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Trade Secrets Law in Florida Collides With Academic Culture

July 13, 2021, 9:06 AM

A Florida law designed to curb theft trade secrets from research institutions by China amps up punishment but doesn’t necessarily address a core problem at places like universities: keeping secrets in the first place.

The Combating Corporate Espionage in Florida Act, signed into law June 8, enhanced penalties for trade secret theft, particularly theft to benefit a foreign government. It was paired with a law requiring universities and state agencies to disclose foreign grants larger than $50,000, all in the wake of cases of Florida researchers who failed to disclose ties to China.

But the law doesn’t address the core day-to-day practice of identifying and protecting trade secrets, something that cuts against the collaborative culture of academia, University of Florida trade secrets professor Elizabeth A. Rowe said.

She said treating innovations as proprietary information has caught on somewhat in the last two decades as schools look to protect exclusivity on an increasing source of income, although academia remains well behind the private sector. That makes it particularly important for institutions to notify researchers of trade secrets they encounter—and of laws like Florida’s, Rowe said.

“The culture of academia has in part always been about openness and sharing, and reward for publishing,” Rowe said. “Academia, for better or worse, has woken up to the realization of the monetization of their assets and their IP.”

A Political Target?

While allegations of IP theft by China aren’t new, the intensity increased amid a crackdown by the Justice Department under former President Donald Trump and bills recently introduced in Congress to address foreign trade secret theft penalties, import blocks, and presidential sanctions.

In Florida, a former University of Florida researcher fled to China after being charged by federal prosecutors with acquiring a $1.8 million federal grant without disclosing financial support from China. Six employees of Florida’s leading cancer research hospital, including the CEO, had to resign for not disclosing ties to a Chinese talent recruiting program.

Florida legislators responded by creating a second-degree felony charge for “trafficking” trade secrets, which includes not just stealing but buying, selling, or passing along. Trafficking intended to benefit a foreign government became a first-degree felony, while theft of such foreign-aiding secrets rose to a second-degree felony.

“The reality is these are our institutions we run, and we are accountable to the taxpayers,” Florida House Speaker Chris Sprowls (R) said. “I feel like this is such a pervasive problem, and the feds are too overrun to have the personnel to deal with this problem. There’s room for the state.”

But Rowe said federal law already has substantial criminal penalties for trade secret theft, as well as a number of extra tools for when trade secrets and espionage cases are too difficult to prove.

Universities and federal grants already require substantial disclosure of outside ties and income, and many charged with aiding China have been prosecuted with wire fraud and false statement claims as well as tax violations, she said.

Sprowls acknowledged state trade secrets prosecutions aren’t common, but said new penalties give prosecutors incentives to pursue more.

Trade secrets attorney James Pooley said China seems to be largely “a big political target that feels good to shoot at.” To him that notion was reinforced by Gov. Ron DeSantis’ (R) comments on the law’s passage, which included calling China a “hostile foreign power.” But Pooley said federal authorities are already “locked and loaded” for the kind of cases Florida’s targeting.

“The fastest way to raise the pulse rate and blood pressure of the FBI is to tell them it has something to do with China,” Pooley said. “I’m not saying Florida should have no interest in what’s happening inside state universities. My only observation is, I don’t believe that’s the motivation for this statute.”

Proprietary Know-How

Beyond the overlap with federal enforcement, Sharon K. Sandeen, director of the Intellectual Property Institute at the Mitchell Hamline School of Law, said the “poorly written” law missed the mark by targeting theft of university innovation that usually doesn’t even qualify as trade secrets.

Much research is federally funded, and the 1980 Bayh-Dole Act generally makes institutions disclose, eventually, commercially viable discoveries as patents to retain rights, she said.

Terms under which such technology is transferred to private companies to commercialize and then sell back to the public that helped fund it is a bigger taxpayer accountability issue, Sandeen said.

“If I was in the legislature in Florida that’s what I’d be pissed about,” Sandeen said.

Rowe said universities do have trade secrets to keep before a patent is filed, and even then bringing patents to life can involve proprietary know-how. But she said academia remains well behind industry in developing a culture of identifying and keeping trade secrets.

In addition, Sandeen and Rowe worried the effort would fuel discrimination against Asian and Asian-American researchers, and pressure prosecutors to reach for cases.

The new law also could restrict employee mobility, Pooley said. Workers might stay with an employer if they are concerned that moving to a competitor could result in high-stakes accusations of stealing trade secrets.

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Cheryl Saenz at csaenz@bloombergindustry.com; Renee Schoof at rschoof@bloombergindustry.com