The Clause Canada Could Not Keep
The secret story of Canada's trade secret policy
The Clause Canada Could Not Keep
Canada promised the United States stronger trade-secret protection in CUSMA. Then it discovered that its own Constitution would not allow Ottawa to deliver. This is what “code before clause” looks like when a country gets the order wrong.
Appleton’s Clause and Effect | June 23, 2026 | ~10 min read
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TL;DR: Trade secrets are the form of intellectual property that matters most in an economy built on data, models, and know-how. In CUSMA, Canada guaranteed its partners civil and criminal protection. The trouble is that the substantive civil law of trade secrets sits in provincial jurisdiction, so the federal government promised, in a treaty, something it cannot fully deliver on its own. Ottawa met the obligation with a single Criminal Code offence, left the civil regime as judge-made common law, and six years later the United States still lists Canada for inadequate IP protection. That clause was signed before the code was written. It is the exact mistake this newsletter has been warning about, and the firms that generate Canadian know-how are the ones who pay for it.
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The asset that runs the modern economy
A patent tells the world how your invention works in exchange for a temporary monopoly. A copyright protects the expression of an idea, not the idea itself. Neither reaches the thing that now carries the most value in an advanced economy: the process, the dataset, the trained weights of a model, the customer list, the manufacturing method, the accumulated know-how that a firm keeps to itself. That asset is a trade secret, and in the age of artificial intelligence, it has become the center of gravity of corporate value. The training data behind a model and the methods used to refine it are not patented because patenting them would require disclosure. They are held as secrets. The law of trade secrets, therefore, governs the most important assets in the data economy.
Every serious economy has noticed this and built accordingly. Canada has not, and the way it failed is a textbook case of getting the sequence backward.
The clause: what Canada promised in CUSMA
When Canada signed the Canada-United States-Mexico Agreement, it took on real obligations to protect trade secrets. The trade-secret provisions of the intellectual-property chapter, Articles 20.69 through 20.77, require each country to provide the legal means to prevent trade secrets from being acquired, disclosed, or used without consent, to make civil judicial procedures and remedies available to owners, including injunctive relief and damages, to provide criminal procedures and penalties for willful misappropriation, to protect the confidentiality of trade secrets during litigation, and to impose penalties on government officials who disclose them.1 These are not vague aspirations. They are detailed commitments, written into a binding treaty, owed to the United States and Mexico.
Canada agreed to all of it. The signature was the easy part. The signature is always the easy part.
The code: what Canada could not constitutionally do
Here is what makes this a Canadian story rather than a generic one. Canada is a federation, and its Constitution divides legislative power between Ottawa and the provinces. Most intellectual property is federal. Patents are a federal head of power under section 91(22) of the Constitution Act, 1867, and copyright is federal under section 91(23).2 Because those rights are creatures of federal statute, the Federal Court of Canada has jurisdiction over them, and a patent or copyright dispute has a single national law and a single national forum.
Trade secrets are different, and the difference is constitutional. A trade secret in Canadian law is protected through the action for breach of confidence and related private-law claims, which fall under property and civil rights in the province under section 92(13). That is a provincial head of power.3 The substantive civil law of trade secrets is not Ottawa’s to write. It belongs to the provinces, and civil enforcement runs through the provincial superior courts, because, without a federal statute, the Federal Court has no jurisdiction over a trade-secret claim at all.4
So Canada signed a federal treaty guarantee covering a subject its federal government does not fully control. The clause promised civil trade-secret protection. The code that would deliver it was, in large part, beyond Ottawa’s constitutional reach. The commitment and the capacity to perform it lived at different levels of the federation, and no one squared that circle before the signing.
What Ottawa actually delivered
Faced with a promise it could not fully keep, the federal government did the part it could. In the legislation that brought CUSMA into force in 2020, Parliament added a single offence to the Criminal Code: it is now a crime to knowingly obtain, communicate, or make available a trade secret by deceit, falsehood, or other fraudulent means.5 Ottawa has clear jurisdiction over criminal law, so this was constitutionally safe ground. It was also a narrow sliver of the obligation.
The civil half, the part that businesses actually use, was left exactly where it was: judge-made common law. There is still no trade-secrets statute in Canada, federal or provincial. A company whose secret is stolen still sues under breach of confidence, breach of fiduciary duty, or breach of contract, in a provincial court, under a doctrine with no statutory definition of a trade secret, no statutory standard for misappropriation, and no statutory presumption to help prove damages that are, by their nature, almost impossible to quantify. The criminal offence has barely been used, because trade-secret disputes are commercial matters about money and injunctions, and a criminal provision that police and prosecutors rarely pick up is no substitute for a civil regime that a company can rely on. The Criminal Code does not even treat a trade secret as property.6
Canada met a detailed civil-and-criminal treaty obligation with a single criminal offence and called it compliance. The clause was signed. The code was not written.
The proof that the clause did not work: the United States still lists Canada
If a treaty guarantee were enough, the matter would be closed. It is not. Six years after CUSMA entered into force, the United States Trade Representative continues to place Canada on its Special 301 Watch List, the annual roster of trading partners whose protection and enforcement of intellectual property the United States considers inadequate. Canada appears on the 2026 Watch List, named alongside countries Canadians do not usually think of as their peers in this respect, and as recently as 2018, the United States put Canada on the more severe Priority Watch List.7
Read that against the CUSMA promise, and the lesson is stark. Canada signed a chapter committing to strong IP protection, including for trade secrets, and the very partner it made the promise to still rate Canada’s regime as deficient. The treaty clause did not produce the protection. It could not, because the clause was a promise to perform, and performance required domestic law and institutions that Canada did not build before it signed and has not built since. A guarantee is only as good as the capacity behind it. Canada guaranteed; the capacity was missing; the result is a listing.
This is what “code before clause” means
Regular readers know the phrase. Code before clause is a sequencing rule: a country should enact its domestic law and build its domestic capacity first, and negotiate the treaty around the law it already has, rather than signing a treaty commitment and hoping to build capacity later. A treaty can protect an existing regime. It cannot conjure one into being. Sign the clause before you have written the code, and you have made a promise on someone else’s behalf, or on no one’s behalf at all.
The trade-secret chapter of CUSMA is the cleanest illustration I know of the rule being broken. The clause was signed at the federal level. The code required lived substantially at the provincial level. The two were never reconciled, so the federal government performed the fraction it controlled and left the rest undone. The predictable consequences followed: hollow compliance, continued listing by the treaty partner, and a Canadian trade-secret regime that remains the weakest in its peer group at the very moment when know-how has become the asset that decides who wins.
And the comparison is not flattering. The United States protects trade secrets with the federal Defend Trade Secrets Act of 2016, a federal civil right of action in federal court, layered on the Uniform Trade Secrets Act across nearly every state, and the criminal Economic Espionage Act of 1996.8 The European Union harmonized protection across its members through the Trade Secrets Directive of 2016. Japan and South Korea protect trade secrets through their competition law: Japan’s Unfair Competition Prevention Act and Korea’s Unfair Competition Prevention and Trade Secret Protection Act both supply statutory injunctions, damages provisions, and criminal penalties.9 Every one of these is a standing statute with a clear definition, a dedicated forum, and predictable remedies. Canada brings common-law breach of confidence and one criminal offence to the same fight. That is not a different style of protection. It is a weaker one, on every dimension a firm cares about: certainty, speed, forum, definition, and remedy.
Why the federation is the reason, not the excuse
The instinct, once the constitutional problem is named, is to treat it as an alibi. Ottawa cannot simply pass a Defend Trade Secrets Act, the reasoning goes, so the gap is nobody’s fault. That gets it exactly backward. The division of powers is not a reason the work cannot be done. It is the reason the work has to start earlier and be coordinated, and it is precisely what a country should sort out before it signs a treaty clause, not after.
There are honest paths through. Ottawa can legislate on a federal anchor it genuinely holds, the trade and commerce power or the criminal law power it already used in 2020, and accept the limits that the anchor imposes. The provinces can each enact trade-secrets legislation, ideally uniform across the country, so that a secret is protected the same way in Ontario as in Alberta, through the machinery that the Uniform Law Conference of Canada provides. The two orders of government can jointly build a cooperative scheme. None of these is a single signature, and all of them take time, which is the point. Coordinated lawmaking across eleven governments is slow, so it has to begin before the treaty deadline, not in response to a watch-list citation years later. The federation makes the sequencing rule more important, not less.
The people who already see this, and the cost of ignoring them
This is not an academic complaint. The Council of Canadian Innovators, which represents the country’s high-growth technology firms, has argued for years that Canada’s central economic weakness is not a shortage of research but a failure to own and protect the intellectual property that research produces. Its chair, Jim Balsillie, told a parliamentary committee that a country that funds research without securing the rights to what it produces is “a system of IP philanthropy for foreign economies”, in essence, global philanthropy, generating wealth for foreign shareholders with public Canadian money.10 The framing these innovators use is freedom to operate: a firm has it when it owns and can defend enough of its own intellectual property to build and sell without being blocked by rights someone else holds. Trade secrets are central to that freedom, because the know-how a firm keeps in-house is often the asset a competitor most wants to take. When the law protecting it is weak, uncertain, and scattered across provincial forums, freedom to operate is also weak. You cannot commercialize what you do not own, and you do not truly own what the law will not reliably protect.
There is even a Canadian model that worked, and it came from a province. Alberta’s energy research authority developed intellectual property that the province owned and licensed to operators, securing exactly the freedom to operate that the innovation community now calls for.11 Provincial jurisdiction is not only the source of the problem. It can be part of the solution if governments choose to use it.
The cost of continuing to ignore this is not abstract. When a country’s law will not reliably protect the most valuable thing a firm owns, the firm does not absorb the risk. It moves. A Canadian artificial-intelligence company whose entire value is its training methodology and its model weights, told that those assets are protected only by a provincial breach-of-confidence action with no statutory definition and no federal forum, has a rational alternative: incorporate, hold the IP, and build the lab in a jurisdiction with a Defend Trade Secrets Act and a federal court to enforce it. The talent leaves with the company. The tax base leaves with the talent. The next generation of Canadian researchers trains within a firm that is now American, and the secrets they generate are owned by the firm where they now sit. This is how the intangible economy hollows out a country: not in one dramatic loss, but in a steady departure of the firms that generate the assets, each making an individually rational choice; the law gave it no reason to resist. A trade-secret regime weaker than every peer is a push factor, operating now, on exactly the companies Canada most needs to keep.
The fix is a decision, not a discovery
None of this is hard to design, because the models exist, and Canada does not have to invent them. The country needs trade-secret protection with a clear statutory definition, a reliable forum, civil remedies including injunctions, and damages provisions that account for how hard trade-secret loss is to prove. The Japanese and Korean competition-law approach shows how to treat the theft of know-how as the serious statutory wrong it is. The American Defend Trade Secrets Act shows how a federal civil right of action transforms enforcement. What Canada has to supply is the part the models cannot: the federal-provincial coordination its own Constitution requires, through uniform provincial legislation, a carefully anchored federal statute, or a cooperative scheme built by both orders of government together.
The harder part is the posture, because the trade-secret gap is one instance of a pattern. On copyright, Canada offers a closed list of fair-dealing purposes that does not include the defining use of the age, the training of artificial intelligence, while the United States litigates the question under a flexible standard; Canadian creative work is scraped to train foreign models, and Canadian law supplies neither permission nor prohibition, only a vacuum. As I have written before, this is not innovation. It is an extraction. On patents, Canada invents at a world-class rate and assigns the ownership abroad. On trade secrets, Canada signed a treaty guarantee it could not constitutionally keep and then kept the smallest part of it. Three forms of intellectual property, one shape, and one decision beneath them: to lag rather than lead, and to sign clauses the code cannot support.
The decade in which know-how became the asset that matters is the decade Canada chose to protect it with the weakest tools in the developed world, and to promise more in a treaty than its own Constitution let it deliver. The CUSMA review is open. Budget season is here. The tools to fix this sit in plain view in the statute books of every country we compare ourselves to, and the constitutional path to using them, while harder than a single bill, is well within the competence of governments that decide it matters. What is missing is not the model, nor the power. It is the decision to write the code before signing the clause, made jointly by Ottawa and the provinces, rather than by the firms we are trying to keep, who instead make their own decision.
Code before clause. The order is the whole argument.
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Prof. Barry Appleton is Managing Partner of Appleton and Associates International Lawyers LP, Co-Director of the Center for International Law at New York Law School, and Interim Director of the Balsillie Legal Advisory Centre at the Balsillie School of International Affairs. He has written two books on the NAFTA and testified before both United States and Canadian authorities on the CUSMA review.
Notes
Canada-United States-Mexico Agreement, Chapter 20 (Intellectual Property Rights), Articles 20.69 through 20.77 (trade secrets), including civil judicial procedures and remedies (injunctive relief and damages), criminal procedures and penalties for wilful misappropriation for commercial advantage, protection of trade secrets in the course of litigation, prohibitions on impeding the licensing of trade secrets, and penalties for unauthorized disclosure by government officials. See also the Congressional Research Service’s The United States-Mexico-Canada Agreement (USMCA), which summarizes the trade-secret commitments. ↩
Constitution Act, 1867, s. 91(22) (Patents of Invention and Discovery) and s. 91(23) (Copyrights). ↩
Constitution Act, 1867, s. 92(13) (Property and Civil Rights in the Province). Breach of confidence and the protection of confidential information have been treated in Canadian law as matters of property and civil rights, within provincial competence. ↩
The Federal Court is a statutory court that may exercise only the jurisdiction conferred on it by Parliament. Under ITO-International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752, federal jurisdiction requires a statutory grant, an existing body of federal law nourishing that grant, and a "law of Canada" under section 101 of the Constitution Act, 1867; see also Federal Courts Act, R.S.C. 1985, c. F-7. A civil trade-secret claim, resting on provincial common law rather than a federal statute, satisfies none of these and therefore proceeds in the provincial superior courts. See Cassels Brock & Blackwell LLP, Canadian Trade Secrets: Year in Review 2025 (Feb. 2026), cassels.com/insights/canadian-trade-secrets-year-in-review-2025. ↩
Canada-United States-Mexico Agreement Implementation Act, S.C. 2020, c. 1, adding s. 391 to the Criminal Code (offence of fraudulently obtaining or communicating a trade secret). Royal Assent March 13, 2020. ↩
There is no federal or provincial civil trade-secrets statute in Canada; civil protection rests on the common-law actions of breach of confidence, breach of fiduciary duty, and breach of contract. The Criminal Code does not define a trade secret as property. ↩
Office of the United States Trade Representative, 2026 Special 301 Report (Canada named on the Watch List). USTR placed Canada on the Priority Watch List in its 2018 Special 301 Report. The Special 301 process is the annual review, mandated by section 182 of the Trade Act of 1974, of trading partners’ IP protection and enforcement. ↩
Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq.; Economic Espionage Act of 1996, 18 U.S.C. § 1831 et seq.; Uniform Trade Secrets Act (adopted in most states). ↩
Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets); Japan, Unfair Competition Prevention Act (Act No. 47 of 1993); Republic of Korea, Unfair Competition Prevention and Trade Secret Protection Act. ↩
Testimony of Jim Balsillie, Chair of the Council of Canadian Innovators, before the House of Commons Standing Committee on Science and Research (SRSR), Meeting No. 37, 44th Parl., 1st Sess. (March 30, 2023), study on the support for the commercialization of intellectual property. Balsillie testified that "you cannot commercialize ideas you don't own" and that Canada's current strategies "create a system of IP philanthropy for foreign economies.". ↩