Trending Issues in the Prosecution of Trade Secret Theft

03 January 2014 Labor & Employment Law Perspectives Blog

A year ago, we reported on a recent important change to the Economic Espionage Act (“EEA”), making the theft, transmission, or receipt of trade secrets a federal crime. The change clarifies that the EEA does not only apply to “products” that a company sells or intends to sell, but also applies to “services” without regard to whether or not those services are even sold or put into commerce. This change potentially portends a widening emphasis on prosecutions against trade secret theft involving overseas companies or business partners.

Since the change to the statute, no case appears to have applied this new standard. However, of approximately 90 federal decisions courts have issued under the EEA, well over half are from the last five years, though the statute has existed since 1996. These decisions shed some important light on how these cases are being prosecuted and are likely to unfold in the coming years.

For example, in a case just about to begin trial in San Francisco, the defendants, a husband and wife, are charged with attempting to steal trade secrets relating to the manufacturing of titanium dioxide from an American company pass them on to a Chinese state-owned company. Earlier in the year, the husband and wife sough to have the charges dismissed because these supposed trade secrets are too vaguely and broadly defined. The court rejected that argument, reasoning that there need not be actual trade secrets involved in order to prove the crime of attempted violation of the EEA. The case has also yielded several rulings about what sort of expert testimony can be presented, including a decision permitting the government to introduce testimony from an expert on how foreign agents attempt to secure trade secrets and other information through the unlawful procurement of intellectual property.

The United States Court of Appeals for the Seventh Circuit also issued a recent notable decision, in which it upheld the conviction of a Chinese born American citizen of trade secret theft after she downloaded thousands of documents about a telecommunications technology prior to departing for China to work for a Chinese state owned mobile telecommunications company. She attempted to argue that the information she took was outdated and not economically valuable and she had taken the material only to refresh her memory. The court rejected these arguments, noting that even if the technology was old, 20 million individuals in various countries used it such that it still had economic use. The court also said it was immaterial that the documents were not passed onto the competitor, because the defendant intended to maintain her own knowledge of
the information and could communicate it to others when she wished. Of note however, while the defendant was convicted of theft of trade secrets, she was not convicted of violating the EEA itself, because the jury did not conclude that she stole the trade secret intending to or knowing that the theft would benefit a foreign entity.

The recent EEA amendments protect as trade secrets both products and service, which need not be put into commerce to trigger an EEA violation. Recent cases also indicate that individuals can be charged with EEA violations even for the attempted theft of a trade secret, even if the object of theft might not ultimately constitute a trade secret, and a conviction can occur even if what is stolen ostensibly is obsolete and has no apparent immediate economic value.

Depending on where one sits, these trends can carry different consequences. If one is a company or employer in the United States facing competitors overseas, these trends suggest it is more important than ever to make your employees aware that you consider your confidential information to be trade secret and to erect proper safeguards against misappropriation of that information. Even if your information is ultimately not trade secret, if there is a reasonable basis to believe it is and an employee acts improperly and with criminal intent to take the information, there may be grounds to justify criminal prosecution.

Alternatively, if you are a company or individual engaged in business overseas or with overseas partners, you should be particularly cautious about what you disclose and how you disclose it. For example, information you may not consider to be trade secret may in fact be trade secret, or it may be sufficient to give rise to prosecution. Accordingly, it would be wise to seek approval before disclosing any information, and then you should take appropriate measures to ensure it is not improperly disclosed to others.

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