Show Me Your Secrets: How the Use of Trade Secrets Relates to the Demand for Transparent Artificial Intelligence—part Ii

• Publication year: 2022

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Sander Vogt ^*

As the undeniable rise of artificial intelligence ("AI") in modern society continues at an astounding pace, the calls for its trustworthy development and implementation grow ever louder. In particular, society's widespread demands for transparent and understandable AI decision making can hardly be ignored. Parallel to these developments, the use of trade secrets is becoming an increasingly popular and attractive form of intellectual property protection within the AI industry.
If one were to jump to conclusions, then few terms seem as opposing as "secrecy" and "transparency" Yet, this article posits that society's demands for trustworthy and understandable AI and industry's desire to comprehensively and effectively protect its Al-related assets are not set on a collision course. Rather, a flexible approach to regulation may accommodate the plethora of interests, technical realities, complexities, and limits inherent to this debate. With the European Commission's Draft Artificial Intelligence Act breaking new ground in April 2021 as the first-ever proposal for a broad, horizontal regulation of AI, the question of reconciling the emergent principle of transparency and the use of trade secrets becomes increasingly relevant to regulators. This article provides an analysis of the relevant movements, policies, legal frameworks, and other considerations that shape this discussion in the United States, European Union, and the People's Republic of China.
This second part of a two-part article discusses the rise of trade secrets and trade secrecy and transparent AI. The first part of the article, which appeared in the July-August 2022 issue of The Journal of Robotics, Artificial Intelligence & Law, discussed the rise of AI.

The Rise of Trade Secrets

The Prominence of Trade Secrets in the Realm of Artificial Intelligence

Developers of new technologies have generally always understood the need for intellectual property protection. Indeed, there are those who suggest that a corporation's "intellectual capital" is

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its most valuable asset, regardless of which business it is in. ⁹⁷ In the software industry, intellectual property law has given software developers an incentive to invest in emerging technologies by providing a legal mechanism through which some of the value of software can be encapsulated and translated into wealth. ⁹⁸ Taking into account the staggering economic power of the rising artificial intelligence ("AI") industry, it comes as no surprise that intellectual property-related questions are of significant importance.

It has been stated that the software industry and its relationship to intellectual property can be described not only through its three preferred forms of protection, namely copyright, patents, and trade secrets, but also by different phases of preference (although these should not be seen as strict intervals). ⁹⁹ The first phase, characterized by a strong vertical structure in the industry and heavy integration with physical hardware, saw software developers rely primarily on trade secrets supplemented by contract law. ¹⁰⁰ The second phase was that of copyright, as a direct result of the U.S. Congress' push for greater propertization of copyright. ¹⁰¹ During this second phase, the IT industry morphed into a more horizontal structure with software becoming increasingly detached from mere code-based interactions with hardware. In a third phase, the software industry looked favorably upon patent protection, as the limits of copyright protection caused software developers to look elsewhere. ¹⁰² However, the limits of patent protection have fueled a fourth phase characterized by a "robust reliance on the backdrop of trade secrecy at the cost of more disclosure-oriented regimes like copyright and patent law." ¹⁰³

Even though the secretive nature of trade secrets limits empirical analysis to broad surveys and those cases that reach final rulings, ¹⁰⁴ it is known that the use of trade secrets is booming and common in many industries. ¹⁰⁵ Following this trend, the AI industry has witnessed a strong shift toward the use of trade secrets as well. ¹⁰⁶ For example, trade secret theft and litigation have been gaining significant traction in the past few years in the fields of new technologies such as robotics, virtual reality, and autonomous vehicles. ¹⁰⁷

Definitions and Legal Frameworks for Trade Secrets: A Comparative Analysis

In terms of regulation, trade secrets have long been considered a somewhat neglected form of intellectual property. As will be

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shown below, the leading jurisdictions in AI development have only recently revamped legal frameworks for the protection of trade secrets. This article will discuss definitions of trade secrets and aspects of their protection mechanisms in the United States, the European Union, and China. The choice for these jurisdictions is based on empirical analysis.

A global study conducted in 2018 by Asgard and Roland Berger, an AI-focused German venture capital firm and a global consultancy firm, provided useful insights into the global distribution of AI-related innovation. The United States leads the AI ecosystem with 40 percent of the total number of AI startups worldwide, with China following at 11 percent. ¹⁰⁸ While no single European country achieves critical mass, the contribution of EU Member States as a whole amounts to around 14 to 15 percent of the global total and around 22 percent if one includes the United Kingdom in a European regional perspective. ¹⁰⁹

Below, this article will discuss certain national and regional systems, after first looking into the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

TRIPS

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights ¹¹⁰ ("TRIPS") is the most comprehensive multilateral treaty on intellectual property and worthy of brief discussion. Membership of the World Trade Organization is contingent upon acceding to TRIPS. The goal of TRIPS is to ensure that Member States harmonize and provide minimum standards for intellectual property protection and enforcement. ¹¹¹

Without specifically mentioning trade secrets, TRIPS does address "undisclosed information." Under Article 39, such information is worthy of protection if "(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret." Member States should ensure that natural and legal persons have the possibility of preventing such information lawfully within their control from being disclosed to, acquired by,

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or used by others without their consent in a manner contrary to honest commercial practices. ¹¹²

The United States

In the United States, the law of trade secrets is more the product of evolution under the common law than the product of statutes as is the case with copyright or patents. ¹¹³ The common law of the States governed trade secret law, with the 1939 Restatement of Torts providing some guidance. In 1979, the National Conference of Commissioners on Uniform State Laws sought to harmonize certain aspects of trade secret law throughout the United States and drafted the Uniform Trade Secrets Act ("UTSA"). It was enacted by 47 states (and the District of Columbia) and was approved by the American Bar Association. ¹¹⁴ In recent years, trade secret law has received renewed attention in the United States. Of significant importance is the recently adopted Defend Trade Secrets Act ("DTSA") of 2016. The DTSA substantially revamps enforcement possibilities for trade secret owners, by providing a private civil cause of action for victims of trade secret espionage or theft where a trade secret has been misappropriated, and requires that the misappropriated trade secret is related to a product or service used in, or intended for use in, interstate commerce. ¹¹⁵ The DTSA thus aimed to supplement the UTSA by providing original federal jurisdiction, as the latter instrument only covered state law claims. ¹¹⁶ In the absence of diversity jurisdiction or a violation of federal law, many plaintiffs were previously left with overburdened state courts, leading to delayed and generally unattractive trade secret litigation under the UTSA. ¹¹⁷ In addition, the DTSA controversially provides for a formidable ex parte seizure provision, according to which a federal court may in extraordinary circumstances issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret in question, based on an affidavit or verified complaint. ¹¹⁸ Unsurprisingly, the DTSA has been called the "most significant expansion of federal involvement in intellectual property law in the past thirty years," ¹¹⁹ and was one of the rare displays of confident bipartisanship on Capitol Hill in a polarized political environment. ¹²⁰

There are three definitions of a "trade secret" that are most frequently cited by courts in the United States. The first generally accepted definition can be found in § 747 comment b of the 1939

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Restatement of Torts. Accordingly, a trade secret may consist of "any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." ¹²¹ The UTSA defines trade secrets as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means...