August 16, 2017

Criminal Trade Secret

Trade secrets have become an important part of the protection of intellectual property in the United States.  A trade secret is simply a piece of information that has value and that the possessor takes reasonable steps to keep confidential through confidentiality agreements with third parties or by hiding the information from outsiders.  The protection of trade secrets serves a variety of functions.  By creating a limited property right in the information, trade secret law is an incentive for investment in innovation.  It encourages the development and exploitation of these items of lesser or of a different kind than might be accorded protection under the patent laws, but which items still have an important part to play in the technological and scientific advancement of the United States.  Similar to patent and copyright law, trade secret law prompts the independent innovator to proceed with the discovery and exploitation of his invention.  Further, without trade secret protection, organized scientific and technological research could become fragmented, and society, as a whole would suffer.

Trade secret law also helps maintain standards of commercial ethics.  The word “property” as applied to trade secrets “is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes of some rudimentary requirements of good faith.”  By sanctioning the acquisition, uses, and disclosure of a person’s valuable, proprietary information by improper means, trade secret law minimizes “the inevitable cost to the basic decency of society when one steals from another.”  Thus trade secret law recognizes that “good faith and honest, fair dealing, is the very life and spirit of the commercial world.”  The theft of trade secrets threaten these benefits.

Before President Clinton signed into law the Economic Espionage Act of 1996 (the “EEA”), on October 11, 1996, [Note: I was involved in the drafting of the EEA as a trial attorney with Computer Crime & Intellectual Property Section of the United States Department of Justice.  Further, the legislative history of the EEA cited a law review article of mine that advocated for a federal criminal trade secrets law. I also prosecuted one of the first EEA cases, United States v. Four Pillars, et al.]  a significant gap existed in the protection of trade secrets.  Only a minority of states specifically criminalized the theft of trade secrets, under widely varying standards.  Moreover, state prosecutors often lacked the resources and expertise necessary to investigate and prosecute this type of crime.  Federal law did not provide an effective remedy either, since federal prosecutors were forced to rely on a number of federal statutes that were not intended to punish theft of trade secrets [Note I was the lead prosecutor in a case involving theft of trade secrets under the Interstate Transportation of Stolen Property Act, 18 U.S.C. section 2314 and the Wire Fraud Act, 18 U.S.C. section 1343.]

EEA

The EEA contains two separate sections outlawing the theft of trade sections.  The first section, 18 U.S.C. section 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.  In contrast, section 1832 makes criminal the more common commercial theft of trade secrets, regardless of who benefits.  While the two sections clearly are directed at different actors, they share a number of common elements.  Under each section, the government must prove the following factors beyond a reasonable doubt: (1) the defendant stole or without authorization of the owner, obtained, destroyed, or conveyed information; (2) the defendant knew this information was proprietary; and (3) the information was in fact a trade secret.

In addition to having to prove the three elements discussed above, in order for the government to establish a violation of section 1831, it  must also prove, a second mens rea element, that the defendant intended or knew that the offense would “benefit” a “foreign government, foreign instrumentality or foreign agent.”

In addition to proving that the defendant “knowingly” committed one of the listed acts of misappropriation, the government must also prove the following additional elements: (1) that the defendant acted “with intent to covert a trade secret to the economic benefit of anyone other than the owner thereof;” (2) that the defendant act “intending or knowing that the offense will injure any owner of that secret;” and (3)  that the secret be “related to or included in a product that is produced for or placed in interstate or foreign commerce.”

Chapter 5 of my book, Intellectual Property & Computer Crimes, (Law Journal Press 2003), provides a detailed analysis of the elements of an EEA violation, defenses, and a discussion of the cases that the government has brought to date under the EEA.