How trade secrets are helping foster cloud innovation

On Wednesday, the Senate Judiciary Committee will hold an important hearing on protecting trade secrets. We applaud the committee for convening this hearing and urge that it soon consider the Defend Trade Secrets Act (S. 1890), bipartisan legislation that would create a uniform, federal standard for trade secret protection and responds to the nature of 21st century innovation.

Trade secrets have long been a popular means of protecting innovation among traditional industries. Secret formulas, customer lists and methods of manufacturing have produced value to companies that have taken the necessary steps to ensure their confidentiality.

Trade secrets are still critical today, especially for technology companies, big and small. Consider Microsoft’s Cortana, for example, which is our personal digital assistant. True – she can help you make calls, send texts, set and remind you of meetings and give you directions to your next appointment. But behind Cortana sits a vast amount of technology developed or enhanced in-house by Microsoft – voice recognition; language translation; reactive and predictive algorithms that can synthesize context, location and data, and interface with the vast resources of the Bing search engine index; and a complex array of cloud servers to crunch and serve data in real time. This technology represents tens of thousands of hours of research, trial and error, and continued improvement as Cortana is adapted for new devices and new scenarios.

Certainly patent and copyright provide protection for some of this innovation, but trade secret protection is vital for something like Cortana that continues to innovate. Many important, but unseen aspects of products – the “know-how” – are trade secrets: the product development process, the business plan around how and when the product will be unveiled, future improvements and plans for adapting such technology into entirely new product categories.

These aspects may hold significantly more value as trade secrets because they cannot be easily discovered by competitors without making similar substantial investments in research and development. This form of acquired know-how is often the competitive edge that companies need to succeed – and what makes them unique in crowded and competitive marketplaces. For that reason, trade secrets contribute significantly to the value of technology companies, especially startups that have yet to develop extensive intellectual property portfolios. Protecting the value of such innovation is a way of incentivizing further research and development that continually improves the services we can provide customers.

As our economy and our manufacturing processes have rapidly shifted to embrace cloud-powered technologies and services, the relevance of trade secret protection has only increased. Businesses no longer compete just against the company across the street – they sell products and services around the country and around the world. A decade ago a small business might have written its know-how on paper – its business plans, its manufacturing process, the secret sauce that gave the business a competitive edge – and locked it in a desk drawer or a safe. Today, companies rely on networks of manufacturers and service providers accessing, storing and using their trade secrets in many locations, and their ability to share secrets with such providers, with the knowledge they will remain protected, remains vital to the growth of cloud-powered economies.

A trade secret is unique among forms of intellectual property in how it is legally protected. While it is a federal crime to steal a trade secret, a business that has its trade secrets stolen must rely on state law to pursue a civil remedy. Owners of copyrights, patents, and trademarks can go to federal court to protect their property and seek damages when their property has been infringed, but trade secret owners do not have access to such a federal remedy.

Our state-by-state system for trade secret protection was simply not built with the digital world in mind. In today’s global economy, however, trade secrets are increasingly stored and used across state lines and even national borders. A uniform, national standard for protection will greatly benefit businesses of all sizes.

Microsoft commends Chairman Chuck Grassley and Ranking Member Patrick Leahy for convening today’s hearing, and applauds the leadership of Senators Orrin Hatch and Christopher Coons and Representatives Doug Collins, Jerrold Nadler, George Holding and Hakeem Jeffries in introducing the Defend Trade Secrets Act, legislation that Microsoft is pleased to support. We look forward to working with these leaders and others as Congress considers this important legislation.