TPP and trade secrets: a wonderful idea

December 31st, 2015 by Barry Sookman Leave a reply »

The intellectual property chapter of the Trans-Pacific Partnership (TPP) is certainly misunderstood. An example is Article 18.78 which sets minimum standards for trade secret protection among TPP partners. Prof. Dan Breznitz, in a recent Op-Ed in the Globe and Mail, Trans-Pacific Partnership is a wonderful idea – for China, claims it will “seriously restrict entrepreneurship, diminish competition and limit the basic economic freedom of individuals”. He says that, as a result, the TPP is “The delight of Beijing”.

The majority of his article focuses on the perceived problems with Article 18.78 of the treaty which requires parties to provide certain types of protection for trade secrets. The University of Toronto professor asserts this Article “[i]t adds several badly written, ambiguous trade-secret propositions to the law” which would so chill entrepreneurship that by itself it “would cost the U.S. and Canadian economies significantly higher orders of magnitude in terms of lost growth, jobs and welfare than any positive benefits that the TPP might bring.”

He makes these claims without even once referring to the actual text of the treaty or attempting to explain how it would have these dire consequences. An examination of the actual wording of the treaty as well as the treaty history, however, clearly shows that not a single one of his assertions about the trade secret provisions in the treaty can be supported.

What Prof. Breznitz claims

The professor begins with a little history to make the non-contentious points that modern trade secret law recognizes that certain circumstances justify legal protection for trade secrets, but such laws, as a matter of policy, do not apply to information that has been disclosed publicly and further, that the laws are sensitive to rights of individuals to apply their skills and the interest of the public in free and competitive markets. He says:

…the law has evolved to provide much more limited remedies for the disclosure of undisclosed information in a limited set of circumstances, such as breach of contract not to disclose, or breach of trust. Currently, the remedy is available only against those who breached the contract or trust, but not against others who obtained the information. Once the information has been disclosed publicly, the person who disclosed it might be held liable, but everyone else is free to use it.

There are many good reasons for this narrow scope of protection. The broader the scope of what could be considered trade secret and the broader the scope of the remedies and the type of persons who could be liable, the further the protection gets from its limited rationale, and the more it becomes a quo without a quid. At the extremes, trade secrets have been used to make sure that skilled labour is never allowed to work again for any other company, or to start another business.

Since the TPP is “Made in America,” its authors might do well to study the history of Samuel Slater, the man whom 19th-century U.S. president Andrew Jackson called the Father of the American Industrial Revolution.

When the young Mr. Slater decided that his future lay in emigrating to the United States, he faced such draconian trade-secrets laws in his native Britain (which tried to enforce them in a failed attempt to prevent new technology from arriving to the United States) that he had to keep his travel plans secret from family and friends, and disguise himself as a farm labourer. While modern law recognizes certain circumstances that justify limitations on the disclosure of information, it weighs heavily in favour of the rights of individuals to apply their skills and the interest of the public in free and competitive markets.

He then claims that the TPP significantly departs from existing laws in ways that would have dire consequences for Canadian innovators. He says:

The TPP breaks with this tradition in ways that can seriously restrict entrepreneurship, diminish competition and limit the basic economic freedom of individuals. Article 18.78 adopts a potentially very broad concept of a trade secret, a very wide range of activities that might constitute a breach and a very broad potential class of persons who might be liable. Worse, it also calls for criminalization. The potential risk for would-be entrepreneurs to start a business in anything that even remotely relates to their past job are now enormous.

The resulting chill in entrepreneurship alone would cost the U.S. and Canadian economies significantly higher orders of magnitude in terms of lost growth, jobs and welfare than any positive benefits that the TPP might bring…

What the treaty actually requires

Article 18.78 of the TPP would require parties to have certain civil and criminal protections for trade secrets.

The requirements for civil protection for trade secrets are set out in paragraph 1 of Art.18.78. It states the following:

In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention, each Party shall ensure that persons have the legal means to prevent trade secrets lawfully in their control from being disclosed to, acquired by, or used by others (including state-owned enterprises) without their consent in a manner contrary to honest commercial practices.136 As used in this Chapter, trade secrets encompass, at a minimum, undisclosed information as provided for in Article 39.2 of the TRIPS Agreement.

As noted from the paragraph, the information that must be protected is undisclosed information as provided for in Article 39.2 of the (WTO GATT) TRIPS Agreement. The TRIPs Agreement protects trade secrets so long as such information

(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

The scope of protection to be provided is set out in TPP footnote 136 which explains that the phrase “in a manner contrary to honest commercial practices” means “at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties that knew, or were grossly negligent in failing to know, that those practices were involved in the acquisition.”

As noted above, Prof. Breznitz claims that the TPP’s civil requirements breaks with “tradition”, “adds several badly written, ambiguous trade-secret propositions to the law”, and adopts “a potentially very broad concept of a trade secret”. Yet, as shown in the table below, the TPP’s civil obligations are substantially identical to the international standard obligation for the protection of trade secrets set out in Art. 32.2 of the 1994 TRIPs Agreement which 162 countries and territories worldwide – including Canada and China – agreed to. It is also substantially identical to the obligations in respect of trade secrets Canada, the US, and Mexico agreed to in Article 1711 of NAFTA.

TPP TRIPs NAFTA
General scope of obligation “In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention, each Party shall ensure that persons have the legal means to prevent trade secrets lawfully in their control from being disclosed to, acquired by, or used by others (including state-owned enterprises) without their consent in a manner contrary to honest commercial practices.”

 

“In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2…”

“Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices”.

“Each Party shall provide the legal means for any person to prevent trade secrets from being disclosed to, acquired by, or used by others without the consent of the person lawfully in control of the information in a manner contrary to honest commercial practices”.
Specific scope of obligation “a manner contrary to honest commercial practices” means at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties that knew, or were grossly negligent in failing to know, that those practices were involved in the acquisition.” “a manner contrary to honest commercial practices” shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.” “in a manner contrary to honest commercial practices means at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by other persons who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition”.
Information protected “(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

“(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

“(a) the information is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons that normally deal with the kind of information in question;

(b) the information has actual or potential commercial value because it is secret; and

(c) the person lawfully in control of the information has taken reasonable steps under the circumstances to keep it secret.”

Far from adding anything new, this requirement in the TPP merely repeats well understood concepts. In the common law provinces throughout Canada, the foundation for protecting trade secrets is sui generis and rests, in part, on the traditional jurisdictional bases of contract, equity and property to enforce the policy of the law that confidences be respected.[1] Canadian laws that protect trade secrets and other confidential information already fully comply with the TPP’s requirements for civil law protection of trade secrets.[2]

Contrary to the suggestions of Prof. Breznitz, the TPP obligations:

  • do not require protection of information that is publically available;
  • do not prevent the use of general skills and knowledge of employees or inhibit the use of this information for new employers;
  • limit the scope of the obligations to those historically justified under Canadian law; and
  • do not create any new risks that would hinder innovation or entrepreneurship.

In fact, far from stifling innovation, the policies behind protection of industrial trade secrets reflected in the treaty would both encourage invention and maintain standards of commercial ethics, good faith, and honest and fair dealing.[3]

Prof. Breznitz’s second assertion is that the TPP’s requirement for criminal sanctions poses great risks.

It is even harder to divine why Prof. Breznitz has any concerns about this aspect of the TPP. The actual requirements of the treaty, which he never refers to, gives parties a choice of providing criminal sanctions for 1 out of 3 types of offenses listed in paragraph 2 of Article 18.78 and then further limits the availability of criminal procedures to 1 out of 5 cases listed in paragraph 3 of Article 18.78. The implementation choices are depicted in the table below.

Types of offenses (Para 2)

Must protect at least one of the following:

(a) the unauthorised and wilful access to a trade secret held in a computer;

(b) the unauthorised and wilful misappropriation (or unlawful acquisition) of a trade secret, including by means of a computer system; or

(c) the fraudulent disclosure, or alternatively, the unauthorised and willful disclosure, of a trade secret, including by means of a computer system.

Cases in which the offenses must apply (Para 3)

Permits the parties to limit the availability of its criminal procedures, or limit the level of penalties available, to one or more of the following cases in which:

(a) the acts are for the purposes of commercial advantage or financial gain;

(b) the acts are related to a product or service in national or international commerce;

(c) the acts are intended to injure the owner of such trade secret;

(d) the acts are directed by or for the benefit of or in association with a foreign economic entity; or

(e) the acts are detrimental to a Party’s economic interests, international relations, or national defence or national security.

It is hard to conceive why Prof. Breznitz believes that these requirements would pose any chill or any economic costs to Canada, let alone costs that could negate “any positive benefits that the TPP might bring”.

For example, it is hard to argue that state sponsored computer hacking to steal trade secrets of Canadian businesses should not be illegal. It is even harder to understand how such a law could impede any legitimate Canadian business, or prevent Canadians from developing new and innovative products or services. Not surprisingly, this type of activity is already a crime (Economic Espionage) under Section 19 of the Security of Information Act (Canada).

By way of further example, it seems quite sensible to criminalize computer hacking (the unauthorized and wilful access to data in a computer) for commercial advantage or financial gain or where the acts are detrimental to Canada’s economic interests, international relations, or national defence or national security. Not surprisingly, the Criminal Code already has offenses that address certain forms of computer hacking (s.342.1) and mischief in relation to data (s.430).

Prof. Breznitz criticizes the TPP trade secret provisions claiming that “rather than modernize intellectual property rights for the 21st century, the TPP authors appear keen to return us to the era of 19th-century trade secrets”. He is right that the protection of industrial trade secrets has a long lineage going back more than a century. However, computer hacking for the purpose of accessing and misappropriating trade secrets by state and state sponsored and organized crime and by other hackers has become one of the 21st century major economic threats which needs to be aggressively countered. This has been recognized by Canadian authorities and is an important component of Canada’s Cyber Security Strategy and the just announced RCMP Cybercrime Strategy. Part of this modernization should include re-examining our laws including criminal laws to ensure they adequately address the new and extremely serious cyber-security threats that all Canadians face.

Dan Breznitz is a professor at the Munk School of Global Affairs at the University of Toronto. It is not surprising, therefore, that when he publishes an editorial about a topic as important as the TPP in one of Canada’s national newspapers, it will be widely read and commented on. Not surprisingly, Glyn Moody published an article on Techdirt, TPP’s Forgotten Danger: Stronger Trade Secrets Protection, With Criminal Penalties For Infringement in which he quotes at length from Prof. Breznitz’s article. Then after quoting from the passages in which the professor predicts widespread innovation chills as a result of the TPP’s trade secret provisions he concludes by saying:

That’s a bold claim, but, if true, suggests that TPP could be an extremely bad deal for the US. At the very least, it deserves some serious research to investigate the issue

Prof. Breznitz’s claims are not factually true for Canada (for the reasons given above) and are not accurate for the U.S. either. The U.S., like Canada, is a member of the TRIPs Agreement and is a partner in NAFA. Both these international instruments contain substantially identical civil law obligations to protect trade secrets. The TPP’s civil law obligations thus add nothing new to existing U.S. international obligations. The U.S. also protects trade secrets using both the common law and statutory law and already has state and federal criminal laws that address trade secret theft.[4]

Other claims made by Prof. Breznitz

Prof. Breznitz’s article also makes vague claims about other aspects of the intellectual property chapter of the treaty. He does so giving no specifics, but his assertions relate to certain patent and copyright aspects of the treaty. Claims that these portions of the treaty are problematic have been thoroughly disputed including in the following articles:

________________________

[1] Cadbury Schweppes In. v. FBI Foods Ltd., [1999] 1 S.C.R. 142, LAC Minerals Ltd. v. International Corona Resources Ltd. (1989), 26 C.P.R. (3d) 97 (S.C.C.), Merck Frosst Canada Ltd. v. Canada (Health), 2012 SCC 3. In Quebec, see, Matrox Electronic Systems Ltd. v. Gaudreau, [1993] R.J.Q. 2449 (C.S.).

[2] Ibid; see, also Canadian Generic Pharmaceutical Association v. Canada (Health), 2009 FC 725 at para 119 “The provisions of NAFTA and TRIPS reference data, that is secret or undisclosed, that was the subject of reasonable steps to ensure secrecy; that was the product of considerable effort and with commercial values, which equates with the criteria for trade secrets/ confidential information at common law.  Justice Cumming, in CPC International Inc. v.  Seaforth Creamery Inc., [1996] O.J. No. 3393 (Ont. Gen. Div.), stated at  para. 22:

“Trade secrets” and “confidential information” are not easily definable with exhaustive precision, but once ascertained constitute proprietary rights.  A useful description as to what is to be considered in determining what is and what is not a trade secret or privileged confidential information is seen in Software Solutions Inc. v. Depow (1989), 25 C.P.R. (3d) 129 (N.B.Q.B.) at 138-139. To constitute a trade secret, the information must not be of a general nature, but must be specific.  The specific information must not be generally known to the public but it may be acquired from materials available to the public with the expenditure of time and effort.  The owner of that specific information must treat it as confidential and it must be clear that the owner regards the information as secret.  The information should only be communicated to an employee on a need-to-know basis and within the constraint that the owner shows his/her intention to maintain the secrecy of the information.  If there is disclosure to a third party beyond the employment relationship, the owner should require of that party that there cannot be disclosure or use in any way not authorized expressly by the owner.”

[3] Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974). See also the references in endnote 4 below.

[4] See, The Case for Enhanced Protection of Trade Secrets in the Trans-Pacific Partnership Agreement, published by the U.S. Chamber of Commerce, pp 32-34; Protection of Trade Secrets: Overview of Current Law and Legislation, Congressional Research Service, September 5, 2014

 

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