On May 13th CREATe.org CEO Pamela Passman testified before the Senate Subcommittee on Crime and Terrorism on the topic of “Economic Espionage and Trade Secret Theft: Are Our Laws Adequate for Today’s Threats?”
Presided by Senators Whitehouse and Graham, the hearing featured representatives from the Federal Bureau of Investigation (FBI), The Boeing Company, Marlin Steel Wire Products and Eli Lilly and Company in addition to CREATe’s Passman.
In Passman’s testimony, she highlighted the value of trade secrets to companies and the economy; and outlined key findings from the recent CREATe – PwC Report: Economic Impact of Trade Secret Theft – A Framework for Companies to Safeguard Trade Secrets and Mitigate Potential Threats.
The full testimony:
Testimony of Pamela Passman
President and CEO of CREATe.org
Hearing on “Economic Espionage and Trade Secret Theft:
Are Our Laws Adequate for Today’s Threats?”
May 13, 2014
Good afternoon Chairman Whitehouse, Ranking Member Graham, and members of the Committee. My name is Pamela Passman, and I am the CEO of the Center for Responsible Enterprise & Trade, also known as CREATe. I appreciate the opportunity to testify here today about an issue that is vital to the economy and job growth.
CREATe is a nonprofit dedicated to helping companies reduce corruption and intellectual property theft, including theft of trade secrets. We provide resources to companies large and small that help them assess their risks and develop strategies to protect their trade secrets and other IP assets, both within their own organizations and in their supply chains.
In today’s integrated, global economy, information and knowledge are the new crown jewels. Companies that succeed in turning their knowledge and know-how into competitive advantage are the ones that will create new jobs and drive our nation’s growth.
Increasingly, companies rely on trade secret laws to protect this knowledge. A trade secret can be as simple as a customer list, or as complex as the know-how to manufacture microchips. In our work at CREATe, it has become apparent that trade secrets are critical to innovation, and by extension to investment and competitiveness.
Yet the tremendous value of trade secrets also makes them prime targets for theft.
Calculating the extent and impact of trade secret theft is notoriously difficult. Many companies do not keep good track of their trade secrets, and those that do often do not know when their property has been stolen. Even when they are aware, companies often are hesitant to disclose thefts that have occurred, for both reputational and other reasons.
CREATe recently teamed up with PricewaterhouseCoopers to assess the economic impact of trade secret theft and devise a framework for companies to mitigate threats. A copy of the CREATe-PwC report is attached to my written testimony.
In the report, we used several proxies for estimating the value of trade secrets and the harms caused by trade secret theft. For instance, we looked at data on other key forms of illicit activity, such as fraud and corruption, copyright theft, and various black-market activities. Based on these proxies and other data, we estimated that trade secret theft costs on average 1 to 3 percent of GDP in the United States and other advanced economies.
Whatever the exact number, the problem of trade secret theft is massive and inflicts material damage on the U.S. and other economies. If we are to energize our economy by enabling innovative companies to protect their trade secrets, we need to focus on two key goals:
- First, we need to incentivize companies to take proactive measures and implement best practices to secure their trade secrets on the front end, both within their own organizations and in their supply chains.
- Second, we need a consistent, predictable and harmonized legal system to provide effective remedies when a trade secret theft has occurred.
I am therefore greatly encouraged to see the bipartisan interest in exploring better and more efficient ways to protect trade secrets. By providing attention to this issue, Congress can motivate companies to adopt more effective processes for protecting their own trade secrets; focus law enforcement attention; and put the United States on a path to having a harmonized legal system that will serve as a model around the world.
While there is an important role for governments in protecting trade secrets—and I applaud, Chairman Whitehouse and Ranking Member Graham, your focus on law enforcement—companies also need to take the lead in more effectively protecting trade secrets within their companies and in their supply chains.
Trade secret theft occurs through many vectors, and understanding these vectors can help businesses assess internal vulnerabilities that they can prioritize for fixing. Cybercrime is one clear avenue through which bad actors steal trade secrets, and I welcome this Committee’s focus on cybercrime. Disgruntled employees and other malicious insiders, competitors, nation-states, hacktivists, and transnational criminal organizations, however, are other common avenues for trade secret theft. Companies need different tools and strategies to protect against each type of threat actor.
Businesses need to be particularly cognizant of risks that arise in their supply chains. The growth in recent years of extended global supply chains, comprising hundreds or even thousands of suppliers, has brought tremendous benefits and given many firms an enormous competitive edge. But companies using extended supply chains often must share confidential and highly valuable business information with their suppliers—many of which may be located in a different country with different laws and different corporate norms.
In the face of this reality, it is absolutely essential that companies implement effective strategies to protect trade secrets not just within their own four walls, but with their suppliers as well. In the CREATe-PwC report, we recommend a five-step approach for safeguarding trade secrets and mitigating potential threats:
- First, companies should identify and categorize their trade secrets throughout their organization.
- Second, they should conduct a risk assessment that identifies both the primary threat actors and potential vulnerabilities in the company’s policies, procedures, and controls.
- Third, they should identify those trade secrets that have the greatest impact on the company’s operations and business.
- Fourth, they should seek to assess the economic impact that would result from the theft of the most valuable trade secrets identified in step three.
- Fifth, companies should use the data collected in the first four steps to make informed decisions about how to allocate available resources and strengthen existing processes to most effectively increase the company’s overall safety profile against trade secret theft.
CREATe recently completed a pilot program with more than 60 companies in countries around the world. We helped these companies assess their vulnerabilities to corruption and IP theft—including trade secret theft—and to implement procedures to mitigate these threats.
Based on that pilot program, we just launched “CREATe Leading Practices,” a service designed to help companies improve and mature their management systems. On our website, companies can also find best practices and model policies. Employing these tools proactively can help companies protect their IP assets and remain competitive.
Unfortunately, no amount of protection can completely safeguard all trade secrets from theft. Companies also need a legal system that provides predictable enforcement and meaningful remedies against bad actors. A patchwork of different standards and enforcement mechanisms—whether domestically and internationally—makes protecting trade secrets significantly more difficult.
Recent high-profile criminal enforcement actions are encouraging, and a hearing like this, that highlights the value of trade secrets to the economy, will help prioritize criminal enforcement. Not all instances of trade secret theft are criminal, however, and law enforcement does not have the resources to investigate and prosecute all instances in any event. I am therefore encouraged by the efforts of Senators Coons and Hatch to create a harmonized system for owners of trade secrets to protect their property through a federal private remedy. Senator Flake’s interest in theft that occurs overseas is also worth further study and discussion.
Our economy relies on the ability of companies to protect their trade secrets. Governments and companies both play a role in improving protection. In our view, companies would benefit from taking a more proactive role in assessing vulnerabilities and employing best practices to manage their risks. They also need an effective legal system through which to enforce their rights when their know-how has been misappropriated.
Thank you for holding this hearing and for giving me an opportunity to testify.