Federal Prosecution of Trade Secret Theft

Attorney General Eric Holder said, “There are only two categories of companies affected by trade secret theft: Those that know they’ve been compromised—and those that don’t know it yet.” According to former FBI Director Robert Mueller III, the “theft of trade secrets and critical technologies . . . costs our nation upwards of $250 billion a year.” This article discusses federal prosecution of trade secret theft in the United States, including (a) what a victim should consider before requesting prosecution, and (b) information security practices that companies should adopt to discourage theft and to permit prosecution.

I. The Economic Espionage Act

The Economic Espionage Act (“Act”), 18 U.S.C. § 1831 et seq., was the first federal statute that specifically criminalized trade secret theft. The statute primarily prohibits two types of theft: “economic espionage,” theft for the benefit of a foreign government or agent, see 18 U.S.C. § 1831; and “theft of trade secrets,” more generally known as theft for pecuniary gain, see 18 U.S.C. § 1832. Enacted shortly after the Cold War, the Act was a response to concerns about former spies who, finding themselves unemployed and in the United States, could adapt to the new political climate by stealing trade secrets from U.S. companies for foreign firms. Notwithstanding this origin, most prosecutions under the Act involve theft for pecuniary gain, not theft to benefit a foreign concern.

The Act requires the government to prove beyond a reasonable doubt that:
1. The defendant misappropriated information (or conspired or attempted to do so);
2. The defendant knew or believed this information was proprietary and that he had no claim to it; and
3. The information was in fact a trade secret.

See 18 U.S.C. §§ 1831(a)-32(a). The statute defines “trade secret” broadly to include all forms of tangible or intangible business information—be it a scientific method or engineering plans—so long as: (1) the owner has taken “reasonable measures” to keep the information secret, and (2) the information derives “independent economic value” from its confidentiality. 18 U.S.C. § 1839. The Act provides for injunctive relief and forfeiture of property derived from or used in connection with an offense.

II. Trade Secret Theft Prosecutions

The Justice Department has recognized the threat posed by intellectual property crimes like trade secret theft. The Department has established a Computer Hacking/Intellectual Property (“CHIP”) section and has established 25 specialized CHIP units in various U.S. Attorney’s Offices. Currently, the DOJ has more than 250 CHIP prosecutors.

Nevertheless, criminal prosecutions have been uncommon. In 2012, the Justice Department reported 12 prosecutions for charges of 18 U.S.C. § 1832, less than the 18 prosecutions reported that the Department reported in 2006. Several factors contribute to the infrequency of trade secret theft prosecutions. Federal prosecutors are required to consider several factors in deciding to bring charges under the Act, including the scope of the criminal activity (including involvement of a foreign government), the type of trade secret misappropriated, and the effectiveness of available civil remedies. See U.S. Attorney’s Manual Ch. 9-59.000. Other factors include budget limitations, the Department’s focus on matters involving national security and financial fraud, the relative complexity of trade secret investigations and prosecutions, and a recognition that in many cases the victim can and will seek a civil remedy. The tide may be turning, however, given the Department of Justice’s announcement of a renewed commitment to the prosecution of “trade secret theft or economic espionage” and identification of intellectual property investigations as one of the Department’s top four enforcement priorities. See U.S. Department of Justice PRO IP Act Annual Report to Congress at 16 (Dec. 2011).

III. Techniques to Improve Chances and Results of Prosecution

For many corporations, intellectual property, including trade secrets, is among their most valuable assets. We have observed with our clients that the deterrent effect of a criminal prosecution or conviction for trade secret theft is significant, particularly when the greatest threat is an employee moving to work for a competitor.

A victim of a trade secret theft can and should take certain steps to reduce its vulnerability to a trade-secrets theft, to persuade federal authorities to prosecute if a theft occurs, and to ensure that a prosecution does not impede the victim’s business interests:

Take Measures to Ensure Secrecy: As an absolute condition of a trade thief’s liability, the owner of the secret must have taken “reasonable measures” to keep the information in question secret. 18 U.S.C. § 1839(3)(A). Physical security measures, limited employee access to confidential information, and notification to employees that the information was confidential are all measures that one federal appellate court has cited in concluding that one corporate victim took reasonable measures to keep information private. A February 2013 report from the Executive Office of the President suggests that corporations should conduct background checks on potential employees, mark pertinent documents “confidential,” and adopt and enforce information security policies and training programs. Employee training programs, confidentiality agreements, and limited or partial dissemination are other measures that a corporation should consider taking in order to ensure a defendant’s liability, among other reasons.

Make No Assumptions About Your Employees, Corporation, or Confidential Information: Every employee should be required to abide by the corporation’s security measures. In over 90% of trade secrets prosecutions, the defendant was an “insider.” Many of those defendants had doctorate degrees. One defendant had been nominated for a Nobel Prize. Every corporation, regardless of size or sophistication, should enforce security measures without exception. Most victims in federal trade secrets prosecutions are large corporations; the list includes DuPont, Dow Chemical, and Boeing. And while most trade secrets that have become the subject of federal prosecutions are “high tech,” less obvious information—such as tobacco and even advance copies of a Nike catalogue—have been the basis for prosecution.

Seek Immediate Relief: Most victims’ primary concern is immediate injunctive relief to prevent the disclosure or use of the stolen trade secret. That goal often conflicts with the time that law enforcement would require to investigate and to decide whether to prosecute. To address this conflict, the EEA provides a civil remedy allowing the Department of Justice to obtain an injunction against violation of the EEA. 18 U.S.C. § 1836. Moreover, while federal prosecutors were previously required to secure approval from senior Department of Justice officials before bringing charges under the EEA, federal prosecutors are now free to bring charges under § 1832 without seeking approval.

Seek Protection of Confidential Information: Victims of trade secret theft also express concern that involving federal authorities will threaten their ability to keep the trade secret confidential. Many feel that this additional exposure, along with a perceived lack of prosecutorial commitment (and technical expertise in complex cases) counsel against seeking criminal prosecution. Indeed, it would potentially defeat the purpose of a trade secrets prosecution for a secret to lose its confidential status as a consequence of prosecution. For that reason, the EEA expressly permits a court to enter a protective order “necessary and appropriate to preserve the confidentiality of trade secrets.” 18 U.S.C. § 1835. This mechanism allows a victim to ensure the confidentiality of the trade secret that is the basis for the prosecution. During its initial reporting of the offense to federal authorities, the victim should convey its serious interest in keeping as much information about the offense as confidential as possible.

Understand the Prosecutor’s Interest: Federal prosecutors know that a victim can pursue civil remedies for a trade-secret theft. For some prosecutors, the availability of these remedies may militate against charging. Prosecutors are likely to be wary of being used as a tool in a corporate victim’s attempt to use law-enforcement means to further competitive ends. For this reason, a corporate victim should clearly express at the outset its genuine interest in the criminal resolution of a criminal offense.

Use the Pursuit of Civil Remedies to Aid Prosecutors: While prosecutors will resist being used as a tool in a dispute among competitors, pursuit of civil and criminal remedies need not be mutually exclusive. In one prominent case, DuPont obtained evidence in a civil case that a foreign firm and its executives stole trade secrets related to DuPont’s Kevlar fabric. The Department of Justice had initiated and ceased investigating the offense before DuPont filed suit, but partly on the basis of evidence DuPont discovered in the civil case—including documents that federal authorities would have otherwise had to obtain through time-consuming coordination with the foreign government—federal prosecutors sought and obtained an indictment of the foreign firm and the executives.

All companies have information that would be valuable to a competitor. Over time, some of this information could be stolen or compromised. It should be protected to ensure that the company has the choice to press for criminal prosecution if the circumstances so require.