Economic Espionage

Theft of trade secrets, also called economic espionage, is being used more and more by the United States and private companies, through reference to the U.S. Attorney's office and in civil actions, to combat corporate espionage and the loss of valuable corporate information. Trade secret crimes span the unauthorized taking of physical objects to proprietary algorithms and computer information. The objective of the crime is to prevent U.S. companies from losing valuable innovation advances to other countries and to competitors domestically. As enforcement increases, so does the risk to individuals who are subject to corporate policies prohibiting the storage or transfer of information to home computers, portable hard drives or other ways of accessing information outside company directives.

The white collar defense attorneys at Breeding Henry Baysan have represented individuals charged with theft of trade secrets in both the criminal and civil context. These cases are extremely complex, often involve huge amounts of information and are subject to difficult definitions and interpretations of what actually constitutes a trade secret. A theft of trade secret charge can carry severe jail sentences, result in deportation, loss of employment and include huge financial penalties. The penalties may be substantially increased if the trade secrets are stolen with the intent to benefit a foreign government. Theft of trade secrets is a very serious crime and may include charges related to the Computer Fraud and Abuse Act, aggravated identity theft and other federal crimes.

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.

Criminal Acts

The theft of trade secrets is prohibited federally by the Economic Espionage Act ("EEA") which is found at 18 U.S.C. 1831 through 1839. 47 U.S. states and several U.S. territories have also enacted the Uniform Trade Secrets Act consistent with Article 39 of the World Trade Organization's Agreement on Trade Related Aspects of Intellectual Property Rights ("TRIPS") and Article 2 of the Japanese Unfair Competition Prevention Act. The EEA contains two separate provisions that criminalize the theft or misappropriation of trade secrets. The first provision, codified at 18 U.S.C. 1831, is directed towards foreign economic espionage and requires that the theft of the trade secret be done to benefit a foreign government, instrumentality or agent. The second provision makes criminal the more common commercial theft of trade secrets, regardless of who benefits. 18 U.S.C. 1832.

For the government to bring an action under 18 U.S.C. 1831, approval should be obtained from the Assistant Attorney General for the National Security Division, through the Counterintelligence and Export Control Section. While that mandate does not apply to actions brought under 18 U.S.C. 1832 prosecutors are strongly encouraged to consult with the Computer Crime and Intellectual Property Section prior to filing criminal charges. In other words, bringing a charge under either statute is a serious decision made at the highest levels of the Department of Justice.

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."

18 U.S.C. 1832

18 U.S.C. 1832 says that a person has violated the EEA if the government can 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; (4) the defendant intended to convert the trade secret to the economic benefit of anyone other than the owner; (5) the defendant knew or intended that the owner of the trade secret would be injured; and (6) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.

The first three elements are identical to 18 U.S.C. 1831. However, the addition of elements four through six create a different set of issues when evaluating domestic and other trade secret issues. A person who intends to benefit a foreign company that is not considered a government agent or instrumentality may be properly prosecuted under this section.

In order to violate the statute a person must intend that the theft or misappropriation of the trade secret benefit someone other than the rightful owner. That benefit must be economic and cannot be some intangible or unquantifiable benefit. Additionally, a person to steals of misappropriates a trade secret without intend for anyone else to gain economically does not violate the statute.

In addition, the government must also prove that not only did the person intend to benefit another economically, they must have intended to "injure" the owner the trade secret. The government does not have to prove specific malicious intent necessarily, just some practical certainty that a harm of some kind would come to the rightful owner.

The final element requires that the government prove that the trade secret was "related to or included in a product that is produced for or placed in interstate or foreign commerce." The easiest way to prove this element is when a product that is being sold in states other than the state of production. This element becomes more complicated; however, when the trade secret is an idea, is still in development, or is otherwise intangible.

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.

Forfeiture

A person convicted under the EEA is subject to mandatory forfeiture of any proceeds or property derived from violation. The court has no discretion in this circumstance and must order forfeiture. However, the court may, but does not have to order forfeiture of any property used to commit or to facilitate the commission of the crime.

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).

Conduct Outside the U.S.

18 U.S.C. 1837 made clear that the EEA extends to conduct that occurs outside the United States. This concept of extraterritoriality is generally prohibited unless specifically addressed within the statute. Here, Congress clearly intended to extend its reach beyond U.S. borders, but two things must be considered:

(1) the offender is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States. 18 U.S.C. § 1837.

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 Henry Baysan 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 us immediately at 865-223-6307. Early intervention is extremely important. Let the innovative federal criminal defense attorneys at Breeding Henry Baysan provide you with the defense you deserve.