Why legal experts are up in arms over the trade-secrets bill Microsoft loves

Known as the Defend Trade Secrets Act of 2015, the proposed legislation aims to strengthen companies' ability to defend trade secrets with federal-level protections.

Specifically, it allows companies to pursue trade-secrets cases in federal court much as they can copyright or patent cases, thereby freeing them from the state-level constraints of today's laws. More notably, it allows for so-called ex parte seizure, enabling a company that thinks a secret has been stolen to ask the government to seize a suspected thief's property without notice, to prevent misuse of that secret.

Trade secrets can encompass many things, including a recipe such as the formula for Coca-Cola, or a company's software algorithms.

"Trade secrets encompass an expanding portion of firms’ intellectual property portfolios, particularly in knowledge-centric areas of the economy such as technology and manufacturing," said Sen. Chuck Grassley, chairman of the Senate Judiciary Committee.

The theft of U.S. trade secrets is increasing, he added, with estimates amounting to more than $300 billion in losses each year.

The Defend Trade Secrets Act was introduced this summer by lawmakers including Senator Orrin Hatch, a Republican from Utah, Senator Christopher Coons, a Democrat from Delaware, and Representative Doug Collins, a Republican from Georgia, after an unsuccessful attempt to pass an earlier version last year.

At Wednesday's hearing, those arguing in favor of the bill included lawyers from Corning and DuPont, who cited the increasingly digital and global nature of trade-secrets theft.

Their view was echoed in a blog post by Jule Sigall, Microsoft's assistant general counsel of IP policy and strategy, who described the importance of trade secrets in the development of Cortana.

Opposition to the bill was voiced even before the hearing by more than 40 law professors in a joint letter that expressed concern about the ex parte seizure provision, as well as the bill's potential to increase the duration and cost of trade-secrets litigation.

At the hearing, that view was expressed by intellectual property expert and Hamline University professor Sharon Sandeen, who argued that the bill would cause more problems than it solves and could particularly harm small businesses.

Companies have long protected algorithms such as consumer credit-scoring mechanisms under trade-secret law, Sandeen said in an interview after the hearing. If passed, the new bill could give them new powers to conceal those algorithms.

"Federal litigation tends to have more psychological power behind it," she said. "That's a benefit that will be used by the people who own the algorithms."

There's also no federal jurisprudence on the matter, she added, so "technically the federal courts can decide what everything means within trade-secret law."

In other words, the federal courts could take an expansive view of what constitutes a trade secret and what it means to steal one, resulting in stronger protections for companies seeking to protect algorithms and other secrets.

That could come as a blow to those like Ashkan Soltani, the FTC's chief technologist, who seek greater algorithmic transparency for social and ethical reasons.

Hamline University's Sandeen suspects a hidden agenda behind the bill. Protections on trade secrets were traditionally kept relatively weak to encourage companies to pursue patents instead, she noted.

Patents are generally limited to 20 years, while "in theory, trade secrets can last forever," she said. Particularly in industries such as manufacturing and pharmaceuticals, "they realize that trade secrets would be a better option."

In addition, patents are filed publicly. A greater reliance on trade secrets would strike another blow to transparency.

"Patents offer a form of disclosure and rudimentary algorithmic transparency that can be used to inform the public of how those systems operate," said Nick Diakopoulos, a professor in the University of Maryland's College of Journalism. "Fewer patents means there will be less information about corporate algorithms available to the public."

Hacking a company to steal a trade secret is already illegal under the federal Computer Fraud and Abuse Act, noted Christian Sandvig, a professor in the School of Information at the University of Michigan.

With its new seizure provisions, the Defend Trade Secrets Act could threaten free speech as well, he suggested.

"We know that in the past, corporations have used the courts to try to shut down Web servers that publicize technological research that makes them look bad," Sandvig said. "This bill would give corporate censors a powerful new tool."