A new law aims to protect US IP from international theft. Here’s what that means for founders

The Biden administration made the protection of US companies’ intellectual property an executive priority by signing a bill initially sponsored by senators Chris Van Hollen (D-Maryland) and Bob Sasse (R-Nebraska) last week.

The Protecting American Intellectual Property Act invests the power to determine threats in both the presidency and the companies that decide to report violations. Its main stated purpose is to punish perpetrators of intellectual property theft that is deemed a “major threat” to national security, foreign policy, economic health or financial stability of the United States.

This includes trade secrets, which may be defined as procedures or processes ineligible for trademarking, patenting or copywriting registration that remain critical to the vitality of a firm or founder — for example, Coca-Cola’s recipe for its signature formula. Firms that allege such theft are required to file reports every six months.

“Senator Sasse and I agreed that it was important for our national security and our economy to hold perpetrators of IP theft accountable, and I’m glad we were able to work together to get this done with sweeping support from both parties,” said Sen. Van Hollen, the bill’s cosponsor, in an email to Technical.ly.

The act was passed amid years of tension and trade war between the United States and countries successive presidential administrations designated as adversarial — principally, the People’s Republic of China. A prominent flare-up took place in 2020 when the Department of Justice charged Chinese telecom giant Huawei with profiting off of stolen and replicated IP from US-based firms. Sen. Van Hollen sees this as an especially big problem for not just companies, but the domestic economy at large.

“In China and other countries across the globe, foreign corporations are working – often in coordination with authoritarian regimes – to steal our cutting-edge technologies to gain unfair advantages at America’s expense,” he wrote.

A problem of specificity

Intellectual property lawyer James Astrachan of downtown Baltimore’s Goodell, DeVries, Leech & Dann sees a mix of positives and major concerns with the new bill. He specifically cited the bill’s seemingly incomplete definition of what it purports to protect.

“I’m looking at the bill, and I don’t see that the bill even defines the term ‘trade secrets,’” said Astrachan, who is also an adjunct professor at the University of Baltimore School of Law. “That throws up in the air a lot of discretion to whoever is compiling this list of offenders for the president.”

John Astrachan. (Courtesy photo)

Astrachan also believes companies are likely to report theft unless the act of doing so results in losing control of that trade secret. To that end, he is actually getting ready to file a trade secret action for a client.

“We’ll be very vague in our complaint in terms of identifying [the trade secret],” he explained.  “We’ll try to work out some sort of protection so that it’s going to be under seal. Nobody can read it in the court records.”

He also noted how the terms “knowingly,” “secretly” and “theft” remained undefined in the act, which could be problematic.

“You wonder whether in operation, this bill has been so watered down that the teeth are, ‘I’ll bite if I want to bite,’ he said.

The bite of the law — its punitive aspects — are well defined, however: If the president decides to enforce the act, the executive office will be required to impose a minimum of five sanctions against the offending entity. Those sanctions could include property blocking, procurement, export prohibitions, prohibition of loans from the US or international financial institutions and moratoria on banking transactions. For the individuals involved in intellectual property theft, the president is required to execute property blocking sanctions and deny that person entry into the United States.

Since the act gives the executive branch tremendous discretion to determine threats, Astrachan believes a president could easily use it as a political tool. Still, he believes it can have a net positive effect on founders and firms. He thought the idea to report violations to the government was a good one. Plus, if a local founder’s product or process gets sent overseas for production, stolen in the process and deemed a “major threat” by the president, the founder may able to achieve some kind of justice. But, he reiterated, the benchmarks may be prohibitively high.

“This would benefit [the founder],” Astrachan said. “But you have all of these criteria that you have to meet before you get the threshold of this law [imposing] sanctions.”