We are heading backwards: Trade secrets limit employee mobility

This article is based on a presentation given by Mr Johnson Kong (International Intellectual Property Commercialization Council, Hong Kong) at the SCLA’s Global Online Forum on Trade Secrets on 28 November 2020. It was drafted by Hermann Knott and Martin Winkler for the SCLA’s report on the event. For the benefit of our readers, we are now publishing it online for the first time, to help us understand and unite our changing world.

Mr Johnson Kong started by highlighting the importance of transferring and sharing knowledge for innovation and the improvement of society. The recognition of Intellectual Property Rights allows people to share their knowledge, he argued.

He went on to explain the “musts of trade secret”. These are: It must not be known to the public. It must have a value to the company at the present or in the future. It must be kept secret. It must be documented. It must not be in the public domain. It must have an appropriate legal framework in place if shared with another entity. It must be protected by administrative, legal and technical means. It must require access control.

Then, in 2016 the US passed the “Defend Trade Secrets Act”. In 2018, China passed the Anti Unfair Competition Law and the EU Commission promulgated the Directive on Trade Secrets. This was a game changer because prior to this, judges looked at trade secrets as if it were a business matter. Now, since 2016, trade secret theft has been criminalised. In China there is an administrative procedure in relation to trade secrets. In this procedure against someone who has allegedly stolen a secret the issue may arise why it was possible to steal the information if it is a secret.

Mr Kong continued by asking whose secret the relevant information is? And how do you prove the existence of a trade secret? It is standard that employers have their employees sign non-disclosure agreements (NDAs) in relation to trade secrets. Does signing an NDA lead to this employee becoming trapped? And what is the standard for such NDAs? Do they need to be short or extensive? How do these new laws benefit society? Do they increase innovation? Innovation, after all, is the result of people sharing knowledge.

Employer-friendly regimes that protect trade secrets show reduced employee mobility. This, Mr Kong argued, prevents the circulation of ideas in an economy, and slows innovation. Non-compete clauses are very common in employment contracts and new trade secret laws, such as the US’s ‘Inevitable Disclosure’ doctrine will further affect employee mobility.

In countries without trade secrecy regimes, the average tenure at jobs for employees is lower. This gives evidence to the theory that there is higher employee mobility in countries without trade secret laws. However, these countries also tend to have a lower degree of productivity. Nonetheless, according to statistics, workers there enjoy a similar income to their counterparts in countries with more rigid trade secrecy regimes. This shows that in certain regions employees are being paid the same, although they are, comparatively, less productive than their peers in certain other countries. This should, in theory, have a negative effect on the less productive country’s growth.

We are heading backwards due to inability to uphold the true principles of Intellectual Property to benefit society, according to Mr Kong. We are limiting knowledge sharing if businesses keep their secrets for themselves. We are limiting employees’ mobility if they cannot leave their company because they know about a trade secret.

There is, thus, a need for best practices in relation to the proof of existence (PoE) of a trade secret, continues. The community as a whole must agree on proper procedures reaching beyond just administration and procedure. This collective solution should be equitable and inclusive. In 2015  the International IP Commercialization Council launched a protocol on an International Knowledge Registry. Furthermore, the IP Commercialization Council and the WIPO Arbitration and Mediation Center collaborate to make available dispute resolution mechanisms to efficiently resolve trade secret disputes.

Discussion

During the discussion, Mr Tianze Zhang asked a participant from India to give the Indian perspective on this question. She answered that, in India, there is no such system as in the US. When enforcing trade secrets proof of existence and the preservation of the secrecy of the trade secret are a challenge. That is the reason why businesses are reluctant to go to court and they consider prevention to be better than focusing on very tight confidentiality agreements. Then, Mr Zhang asked a second participant for his view. He explained that developing countries need access to knowledge to develop their capabilities. Hence, they are not persuaded that regulation of trade secrets will benefit them.

Picture by Andrii Yalanskyi from Canva.com