June 25, 2017

The Dangers of the New Trade Secrets Acts

First, I want to state how thrilled I am to be joining the great group here at CITP. Every CITP scholar that I’ve gotten to know over the past several years have become friends and influenced my work in areas ranging from voting machine code access to international lawmaking processes. I’m delighted to be a part of CITP’s dynamic team and environment and look forward to an exciting year. Now, on to business.

Congress is actively considering legislative responses to increased foreign cyber-espionage, driven by the perception that theft is increasing both in scale and in severity. Two bills – the “Defend Trade Secrets Act of 2014” (“DTSA“) and the “Trade Secrets Protection Act of 2014” (“TSPA“) – are the latest attempts at legislating in this area. The bills both create a new private cause of action under the Economic Espionage Act (“EEA”) for theft of commercially-valuable secret information.

Currently, trade secret misappropriation is a federal crime under the EEA, but trade secret owners can seek civil remedies only in state courts, under state laws. The theory underlying the Acts is that a private cause of action under the EEA will be an effective weapon against foreign cyber-espionage. Current law, so the argument goes, is ineffective in combating cyber-espionage.

Unfortunately, the bi-partisan sponsors of the Acts have gotten this one wrong. In reality, the Acts will create or exacerbate many existing legal problems, yet solve none. As such, Sharon Sandeen and I authored the linked letter in opposition to the sponsors of the Acts and Congress, which has been signed by 31 United States legal academics. While acknowledging that the United States needs to increase protection against cyber-espionage, we assert that, in sum, the Acts should be rejected for five primary reasons:
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Congressman Issa's "Internet Law Freeze": Appealing but Impractical

This week, Congressman Darrell Issa released a draft bill that would prevent Congress and administrative agencies from creating any new internet-related laws, rules, or regulations. The Internet American Moratorium Act (IAMA) is a rhetorical stake in the ground for the notion that the government should “keep its hands off the internet.” In the wake of successful blockage of SOPA/PIPA legislation–which would have interfered with basic internet functionality in the name of combating content piracy–there is renewed energy in DC to stop ill-advised internet-related laws and rules. Issa has been quoted as saying that the government needs a, “cooling-off period to figure out a better way to create policy that impacts Internet users.” The relevant portion of the bill reads:

It is resolved in the House of Representatives and Senate that they shall not pass any new legislation for a period of 2 years from the date of enactment of this Act that would require individuals or corporations engaged in activities on the Internet to meet additional requirements or activities. After 90 days of passage of this Act no Department or Agency of the United States shall publish new rules or regulations, or finalize or otherwise enforce or give lawful effect to draft rules or regulations affecting the Internet until a period of at least 2 years from the enactment of this legislation has elapsed.

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Clinton's Digital Policy

This is the second in our promised series summing up where the 2008 presidential candidates stand on digital technology issues. (See our first post, about Obama). This time,we’ll take a look at Hillary Clinton

Hillary has a platform plank on innovation. Much of it will be welcome news to the research community: She wants to up funding for basic research, and increase the number and size of NSF fellowships for graduate students in the sciences. Beyond urging more spending (which is, arguably, all too easy at this point in the process) she indicates her priorities by urging two shifts in how science funds are allocated. First, relative to their current slice of the federal research funding pie, she wants a disproportionate amount of the increase in funding to go the physical sciences and engineering. Second, she wants to “require that federal research agencies set aside at least 8% of their research budgets for discretionary funding of high-risk research.” Where the 8% figure comes from, and which research would count as “high risk,” I don’t know. Readers, can you help?

As far as specifically digital policy questions, she highlights just one: broadband. She supports “tax incentives to encourage broadband deployment in underserved areas,” as well as providing “financial support” for state, local, and municipal broadband initiatives. Government mandates designed to help the communications infrastructure of rural America keep pace with the rest of the country are an old theme, familiar in the telephone context as universal service requirements. That program taxes the telecommunications industry’s commercial activity, and uses the proceeds to fund deployment in areas where profit-seeking actors haven’t seen fit to expand. It’s politically popular in part because it serves the interests of less-populous states, which enjoy disproportionate importance in presidential politics.

On the larger question of subsidizing broadband deployment everywhere, the Clinton position outlined above strikes me, at its admittedly high level of vagueness, as being roughly on target. I’m politically rooted in the laissez-faire, free-market right, which tends to place a heavy burden of justification on government interventions in markets. In its strongest and most brittle form, the free-market creed can verge on naturalistic fallacy: For any proposed government program, the objection can be raised, “if that were really such a good idea, a private enterprise would be doing it already, and turning a profit.” It’s an argument that applies against government interventions as such, and that has often been used to oppose broadband subsidies. Broadband is attractive and valuable, and people like to buy it, the reasoning goes–so there’s no need to bother with tax-and-spend supports.

The more nuanced truth, acknowledged by thoughtful participants all across the debate, is that subsidies can be justified if but only if the market is failing in some way. In this case, the failure would be a positive externality: adding one more customer to the broadband Internet conveys benefits to so many different parties that network operators can’t possibly hope to collect payment from all of them.

The act of plugging someone in creates a new customer for online merchants, a present and future candidate for employment by a wide range of far-flung employers, a better-informed and more critical citizen, and a happier, better-entertained individual. To the extent that each of these benefits is enjoyed by the customer, they will come across as willingness to pay a higher price for broadband service. But to the extent that other parties derive these benefits, the added value that would be created by the broadband sale will not express itself as a heightened willingness to pay, on the part of the customer. If there were no friction at all, and perfect foreknowledge of consumer behavior, it’s a good bet that Amazon, for example, would be willing to chip in on individual broadband subscriptions of those who might not otherwise get connected but who, if they do connect, will become profitable Amazon customers. As things are, the cost of figuring out which third parties will benefit from which additional broadband connection is prohibitive; it may not even be possible to find this information ahead of time at any price because human behavior is too hard to predict.

That means there’s some amount of added benefit from broadband that is not captured on the private market – the price charged to broadband customers is higher than would be economically optimal. Policymakers, by intervening to put downward pressure on the price of broadband, could lead us into a world where the myriad potential benefits of digital technology come at us stronger and sooner than they otherwise might. Of course, they might also make a mess of things in any of a number of ways. But at least in principle, a broadband subsidy could and should be done well.

One other note on Hillary: Appearing on Meet the Press yesterday (transcript here), she weighed in on Internet-enabled transparency. It came up tangentially, when Tim Russert asked her to promise she wouldn’t repeat her husband’s surprise decision to pardon political allies over the objection of the Justice Department. The pardon process, Hillary maintained, should be made more transparent–and, she went on to say:

I want to have a much more transparent government, and I think we now have the tools to make that happen. You know, I said the other night at an event in New Hampshire, I want to have as much information about the way our government operates on the Internet so the people who pay for it, the taxpayers of America, can see that. I want to be sure that, you know, we actually have like agency blogs. I want people in all the government agencies to be communicating with people, you know, because for me, we’re now in an era–which didn’t exist before–where you can have instant access to information, and I want to see my government be more transparent.

This seems strongly redolent of the transparency thrust in Obama’s platform. If nothing else, it suggests that his focus on the issue may be helping pull the field into more explicit, more concrete support for the Internet as a tool of government transparency. Assuming that either Obama or Clinton becomes the nominee, November will offer at least one major-party presidential candidate who is on record supporting specific new uses of the Internet as a transparency tool.