March 30, 2017

Not All Stolen Information Is a Trade Secret

In the past two weeks the United States has brought two cases against Chinese nationals for stealing trade secrets. First on May 21, 2015, the United States Attorney’s Office for the Central District of California unsealed a grand jury indictment against six Chinese citizens, including three who studied together at USC, over ten years ago. The indictment was unsealed when one of the six was arrested at the LA Airport while en route from China to attend a conference in the U.S. The indictment alleges violations of sections 1831 and 1832 under the Economic Espionage Act. The allegations of violations of section 1831 is particularly noteworthy because the government must prove that the theft was intended to benefit a foreign entity. The indictment claims that the men stole technology regarding how to filter unwanted noise from wireless devices such as cellphones, which is similar technology to what they had worked on while in the U.S. The theft was intended to benefit Tianjin University, a state-run educational institution. For a more detailed description of the charges, click here.

In the second case, the Chairman of the Physics department at Temple University was indicted for wire fraud in connection with providing magnesium diboride thin film superconducting technology to an entity in China.

Apart from the obvious fact that both indictments involve thefts that allegedly were intended to benefit a Chinese entity, the cases also highlight the difficulty in trade secret cases with distinguishing an individual’s use of his or her general knowledge or skill, which is permitted under the Economic Espionage Act and theft which is not. Understanding this distinction may be the difference between doing hard time in a federal penitentiary and having a long, successful and lucrative career.

The EEA does not apply to individuals who seek to capitalize on their lawfully developed knowledge, skill, or abilities. The legislative history makes clear that “the government cannot prosecute an individual for taking advantage of the general knowledge and skills or experience that he or she obtains by or during his tenure with a company. Allowing such prosecutions to go forward and allowing the risk of such charges to be brought would unduly endanger legitimate and desirable economic behavior.” The legislative history is clear that it is not enough to simply tie the theft to the defendant’s skill and experience, in order for the government to convict a defendant it must prove that “the particular material was stolen or misappropriated.”

Thus, for example, employees who change jobs cannot be prosecuted under the EEA on the grounds that they were exposed to a trade secret while employed without evidence that they misappropriated an actual trade secret. In many instances, it may be extremely difficult to distinguish between what is a protectable trade secret and what should be classified as general knowledge that an employee can take with him to a new employer and use there. Indeed, there are no standard tests to be applied. To the extent the information is known in the industry or is public then it likely should not be considered a trade secret. Whereas if the information is quite specific to the victim’s business or concerns technology that has not been made public, it is more likely to be regarded as a trade secret. In other words, what is not permitted is for employees to take confidential information about “products or processes” from their former employers to use for their, or a third party’s economic benefit. The EEA was “designed to prevent those employees (and their future employers) from taking advantage of confidential information gained, discovered, copied or taken while employed elsewhere.”

Because of the difficulty in distinguishing between the use of general knowledge and the theft of trade secrets, the government has cautioned prosecutors to be careful with charging individuals with theft of trade secrets where there is no tangible evidence of misappropriation.

A similar situation arises where an employee downloads computer files before departing for a new employer. This rightly should raise red flags with the employer but that fact standing alone does not mean that the employee has committed a crime. Under such a scenario it is a crime only when the downloaded information contained trade secrets and was not simply non-confidential information that was part of the employee’s “tool kit.” Indeed, in one instance, a defendant successfully asserted that the files he took with him to his new employer were part of his “took kit” and were not taken with the intent to economically benefit someone other than the owner of the trade secret as required by the EEA. The defendant copied 4,700 computer files belonging to his employer to an external hard drive shortly before leaving to start a job with a competitor. At trial, the defendant testified that, as was his custom when leaving one job for another, he downloaded all files relating to his work so that the would have a “tool kit,” or a reference library of his work files to draw upon in his future work. The files he downloaded contained both confidential and non-confidential information. The defendant testified that he intended to use only the non-confidential information.

The government presented evidence that the defendant accessed some of the files he downloaded while at his new job, but could not establish whether he accessed confidential information or not. The court found at a bench trial that the government failed to prove that defendant intended to convert the trade secrets to the economic benefit of someone other than his former employer. The court noted that the documents were obtained in the normal course of defendant’s employment and related to his work and then found that was nothing suspicious about the way the defendant initially obtained the documents and rejected the government’s assertion that defendant’s actions in copying files shortly before he left his job indicated that he intended to convert the trade secrets contained in the files to his own use. The court instead concluded that defendant’s actions were consistent with his “tool kit” explanation and that he amassed the information so could use the non-confidential information in the future. The court also focused on the fact that there was no evidence that the defendant attempted to delete any of the files from his former employer’s laptop, and that he accessed thousands of files on a particular day. The court also cited absence of proof that defendant had provided any trade secret information to his new employer.

It is likely that in both of these cases, the government will have to prove that information allegedly stolen by the defendants met the definition of a trade secret and that it was not simply general knowledge or part of the defendants’ tool kits. In most instances this is not an easy task.

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