Killing The Golden Goose: The Dangers Of Strengthening Domestic Trade Secret Rights In Response To Cyber-Misappropriation

Article by Zoe M. Argento*

ABSTRACT

Hackers all over the world exploit our reliance on computer systems to take American trade secrets. The response will likely be a dramatic strengthening of trade secret law. Congress has already passed statutes strengthening trade secret law, and more bills are pending. The alarmist rhetoric on cyber-risks to trade secrets, however, ignores the most dangerous risk. By over-reacting to the threat of cyber-misappropriation, we may suppress the innovation and competition that produce our trade secrets in the first place. This paper uses an array of studies on cyber-risks and trade secret litigation to show that bolstering trade secret rights will have little effect on cyber-misappropriation. The evidence indicates that trade secret holders cannot and will not pursue cyber-misappropriators in court for technological and business reasons, not for legal reasons. Worse, strengthening trade secret law will cause significant collateral damage. Trade secret holders will use stronger trade secret rights in other types of misappropriation cases to impede follow-on innovation, restrict worker mobility, dampen competition, and hamper public access to useful information. In short, the costs outweigh the benefits of bolstering trade secret law to combat cyber-misappropriation of trade secrets.

In one of Aesop's fables, a farmer had a goose that laid golden eggs. Hoping to discover the source of the gold, he killed the goose. The farmer found nothing, and that, of course, was the end of the golden eggs.

In 21st century America, a different form of golden eggs is under threat—immensely valuable trade secrets encompassing much of the innovation and business strategy that power our economy. Cyber-hackers all over the world have dedicated their efforts to breaching American companies, research institutions, and government agencies to take them. Many of these hackers are well-organized and well-financed. Some are even state-sponsored. In January 2013, for example, the security firm Mandiant reported that a unit of the Chinese army had breached 115 American companies, sometimes retaining clandestine access over the course of years.1 The problem of cyber-intrusion is pervasive and growing. For example, in one survey in 2011, companies reported an average of 1.4 successful attacks per week, a 44 percent increase from the previous year.2

Our worries over losing trade secrets to cyber-intruders, however, may lead us to kill our own golden goose—the vigorous competition and culture of innovation that produce our trade secrets.

One of our greatest strengths as a nation is our innovative and entrepreneurial culture. Our country produced the airplane, the assembly line, the laser, the personal computer, the internet . . . the list goes on and on.3 Innovation is a key driver of U.S. economic growth and national competitiveness.4

The success of American innovation stems from many factors capital markets, an...