Intellectual property entitled to protection
This appeared on Cincinnati.com on July 4, 2014.
What do Coca-Cola, Whole Foods and 5-Hour Energy have in common? They all maintain trade secrets to protect their brands and market their products. Trade secrets are integral to a company’s brand. Once in government hands, however, a company’s trade secret is vulnerable to inadvertent or purposeful disclosure through leaks or Freedom of Information Act (FOIA) requests.
A trade secret is a form of intellectual property (IP) that derives its economic value by not being generally known. For some companies, trade secrets serve as their most valuable assets. Once released – even if a court determines that the release was criminal or negligent – the trade secret permanently loses its value.
In theory, government should only demand a company’s trade secrets when no meaningful alternative exists. In reality, no standard exists for when the government can request a company’s trade secrets, which leaves the validity of the request to the whim of the requesting agency and the courts. As long as the government’s request is relevant to an investigation, courts have ruled that the request is valid, even if honoring the request violates trade secret precedent.
In 2007, while looking into Whole Foods Markets’ plans to purchase competitor Wild Oats, the Federal Trade Commission (FTC) accidentally posted Whole Foods’ trade secrets on the FTC website, including marketing and supplier negotiation strategies.
In the absence of concrete standards, government agencies use their discretion to release trade secrets when they deem public health, safety and financial welfare are at risk. While government should play a role in protecting the public, the lack of sufficient guidelines for when government can request and release trade secrets leaves companies vulnerable to exposure.
Most trade secret disclosures result from FOIA requests – the majority from the trade secret owner’s competitors. Although the FOIA has exemptions against disclosure of trade secrets, the Supreme Court has found that government agencies are under no obligation to withhold proprietary information. Members of Congress can also request information and discuss it openly.
Recently, the target of trade secret demands is the energy drink industry. 5-Hour Energy, a manufacturer of dietary supplement energy shots, finds itself the subject of a multi-state investigation, and Ohio’s Mike DeWine is among 33 state attorneys general who have demanded the disclosure of their secret formula. The states base their demand on health and safety concerns, alleging that energy drinks have been associated with an uptick in emergency room visits. But the evidence behind the claims is dubious, and the release of 5-Hour Energy’s secret formula could easily destroy the company and the more than 500 jobs in Michigan and Indiana it supports.
America’s innovation economy depends on intellectual property as a job creator, and IP-intensive industries employ 55.7 million Americans at wages that average 30 percent higher than non-IP jobs.
Government plays a role in regulating businesses and the economy and protecting public safety. However, given the risks associated with IP industries, standards should be put into place to determine when it is necessary to reveal a company’s trade secrets. The government should be required to articulate a prima facie case that the information is necessary to protect health and safety, not merely that the information is relevant. And laws should be enacted that create serious, enforceable consequences against government actors who disclose trade secret information in violation of a protective order or a trade secret statute. Public safety should always be the top priority, but government must be mindful of the human and economic cost of trade secret disclosure, especially if alternatives exist.
Bill Seitz, a Republican from Green Township, represents Ohio’s 8th District in the state Senate.