F. Vincent Vernuccio,
Some laws merely protect potential individual or corporate victims. Trade secret laws protect the entire nation, but they are being challenged in a manner that could produce serious harm both to America’s economy and to its national security.
In the information age of the 21st century, research and development is the new bedrock of the most successful companies, and, indeed, most successful nations. When the results of many years of research and extensive investment are stolen, the harm extends to the shareholders of a corporation and the taxpayers of a nation. But the harm doesn’t stop there. Corporations lose the incentive to further invest in innovation which could spark an entire economy. Taxpayers, particularly in the case of secrets with military application, are placed in the terrible situation of having paid for technology which an adversary will use to threaten their safety.
In an effort to counter large-scale theft of U.S. trade secrets by China, the Trump Administration announced the creation of its “China Initiative” in November 2018. One year later, statistics show that the Trump China Initiative has been a success. According to a recent examination by the Washington Times, the Department of Justice secured guilty pleas and convictions in eight trade secret cases last year and made indictments in 10 more cases involving individuals and entities linked to China. That’s a three-fold increase over the previous year.
The move, part of President Trump’s successful reviving of the American economy, was a significant departure from the former Administration, which failed to charge a single individual for spying for China from 2013 to 2016. This lack of action came despite estimates that trade secret theft costs the U.S. as much as $540 billion each year. The crack down on Chinese trade secret theft represents another promise by this White House. As a candidate in 2016, the president proclaimed that if elected he would “use every lawful presidential power” to stop trade secret theft. As his first term enters its last year, the evidence shows this is exactly what he has done.
In addition to refocusing the DOJ on trade secrets, the president has made the issue a center piece of trade talks. The agreement reached between the Trump administration, Canada and Mexico elevates the protection of trade secrets across North America, and the president’s hardline in trade talks with China is due in part to his insistence that intellectual property protections be increased there as well.
The Trump Administration has been tough on domestic theft as well. In August, for example, the DOJ announced a criminal indictment against a former Waymo self-driving car engineer accused of illegally taking secrets from his old company. This indictment follows similar action in other cases involving domestic theft, including one ensnaring former employees of Fitbit and Jawbone.
Despite the significant benefit to the U.S. economy and its national security, some have argued for a weakening of trade secret statutes, particularly in domestic matters.
Much of this commentary has focused on a case in Texas involving San Antonio-based real estate company HouseCanary and its competitor, Amrock.
According to reports, the two real estate companies signed a contract in 2015 through which HouseCanary would supply real estate valuation services to Amrock. In court, HouseCanary alleged that once the two companies signed that contract, Amrock collected a “‘critical mass” of information about HouseCanary’s home appraisal tool and then used that information to “secretly replicate” its own product.
After a nearly two-month trial, the jury agreed with HouseCanary, and ordered Amrock to pay $235 million for fraud and misappropriation and another $471 million in damages. Amrock moved for a new trial claiming whistleblowers had uncovered false information supplied at trial. Amrock lost that motion.
Those who would set a different standard for domestic trade secret theft suggest the verdict and large award in this case are signs that the U.S. judicial system is unequipped to handle these disputes. What these observers seem to miss is the fact that Amrock’s misappropriation of HouseCanary’s intellectual property represents the exact behavior President Trump is trying to prevent from happening beyond our shores. Suggesting such theft should go unpunished here is an affront to intellectual property rights and counterproductive to what the Trump administration is trying to achieve internationally.
As the Attorney General argued during his roll-out of the China Initiative last November, trade secret theft is “unlawful” in the United States. That’s true whether the theft occurs at the hands of the Chinese or a rival company based in another state.
Frank Vernuccio serves as editor-in-chief of the New York Analysis of Policy & Government