Theft Of Trade Secrets

What is a Trade Secret

18 U.S.C. 1839 defines a trade secret as:

• all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-
  (A) the owner thereof has taken reasonable measures to keep such information secret; and
  (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information

The definition provided by the statute is very broad and is dependent on a number of subjective determinations about whether “reasonable measures” have been taken to protect the information and whether that information has value related to its’ secrecy. As a practical matter this is an area ripe for litigation and can be the difference in conviction or acquittal. Ultimately the determinations in relation to certain trade secrets depends on the company’s valuation of the information, their policies and procedures in relation to secrecy of the information and the judgment of expert witnesses.

In attempting to further define a trade secret, comparison has been drawn to patents that require novel ideas that are a step beyond “prior art.” But, in the context of trade secrets the United States Supreme Court has said that trade secrets must be only “minimally novel.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974). A trade secret must involve information or ideas that are not known or that set it apart from what is generally known.

Congress, while debating the EEA said, “[w]hile we do not strictly impose a novelty or inventiveness requirement in order for material to be considered a trade secret, looking at the novelty or uniqueness of a piece of information or knowledge should inform courts in determining whether something is a matter of general knowledge, skill or experience.” A person may not be prosecuted for using general knowledge and skills or experience that they obtain while working for a company, even if they start a competitor company, but may only be prosecuted if the government can show they stole or misappropriated a particular trade secret.

18 U.S.C. 1831

A violation of 18 U.S.C. 1831 requires that the government prove the following elements:

(1) the defendant stole or, without authorization of the owner, obtained, destroyed or conveyed information; (2) the defendant knew this information was proprietary; (3) the information was in fact a trade secret; and (4) the defendant knew the offense would benefit or was intended to benefit a foreign government, foreign instrumentality, or foreign agent.

While commonly called “theft” of trade secrets, the EEA does not require the actual theft or taking away of information or a tangible object. It is enough to violate the statute if a person copies, duplicates, sketches, draws, photographs, replicates, transmits, delivers, sends, mails, communicates, or conveys the trade secret without authorization. Legislative history describes authorization as, “the permission, approval, consent or sanction of the owner” to obtain, destroy or convey the trade secret. It is important to note that while an employee or other individual may have authority to access or obtain a trade secret, they may be prohibited from conveying or duplicating the information.

In order for the government to prove a violation of the EEA, it must show that the person charged “knew or had a firm belief that the information he or she was taking was proprietary” and that they “knew that the object [they] stole was property that [they] had no lawful right to convert to [their] personal use.” A person who takes a trade secret because of ignorance, mistake or accident cannot be prosecuted. However, many companies go to great lengths to protect their information by marking it “proprietary”, instituting security controls and having employees read policies and procedures and sign confidentiality agreements.

The ultimate question of what constitutes a trade secret is that the information, idea, object, program, formula or other item is actually a secret. It is the government’s burden to prove that a person stole or misappropriated a trade secret, and it is a question of fact for a jury to decide. The information cannot be known and may not have been disclosed in technical journals or in other ways.

What sets 18 U.S.C. 1831 apart from 1832 is the intent element requiring the actor to have known the offense would benefit “foreign government, foreign instrumentality, or foreign agent.”

“[B]enefit” is a question that must be interpreted broadly and is not limited to an economic benefit, but includes a “reputational, strategic, or tactical benefit.”

“Foreign instrumentality” means:

any agency, bureau, component, institution, association, or any legal, commercial, or business organization, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government. 18 U.S.C. § 1839(2).

“Foreign agent” means:

any officer, employee, proxy, servant, delegate, or representative of a foreign government. 18 U.S.C. § 1839(1).

However, a person can violate this provision through a foreign entity when this “entity” is not, per se, a government entity (i.e. private company) if it can be proven that there is foreign government sponsorship or “coordinated intelligence activity.”

The punishment under 18 U.S.C. 1831 is more harsh than under 1832. A violation of 1831 carries a fine of not more than $5,000,000 or imprisonment not more than 15 years, or both. If a company or organization is charged and convicted it “shall be fined not more than the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”

Defenses

It is a defense a defense to a theft of trade secret charge if you have reverse engineered the trade secret. The Supreme Court made clear in Kewanee Oil Co., 416 U.S. at 476, that the law does not protect the owner of a trade secret from “discovery by fair and honest means, such as independent invention, accidental disclosure, or by so-called reverse engineering.” Parallel development of a product or idea is also not a theft of trade secret violation.

Civil Enforcement

Many companies who have discovered a theft of trade secrets take two steps. First, the company will investigate and file a civil action. Second, the company will refer the violation to the U.S. Attorney’s office for possible prosecution. As part of the civil action, the company will seek an injunction that prevents further disclosure of items or information that have been stolen or misappropriated. In most instances, the civil action will be held in abeyance while the criminal action proceeds. Ultimately, the company is entitled to recover money value of the damage caused either in the civil case or through restitution in the criminal context, but not both.

Before a company decides to file an action or refer the case to the U.S. Attorney, they must consider the confidentiality of the trade secret. Congress has addressed that concern in Section 1835 which provides that the court “shall enter such orders and take such action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws.”

Additionally, courts may limit or close potions of a trial and presentation of evidence without violating a person’s 6th Amendment right to a public trial in some instances. The Second Circuit specifically held:

[B]ased on a compelling claim, a district court may partially limit the public’s access if the court determines that (1) a party is likely to suffer irreparable injury if access to the proceedings is not limited, and (2) protection of the party’s secrets can be achieved “with minimal disruption of the criminal proceedings.” Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974).

How Can We Help

Economic espionage is a serious matter. Trade secrets are highly prized and valuable items, and the government has a vested interest in keeping them safe. As a result, the government prosecutes these cases aggressively from the outset. The white collar criminal defense attorneys at Breeding Carter have handled theft of trade secret cases and have successfully argued for reduced charges and significantly reduced penalties. We understand the inner workings of corporations, the steps they take to protect trade secrets and have access to a network of experts who can evaluate whether an item is a trade secret and its value. If you have been contacted about or charged with a theft of trade secrets case, call our Knoxville offices immediately at 865-670-8535. Early intervention is extremely important. Let the innovative federal criminal defense attorneys at Breeding Carter provide you with the defense you deserve