In a February 2019 survey of CNBC Global CFO Council members, one in five North American-based corporations reported that Chinese companies have stolen their intellectual property (including trade secrets) in the last year. Another eight percent of companies in the survey had been targets of Chinese theft sometime in the last decade.
Trade secret theft presents a huge problem for the American economy and the country’s national security. According to one estimate, stolen trade secrets cost the U.S. economy between 1 and 3 percent of GDP, or between $180 billion and $540 billion.
Why China and Chinese-backed entities steal American trade secrets is clear. It is cheaper, quicker and easier for China to boost its domestic economy through theft than it is to invest in research and development. In addition, a stronger Chinese economy means a stronger hand in the world and more leverage on the world stage.
Less clear is how the United States can put a stop to the theft of intellectual property. It’s a complex problem, and the need to prevent trade secret theft has figured prominently in trade talks between the United States, Canada and Mexico.
As the U.S. seeks to crack down on trade secret theft, one tool proving particularly powerful is the American court system. U.S. law provides both criminal and civil penalties for the theft of trade secrets, including up to 10 years in prison and fines in the millions of dollars. The fines were recently increased as a result of bipartisan legislation passed by a Republican Congress in 2016 and signed by a Democratic president.
According to the U.S. Chamber of Commerce, the American government is putting the law to work to stop trade secret theft. The organization’s 2019 IP Index notes that there is “strong evidence that federal prosecution of trade secret theft under the Economic Espionage Act has increased substantially under both the Obama and Trump administrations.” The report also notes that cases have involved corporate actors and foreign nationals.
Of course, not all trade secret theft is a matter of international affairs. Domestic companies often find themselves squaring off in court over allegations of stolen secrets.
Waymo, for example, accused Uber of using a former Waymo-employee to misappropriate secrets involving automated cars. Uber settled the case a few days into the resulting trial for $245 million. Facebook owned virtual reality company Oculus was found guilty by a jury of stealing the secrets of rival ZeniMax Media and ordered to pay $50 million. It eventually settled for less.
In another case, a Texas judge ordered Title Source to pay Internet startup HouseCanary $235.4 million in compensatory damages and $470.8 million in exemplary damages after a jury unanimously determined that TitleSource willfully and maliciously misappropriated HouseCanary’s technology in order to build its own competing product under the guise of a potential business relationship.
News coverage of the case suggests Title Source was caught with its hand in the cookie jar. After Title Source witnesses in the litigation denied creating competing products, HouseCanary discovered Title Source video presentations on the very same competing product they claimed did not exist. HouseCanary also discovered emails where Title Source executives discussed leveraging their access to HouseCanary property to “build [their] own products.” This kind of conduct is the very definition of trade secret theft.
In recent months, there has been commentary on the internet questioning the competency of the jury system and state courts in order to advocate for constraints on trade secret enforcement and protection. Using HouseCanary and other cases, this commentary has suggested that trade secret cases are now too easy to bring and win. This commentary is short-sighted, at a time when so many American companies find their “secret sauce” a target of China.
Trade secret law is a critical tool in the defense of intellectual property. That is true if you are an internet startup like HouseCanary defending your IP from a competitor, or an international corporation that has fallen victim to Chinese spies.
As Americans, we cannot celebrate our trade secret protections when they penalize China but complain when they catch U.S. companies also caught in the act. The law applies to all.
