I’ve written several times in the past about the proposed legislation to create a federal cause of action for trade-secrets misappropriation (see here, here, and here). I also wrote a response to a letter signed by a number of professors who opposed this legislation. Now, Professors David S. Levine and Sharon K. Sandeen have written a law review article titled “Here Come the Trade Secret Trolls.” This article misses the mark by a mile.
Here is the article’s core argument:
The [proposed federal] Acts are most likely to spawn a new intellectual property predator: the heretofore unknown “trade secret troll,” an alleged trade secret owning entity that uses broad trade secret law to exact rents via dubious threats of litigation directed at unsuspecting defendants.
The use of the term “troll” is meant to evoke patent trolls, who have been the subject of much scorn. But the so-called “trade secret troll” is far different than a patent troll. The latter actually own patent rights, which they wield to seek licensing fees. The article’s mythical trade-secret troll is simply someone willing to bring a frivolous lawsuit to extort an undeserved settlement. I suspect the authors chose this term to piggyback on the negative attention heaped on patent trolls, thereby arming the legislation’s opponents with a pejorative term that may scare legislators or their constituents.
Putting titles aside, the article can’t reconcile its core argument with the fact that, as the authors acknowledge, “trade secrecy has been generally free of similar trolling behavior.” In other words, there is no epidemic of frivolous trade-secret lawsuits under the current state-law framework. (Certainly, there are weak misappropriation cases, just like with any cause of action. But I haven’t seen any evidence to suggest that such cases are disproportionately filed.)
The authors try to make the point that the proposed federal acts would transform trade-secrets law such that threatening and filing frivolous lawsuits would become commonplace. Yet the article does not really explain why this is so. It gets closest when discussing the proposed ex parte seizure provisions. But as I mentioned in my response to the professors’ letter, this risk is highly overblown. Convincing a federal judge to enter ex parte relief is no simple matter. And the defendant will have the right to challenge any seizure order very soon after its entry. Federal judges will not be amused if they have been manipulated into entering unnecessary ex parte orders.
The article fears that “trolls” will be able to threaten an ex parte seizure, which will be sufficient to scare a defendant into paying up before the suit is filed. Yet any innocent defendant will know that the likelihood of such an order being entered is slim. Further, simply sending the letter would undermine an attempt to get an ex parte seizure order. If the plaintiff was able to send a demand letter, thereby putting the defendant on notice of the possible claim, then a judge would be highly skeptical of a claimed need for an ex parte order.
The article also argues that unsettled interpretative questions relating to the acts will fuel frivolous lawsuits. But the article forgets that creating a federal cause of action will quickly lead to a much more robust body of published caselaw interpreting the statute. While there are very few published trial-court-level decisions in state courts, U.S. district court orders are widely available.
Frankly, state courts are much more susceptible to frivolous trade-secrets suits than federal courts. Take Florida, for example. Here, state court judges have to deal with remarkably bloated dockets. In fact, I’ve had multiple cases where it took months to get an emergency injunction hearing. State-court judges generally don’t have law clerks. And in Florida, judges often rotate between civil, criminal, family, and dependency divisions. This latter point is critical: judges often don’t spend enough time in the civil division to develop a familiarity with trade-secrets law. All of these issues lead to uncertainty, which would seemingly aid the unscrupulous litigant looking to extort a settlement. Yet, as the authors themselves acknowledge, we simply have not seen this so-called trolling.
There’s no question that frivolous lawsuits would be filed under the proposed federal legislation, just as like every other cause of action. But there is absolutely no credible reason to believe that such suits can’t be remedied with the typical mechanisms deigned to ferret out meritless claims, like Rule 11 motions.
As I’ve argued in the past, the proposed legislation has tangible benefits that aid trade-secrets owners in protecting their critical proprietary information. The arguments lobbed up in opposition—including the manufactured risk of “trolling”—don’t hold up to careful scrutiny.