New Laws Increase Criminal Liability For Disclosure Of Trade Secrets: Are You Protected?

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Two new criminal laws underscore the value of trade secrets as a critical asset to a corporation.  These new laws, the Trade Secrets Clarification Act (TSCA) and the Foreign and Economic Espionage Penalty Enhancement Act (FEEPEA), have increased the criminal penalties for stealing trade secrets, including fines in excess of $10 million. According to a recent White House report, these new laws will not be the only measures focused on cracking down on trade secret theft.

The TSCA clarifies the Economic Espionage Act of 1996 (EEA), which for the first time granted federal courts jurisdiction over trade secret misappropriation.  Under the EEA, the government can bring criminal and civil actions against knowing misappropriation of trade secrets, in interstate commerce, with the clout of penalties of up to 10 years of prison for individuals and fines of up to $5 million for corporations.  The TSCA expands the EEA to include unauthorized use of trade secrets that are used only within a company, such as source code, algorithms or marketing data, and expands the EEA to cover trade secrets related to a service as well as trade secrets related to a product.  Under the TSCA, an employee who steals trade secret information that is only used internally by the company, e.g., customer data, can be criminally liable if the company's products or services affect interstate commerce.

While the EEA focuses on domestic trade secret theft, the FEEPEA increases the fines for stealing domestic trade secrets to benefit a non-U.S. entity.  For individuals, the fine was increased tenfold, from $500,000 to $5 million; for companies, the fine is $10 million or three times the value of the trade secret, whichever is greater.

Together, these two new laws signal a growing trend to use more government resources to prosecute trade secret misappropriation.  They also serve as a strong reminder that trade secrets are valuable assets that should be protected.  Below are some reminders of "best practices" for trade secret protection.

Trade Secrets:  With no expiration date, a trade secret can be an extremely valuable and perpetual asset for your company.  Additionally, no registration is required.  A trade secret can consist of any information for which (1) the owner takes reasonable measures to keep the information secret and (2) the information derives independent economic value from not being readily known or ascertained by legal means.  Trade secrets can range from recipes for Coca-Cola and Drambuie to customer lists, and from manufacturing methodologies to software codes.  Virtually anything that has economic value derived from not being generally known, and that is adequately protected, can be a trade secret.

Best Practices for Protecting Your Trade Secrets:

  • Require nondisclosure/confidentiality agreements with all employees, contractors and collaborators.  In exit interviews, remind employees and contractors of their confidentiality obligations.
  • Restrict access to confidential materials and information on a need-to-know basis.
  • Mark materials containing trade secrets as "confidential."
  • Ensure that all computers are password protected and that network security is adequate.
  • Restrict visitors’ access, e.g., require visitors to wear visitor badges and sign in and out, and grant them only supervised access.
  • Keep trade secret information out of sight and use locked drawers, doors and gates as appropriate.

These new laws show the congressional commitment to protecting U.S. intellectual property and a recognition that such intellectual property fuels the innovation that drives the U.S. economy.  In addition, the White House is working to raise domestic and international awareness of the need to crack down on misappropriation of such intellectual property.  Companies that identify and take steps to protect their trade secrets can benefit significantly from these changes.  Therefore, this is a timely reminder to take stock of your proprietary information and treat it appropriately—whether it be trade secrets, copyrights, trademarks or patents—to take advantage of the government's increased commitment to enforcement of such rights.