Are Your Trade Secrets at Risk?

August 29, 2012Articles
Your company terminates the employment of a highly skilled computer programmer who then attempts to sell the source code for your proprietary training software to a foreign entity.1 What would your company do?

Queue the Economic Espionage Act (the Act). Enacted in October of 1996, the Act makes the theft or misappropriation of a commercial trade secret a federal crime.2 “Misappropriation” includes both the conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets. The Act provides companies with an alternative to private civil litigation against offenders. Under the Act, “[c]ompanies can present their case to federal prosecutors and request that the government conduct a criminal [investigation] against the offending individual and/or company.”3

The Two Different Sections of the Act

The statute prohibits two specific types of misappropriation concerning commercial trade secrets. The first type encompasses an offender that has the knowledge or intent that the theft will benefit a foreign entity.4 The second type of economic espionage prohibited involves the misappropriation of a trade secret that relates to or includes a product, which is produced for or placed in interstate commerce (including international commerce), and the offender has knowledge or intent that the misappropriation will result in an economic benefit to anyone other than the owner of the trade secret.5

Both sections use broad language, which allows for wide judicial discretion in interpretation. However, there is a slight difference in the burden of proof required to illustrate the culpability of the offender in the two sections of the Act. Section 1831 requires intent or knowledge that the Act will benefit a foreign government, instrumentality or agent.6 Section 1832 strictly requires intent, a much more difficult fact to prove.7

The Act can only be used in flagrant and egregious cases of information theft.8 Recent litigation under the Act has spiked, though, illustrating the government’s renewed interest in protecting American businesses’ proprietary information.9

What Should Your Company Do?

Protect your data. Title I of the Act defines a “trade secret” broadly, to include both tangible property and intangible information, as long as the owner “has taken reasonable measures to keep such information secret” and the information “derives independent economic value . . . from not being generally known to . . . the public.”10 Maintain a written policy of your data sharing policies with outside entities and make sure your employees are aware of its contents. Hopefully this action prevents the misappropriation from occurring, but if not, it will at least serve as evidence of an employee’s knowledge of the law and their intent to violate it.

Not only does a company need to worry about protecting its own trade secrets from would-be thieves, they must also ensure that their company practices cannot be construed as the misappropriation of another’s trade secrets. One such example of this table-turning situation includes the legality of various forms of information gathering typically designed to help business decision-makers within a company gain a competitive advantage in areas such as strategy, marketing, research and development, or negotiations.11 If your company relies primarily on the collection and analysis of public information from which they identify events, patterns, and trends of actionable interest, you should be within the letter of the law. However, your company must be careful that it is not accessing another’s proprietary information.

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(1) This scenario is based loosely off of the 2008 conviction and sentencing of Xiaodong Sheldon Meng for violating the Economic Espionage Act. See John Coté, Salesman gets Two Years for Industrial Spying, SFGATE.COM (July 19, 2008), available at http://www.sfgate.com/bayarea/
article/Salesman-gets-2-years-for-industrial-spying-3209681.php. 
(2) 18 U.S.C.S. §§ 1831–1839 (LexisNexis 2012). 
(3) A New Government Criminal Initiative—The Economic Espionage Act, CORRUPTIONCRIMECOMPLIANCE.COM (July 5, 2012), available at http://corruptioncrime
compliance.com/2012/07/a-new-government-criminal-initiative-the-economic-espionage-act.html. 
(4) 18 U.S.C.S. § 1831(a) (LexisNexis 2012). 
(5) Id. at § 1832 (LexisNexis 2012). 
(6) Id. 
(7) Id. at §§ 1831–1832. See also J. Michael Chamblee, Annotation, Validity, Construction, and Application of Title I of Economic Espionage Act or 1996, 177 A.L.R. FED. 609, at *2 (2012). 
(8) Chamblee, supra note 7, at *5. 
(9) In 2010, the Justice Department re-established the Task Force on Intellectual Property with a focus on protecting U.S. companies from international theft of intellectual property. See Intellectual Property Task Force, U.S. Department of Justice, http://www.justice.gov/dag/iptaskforce/ (last visited July 11, 2012); see also Eric J. Holder, U.S. Attorney General, Address at the White House Intellectual Property Theft Summit (Dec. 14, 2010), available at http://www.justice.gov/iso/opa/ag/speeches/2010/ag-speech-101214.html (last visited July 11, 2012). The Justice Department has litigated at least four economic espionage cases since the beginning of 2012 (as compared to a total of only eight in the time period between its enactment in 1996 and the end of 2011) and Senator Herb Kohl (D-Wis.), Chairman of the Antitrust Subcommittee on the Senate Judiciary Committee, introduced legislation in 2011 to increase the maximum penalty under Section 1831. Thomas P. O’Brien & John J. O’Kane IV, Heightened Enforcement Environment Signals Increased Use of Economic Espionage Act, 84 PAT. TRADEMARK & COPYRIGHT J. (BNA) 207 (June 1, 2012); Economic Espionage Penalty Enhancement Act, S. 678, 112th Cong. (2011). 
(10) 18 U.S.C.S. § 1839(3) (LexisNexis 2012). See also United States v. Martin, 228 F.3d 1, 11 (1st Cir. 2000). 
(11) See generally CRAIG S. FLEISHER & BABETTE E. BENSOUSSAN, STRATEGIC AND COMPETITIVE ANALYSIS: METHODS AND TECHNIQUES FOR ANALYZING BUSINESS COMPETITION (Prentice Hall 2003).