Addressing Sentencing Issues in Trade Secret and Economic Espionage Cases Assistant Deputy Chief Intellectual Property, International and Policy Matters Computer Crime and Intellectual Property Section Sentencing in trade secret theft and economic espionage cases presents several potential hurdles not found with other types of offenses. Consequently, the prosecution team should prepare a strategy early in the case to anticipate sentencing issues and potential defense arguments, ensure a proper guideline calculation, and obtain a meaningful deterrent sentence upon conviction of a defendant. Among the issues of particular importance is the proper valuation of a trade secret and guideline factors that reflect the role of the defendant in the scheme to steal the trade secret. As discussed below, valuation of the trade secret may be a thorny issue in several regards.
Damage to the victim can vary greatly depending on when the offense is discovered. For example, consider the difference in pecuniary harm to a victim corporation that has its proprietary design stolen by an employee who is leaving to work for a competitor. The actual harm to the company may be small if the defendant is caught downloading confidential files at the time he announces his resignation, while the damage will be much greater if the defendant has already sent the downloaded files to a competitor overseas who then produces a less expensive knock-off of the victim company’s product. Not only may pecuniary harm vary, but the value of the trade secret itself can also be measured in different ways, with dramatically different results. For example, where a trade secret product has not yet been introduced, one common measure of value – the research and development cost – may be substantial, while another measure –the product’s current market value – may be speculative or nonexistent at the time of the misappropriation.
Conversely, trade secret information used to produce an existing product may be valued at the cost that the corporation would reasonably charge to license the formula, or, alternatively, by an estimate of the profits that a competitor could earn by producing a copy, whereas the cost of the original development of the trade secret might have been quite small. Within the wide range of trade secret thefts that have been the subject of criminal investigation since the passage of the Economic Espionage Act in 1996, a majority of cases involve an insider in the victim company who has an understanding of, and access to, the trade secret. The role of the insider in these trade secret cases can raise guideline enhancement issues as a result of the use of a special skill and the violation of a position of trust. Even where specific guideline provisions may not apply, the prosecution team should look to develop a compelling story about the actions of the defendant for consideration by the court at sentencing. Many of the factors that trial courts are directed to consider under 18 U.S.C. §3553(a) (2003) can be presented to explain the damage caused by a particular defendant’s conduct and the seriousness of the trade secret theft. II. Sentencing overview The maximum penalty for theft of trade secrets, in violation of 18 U.S.C. § 1832(a) (2008), is a prison sentence of 10 years, a fine of up to $250,000, a term of supervised release of 3 years, and a mandatory special assessment of $100. The longest prison sentence imposed in a trade secret case to date was 96-months. See generally United States v. Williams, 526 F.3d 1312 (11th Cir. 2008) (per curiam).
The maximum penalty for economic espionage, in violation of 18 U.S.C. § 1831(a) (2008), is a prison sentence of 15 years, a fine of up to $500,000, a term of supervised release of 3 years, and a mandatory special assessment $100. Restitution for the loss suffered by the victim and the return of stolen property is required at sentencing in trade secret and economic espionage cases. 18 U.S.C. § 3663(A) (2008). Although the loss amount for restitution purposes may match the guideline calculation for loss under section 2B1.1, some cases will require a separate calculation depending on the method used to determine loss under the Sentencing Guidelines. Another important issue during the sentencing phase concerns the return of the trade secret materials. Prosecutors should seek to have the sentencing court include a provision for the return of any trade secret material in the order of restitution. By including a return of property term, the court will provide an additional assurance to the trade secret owner and will retain the power to punish any future misuse of the victim’s trade secret material by the defendant with a contempt citation. As a second avenue, the request for the return of the stolen property may also be required under the terms of a protective order. Normally, the protective order may specify that the trade secret materials shall be returned upon the conclusion of the case or after sentencing. Read More ...!!!
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