Today, Congressman Jerrold Nadler (NY-10), the Ranking Member of the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet, delivered an opening statement at the hearing on “Trade Secrets: Promoting and Protecting American Innovation, Competitiveness and Market Access in Foreign Markets.”

“The value of trade secrets to U.S. companies is matched only by their tremendous vulnerability to theft. Innovative technologies have made it easy to obtain information and transfer it across the globe with the click of a cell phone, tablet, or computer key. At the same time, U.S. companies are increasingly targeted for trade secret theft by competitors, with some foreign governments actively encouraging and facilitating the theft of U.S. trade secrets,” said Rep. Nadler. “In light of their value and vulnerability, it is critical that our laws provide robust protection for trade secrets. Unfortunately, that does not seem to be the case.”

The following is the full text of Congressman Nadler’s opening statement (as prepared for delivery):

            “Thank you, Chairman Coble, for holding this hearing to examine the ongoing importance of trade secrets as a means of safeguarding intellectual property interests at home and abroad.

            “With the need to focus on patent reform last year and our ongoing comprehensive review of the Copyright Act, it would be easy to neglect trade secrets.  But doing so would be a major mistake.  

            “Trade secrets – proprietary business information that derives its value from being and remaining secret – make up approximately two-thirds of the value of U.S. companies’ information portfolios. American businesses own an estimated $5 trillion dollars of trade secrets, with roughly $300 billion of that stolen per year. 

            “In a 2012 speech, former National Security Director Keith Alexander described cyber espionage as the “greatest transfer of wealth in history,” and many businesses view trade secret protection as more critical than any other form of intellectual property protection.  A 2008 National Science Foundation survey, for example, showed that firms with significant research and development activity reported trade secrets as the most important form of intellectual property protection.  Even companies without research and development activity ranked trade secrets as the second most important form of intellectual property protection, only slightly behind trademarks and ahead of copyrights and patents.

            “The value of trade secrets to U.S. companies is matched only by their tremendous vulnerability to theft.  Innovative technologies have made it easy to obtain information and transfer it across the globe with the click of a cell phone, tablet, or computer key.  At the same time, U.S. companies are increasingly targeted for trade secret theft by competitors, with some foreign governments actively encouraging and facilitating the theft of U.S. trade secrets. 

            “Just this past May, for example, the Justice Department charged five members of the Chinese military with economic espionage.  The defendants are accused of targeting six American companies and conspiring to steal information useful to competitors in China, including enterprises owned by the Chinese government.  This indictment represents a mere tip of the iceberg.  According to FBI Director James Comey, while this case is an important step forward, ‘there are many more victims, and there is much more to be done.’

            “In light of their value and vulnerability, it is critical that our laws provide robust protection for trade secrets.  Unfortunately, that does not seem to be the case.  What we increasingly are hearing from a diverse array of companies – ranging from traditional manufacturers to leading-edge technology firms – is that that lackluster legal protection is a major cause of concern.    

            “Congress has acted before to protect trade secrets at the federal level.  In 1996, we passed the Economic Espionage Act in response to increased incidents against American companies.  And just last Congress, we took steps to improve this law, closing a loophole that allowed theft of certain trade secrets and increasing penalties for economic espionage. 

            “The Economic Espionage Act punishes trade secret theft and economic espionage, which is the misappropriation of trade secrets for the benefit of a foreign government.  The EEA can only be enforced by the Attorney General; there is no federal cause of action for private parties seeking to enforce the law.  As of 2008, fewer than sixty prosecutions had been brought, leading to concern that the Act is an ineffective weapon against economic espionage.

            “Lacking a federal cause of action, companies currently use state laws to protect trade secrets.  While these laws initially developed through particular case decisions and the articulation of governing principles by the American Law Institute, nearly every state has now enacted the Uniform Trade Secrets Act.  The uniform act provides key definitions and a civil cause of action for misappropriation of trade secrets.  A prevailing party may obtain injunctive relief, damages, and reasonable attorneys’ fees in certain cases.  While this system appears to have worked relatively well for local and intrastate disputes, it has not proven efficient or effective for incidents that cross state, and sometimes international, borders. 

            “As we will hear from our witnesses today, a fifty-state system does not work well in our increasingly mobile and globally interconnected world.  Former employees and industrial spies are likely to carry or transfer secret information across state borders or overseas.  The limited jurisdiction of the state court system makes it more difficult to obtain discovery or to act quickly enough to enforce an order that might stop the immediate loss of company secrets. 

            “As a result, our witnesses – who represent a wide range of key stakeholder interests – all support creation of a federal cause of action for trade secret theft.  I, along with several of my colleagues on both sides of the political aisle, similarly favor doing so and we are working on legislation to achieve this.  It would be helpful to hear from our witnesses today regarding any particular issues that should be addressed or avoided in our bill.

            “I believe that we have an opportunity to work quickly and on a broadly bipartisan basis to ensure that our trade secrets law more robustly protects America’s innovators and businesses.  We already protect trademarks, copyrights, and patents through federal civil remedies.  It is time to do the same for trade secrets. 

            “With that, I look forward from hearing from our witnesses today and yield back the balance of my time.”

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