things, this change may allow UK defendants to be hauled into US courts as co-conspirators in a RICO case as an alleged “criminal enterprise” based on a pattern of racketeering activity, e.g., a series of actions involving the theft of trade secrets.

So, for example, if a UK company has the habit of nicking trade secrets from start-up companies whose products they find attractive, then the UK company might possibly find itself accused of being a criminal enterprise and facing extremely severe penalties in US federal court.

Civil RICO litigation typically depends upon whether the defendant’s predicate acts constitute a pattern. A “pattern” means that at least two predicate acts were committed, that the predicate acts were related to one another, and that the predicate acts amount to or pose a threat of continued criminal activity. The US Supreme Court in RJR Nabisco, Inc. v. The European Community affirmed that the predicate acts may be committed outside the United States, although the plaintiff must still prove a domestic US injury in order to prevail on the RICO claim.

While there is little case law yet, tying the DTSA to RICO may facilitate obtaining jurisdiction over UK defendants who are not actually present in the US. Of course, UK defendants with contacts in the US are likely already subject to personal jurisdiction in the US, as discussed above.

Trade secret asset management:

Simply put, Directors, Officers and employees at UK companies need to understand that the baseline standard when it comes to trade secrets and trade secret protection will almost certainly be set by the US in any UK - US trade agreement.

I suggest that that standard may best be summed up a follows .... 'steal a trade secret, go to gaol'

So what should a UK company being doing? Clearly trade secrets and trade secret asset management need to be taken seriously. I recommend that the following practical steps be taken at the very least ...

·        A trade secret policy should be created.

·        A robust top level trade secret process should be defined – identification; analysis; review; protection; and on-going monitoring.

·        A fit for purpose trade secret asset management system should be taken into use as technology can greatly help underpin the process.

·        A section on trade secrets should be added to the existing training for all employees within the company.

·        A trade secret governance structure should be put in place.

Final thoughts:

Given that both the US and the UK seem very eager to push ahead with a UK - US trade agreement, I suggest that UK companies should start to think now about their approach to trade secrets and trade secret asset management.

I accept that today most of the attention when it comes to UK - US relations is currently on issues like Huawei’s access to Britain’s 5G networks, chlorinated chicken, the impact of Brexit on the Northern Ireland Good Friday Agreement, hormones in cattle, UK's planned digital services tax, the Iran Nuclear deal, genetically modified crops, etc.

However, I suggest that if and when any trade agreement is signed between the US and the UK, there will be IP provisions included and trade secret protection will feature there.

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Donal O'Connell is the Managing Director of Chawton Innovation Services Ltd.

His company provides education and training on trade secrets and trade secret asset management.

His company offers trade secret management tools to organisations to help with the management of these important but fragile assets.

More details are available on request.