Administration Announces Strategy for Protecting U.S. Trade Secrets

Theft of trade secrets by persons acting on behalf of foreign governments and corporations is a major problem for U.S. manufacturers, including manufacturers in the automotive industries. Spurred by several high-profile instances of trade secret theft — including the convictions of Yu Xiang Dong for stealing trade secrets from Ford and of Shanshan Du and her husband Yu Qin for stealing trade secrets from General Motors — the Obama administration has released a strategy document detailing the measures it intends to take to help protect U.S. companies from such actions in the future.

The Administration Strategy on Mitigating the Theft of U.S. Trade Secrets, which outlined five general steps the administration plans to take:

• Increasing diplomatic efforts to prevent and investigate instances of trade secret theft. This includes entering into more cooperative agreements with foreign and international law enforcement, and training foreign officials on trade secret awareness and protection measures.
• Developing and promoting best practices for U.S. trade secret holders to protect their trade secrets.
• Stepping up domestic law enforcement and prosecution efforts. Among steps the administration plans to take is to increase information sharing between the U.S. intelligence community and the private sector, including counterintelligence techniques that can be applied in a business environment, in recognition of the fact that foreign governments often play a role in trade secret theft.
• Improving domestic legislation. This comes on the heels of the passage of The Theft of Trade Secrets Clarification Act of 2012 and The Foreign and Economic Espionage Penalty Enhancement Act of 2012, which broadened and strengthened the reach of federal economic espionage statutes (in part as a reaction to judicial decisions narrowly applying those statutes).
• Reaching out to the public and other stakeholders. This will include education and outreach efforts by federal agencies to try to raise awareness among businesses, particularly small and mid-size businesses, of the harm that can result from trade secret theft, and steps to prevent such theft.

Ultimately, while the administration’s attention to the issue of trade secret theft may be encouraging to U.S. businesses, and may help dissuade potential thieves, businesses must still have an “ounce of prevention” mentality, and review the measures they are taking on their own to protect their intellectual property. No matter how vigorously a trade secret theft is prosecuted by the government, any recovery from such a prosecution goes to the government, not the trade secret owner — and prosecutorial involvement may actually hinder efforts by the business to protect itself via injunctive or other relief, if the government asks the business to refrain from filing a civil action while prosecutors build their case. Moreover, there is no guarantee that prosecutors will even take a given case, as they have the discretion to pick and choose whether to prosecute.

On the other hand, foreign-owned businesses that operate in the U.S. should be aware of changes in criminal enforcement of trade secret theft, as prosecutors will likely be aggressive in looking for test cases given the administration’s and Congress’s recent attention to the field. This heightens the importance of, for example, carefully considering the implications of hiring a competitor’s former employees. What once might have resulted in a civil case under state trade secret law, seeking monetary and injunctive relief, may now be more likely to turn into a federal criminal action with even more wide-ranging consequences.