[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                TRADE SECRETS: PROMOTING AND PROTECTING
                  AMERICAN INNOVATION, COMPETITIVENESS
                  AND MARKET ACCESS IN FOREIGN MARKETS

=======================================================================



                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                     COURTS, INTELLECTUAL PROPERTY,

                            AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 24, 2014

                               __________

                           Serial No. 113-97

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov




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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Courts, Intellectual Property, and the Internet

                 HOWARD COBLE, North Carolina, Chairman

                TOM MARINO, Pennsylvania, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         JERROLD NADLER, New York
Wisconsin                            JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas                   JUDY CHU, California
STEVE CHABOT, Ohio                   TED DEUTCH, Florida
DARRELL E. ISSA, California          KAREN BASS, California
TED POE, Texas                       CEDRIC RICHMOND, Louisiana
JASON CHAFFETZ, Utah                 SUZAN DelBENE, Washington
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                ZOE LOFGREN, California
RON DeSANTIS, Florida                SHEILA JACKSON LEE, Texas
JASON T. SMITH, Missouri             STEVE COHEN, Tennessee
[Vacant]

                       Joe Keeley, Chief Counsel

                    Heather Sawyer, Minority Counsel



                            C O N T E N T S

                              ----------                              

                             JUNE 24, 2014

                                                                   Page

                           OPENING STATEMENTS

The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Chairman, Subcommittee on Courts, 
  Intellectual Property, and the Internet........................     1
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     3
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Ranking Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     4

                               WITNESSES

Richard A. Hertling, Of Counsel, Covington & Burling LLP, Protect 
  Trade Secrets Coalition
  Oral Testimony.................................................     7
  Prepared Statement.............................................    10
David M. Simon, Senior Vice President for Intellectual Property, 
  salesforce.com Inc.
  Oral Testimony.................................................    21
  Prepared Statement.............................................    23
Thaddeus Burns, Senior Counsel, Intellectual Property & Trade, 
  General Electric
  Oral Testimony.................................................    33
  Prepared Statement.............................................    35
Chris Moore, Senior Director, International Business Policy, 
  National Association of Manufacturers
  Oral Testimony.................................................    44
  Prepared Statement.............................................    46

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Doug Collins., a 
  Representative in Congress from the State of Georgia, and 
  Member, Subcommittee on Courts, Intellectual Property, and the 
  Internet.......................................................    68


                      TRADE SECRETS: PROMOTING AND

                    PROTECTING AMERICAN INNOVATION,

                   COMPETITIVENESS AND MARKET ACCESS

                           IN FOREIGN MARKETS

                              ----------                              


                         TUESDAY, JUNE 24, 2014

                        House of Representatives

            Subcommittee on Courts, Intellectual Property, 
                            and the Internet

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 2:49 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Howard 
Coble (Chairman of the Subcommittee) presiding.
    Present: Representatives Coble, Marino, Goodlatte, Issa, 
Holding, Collins, DeSantis, Nadler, Conyers, Chu, DelBene, 
Jeffries, Cicilline, and Lofgren.
    Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee, 
Clerk; (Minority) Heather Sawyer, Minority Counsel; and Jason 
Everett, Counsel.
    Mr. Coble. The Subcommittee on Courts, Intellectual 
Property, and the Internet will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Subcommittee at any time.
    I want to additionally apologize to all of you for the 
delay. We had several House votes. They do come--claim 
precedence over the rest of us, so thank you all for 
understanding.
    I will give my opening statement now. The intellectual 
property comes in a variety of flavors. This Subcommittee works 
regularly on issues concerning patents, trademarks, and 
copyrights when considering IP in both the domestic and 
international context, but today we are here to talk about 
trade secrets. Trade secrets are another important part of the 
IP landscape.
    For example, one of the most famous trade secrets in the 
world is the formula for Coca-Cola, and I am being very 
provincial now, but I am certain that there are a number of 
Carolina BBQ spices as well. Hopefully.
    Trade secrets require no formal registration and can be 
protected for an unlimited time, but unlike patent protection, 
once a trade secret is disclosed, it instantly loses its value 
and the property right itself ceases to exist.
    Further, there is no protection if a trade secret is 
uncovered unlawfully by others through reverse engineering or 
independent development. So there are definite tradeoffs 
between secured patent protection or could be an innovation of 
a trade secret. The United States has many laws in place to 
protect trade secrets, and in fact, we passed two trade secret 
bills during the last Congress; one fixing a loophole regarding 
computer source code and the other involved some criminal 
penalties for economic espionage. And as folks consider other 
ideas, in the future, we need to be mindful of unintended 
consequences and ensure that improvements to the code are 
meaningful and necessary and not being done simply because we 
can do it.
    But as our companies operate on a global scale, at issue, 
most pressing concern to Congress is how certain foreign 
governments have begun adopting policies that determine trade 
secret protection and create an unlevel playing field for 
America's most innovative companies. Six countries promote 
trade secret theft by producing policies that result in forced 
technology transfer. These trade-distorted policies may seem 
benign but are nothing more than legalized theft, it seems to 
me, since policies force U.S. companies to provide trade secret 
information to a local partner or government agency as a 
condition of investment or market access.
    Some countries have begun looking for a compulsory 
licensing of trade secrets to a third party. This is done to 
help a local competitor that claims it needs access to the 
trade secret to compete. Generally, this is just not right, it 
seems to me. The Administration needs to be using all of its 
trade tools, including action at the WTO, to help ensure that 
countries that promote such policies are held to account. I 
hope to hear more today from our witnesses in the steps that 
need to be taken to promote trade secret protection, 
America's--American innovation, economy, and create jobs.
    I am now pleased to recognize the distinguished gentleman 
from Michigan, Mr. Conyers, for his opening statement
    Mr. Conyers. Thank you, Chairman Coble.
    I join in welcoming the witnesses and look forward to this 
hearing. We are examining the trade secret laws and consider 
whether there should be revisions or updates in the law.
    Let me say that copyright, patent, and trademark owners can 
enforce their rights in Federal court. Trade secret owners 
should have a similar remedy. Indeed, trade secrets are 
critical intellectual property rights and should receive 
protection of Federal laws in addition to the State laws that 
have traditionally protected them.
    People are now able to travel across the State and national 
borders more easily, and many United States companies are 
finding that reliance on State laws and procedures is no longer 
adequate for trade secret protection. The inability of private 
parties to protect trade secrets in Federal court has generated 
calls for legislation to create such a right. Those who support 
such a right have noted that a Federal cause of action would 
give companies a critical tool to enforce their rights. A 
Federal civil cause of action would create national standards 
and allow companies to craft one set of nondisclosure policies 
on a 50 State basis.
    I want to hear the witnesses discuss the benefits and 
potential down side of a Federal cause of action as well as any 
specific issues that we should address in such legislation. We 
should consider what we can do to bolster the Administration's 
efforts to increase protection for trade secrets at home and 
abroad.
    In 2013, the Administration, through the U.S. Intellectual 
Property Enforcement Coordinator, released the Administration 
strategy on mitigating the theft of U.S. trade secrets, a five-
pronged strategic approach to addressing trade secret theft. 
That secret strategy calls for coordinated international 
engagement with trading partners, promotion of voluntary best 
practices by private industry, enhancement of domestic law 
enforcement operations, improvement of domestic legislation 
regarding trade secrets, and increased public awareness. The 
Administration also has expressed concerns about new reports, 
suggesting that some countries, most notably China, are playing 
an increasingly active role in theft of U.S. trade secrets. In 
response, the Administration has increased its enforcement 
efforts in this area as well.
    In May of this year, for example, the Justice Department 
indicted five Chinese military hackers for economic espionage 
and trade secret theft for ongoing offenses involving six 
American companies. That indictment is a step in the right 
direction, but of course, much more remains to be done.
    I look forward to hearing more about this from our 
witnesses and what we can and should do to strengthen trade 
secret laws. I thank the Chairman and yield back the balance of 
my time.
    Mr. Coble. I thank the gentleman.
    The Chair recognizes the distinguished gentleman from 
Virginia, the Chairman of the House Judiciary Committee, Mr. 
Goodlatte for an opening statement
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Today we examine an important area of intellectual property 
trade secrets. Trade secrets occupy a unique place in the IP 
portfolios of our most innovative companies. They can include 
confidential formulas, manufacturing techniques, and even 
customer lists, but because they are unregistered and not 
formally reviewed like patents, there are no limitations on 
discovering a trade secret by fair lawful methods, such as 
reverse engineering or independent development. In innovative 
industries, that is simply the free market at work.
    Though trade secrets are not formally reviewed, they are 
protected from misappropriation, which includes obtaining the 
trade secret through improper or unlawful means. And 
misappropriation can take many forms, whether it is an employee 
selling blueprints to a competitor or a foreign agent hacking 
into a server. In addition, one could argue that even a foreign 
government's policies to require forced technology transfer is 
a form of misappropriation. Though most States base their trade 
secret laws on the Uniform Trade Secrets Act, the Federal 
Government protects trade secrets through the Economic 
Espionage Act.
    In the 112th Congress, this Committee helped enact two 
pieces of legislation to improve the protection of trade 
secrets. As other ideas are developed to improve trade secrets 
protection, it is important that we take the time to ensure 
that any new measures do not increase frivolous litigation or 
discovery costs, do not negatively impact our international 
trade obligations, or result in other negative unintended 
consequences, and that any measure ultimately provides a 
meaningful benefit to innovators and innovative companies.
    On the international front, the theft of trade secrets does 
not just come from the employee theft or industrial and 
economic espionage but also from foreign governments 
themselves. Some of it is plain cyber theft, but many countries 
have also begun adopting policies that severely undermine trade 
secrets. These policies, invariably designed to promote local 
innovation, result in forced technology transfers that open 
American companies to the blatant theft of their intellectual 
property. These trade distortive policies are anti-innovation, 
anti-competitive, and prevent fair market access in foreign 
markets.
    If a country requires technology transfer as a condition 
for regulatory approval or market access, that is wrong. If a 
country uses their State-owned enterprises to seek 
noncommercial terms from American companies for their IP, that 
is wrong. Such policies amount to legalized theft. In the 2014 
U.S. Trade Representatives Special Report 301--Special 301 
Report, China was specifically called out to take serious steps 
to put an end to these activities and to deter further activity 
by rigorously investigating and prosecuting trade secret thefts 
conducted on by both cyber and conventional means.
    When a country fails to provide basic legal protections for 
intellectual property, then we need to start thinking outside 
the box, looking at all of our trade tools. We need to start 
thinking creatively, utilizing our IP Attaches in U.S. 
Embassies, ensuring they have sufficient authority and 
resources, and we need to start considering our options for 
actions at the WTO.
    Intellectual property powers the engine of American 
innovation and creativity. It creates new jobs and helps grow 
our economy. I look forward to hearing from all of our 
witnesses on the issues surrounding trade secrets.
    Thank you, Mr. Chairman.
    Mr. Coble. I thank the gentleman.
    The Chair now recognizes the distinguished gentleman from 
New York, the Ranking Member of the Subcommittee, Mr. Nadler.
    Mr. Nadler. Thank you, Mr. Chairman, 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 the 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 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 of 
trade secrets with roughly $300 billion of that stolen per 
year; $300 billion worth of theft a 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. The 2008 National Science Foundation 
survey, for example, show that firms with significant research 
and development activity reported trade secrets as the most 
important form of intellectual property protection. Even 
companies without R&D activity rank 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 mast May, for example, the Justice Department 
charged 5 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 hear--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 this last Congress, we took steps to improve this law, 
closing a loophole that allowed the theft of certain trade 
secrets and increasing penalties for economic espionage. The 
Economic Espionage Act publishes trade secret theft and 
economic espionage, which is a misappropriation of trade 
secrets for the benefit of a foreign power.
    The EEA can only be enforced by the Attorney General. There 
is no Federal cause of action for a private party seeking to 
enforce the law. As of 2008, fewer than 60 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 were 
initially developed through particular case decisions in their 
articulation of governing American principles by the American 
Law Institute, nearly every State has now enacted the Uniform 
Trade Secrets Act. The Uniform Act provides key definitions in 
a civil cause of action for misappropriation of trade secrets. 
A prevailing party may obtain injunctive relief, damages, and 
reasonable attorney's 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 you will hear from our witnesses 
today, our 50 State system does not work 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. Along with several of 
my colleagues on both sides of the political aisle, I similarly 
favor doing 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 such a bill. I believe that we have an opportunity 
to work quickly and in 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 civil--through Federal civil 
remedies. It is time to do the same for trade secrets.
    With that, I look forward to hearing from our witnesses 
today, and I yield back the balance of my time.
    Mr. Coble. I thank the gentleman for his opening statement. 
Statements from all other Members of the Subcommittee will be 
entered into the record without objection.
    The witnesses written statements will be entered into the 
record in its entirety as well.
    Gentlemen, prior to introducing you, I would like for you 
to stand and be sworn, if you will.
    [Witnesses sworn.]
    Mr. Coble. Let the record reflect that all responded in the 
affirmative. You may be seated.
    We have a very distinguished panel today, and I am pleased 
to welcome you with us. I, again, apologize for the belated 
response.
    Our first witness this afternoon is Mr. Richard Hertling, 
Counsel of the Washington law firm of Covington & Burling, LLP. 
He is here today to testify on behalf of the Protect Trade 
Secrets Coalition. In his position, Mr. Hertling advises 
clients in the technology, intellectual property, and defense 
of cybersecurity legislative matters. Prior to his position at 
Covington, Mr. Hertling served this Committee with distinction 
for almost 5 years, most recently as Staff Director and Chief 
Counsel. He has also held numerous leadership positions in the 
Department of Justice and the U.S. Senate throughout his 23-
year career in the Federal Government. He was awarded his J.D. 
degree from the University of Chicago School of Law and his 
bachelor's degree, magna cum laude with honors, from Brown 
University. We welcome Mr. Hertling back to the Committee and 
back to the Hill.
    Our second witness, Mr. David Simon, Senior Vice President 
of Intellectual Property of Salesforce.com. In his position, 
Mr. Simon is responsible for the company's intellectual 
property portfolio worldwide. Prior to his position at 
Salesforce.com, he served as Chief Patent Counsel at Intel 
Corporation and Vice President of IP Strategy and Licensing at 
Rovi Corporation. Mr. Simon received his J.D. degree from 
Georgetown University Law Center and his S.B. in Electrical 
Engineering and Political Science from the Massachusetts 
Institute of Technology.
    Mr. Simon, good to have you with us as well.
    Our third witness is Mr. Thaddeus Burns, member of the 
Trade Secrets Committee at IPO, the Intellectual Property 
Owners Association. IPO focuses on providing practical 
education on the topic of trade secrets to the organization's 
membership and to the public. Mr. Burns is currently Senior 
Counsel for Intellectual Property and Trade at General 
Electric. Prior to GE, he has served as Senior Counsel at Akin, 
Gump, Strauss, Hauer & Feld, the Intellectual Property Attache 
in Geneva with USPTO and a law clerk with the U.S. Court of 
Appeals for the Fourth Circuit. Mr. Burns received his J.D. 
from the Catholic University of America, Columbus School of Law 
and his bachelor degree from Oberlin College.
    Mr. Burns, good to have you with us.
    Our final witness is Mr. Christopher Moore, Senior Director 
of International Business Policy at the National Association of 
Manufacturers. Prior to his position at NAM, Mr. Moore served 
as Director of Strategic Planning and Deputy Director of Policy 
with the United Nations World Food Programme. He also held 
senior positions in the State Department and the Office of the 
U.S. Trade Representative. He is an alumnus of Emory University 
and the London School of Economics.
    Mr. Moore, good to have you with us.
    Gentlemen, you will note there is a timing machine on your 
table, and we would ask for you to comply with the 5-minute 
rule, if you can. When the green light changes to amber, that 
is your notice that you have 5 minutes on which to wrap up. You 
won't be severely punished if you don't make that minute cut, 
but do the best you can.
    Mr. Hertling, we will start with you.

   TESTIMONY OF RICHARD A. HERTLING, OF COUNSEL, COVINGTON & 
          BURLING LLP, PROTECT TRADE SECRETS COALITION

    Mr. Hertling. Thank you very much, Chairman Coble, Ranking 
Member Nadler, Ranking Member Conyers. Thank you for inviting 
me to testify before this Subcommittee today on trade secrets. 
It is indeed a distinct honor and privilege for me to be here 
to discuss this important topic. I appreciate that my written 
statement will be included in the record of the hearing, and I 
will focus my oral testimony on the background to the existing 
Federal legal landscape on trade secrets, as Committee staff 
requested.
    My firm represents the Protect Trade Secrets Coalition, a 
cross-industry-sectors coalition of companies supporting 
legislation to complement the criminal penalties provided by 
the Economic Espionage Act of 1996 and protect the property 
interest that exists in trade secrets by creating a Federal 
civil remedy for trade secret misappropriation, similar to the 
remedies available for other forms of intellectual property.
    As you know, immediately prior to joining Covington & 
Burling, I was staff director of this Committee, but among the 
matters with which I was involved earlier in my congressional 
career was the bill that became the Economic Espionage Act of 
1996. As far back as the mid-19th century, State common law 
provided protection of state--of trade secrets from 
misappropriation, and the traditional means of enforcing the 
law has been through a private civil lawsuit. Trade secrets, as 
several members have described, are commercially valuable 
information subject to reasonable measures to protect the 
confidentiality of that information.
    The protection of trade secrets in the United States has 
been left largely to State laws. The ad hoc pattern of 50 
different State laws started to change in the 1980's when 
States began to codify their trade secret laws by adopting 
provisions of the Uniform Trade Secrets Act, a model law 
developed by the National Commission on Uniform State Laws.
    The development of an economy driven by technological 
advances, however, and increasing globalization of businesses 
and supply chains made trade secrets more valuable in 
interstate and international commerce and also more susceptible 
to misappropriation. Industry in the U.S. started to recognize 
that some foreign governments and firms were competing unfairly 
with U.S. competitors by stealing their trade secrets. Domestic 
firms were seeing their crown jewels stolen and taken overseas 
where firms with no investment to recoup could make the product 
and sell it for much less than the victimized U.S. firm. 
Investment and jobs were at stake in the United States.
    The remedy for this form of theft, however, remained 
entirely in the hands of State law. In effect, the same tools 
available in the 1890's were the only ones still available in 
the 1990's, and so Congress came to consider the issue and 
ultimately enacted in 1996 the Economic Espionage Act.
    During congressional consideration of that act, a number of 
firms requested that the bill include a private Federal civil 
remedy for the misappropriation of a trade secret to complement 
the criminal and civil injunctive remedies the bill gave to the 
Federal Government. That request, however, was made at the very 
end of the process, after a consensus on the bill had been 
achieved.
    Although the addition of a private Federal civil remedy was 
seen as valuable, it was thought that the proposal needed to be 
vetted on its own terms and for its own merits. The intent was 
that Congress could turn to it the following year. The failure 
to include in the EEA, essentially a criminal statute, an 
ability for victimized firms to seek a civil remedy in Federal 
court was due only to the timing and not in any way to the 
merits of the proposal to include Federal civil remedy. For a 
variety of reasons, primarily that congressional attention on 
intellectual property was taken up first by what became the 
Digital Millennium Copyright Act and, subsequently, by patent 
reform, the addition of a civil trade secrets remedy wound up 
lying dormant for a number of years only to be renewed recently 
by Members of both Chambers, including Members of this 
Committee.
    Since enactment of the Economic Espionage Act, the problem 
with trade secret theft has grown dramatically. Foreign 
competitors continue to try to steal their way to success on 
the back of intellectual property developed here in the United 
States. The FBI, however, has many priorities and limited 
resources and cannot respond to every reported theft of trade 
secrets, even by foreign individuals and firms. Just as we rely 
on both criminal law and civil litigation as complementary 
tools to protect property interests in other areas, we should 
do so in this area as well.
    A Federal civil remedy for trade secret misappropriation 
would provide an important addition to existing protections for 
trade secrets at the Federal and State levels and could bolster 
our economy and save U.S. jobs at no additional cost. In 
addition, it would help protect and promote U.S. interests 
around the world. Many countries do not provide adequate legal 
protection for trade secrets, and these weak regimes present 
significant risks for U.S. firms seeking to expand operations 
globally. Enhancing our own legal protections for trade secrets 
would serve as a model for other countries and arm our trade 
negotiators with a model they could point other countries to 
and encourage them to follow.
    I thank you for your attention and will be pleased to 
respond to any questions. If I might just very briefly be 
permitted an additional moment to recognize Chairman Coble, who 
will be retiring at the end of this year, and thank him very 
much for his kindness to me during my service on the Committee 
and acknowledge his lifetime of dedicated service to our 
country, his State, and the people of the Sixth District of 
North Carolina, and particularly his work on IP issues during 
his career. Thank you.
    [The prepared statement of Mr. Hertling follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
    Mr. Coble. Mr. Hertling, I thank you for that. I was going 
to recognize you and welcome you back to the Hill, whether you 
had made that comment or not, but I thank you for that. I think 
you are the only witness, Mr. Hertling, who did have Hill 
experience, so it is good to have you back on the Hill.
    Mr. Hertling. Thank you.
    Mr. Coble. Good to have the other three witnesses as well.
    Mr. Simon, you are recognized for 5 minutes.

    TESTIMONY OF DAVID M. SIMON, SENIOR VICE PRESIDENT FOR 
           INTELLECTUAL PROPERTY, SALESFORCE.COM INC.

    Mr. Simon. Thank you, Mr. Chairman.
    Mr. Coble. Mr. Simon, pull that mike a little closer to 
you. I'm not sure you're on yet.
    Mr. Simon. Okay.
    Mr. Coble. That is better.
    Mr. Simon. Thank you, Mr. Chairman, Ranking Member Nadler, 
and Members of the Judiciary Committee. I want to thank you for 
the opportunity to discuss the need for a Federal trade secret 
law on behalf of Salesforce.com.
    Trade secrets are vital and important to us. Having been 
named Forbes magazine's most innovative company for the last 3 
years, trade secret law is central to protecting our 
intellectual property. Unlike conventional software, almost all 
our software stays in our data centers. Our customers entrust 
their own and their user status for storage by us so their data 
can be processed by our servers. Yet it is vital and important 
to us that any legislation take into account some fundamental 
differences that have arisen as a result of Internet business 
models, such as the ones we use, in contrast to old rules based 
on seizure for physical goods.
    Trade secrets differ from other forms of IP in several 
respects, as many have noted. No government agency needs to 
examine our secrets to obtain protection as opposed to patents 
or trademarks. Unlike copyrights, no registration is required 
before filing a lawsuit. Protection is immediate. As long as 
our secret information is not accessible to others, has actual 
or potential value, and is subject to reasonable efforts to 
keep it secret, the law in the U.S. provides, while disparate, 
powerful civil and criminal remedies to stop others who try to 
steal our own or our customers secrets. Given the simplicity of 
this protection and these strong sanctions, it is little wonder 
that the National Science Foundation found by a factor of two, 
U.S. managers believe trade secrets are the most important form 
of IP protection available.
    We appreciate the need for both a strong trade secret 
protection and strong remedies. I was involved in one of the 
earliest Economic Espionage Act prosecutions and the ability to 
seizure the stolen trade secrets hidden in the thief's house 
was key to the success of the prosecution. However, many of the 
proposals that we have seen provide a seizure power to private 
civil litigants that we view is far too strong. They fail to 
take into account the differences between trade secrets and 
other IP that I just outlined and the difference between 
physical goods and the Internet economy.
    The seizure provisions fail to even take into account that 
often what is involved is third party's property. If one 
assumes that one of our 100,000 customers has misappropriated 
someone's secrets, that does not justify having marshals enter 
our storage networks and starting to seize our disk drives. Not 
only are these drives our property, but the way our proprietary 
workload and security protocols for data storage work, the data 
for any one customer is highly likely to be intermixed with the 
data of hundreds of other customers on any one disk drive. Any 
drive that were seized would probably also include dozens, if 
not hundreds of third party secrets. Seizure of the drives also 
is likely to result in business interruption for the dozens or 
hundreds of innocent customers whose data is seized. For these 
reasons alone, we believe that ex parte seizures of innocent 
third parties who host data for others should be prohibited.
    Further, proposed in these overly generous ex parte 
provisions point too often to counterfeit marks and copyrights 
to justify their position regarding seizures from third 
parties. However, that ignores fundamental differences between 
trademarks and trade secrets. Marks and copyrights in seizure 
matters are almost invariably concerning physical things. Trade 
secrets, by their very nature, ethereal. Unlike trademarks and 
copyrights, trade secrets do not require any form of government 
approval or registration. Judging on counterfeit marks and 
copyrights do not require technical expertise. Seizure by 
marshal requires, on the other hand, of trade secrets also--
excuse me--on trademarks also does not require technical 
expertise. Seizure of computer information stored on disk 
drives clearly does.
    With few district court judges or marshals trained in the 
details of how computer storage networks work, the right 
procedures to obtain through secret and unbalanced ex parte 
hearings needs to be carefully cabined. Nor does the emergency 
application for relief from a seizure order provide an adequate 
remedy. District court judges, as this Committee knows, are 
tremendously overburdened, and Federal Rule of Civil Procedure 
65 permits a judge to keep a seizure order in place for up to 
14 days without a hearing. The Internet economy often provides 
the interruption of a customer service, can no--can last no 
longer than a total of 5 minutes in an entire year, so current 
seizure rules permit an interruption that is approximately 
4,000 times longer than what is often contractually mandated 
for business on the internet.
    In short, trademarks and copyright cases involve physical 
things that are well understood generally by the legal system. 
Internet business models of hosting together all sorts of third 
party information are little understood and need different 
models. We look forward to working with the Committee on 
achieving the right balance for a strong trade secret law that 
also balances the needs of the Internet economy.
    Thank you, and I will be happy to answer any questions you 
may have.
    [The prepared statement of Mr. Simon follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Coble. Thank you, Mr. Simon.
    Mr. Burns.

   TESTIMONY OF THADDEUS BURNS, SENIOR COUNSEL, INTELLECTUAL 
               PROPERTY & TRADE, GENERAL ELECTRIC

    Mr. Burns. Good afternoon, Chairman Coble, Ranking Members 
Nadler and Conyers, and Members of the Committee, thank you for 
inviting me to testify today on the importance of trade secret 
protection for job-creating companies in America. My name is 
Thaddeus Burns, and I am Senior Counsel, Intellectual Property 
and Trade, at General Electric, a company that has been at the 
forefront of innovation since 1892. I am here today on behalf 
of the Intellectual Property Owners Association, a trade 
association representing more than 200 companies and 12,500 
individuals in all industries and fields of technology. Trade 
secrets are an increasingly important form of intellectual 
property for IPO members. We invest significant resource to 
develop proprietary know-how, such as manufacturing processes, 
industrial techniques, formulas, codes, and designs. The value 
of our trade secrets is not lost on competitors here and around 
the world, and the theft of our intellectual property has 
become a growing problem.
    The threat comes from numerous sources, and the rise of 
global supply chains and perpetual connectivity has made it 
even easier for would-be thieves. And when our trade secrets 
land in the hands of a rival, we are put at a competitive 
disadvantage. Trade secret theft has become more sophisticated, 
and companies have responded by raising our internal defenses, 
but the law also needs to keep pace. The current legal tools 
available to remedy trade secret theft are unnecessarily 
inefficient and inconsistent with other areas of intellectual 
property law.
    The Economic Espionage Act is the Federal law that protects 
trade secrets but, as a criminal law, has its limitations. The 
FBI and Department of Justice do an excellent job, but they 
have limited resources, numerous priorities, and would never be 
in a position to bring charges in all instances of trade secret 
theft.
    Most States have adopted civil remedies based on the 
Uniform Trade Secrets Act. These laws work well to remedy local 
and intrastate trade secret theft, such as the case of an 
employee who takes a customer list to the competitor across 
town, but State courts are not well suited to respond to the 
nature of trade secret theft today, which is increasingly 
likely to involve the movement of trade secrets across State 
and even international lines and requires swift action by 
courts to preserve evidence and protect the trade secret from 
being divulged.
    IPO, therefore, supports the creation of a Federal civil 
remedy for trade secret misappropriation which would allow a 
trade secret owner to act more quickly across State lines. 
Owners of other forms of intellectual property, copyright, 
patents, and trademarks can enforce their rights in Federal 
court. IPO urges this Committee to consider effective and 
balanced legislation to create a similar remedy for trade 
secret owners that responds to the increasingly sophisticated 
nature of trade secret theft today.
    Importantly, a Federal civil remedy will not increase 
litigation. Businesses will never be shy about protecting our 
property rights when our investment in R&D are stolen. We will 
act to protect our trade secrets, whether it means going to 
State court or Federal court, but a Federal remedy will be more 
efficient and effective.
    A Federal civil remedy is also important to our global 
competitiveness. The ability of American companies to access 
foreign markets is affected by the protection those markets 
provide for intellectual property. The U.S. Trade 
Representative's Office prepares a Special 301 Report each year 
identifying trade partners in marketplaces that have inadequate 
IP protection. IPO submitted comments earlier this year as part 
of that process which highlights the problem of inadequate 
trade secret protection.
    If the United States leads by example, however, we have an 
excellent opportunity to raise and harmonize the global 
framework for trade secret protection. Enacting legislation 
that creates the gold standard for trade secret protection will 
be important as the EU considers its trade secrets directive 
and as the United States negotiates multilateral trade 
agreements and bilateral investment treaties.
    In conclusion, IPO supports a Federal civil remedy for 
trade secret theft because our member companies, creators of 
innovative products and demand around the world, and creators 
of good well-paying jobs in the United States, know that our 
value is in our ideas and our creativity. We are increasingly 
being targeted by sophisticated efforts to steal our 
proprietary information. A Federal civil remedy will provide 
important tools we need to safeguard our valuable know-how and 
to continue to lead the world in creating new and innovative 
technologies, products, and services.
    Thank you for the opportunity to testify today, and I look 
forward to your questions.
    [The prepared statement of Mr. Burns follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Coble. Thank you, Mr. Burns.
    Mr. Moore.

   TESTIMONY OF CHRIS MOORE, SENIOR DIRECTOR, INTERNATIONAL 
     BUSINESS POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. Moore. Chairman Coble, Ranking Member Nadler, and 
Members of the Subcommittee, thank you for your focus on the 
protection of trade secrets and for the opportunity to testify 
today. My name is Chris Moore, and I am Senior Director for 
International Business Policy at the National Association of 
Manufacturers. The NAM is the largest industrial trade 
association in the United States with more than 12,000 members 
in all 50 States.
    Mr. Chairman, U.S. global leadership in manufacturing 
depends on the strong protection and enforcement of 
intellectual property rights, including trademarks, copyrights, 
patents, and trade secrets, both at home and abroad. Today, 
trade secrets are more important than ever before to 
manufacturers small and large. Trade secrets are acquired and 
developed at significant cost and through many years of company 
experience and investment. They provide a powerful business 
advantage in highly competitive sectors, like manufacturing, 
but trade secrets are not exclusive rights. Once disclosed, 
their value is lost forever. Theft has a measurable real world 
impact. It costs good-paying American jobs and can even put 
entire businesses at risk.
    Trade secrets are particularly vital for small- and medium-
sized businesses that account for the vast majority of NAM 
members. For many of these firms, trade secrets are their 
intellectual property, but trade secrets increasingly are at 
risk in today's more mobile and interconnected global economy. 
Trade secrets theft is increasingly interstate and 
international in scope. Manufacturers, small and large, are 
doing everything they can to harden their networks and 
safeguard their trade secrets. Congress and the Administration 
also have critical roles to play in ensuring America's laws and 
policies are equal to today's threats.
    Specifically, NAM urges the Committee to support 
legislation that would provide access to Federal civil 
enforcement for trade secret misappropriation. Such access is 
vital because State courts are not always well suited to 
working quickly across State and national boundaries to 
facilitate discovery, serve defendants or witnesses, or prevent 
a party from leaving the country. The time it takes to bring 
action in multiple State courts gives thieves the advantage and 
prevents trade secret owners from acting promptly to protect 
proprietary information and preserve evidence. The cost of 
taking action across jurisdictions can effectively bar 
businesses and especially small businesses from using a key 
tool to defend their rights.
    Mr. Chairman, the fact that trade secret owners don't have 
the same access to Federal civil enforcement as owners of every 
other intellectual property right leaves them without an 
essential means to deter theft and recover losses. It also 
makes it harder for the United States to lead internationally 
and to work with our overseas trading partners to improve trade 
secret protection and enforcement around the world.
    Trade secret protection and enforcement is still inadequate 
in many countries and regions, putting industrial know-how and 
technology at risk. But with access to Federal civil 
enforcement, along with effective criminal protection of trade 
secrets already provided for under the Economic Espionage Act, 
there are concrete opportunities to strengthen protection and 
enforcement overseas. Through trade agreement negotiations and 
through ongoing engagement in bilateral and multilateral 
forums, the United States can make common cause with Europe, 
with Japan, and others around the world that are facing similar 
challenges and beginning to pursue their own solutions.
    Chairman Coble, Ranking Member Nadler, and Members of the 
Subcommittee, manufacturers need your help to ensure they can 
effectively and efficiently protect and enforce their trade 
secrets at home and abroad.
    Thank you for the opportunity to testify this afternoon. I 
look forward to answering any questions you may have.
    [The prepared statement of Mr. Moore follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Coble. We have a distinguished panel, and I thank you 
all for your contribution and being here.
    Gentlemen, we try to comply with the 5-minute rule as well, 
so if you all can be terse in your response, we would be 
appreciative.
    Mr. Burns and Mr. Moore, with the recent elections in India 
bringing in a new pro-business, pro-reform prime minister, we 
are hopeful that the IP environment in that country will 
improve. What steps should the new government take to promote 
greater protection for trade secrets, Mr. Burns and Mr. Moore?
    Mr. Burns. Well, I think you have--this is an excellent 
question, Mr. Chairman, and I think you have pointed out one of 
the very bright spots right now when it comes to the world of 
intellectual IP diplomacy. I think the first step is going to 
be engaged in dialogue because it has been for many months that 
there has not been an effective dialogue between the government 
of India and the United States on key intellectual property 
issues. I think we all anticipate that this new administration 
in India will begin that process again and will allow us to 
begin to better understand where those key differences are and 
where there are opportunities to move forward in a mutually 
advantageous spirit.
    Mr. Coble. I thank you, sir.
    Mr. Moore, you want to add to that?
    Mr. Moore. Thank you, Mr. Chairman.
    I agree with my colleague. As you may be aware, 
manufacturers across many different sectors have faced a number 
of different challenges in the Indian market over the last 
couple of years, and we are very pleased and encouraged by what 
we are hearing from India's new government, their commitment to 
a good business environment, to open trade and investment, 
agree that beginning that conversation and having that dialogue 
will be critical as a first step and something that we hope to 
see early on in the new Indian administration as a way to begin 
to address some of the challenges and look at opportunities to 
work together constructively on issues like trade secrets.
    Mr. Coble. I thank you, sir.
    Mr. Hertling, what are the limits of relying solely on the 
criminal provisions of the Economic Espionage Act at the 
Federal level?
    Mr. Hertling. Well, you can look at the limits in a couple 
of different ways. First of all, I would reiterate that there 
is very few, in fact, no area of law that I can think of, in 
which the sole remedy is limited to criminal enforcement, 
particularly for IP, the misappropriation or however--whatever 
the term of art would be used in patents. Of course, it is not 
misappropriation in that field. Everybody--owners of any form 
of intellectual property have the ability to enforce their 
rights through civil litigation as well as, in some instances, 
you can have criminal prosecution, depending on the nature of 
the theft or misappropriation if it violates other criminal 
laws.
    So, it is, in part, a question of equivalence here to 
provide trade secrets the equivalent rights--trade secret 
owners the equivalent rights of the owners of other forms of 
intellectual property. It is also, like now, trade secret 
owners have a civil remedy. It is at State law, and as we are 
finding, as owners of trade secrets are finding, that remedy in 
the modern world where much of the theft is international in 
nature and doesn't respect national borders, much less State 
borders, a remedy limited to State law is inefficient and 
ineffective in many instances.
    So, this is not a question of criminal law versus civil 
law, per se, but it is taking the existing civil remedies and 
making them more effective and more efficient. Looking purely 
at the criminal law context, of course, one of the reasons why 
in other areas of the law we don't rely solely on criminal law 
as the enforcement mechanism is that law enforcement is busy. 
The FBI has many priorities, very important ones. They can't 
respond to every claim to bring their investigative resources 
to bear. Prosecutors have to make the same kind of call as to 
what kind of cases they are going to file, and then, finally, I 
would say the criminal law is very good at punishing acts that 
have already occurred. But the goal here, particularly in 
seeking civil remedies, including seizure remedies, is to 
prevent the information from being used wrongly in the first 
place by the thief or the company on whose behalf the thief is 
operating. So the criminal law is fine. It is post hoc 
punishment, but you want to bar the--you want to close the barn 
door before the horse gets out, and the civil law is a much 
more effective remedy in that respect.
    Mr. Coble. Thank you, sir.
    Mr. Simon, let me try to get one more question in before 
the red light turns one. Could you speak more, Mr. Simon, to 
the unique role that trade secrets play in your business and 
the issue that cloud and Internet-based companies face when it 
comes to trade secret protection, specifically when you are 
contacted by the authorities regarding misappropriated--
appropriated data that is put in the, quote, ``cloud,'' close 
quote, by a customer?
    Mr. Simon. Thank you. So, you know, from our perspective, 
there are certain things that are relatively easy to do, such 
as securing data, denying access to data. There are other 
things that are very difficult to do, like giving possession to 
physical media, as I testified earlier. So, from our 
perspective, what we are really focused on is wanting to make 
sure that whatever remedy exists, and we understand there may 
need to be a remedy, and we are not opposed to that, that it 
take the businesses into account and the security of both our 
data and our customer's data into account. If I may, I just 
would like to interject one additional somewhat of a short 
comment----
    Mr. Coble. Sure.
    Mr. Simon [continuing]. On criminal procedures in trade 
secret context. So criminal trials, by their very nature, tend 
to be much more open than civil trials, and having been through 
on behalf of a former client, and Economic Espionage Act case, 
one of the difficulties is, once that case goes to trial, a lot 
of information is going to be available in the public that 
would not ordinarily be available in a civil trade secret case. 
So, because of the constitutional issues that are involved, 
there are also some shortcomings to criminal prosecutions under 
the EEA.
    Mr. Coble. I thank you, Mr. Simon.
    My time has expired.
    The gentleman from Michigan, Mr. Conyers.
    Mr. Nadler, you would--who? Okay. Mr. Nadler from New York 
is recognized for his questions.
    Mr. Nadler. Thank you. Everyone's testimony supports a 
creation of a Federal civil cause of action. Does anyone know 
of anyone who opposes that? We know of no opposition to that 
proposal.
    Mr. Hertling. Ranking Member Nadler, let me start on behalf 
of Protect Trade Secrets Coalition. We represent a lot of 
different industry sectors, and we have also been undertaking, 
on behalf of the Coalition, outreach to other industry sectors, 
to public interest organizations, trade associations and the 
like, and we have not yet encountered anybody who opposes the 
concept of a Federal civil remedy for the misappropriation of 
trade secrets.
    Mr. Nadler. So it is all the details. Would creation of a 
Federal civil cause of action lead to increased litigation? 
Anybody?
    Mr. Hertling. I will take that again. I don't believe so. 
We--I think, as Mr. Burns testified, companies are already 
using civil legal proceedings.
    Mr. Nadler. You simply move the litigation from civil to--
--
    Mr. Hertling. I would use the local----
    Mr. Nadler. From State to Federal, it might eliminate 
duplicative of the State----
    Mr. Hertling. And in fact, Mr. Nadler, it might even 
reduce, at the margins, litigation because you would no longer 
need to file in multiple States to enforce.
    Mr. Nadler. And so, as you say, reduce that.
    Mr. Simon has raised some concerns about seizure 
provisions, ex parte provisions in existing legislative 
proposals. Does any--do you believe that this is an issue that 
can be resolved in a manner that strikes an appropriate balance 
and satisfies all stakeholder interests, and what would be the 
key elements of such an agreement with respect to ex parte 
proceedings or seizures? Anyone? Mr. Simon?
    Mr. Simon. Thank you. So, I think it is possible. It--but 
it requires somewhat different thinking. Like the example I 
gave of the current rules regarding seizure for physical goods, 
where you have 14 days before you--up to 14 days before you are 
going to be in front of the judge. When you are having hundreds 
of millions of dollars per hour go by that are being lost 
because a business is down, 14 days is way too long. There are 
other things that----
    Mr. Nadler. Fourteen days for what?
    Mr. Simon. Fourteen days. So under the Federal Rule of 
Civil Procedure 65, you have up to--the Court can say that it 
will keep a TRO in place for up to 14 days. From what--before 
you get a hearing in front of the judge as to whether or not--
--
    Mr. Nadler. That's obviously too long.
    Mr. Simon. Sorry. So that is an example of a concern. It 
requires thinking on a different timeline, and I understand 
with an overburdened judiciary, that is difficult.
    It is a question of how do you fashion the remedies, what 
is the right set of remedies, and it is also technically 
complex because different companies, even different companies 
in our own industry when we have been talking to several about 
this, have very different approaches to how they handle 
customer data and what they do with the customer data, and as a 
result, that has to be taken into account
    Mr. Nadler. So as we seek to develop legislation, if we 
were going to do so on a Federal cause of action, the 
controversies, if any, are going to be on what limitations and 
so forth we put on seizures?
    Mr. Simon. I think that will probably be one area. There 
may be some others, but to our company, that is probably the 
most serious.
    Mr. Nadler. Does anyone else want to answer this?
    Yes, Mr. Burns.
    Mr. Burns. Yeah, I can certainly elaborate on that, and I 
am very much in agreement with you. I think when we started 
having this discussion, all of us were thinking with a Lanham 
Act headset on, and we know the Lanham Act is really aimed at 
essentially seizing goods, so you are trying to find the 
infringing embodiment of a Lacoste shirt, right?
    Mr. Nadler. A what?
    Mr. Burns. This is a--a Lacoste shirt, you know, this is a 
very different environment that we are in. What we are really--
our objectives here are really about preserving evidence so 
that you can have a proceeding on the merits that looks at all 
the facts and also to prevent further leakage beyond what has 
already taken place, whether it is in a digital environment or 
a physical environment.
    So I fully agree with you, if there is going to be a 
seizure provision, it needs to be a very narrowly tailored one, 
something of last resort that is aimed at that bad faith 
individual who is about to get on a plane, fly to another 
country with a PIN drive full of confidential data.
    Mr. Nadler. Thank you. Mr. Burns, China is often identified 
as a problem with regard to theft of U.S. trade secrets. In 
fact, I saw something I think I read recently that I saw that 
there was a national holiday in China a few weeks ago and that 
hacking of American companies went down 40 percent that day. 
People were entitled to their day off, I suppose. Now, I assume 
the problems are not limited to China. How has the lack of 
protection impacted U.S. companies seeking to expand operations 
globally, and what do you think can be done to encourage other 
countries to provide more robust protection?
    Mr. Burns. Well, I think you are absolutely correct. This 
is a global problem that we experience in all the jurisdictions 
in which we are doing business, and the challenge is to take 
the kinds of steps that are in our power today to try to 
improve the situation.
    And my sense is that when the United States Government is 
dealing with foreign trading entities, whether it is China or 
India or the European Union, if we come to a discussion from a 
position of strength and can say with a clear conscience that 
we have done our very best, that we have a strong Federal civil 
cause of action in place within our own jurisdiction, we are 
much more likely to be taken seriously by interlocutors from 
other governments.
    Mr. Nadler. Does anyone else want to answer that?
    If not, my time is expired, and I yield back. Thank you.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from North Carolina.
    Mr. Holding. Thank you, Mr. Chairman.
    Is anyone able to quantify the amount of litigation 
currently going on in State court regarding trade secrets?
    That might be a little bit difficult, but the--I am sure 
our friends in the Federal courts would want to know what type 
of a wave of litigation is headed to Federal court if we give a 
Federal cause of action.
    Mr. Simon. So, in California, obviously, particularly in 
Silicon Valley, many key trade secret cases have been brought 
over the years, but it is a relatively small percentage of 
cases in a year, at least from what I have heard. I would say 
it is in the order of 10's to maybe 100 per year in, you know, 
in the Bay area, is you know, probably the number I heard in 
talking to judges. Actual reliable statistics, I am not sure.
    Mr. Holding. And the creation of a Federal cause of action 
would not preclude the States from continuing to have State law 
causes of action for trade secrets, would they? Mr. Burns?
    Mr. Burns. That is exactly right.
    Mr. Holding. And of course, how would removal work? I mean, 
just to get into the--I mean, I don't know if anyone has 
thought through this, but as I sit here and since we have 
complete agreement that there needs to be a Federal cause of 
action, I started to think about some of the more nuances of 
it, so having spent my legal career prior to sitting in Federal 
court, you know, sometimes, you know, certain parties want 
their action to be in Federal court.
    Defendants, you know, in a plaintiff's action, often want 
to try to get removal into Federal court, so how would you see 
that playing out? Would you see plaintiffs going into State 
courts? Are there any particularly favorable State courts that 
we would be seeing plaintiffs going to and then removal 
actions, trying to get those removed to Federal court? Has 
anyone thought that through?
    Mr. Simon.
    Mr. Simon. It has been a long time since I removed a case 
to Federal court, but I think the one way it may play out is 
plaintiffs, in seeking to avoid having to deal with the delay 
of a removal petition, may just go straight to Federal court 
first, and that is from a timing standpoint since you are 
generally as a plaintiff seeking emergency relief, you do not 
want to file in State court and then have you know, start to 
get your emergency relief and then have somebody remove it to 
Federal court.
    Mr. Holding. All right.
    Mr. Burns. If I could just----
    Mr. Holding. Mr. Burns.
    Mr. Burns [continuing]. Add one point. I also think if 
there is Federal court jurisdiction in this case, we would tend 
to see much more local cases being the subject of State court 
litigation. So, purely intrastate type cases, and in those 
cases, there is very little--there is probably very little 
incentive to remove to Federal court because both parties are 
locally situated and are comfortable probably with dealing with 
a local State court.
    Mr. Holding. All right. Well, you know, the variances 
between discovery, you know, local rules, you have got your 
State rules and then your Federal rules, and then you have got 
your local rules of these particular district court, it could 
get interesting.
    The--you know, we have spoken a lot about the challenges 
that our U.S. companies are facing abroad, so, if anyone wants 
to talk about extra-territoriality, and you know, how the 
statute could be composed in such a way to try to protect our 
companies doing business abroad, you know, and take it through 
where maybe the instance of the infringer, you know, the 
violator you know, has no assets here in the United States that 
we could get to or that question.
    Mr. Simon, you want to take a hack at that or Mr. Hertling?
    Mr. Simon. Well, I think there probably is a balance that 
can be struck there. I certainly don't think we want to go 
where at one point U.S. antitrust enforcement seem to have gone 
to which was the extreme being U.S. courts trying to tell Swiss 
watchmakers what they can do in Switzerland doesn't work too 
well. There are analogues in the antitrust area that may be 
worth taking a look at. There is a difficulty, though, if you 
have somebody who is a bad actor and is completely outside the 
jurisdiction of the U.S. courts, has no assets that are subject 
to U.S. courts, that can become very difficult if you have to 
go to a country that may be hostile to the remedy that you are 
seeking.
    Mr. Holding. Mr. Hertling, you want to chime in there.
    Mr. Hertling. Yeah, the other point I would make is I think 
one of the important values, as a number of us have alluded to, 
of having a Federal civil cause of action is that it would 
provide a model for other countries, and I think ultimately the 
most effective relief for the problem you have identified, is 
to get other countries to improve the quality of their legal 
systems and the protections that they can provide in their own 
courts.
    And I think if we can achieve that through the intercession 
of our trade negotiators and if our trade negotiators have an 
effective national level remedy in the United States, it will 
make them more effective at achieving sound national level 
remedial systems globally.
    Mr. Holding. Good.
    Mr. Chairman, I yield back.
    Mr. Marino [presiding]. Thank you.
    Mr. Conyers.
    Mr. Conyers. Thank you very much.
    This has been very important, gentlemen. We thank you for 
your testimony. Is, Mr. Simon, the seizure issue one of the 
things that when we start putting together a bill, and some of 
us are going to do that, that we have to be careful of, since 
there has been so much increasingly new and modern technology 
coming into the digital era?
    Mr. Simon. Yes. You know, there are a couple of things, and 
it is you know, I have to admit, you know, because some people 
have asked me for suggestions, and I am struggling with them 
right now, quite frankly. Part of it is because you have to 
deal with many different ways that people do things. Part of it 
is you also have to try to have as much vision as you can as to 
what is going to happen 3, 4, 5, 10 years out, and that is not 
easy, particularly with the speed with which technology is 
moving.
    But, you know, from our perspective, the one thing we don't 
want to end up having, is to have legislation and 3, 4, 5 years 
out, it is we are looking at what we would like to do from a 
business purpose and we are looking at what the law requires, 
and there is an inconsistency there that prevents us from 
changing the way we want to do business.
    So, you know, we hope that whatever remedies can be 
fashioned can be very flexible because that is what we think we 
need.
    Mr. Conyers. Do I get out of your response that we might 
make things worse if we don't carefully create a Federal civil 
law on this subject?
    Mr. Simon. I am not sure you would necessarily make things 
worse. I think what might happen, though, is that there might 
be individual business models that otherwise might make a lot 
of sense, but because of, for example, some remedy that 
Congress has mandated, is required, the technology just won't 
work for that purpose.
    So, I want to be very careful with what I would say because 
I think overall getting a Federal legislation would be very 
helpful, but I also want to say that, you know, we have to try 
to do the best job we can on the remedies.
    Mr. Conyers. Uh-huh. Thank you.
    Mr. Moore, small businesses, I think, are very up against 
it. In the first instance, under the present circumstances, it 
is just my suspicion that most of them can't even afford to 
deal very seriously at this stage with this whole question of 
secrecy. Now, is there--will we be able to help them when we 
finally come together on a secrecy law between both ourselves 
and the Senate? And I understand the Senate has--at least has a 
bill, and we are going to be working on one.
    Mr. Moore. Thank you very much.
    Small businesses really don't have a choice about 
addressing this challenge. It is there. They need to address 
that it is something that affects them as well as large 
companies. I do think that you see the challenge of trade 
secrets theft affecting smaller businesses more acutely. 
Certainly for many of those businesses, trade secrets make up a 
larger share of their intellectual property portfolio than you 
might find in some larger businesses that might rely more 
heavily on patents, for example.
    You see that small business owners are busy running their 
businesses and less focused on the threats and some of the 
challenges that are out there, and of course, for small 
businesses, the cost of protecting and enforcing their rights 
may be higher relative to their total revenue than you might 
find in a larger firm.
    Certainly we think that having a Federal civil cause of 
action for trade secrets theft would be very important to 
enable them to effectively secure and enforce their rights 
domestically.
    Thank you.
    Mr. Conyers. Uh-huh. Mr. Hertling, it is good to see you 
again, have you back in your old digs once more.
    It seemed like to me that it took us quite awhile to get 
around to trade secrets, and yet, now that we are around to it, 
everybody says it is very important that we deal with it. I am 
amazed that it hadn't come up before as a matter of importance.
    Mr. Hertling. Well, I think it did. I mean, it was brought 
up in the context of the 1996 Economic Espionage Act, and it 
was just brought up relatively late in the process, and so I 
think that the notion was, at the time, let's do the criminal 
statute first and then we will get around to it, but then all 
of a sudden the issue surrounding--that prompted the ultimate 
enactment of the Digital Millennium Copyright Act took over, 
and then, from there, the Committee's IP focus turned to patent 
reform.
    So, the issue has been lingering out there, but now we 
think the time is ripe. We know obviously the Committee is 
conducting its broad copyright review and those are important 
issues, and of course, the patent issue, the House passed the 
patent litigation reform bill last year, and those issues are 
still out there, but we think that these issues are now ripe 
for legislation.
    And we think, unlike perhaps some of those other issues, as 
we have heard, while there needs to be great care taken with 
striking the appropriate balance, this is an area in which 
there do not appear to be any significant disputes that should 
derail the adoption of legislation.
    Mr. Conyers. And I am excited about getting this moving, 
and I really appreciate the bipartisan tone of the discussion 
that we are entering in around here. That is important as well.
    And I thank Chairman Coble and yield back the balance of my 
time
    Mr. Coble [presiding]. I thank the gentleman.
    The distinguished gentleman from California, Mr. Issa is 
recognized for 5 minutes.
    Mr. Issa. Thank you, Mr. Chairman.
    Fourteen years ago when I came here, they called me 
distinguished, too, but I was younger, and Richard, it is good 
to see you back.
    You know, there are two things that worry me around here. 
One of them is when a major piece of legislation or initiative 
is immediately bipartisan, I wonder, well, who is protecting 
the other side and secondly, whenever we are talking about 
expanding intellectual property, I think back to a time before 
I got here when the powers that be decided to retroactively 
expand patent rights so that some people whose patents were 
about to expire got extra time, and it was envisioned in the 
bill, for God only knows what reason, and then, of course, in 
copyright, we retroactively made ``I Got You Babe'' last longer 
along with black and white Mickey Mouse. No comment other than 
it just happened to be a symbol.
    And so as I look at federalizing, if you will, the civil 
cause of action, I have a couple of questions--more than a 
couple of questions and because I am one of the non-lawyers 
here on the Committee, I will put my spectacles on so I will 
look more lawyerly and I will read just quickly. ``To promote 
the progress of science and useful arts by securing for a 
limited time to authors and inventors the exclusive right to 
the respective writings and discoveries.''
    A trade secret is in fact a discovery; would you-all agree? 
It is what you know that somebody else doesn't know, Mr. Burns, 
right? Just yes or no.
    Mr. Burns. I think it--I think in some instances, 
absolutely. In other instances, it could be something distinct, 
yeah, but it is not a discovery in the sense that a discovery 
of--in the technical----
    Mr. Issa. It is what you know that someone else doesn't 
know.
    Mr. Burns. Absolutely. Yes, sir.
    Mr. Issa. So you know something somebody else doesn't know, 
and the basic concept of trade secret is, as long as you can 
keep it a secret, you can keep it in perpetuity and monetize 
the benefit; is that right? I just want to make sure we define 
the term here. So----
    Mr. Burns. If I could respond----
    Mr. Issa. Well, these are yes or nos, please. The Chairman 
is very indulgent, but I have only got a couple of minutes.
    Mr. Burns. Okay. Please.
    Mr. Issa. Yes, these are in fact that. So, the questions as 
we federalize the civil action are, do I give you the future 
revenue stream you have lost in perpetuity, do I give you what 
you would have gotten had you disclosed it under patent rules 
and gotten anywhere from 19 to 12 years, depending on--or 10 
years depending upon the time it takes before it is granted, do 
I give you the copyright equivalent.
    So, as we federalize, the first question is, the loss is a 
monetized loss, and that is what you are here seeking. How do I 
fairly make sure that what you deprived everyone from knowing 
because you knew and they didn't know, and you did not enter it 
into commerce for mutual benefit only for your own benefit--how 
do I fairly assess since there is no constitutional mandate?
    Trade secrets don't exist under the constitution. The right 
doesn't exist. This is a statutory giving to people who keep 
something a secret and have a loss as a result of that entity, 
that secret being stolen from them. I understand the criminal 
part. That is settled. How do I come up with the monetary one?
    Richard, I would start with you. Put a dollar figure on it, 
and it has got to be probably more than you made here as a 
staffer.
    Mr. Hertling. Probably more than that.
    Mr. Issa. And no litigation.
    Mr. Hertling. More than I make in the private sector. I 
think those are very--that is a very good question, Chairman 
Issa. I know you are not Chairman of this Committee, but I will 
still use----
    Mr. Issa. I am a patient man.
    Mr. Hertling. But I think the--and I am not an expert on 
this, and I said earlier to Mr. Simon, benefit of sitting next 
to a real lawyer, but I think the question you have raised is 
one that courts today have to struggle with because, again, 
these sorts of remedial actions are being brought every day in 
the State Courts around the country.
    Mr. Issa. Right.
    Mr. Hertling. And so----
    Mr. Issa. And so I guess my question is, before we--as we 
proceed to looking at a national and hopefully a global policy, 
is it, in your opinion, critical that we look at what is being 
done throughout the various States and perhaps foreign 
countries and we figure out where we are comfortable monetizing 
the loss of a secret, in other words, the formula for it so 
that we can issue the kind of guidance to the courts in the way 
of damages, because I can certainly envision that the future 
revenue of Coca-Cola lost, if that secret formula is disclosed, 
can bankrupt almost anybody.
    And if I am the recipient of it, maybe harmlessly from the 
thief but in fact the recipient, I can see my entire wealth run 
out.
    So, my question to all of you is, shouldn't we embark on an 
analysis, not of do we do it, because harmonizing that which is 
disparate throughout the States is appropriate for us to 
consider, but in harmonizing, isn't our most important task to 
figure out how it is going to be valued, including calculation 
of length, value, and the societal balance between your rights, 
if you will, for your secret and the lack of benefit as a 
result of it not being ever made public otherwise?
    And Mr. Chairman, if you would let them answer, I would 
appreciate it.
    Mr. Coble. Without objection
    Mr. Simon. Thank you.
    If I may, Mr. Chairman, if you look at the case law under 
the Uniform Trade Secret Act, at least the one that comes to 
mind, there are a couple of things that I think address your 
concern about a perpetual remedy, if you will.
    First of all, injunctive relief is generally--
misappropriation of trade secrets is generally given only for 
the reverse engineering period, whatever that would be deemed 
to be. Normally, I rarely seen it be longer than a few years. I 
am not saying there isn't a case that goes longer than that, 
but it is rarely longer than that a few years.
    When you go to the monetary relief, which is actually the 
way these cases play out, much rarer, because normally the 
injunction ends the case, when typically the grant--it is like 
trademark law, 99 percent of the cases settle after preliminary 
injunction is granted or denied.
    Mr. Issa. I have been before the ITC. I know these things.
    Mr. Simon. Yeah. So the way it works from the damages 
standpoint, the question is, what are you going to be able to 
convince the trier of fact, be it judge or jury, you are 
entitled to either for a reasonable royalty, which is available 
sometimes, for lost profits or for unjust enrichment. I am not 
aware of--I mean, there have been some very stiff trade secret 
awards recently. I think DuPont got one close to a billion 
dollars not too long ago for some pretty heinous acts, as I 
understand it.
    Mr. Issa. Outside of here, that is real money.
    Mr. Simon. Yeah. But you know, that is a very exceptional 
case and involved very egregious acts with, if I recall 
correctly, actors from outside the United States.
    Mr. Issa. Thank you, Mr. Chairman. I appreciate your 
indulgence, and I appreciate our--this direction toward 
harmonizing these trade secrets.
    Mr. Coble. You are indeed welcome.
    I believe the distinguished lady from California is next in 
line, Ms. Lofgren.
    Ms. Washington, were you here earlier?
    Okay. I stand corrected. The gentlelady from Washington 
is----
    Ms. DelBene. Thank you.
    Thank you, Mr. Chair, and thank you-all for being here 
today. I think everyone has been advocating for creating a new 
Federal civil cause of action for trade secret 
misappropriation, and I appreciate the interstate nature of 
this issue and believe that there is merit to having a Federal 
cause of action. I think it is important that we also don't 
take away any rights from States in this process, too, as we 
put together legislation.
    One of the things that I believe Mr. Holding touched on 
earlier was the amount of litigation, and I think Mr. Goodlatte 
also mentioned potential frivolous litigation, and so maybe, 
Mr. Hertling, I was wondering, you know, what do you think 
about the issue of increased litigation or frivolous litigation 
if we had a Federal cause of action, and do you believe that we 
would see increased litigation as a result?
    Mr. Hertling. Thank you very much, Ms. DelBene.
    I don't think that you would see an increase in litigation 
or an increase specifically in frivolous litigation. Of course, 
frivolous litigation is always in the eye of the beholder. To 
the defendant, it is always frivolous, right, but I think here 
the net result of the creation of a Federal civil remedy would 
be in appropriate cases, particularly those would have to be at 
least of an interstate nature, but of an interstate or 
international nature, you would shift the locus of the 
litigation from State courts to Federal courts.
    The cases are going to be filed anyway. Today, they are 
being filed in State courts or they are being filed in Federal 
court under diversity jurisdiction. I don't think you would see 
a dramatic change in the number of cases or in the quality of 
cases being brought as a result of the creation of a carefully 
crafted, well balanced Federal statute.
    Ms. DelBene. Mr. Burns, I think you mentioned that our 
trade negotiators would be in a better position to use a 
Federal civil cause of action to show the U.S. is setting a 
high standard when it comes to trade secret litigation or trade 
secret protection. Can you talk a bit more about how you think 
our leadership on this issue would be helpful when it comes to 
negotiations of trade agreements?
    Mr. Burns. Absolutely. I think there are a number of 
ongoing negotiations right now, and then also some things we 
call ``bilateral dialogues'' that take place with important 
trading partners.
    So, in the context of the Trans-Pacific Partnership, having 
such a statute on the books in the United States, I believe, 
puts us in a much stronger position to be advocating a robust 
trade secret, if not chapter, paragraph within an IP chapter, 
within a TPP negotiation. I also think that, particularly with 
respect to the bilateral negotiations that are between the 
United States and the European Union on what is called the TTIP 
treaty, this is a very good timing to have this legislation 
come forward.
    As we all know, the European Union has already began the 
legislative process of a directive that would harmonize trade 
secret protection within the EU, so the Commission, in November 
of last year, introduced its proposal. That proposal was 
adopted by the counsel of the European Union, and then will be 
forwarded to the new parliament some time in the next couple of 
months with the likely adoption by the early next year.
    The idea of having trade secret language in the TTIP 
agreement is to in a sense codify an understood best practice, 
an understood Transatlantic best practice, and bringing the 
United States into the realm of best practice when it comes to 
protecting trade secrets is a very important part of delivering 
that entire package.
    Ms. DelBene. So I would say we need to figure out what we 
would be doing in legislation before that would happen.
    Mr. Burns. I would say ideally sooner rather than later. It 
is always better to come to a negotiation from a position of 
strength with legislation that is not--that cannot be easily 
criticized by a trading partner with whom we are trying to 
enter into a treaty. We would be likely to get other 
consideration in exchange for that, as part of that 
negotiation.
    Ms. DelBene. Thank you.
    I yield back, Mr. Chair.
    Mr. Coble. I thank the gentlelady.
    The gentleman from Florida, Mr. DeSantis.
    Mr. DeSantis. Thank you, Mr. Chairman. Thank you to the 
witnesses.
    Just as I am reading through some of the--I know the 
Administration put out a report last year about trade secret 
theft. I mean, is it safe to say that China, in terms of 
international theft, is overwhelming the biggest culprit?
    Mr. Simon. I don't feel qualified to comment on that. I 
have no basis for it. I can read the same reports that you do. 
You know, it--but I do want to point out China is not alone.
    Mr. DeSantis. No, and there is not, but it seems like there 
were a lot of people who were either investigated or prosecuted 
for passing information to Chinese universities and companies, 
and I know India appeared a number of times.
    So, when you are in a situation where you have trade 
secrets stolen from a U.S. company, somebody maybe who is 
working there, they pass it along to a company overseas, you 
know, yeah, we prosecute the individual who did it, but what 
are the potential remedies for the company once the information 
has actually been passed, and what do you suggest that Congress 
do to make that more effective?
    Sure.
    Mr. Burns. Let me comment on that.
    I agree with you. I think that it is really important to 
recognize this as the global issue that it is.
    And by the way, it is also important to recognize that 
China has a Federal trade secret law that has national 
application that can be used in China, and we have used it 
quite, with some success in China.
    So, countries around the world are in the process of 
examining their own sort of trade secret conscience, as it 
were, and making sure that that they have a system in place 
that makes it likely that people who have their trade secret 
stolen from them get a serious opportunity to get to justice.
    So, from our perspective, in order to globalize that best 
practice, again, the most constructive thing that this 
Committee can do is to go back and look at our own system and 
take the action that I think, in pretty much unanimity, U.S. 
industry is asking for, and that is, a Federal civil cause of 
action that will improve our legislative situation in the U.S. 
and also just bolster our prestige when it comes to negotiating 
better trade secret protection in other countries around the 
world.
    Mr. DeSantis. Can you describe this move in some countries 
to compulsory licensing and how that affects the ability of 
American businesses to operate overseas?
    You want to take that?
    Mr. Burns. Compulsory licensing is a measure that is 
understood under international law, that allows for governments 
to engage in the transfer of intellectual property rights to 
another party. It is something that exists in international 
law. It is provided for in the TRIPs agreement, so that is the 
reality of international law.
    It is not--I think countries that engage in it on a regular 
basis, it is not like putting the welcome mat out for foreign 
investment. It is like saying to people, ``come invest in our 
country, oh, and by the way, your property rights are at 
risk,'' but it is something that is legally cognizable under 
the international treaties that are in place today.
    Mr. DeSantis. Very well. Well, I appreciate it.
    And I yield back the balance of my time.
    Mr. Coble. I thank the gentleman.
    The distinguished lady from California is recognized.
    Ms. Lofgren. Thank you, Mr. Chairman.
    This has been very helpful, and I am wondering, I think I 
saw Mr. Simon on the flight out, so I especially appreciate 
that he came all the way from the Bay area to be here today.
    And here is a question I have for you or anybody else on 
the panel. You can't quantify it, but I do think that there is 
sort of a growing trend, maybe is not quite the right word, in 
the valley where people are shying away from the patent system.
    A lot of engineers feel that it is--that the patent system 
is actually a drag an innovation, and also it takes so long to 
get anything patented, and I think, this may not be true, but 
not every trade secret is patentable but probably everything 
that is patentable could be a trade secret, and so that leads 
me to wonder about, as you know, I have a kind of a very skimpy 
bill on it, a civil action. I think it needs a lot more work, 
but it was a marker at least. Whether we might be getting into 
a situation, I don't want to create another patent troll 
situation. I don't want to create another situation where 
unenforceable noncompete agreements are gone around through 
another cause of action that we have created. Do you have 
thoughts or guidance on those two issues, Mr. Simon?
    Mr. Simon. Sure. Thank you. You know, obviously, as you 
know, there is a lot of concern, particularly in the software 
industry about patents.
    A couple of things to point out that are different 
fundamentally from trade secrets, to patents. One is that you 
with a trade secret, unlike a patent, you don't start out with 
the premise that it has to take clear and convincing evidence 
to disprove that the invention is patentable. It is the other 
way around. The owner of the right has to prove by a 
preponderance of the evidence generally that you in fact have 
the trade secret, not always the easiest thing in the world to 
do.
    The second thing is that there are things that are 
patentable that make very little sense to patent. There are 
things that are patentable that make very little sense to keep 
as a trade secret. Just by way of example, my understanding, 
the pharmaceutical industry, because of the disclosure 
requirements of the FDA----
    Ms. Lofgren. Right.
    Mr. Simon. Almost all----
    Ms. Lofgren. Yes.
    Mr. Simon [continuing]. Formulations----
    Ms. Lofgren. I am thinking more in the IT areas.
    Mr. Simon. Yeah. In the IT area, it plays back and forth. 
There is a lot of stuff we deliberately do not want to patent 
because we do not want to tell our competitors how to do it and 
there is no way to figure it out from our products. In other 
areas, it may make much less sense to take that approach.
    The other thing I just want to go back to a point Mr. 
Conyers raised earlier if I may, very briefly, is that one of 
the nice things about trade secrets is the protection is much 
cheaper to acquire----
    Ms. Lofgren. Right.
    Mr. Simon [continuing]. Than a patent, so it is much more 
readily usable by a small business, and from that standpoint, 
yeah, I think it is actually a pro-small business perspective, 
too.
    Ms. Lofgren. I want to--I don't know if anybody else has 
comments on this point. I don't see anybody leaping forward. I 
am interested in your comment about China's cause of action and 
the capacity to gain relief in China. I think that the theft of 
intellectual property, and most especially trade secrets, is 
severe in the valley, and China is a major offender, and in 
many cases, it is quite obvious it is not just an individual 
person going back to China. It is the Chinese Government that 
is actually sponsoring this activity.
    Have you seen success in Chinese courts when it is the 
Chinese Government that is actually behind the theft?
    Mr. Burns. I am not aware of any cases of that nature.
    Ms. Lofgren. Okay. I am.
    Mr. Moore, do you have any advice on that?
    Mr. Moore. I am not aware of any cases brought in China 
against the Chinese Government.
    Ms. Lofgren. Right.
    Mr. Moore. But certainly our members report a number of 
different challenges with protecting their trade secrets in the 
Chinese market, not least because of how their confidential 
business information may be treated, both as it is coming into 
the country but also during a court proceeding.
    Ms. Lofgren. Okay. Well, it is also that there is a lot of 
theft going on in the valley itself where information is 
vacuumed out.
    I just think that this is an excellent panel. I see that it 
is just the, what we call the ``nerd caucus'' left here 
listening, but I certainly appreciate the information. I look 
forward to further work on it.
    And yield back, Mr. Chairman.
    Mr. Coble. I thank the gentlelady.
    The distinguished gentleman from Georgia is recognized.
    Mr. Collins. Thank you, Mr. Chairman.
    Again, it is like I said, these are the ones where you sort 
of separate those or are willing to sit and listen, and I was 
listening when I was in over at another meeting to your opening 
statements and others, and I think this is something that it 
may not make the front pages the, you know, I will say 
``sexiest headlines'' and all, but it matters to real 
Americans, it matters to real jobs, and I think that is an 
impact that we can't ignore.
    Mr. Hertling, do you have a sense of the loss to the U.S. 
economic--to U.S. economy caused by this trade secret theft?
    Mr. Hertling. There are a couple of recent estimates that 
are relatively consistent. Last year, as it has been noted I 
think in Mr. Moore's testimony, written testimony, General 
Alexander, the former head of the National Security Agency, 
estimated the cost at approximately 250 billion with a ``B'' 
dollars per year.
    And then earlier this year, an organization called ``The 
Center for Responsible Enterprise and Trade'' joined with PWC 
to publish a report called ``Economic Impact of Trade Secret 
Theft,'' in February 2014 in which they estimated somewhere 
between 1 and 3 percent of GDP is the value of the theft of 
trade secrets, which puts it at what I would guess to be about 
$160 to $480 billion per year.
    Mr. Collins. So even Washington, D.C., we are talking real 
numbers. I mean, this would are Bs that we could lead to Ts in 
trillions and numbers that most of us when we were in--at least 
my age in, you know, kindergarten and others, you know, 
trillion was a number we didn't even talk about. I mean, 
billions were those numbers.
    So this is real economic hurt to our economy that we have 
to----
    Mr. Hertling. There are a lot of zeroes on the back of 
those numbers, and behind each of these zeroes is U.S. 
investment foregone and U.S. jobs lost.
    Mr. Collins. Yes. I can see that. Mr. Burns, were you going 
to say something about that?
    Mr. Burns. Otherwise stated, I believe the CREATE report 
assesses this as somewhere between 1 to 3 percent of GDP.
    Mr. Collins. In fact, Mr. Chairman, I ask unanimous consent 
to enter the Economic Impact of Trade Secret Theft study which 
was just referenced into the record.
    Mr. Coble. Without objection.
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    Mr. Collins. Mr. Burns, could you elaborate further on why 
both a strong patent system and a Federal civil right of--
private right of action are important for the continued 
dominance basically of the U.S. IP industry?
    Mr. Burns. Absolutely. You know, patents and trade secrets 
are complimentary forms of intellectual property, and there is 
this constant interplay within enterprises, within members of 
IPO asking the question, is this something that is better 
classified as a trade secret or as a patent.
    They deliver tremendous value for our enterprises in just a 
countless number of ways. You know, obviously patents, although 
they have limited duration, are exclusive rights, and that 
means that they have a certain kind of value that is different 
from trade secrets.
    Trade secrets are oftentimes the manufacturing techniques, 
the what we call the special sauce----
    Mr. Collins. Okay.
    Mr. Burns [continuing]. That is linked to the patented 
right. Used together, they are a very powerful tool for 
generating revenue flows, for allowing our business leaders to 
make intelligent capital allocation decisions about where to 
invest within our companies, and they create certainty that we 
are going to be able to reap some kind of benefit from that R&D 
investment that in and of itself is so risky.
    But if it actually leads to patented subject matter and a 
panoply of trade secrets that accompany it, it is much more 
likely that that is going to be a successful technology 
business enterprise, so----
    Mr. Collins. And I think that is true, and I think one of 
the things that I wanted to add to it, I think one of our 
discussions that we enter into is we take the property right 
ownership, we take thus in what I call ``esoteric terms.'' We 
talk about intellectual property, patentable items, trade 
secrets, and really the bottom line is whether you are talking 
across the board from manufacturing to music to wherever.
    We have taken it away from actually there is an ownership 
interest in here, and I think that is something that we lose 
and we've got to get back to talking about it being the 
building block of folks' dreams, ideas that are actually 
tangible as--just as tangible as this phone sitting on this 
desk, and if we don't do that, then both Democrats, 
Republicans, all of us are going to be hurting because people 
are going to tune out to what we are talking about.
    Very quickly, a lot of different groups support this 
Federal right of--civil right of private action, but at the 
same point had two very different approaches to patent reform. 
Very quickly, anyone that wants to--to Mr. Moore or anyone, is 
there--why is there a consensus over trade secret legislation 
more so than IP or the intellectual property or patentable 
items?
    Mr. Moore. Thank you, Congressman. We are one of the 
organizations that did not take a position on the patent reform 
bill, in part, because we had members on very different sides 
of that issue.
    We have a very broad membership, lots of different business 
models and approaches, but I am here, and I am here because our 
members agree on this issue. They all have trade secrets, they 
all are seeing a rising threat both at home and abroad, and 
they all want to make sure that those trade secrets are 
effectively protected.
    Mr. Collins. Well, I appreciate that, and Mr. Chairman, I 
know I am out of time, but I think it goes back to this issue 
that as my friend from California put it, the ``nerd caucus'' 
is here, and we appreciate this because in the end, a lot of 
those nerds have great ideas and dreams and hopes that we want 
to protect for future generations, and I think this is a great 
part of this hearing for that.
    And Mr. Chairman, with that, I yield back.
    Mr. Coble. I think, folks, in all candor, truth in 
advertising, I am not sure I am qualified to be a member of the 
``nerd caucus'' but----
    Mr. Collins. All Ernest Tubb fans can be classified as in a 
``nerd caucus.'' You and I--bluegrass will get us there, Mr. 
Chairman.
    Mr. Coble. I thank you for that.
    The distinguished gentleman from New York, Mr. Jeffries is 
recognized
    Mr. Jeffries. Thank you, Mr. Chairman.
    Mr. Burns, there was reference made to General Alexander's 
observation as it relates to the nature of and scope of the 
problem that we confront in this area, and I just wanted to get 
some clarification. I gather it was in a 2012 speech he stated 
that IP theft due to cyber espionage is the greatest transfer 
of wealth and history, estimating that U.S. companies lose 250 
billion per year due to IP theft.
    Are you aware as to whether he was speaking specifically 
about trade secret theft or is that $250 billion number all 
encompassing and inclusive of patent infringement, copyright 
infringement, counterfeit and/or piracy, as well as trade 
secret theft?
    Mr. Burns. It is my belief, sir, that he is referring 
specifically to trade secret theft.
    Mr. Jeffries. Okay. And that would be consistent with other 
studies that have been done in this area in terms of that 
particular amount?
    Mr. Burns. Absolutely. Those numbers fall within the range 
that was put forward in the CREATE study of between 180- and 
$400 billion in losses, yes.
    Mr. Jeffries. And I think everyone has testified either 
explicitly or implied in their remarks that there has sort of 
been a recent explosion of trade theft activity and it is 
become more sophisticated over time. What accounts for that 
phenomenon? And if anyone else on the panel wants to weigh in, 
that would be fine as well.
    Mr. Moore. Well, just to share with you some of the things 
that we hear from our member companies. I think part of the 
issue is the greater mobility of our workforce.
    One of our member companies, a small business from 
Maryland, testified in the other chamber last month and said, 
``look, you know, I have six international airports within 100 
miles of my facility in Baltimore, and you know, by the time I 
realized what has happened and take action in my home state and 
in the other States where these other airports, the five other 
airports are located, these can be long gone and so the 
mobility of our workforce, the ability of people to get on a 
plane and be out of the country quickly, I think, is big 
challenge.''
    Second, we certainly face a technological challenge. As I 
pointed out in my prepared testimony, what might have taken a 
moving truck to move out of a company in terms of documents, 
records, different types of information kept secret, can now go 
out the door on a thumb drive, can stick it in the back of your 
pocket, nobody knows you have it, and that is, I think, 
enabling some of the challenges as well.
    Mr. Jeffries. Thank you.
    Mr. Hertling, as you understand it, does the Department of 
Justice civil division currently have any authority under law 
to address the trade secret issue?
    Mr. Hertling. The Economic Espionage Act provides to the 
Attorney General an injunctive remedy to go into Federal court. 
I don't know whether that right, whether that ability is 
exercised by the Civil Division. I suspect, because the nature 
of getting the department involved in these sorts of instances, 
that you are probably actually looking at the Criminal Division 
or, of course, typically the U.S. Attorney's Office actually 
being the entity that would enforce that right rather than the 
Civil Division, but I don't honestly know.
    Mr. Jeffries. Okay. Right. And most U.S. Attorneys' 
Offices, certainly the ones that are located in the City of New 
York, have both a criminal division and a civil division 
present in the same office. Perhaps that is an issue in terms 
of greater enforcement relative to that injunctive provision 
that this Committee could also look at.
    And I think all four of you have indicated that you support 
a private right of action in the trade secret area, it 
certainly is something that I look forward to working with my 
colleagues on both sides of the aisle on.
    If one is created, when would it be appropriate for a 
company to go into Federal court, and in what instances would 
you envision companies taking advantage of the State court 
remedies that will remain on the books?
    Mr. Hertling. Well, I think obviously for a company to get 
into Federal court in the first instance, there would have to 
be at a minimum an interstate nexus, an effect on interstate 
commerce and certainly an effect with--instances in which there 
is an international nexus.
    Otherwise it would be left to the--the choice of forum 
would be left typically to the plaintiff, and I think it would 
depend on the particular circumstances if there is--in an 
interstate or international case, if the concern is the thief 
absconding with the information physically, it probably is a 
benefit to file in Federal court, because the process that 
would be issued by Federal court could be enforced by a U.S. 
Marshal anywhere, whereas if you go into the State court, the 
process issued by a justice of Kings County Supreme Court, for 
example, doesn't mean anything to a sheriff executing a process 
in California.
    So whereas the U.S. Marshal in San Francisco would enforce 
an order of a Federal District Judge from the Eastern District 
of New York, just as he would process issued by a Judge of the 
U.S. District Court for the Northern District of California, 
but if the matter is one in which the mis-appropriator absconds 
from Brooklyn to Staten Island, you probably wouldn't need to 
go to Federal court. It is a question whether you could. If he 
absconds to New Jersey, it would be up to the plaintiff to 
decide what the best forum is, and the factors would be the 
ease of relief, the comfort with the judiciary in the location.
    So there would be nothing in a Federal civil remedy that 
would preempt state law or preclude the plaintiff in choosing 
the forum in which to file.
    Mr. Jeffries. Thank you.
    I yield back.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from Pennsylvania, Mr. Marino, 
is recognized.
    Mr. Marino. Thank you, Chairman.
    Gentlemen, I am pretty much a States rights guy and the 
less Federal Government in my life, the better. Tell me what, 
and anyone can speak to this. Tell me what requires fixing? Why 
do we need the Federalization here?
    Mr. Hertling. Well, I think initially, as I mentioned to 
Mr. Jeffries, one of the things that needs fixing is, of 
course, each State enforces the judicial process issued by the 
judges of that particular State, and process issued by a judge 
in Pennsylvania is typically not going to be enforced by a 
sheriff in California. So if you have a big company in 
Harrisburg and somebody walks out with a thumb drive with some 
important trade secrets and drives from the facility, gets on a 
plane and flies to San Francisco, and from San Francisco, he is 
going to abscond to Beijing, if the owner of that business 
finds out that the person has walked out with a trade secret, 
he runs to common pleas court in Gotham County, the judge is 
going to issue process.
    You get that process out to the San Francisco sheriff, and 
the sheriff in San Francisco who's going to--because you are 
looking to seize the thumb drive.
    Mr. Marino. I was reading some cases preliminarily just 
before I got here. And let's take, for example, the 
international court of justice gets involved. I think there was 
a case that--a case, a preliminary case that started out in one 
of the States here in the U.S. and it involved Canada, and I 
am--are you familiar with this case that I am talking about? 
And----
    Mr. Hertling. I am not. I was under the impression that the 
ICJ only heard cases between sovereigns, so I--but I am not an 
expert in international law.
    Mr. Marino. Also the U.S. Federal court stepped in and 
raised an issue about a State having a right to hand down the 
decision that pertained to another country, and I am thinking 
it was Canada. Have you heard of that? I am trying to get more 
information on that explanation.
    Mr. Hertling. I am----
    Mr. Marino. Is anyone else familiar with it?
    Mr. Hertling. I am not----
    Mr. Marino. I will do some research on it, then.
    Mr. Hertling. I am not familiar with it, but again, I think 
it is important that nothing--obviously there is no House bill 
that has been introduced yet, a broader bill, Ms. Lofgren, of 
course, has a barebones bill. So this would be something that 
the House would take and create, but nothing, say, in the bill 
that has been introduced in the Senate would preempt State law, 
foreclose the ability to go into State Court. This is a--a 
Federal remedy would be a complement to the existing State 
Court remedies, but not a replacement for them.
    Mr. Marino. Do you only get one bite at either or--or a 
venue? If you lose in one, can you go to the other?
    Mr. Hertling. Well, typically, obviously, unless it is a 
criminal case where you have--you know, the dual sovereign 
doctrine applies, but in the civil litigation context, you 
would generally have claim preclusion so that if you lose in--
if you lose on those issues or issues that you could have 
raised in a previous suit, and you go to a different court, 
whether State or Federal, you are precluded if there is 
identity of parties between the two suits.
    Mr. Marino. Mr. Simon, you have raised an issue, but I am 
sorry, I have been going in and out meeting with people, on 
seizure. Could you repeat that again for my benefit that I may 
not have heard concerning your concern with seizure?
    Mr. Simon. Sure. I would be happy to. So we have a lot of 
people's data in our systems. That data, because of the way our 
security algorithms and others mix, work, the data between the 
customers is mixed together. There is no one disk drive for any 
one customer, generally speaking. There are some exceptions, to 
be clear.
    The point being that under the current--some of the current 
proposals, the ability to come in and seize physical property 
would permit somebody to say, we think there is a mis-
appropriator's information here, go get that physical drive. 
That is the issue that we are concerned about.
    Mr. Marino. All right. Thank you.
    I see my time has expired and I yield back. Thank you.
    Mr. Coble. I thank the gentleman.
    This concludes today's hearing. I appreciate those of you 
in the audience who stayed with us. Particularly appreciate the 
panelists for your contributions.
    Without objection, all Members will have 5 legislative days 
to submit a written--additional written questions for the 
witnesses or additional materials for the record. This hearing 
stands adjourned.

    [Whereupon, at 4:38 p.m., the Subcommittee was adjourned.]

                                 
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