Trade secrets represent one form of intellectual property and are a key part of the innovation process. Trade secrets are important to protect the development of new ideas as well as established information that derives value from not being publicly known. A trade secret can be the product of years of research and development and possibly hundreds of thousands to millions of dollars in production costs. A substantial portion of the United States economy continues to be based on innovation and the development of new technologies and knowledge-based ideas. See generally, Rockwell Graphic Sys., Inc.
DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991) (noting “trade secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry” and that “[t]he future of the nation depends in no small part on the efficiency of industry, and the efficiency of industry depends in no small part on the protection of intellectual property”).
A trade secret may take a wide variety of forms. One classic trade secret example is the Coca-Cola soft drink formula. If the formula is revealed, the company could lose its competitive advantage in marketing, producing, and selling the drink product. For software companies, trade secrets may include source codes for the software. If a source code becomes available to others, then third parties can produce the software, or other versions of it, either in the same domestic market or around the world.
The misappropriation of trade secrets can impose severe economic and other harm not only to the owner of the trade secret but on many others. The adverse consequences may affect company employees whose livelihood is based on the continued success of the company, a community dependent on the company contributions to the local economy, or even the health of a particular industry or the national economy. In other cases, disclosure of a trade secret can harm our national security. Misappropriated technology such as U.S. munitions list materials, which also qualify as trade secrets, in the hands of adversaries may provide a previously unattainable advantage against the United States. Recent convictions have involved misappropriated trade secrets involving military application technology. See, e.g., United States v. Cotton, Case No. CR S-08-0042-EJG (E.D. Cal. Feb. 29, 2008) (trade secret plea agreement factual basis noting that “[t]he military applications of these technologies include enhancing navigation and guidance capabilities, radar jamming, electronic countermeasures, and the ability to locate and pin-point enemy signals during warfare”); United States v. Meng, Case No. CR 04-20216-JF (N.D. Cal. Aug. 1, 2007) (economic espionage plea agreement factual basis noting misappropriated materials included “a visual simulation software program used for training military fighter pilots who were utilizing night visual sensor equipment, including thermal imaging”); see also United States v. Chung, Case No. SA CR 08-024-CJC (CDCA) (“Under the direction and control of the PRC, Mr. Chung misappropriated sensitive aerospace and military information belonging to his employer, The Boeing Company (‘Boeing’), to assist the PRC in developing its own programs.”) (bench trial conviction July 16, 2009). As the United States continues its leadership in technology, the protection of trade secrets remains a vital aspect of promoting economic and national security.
In many cases, trade secret misappropriation may be redressed through civil remedies. Most states have enacted some form of the Uniform Trade Secret Act, which was drafted by the National Conference of Commissioners on Uniform State Laws (UTSA). Only four states (Massachusetts, New Jersey, New
York, and Texas) have not enacted the UTSA. For a review of issues arising from parallel civil and criminal investigations and cases, see Tyler G. Newby’s article, Parallel Proceedings in Trade Secret and Economic Espionage Cases, in this issue of the Bulletin.
In appropriate cases involving aggravated conduct, criminal prosecution is necessary to deter and punish the misappropriation of a trade secret. Each of the following case scenarios, which are based on prior cases and investigations, highlight different trade secret misappropriation scenarios that a federal prosecutor may be called upon to consider:
DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991) (noting “trade secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry” and that “[t]he future of the nation depends in no small part on the efficiency of industry, and the efficiency of industry depends in no small part on the protection of intellectual property”).
A trade secret may take a wide variety of forms. One classic trade secret example is the Coca-Cola soft drink formula. If the formula is revealed, the company could lose its competitive advantage in marketing, producing, and selling the drink product. For software companies, trade secrets may include source codes for the software. If a source code becomes available to others, then third parties can produce the software, or other versions of it, either in the same domestic market or around the world.
The misappropriation of trade secrets can impose severe economic and other harm not only to the owner of the trade secret but on many others. The adverse consequences may affect company employees whose livelihood is based on the continued success of the company, a community dependent on the company contributions to the local economy, or even the health of a particular industry or the national economy. In other cases, disclosure of a trade secret can harm our national security. Misappropriated technology such as U.S. munitions list materials, which also qualify as trade secrets, in the hands of adversaries may provide a previously unattainable advantage against the United States. Recent convictions have involved misappropriated trade secrets involving military application technology. See, e.g., United States v. Cotton, Case No. CR S-08-0042-EJG (E.D. Cal. Feb. 29, 2008) (trade secret plea agreement factual basis noting that “[t]he military applications of these technologies include enhancing navigation and guidance capabilities, radar jamming, electronic countermeasures, and the ability to locate and pin-point enemy signals during warfare”); United States v. Meng, Case No. CR 04-20216-JF (N.D. Cal. Aug. 1, 2007) (economic espionage plea agreement factual basis noting misappropriated materials included “a visual simulation software program used for training military fighter pilots who were utilizing night visual sensor equipment, including thermal imaging”); see also United States v. Chung, Case No. SA CR 08-024-CJC (CDCA) (“Under the direction and control of the PRC, Mr. Chung misappropriated sensitive aerospace and military information belonging to his employer, The Boeing Company (‘Boeing’), to assist the PRC in developing its own programs.”) (bench trial conviction July 16, 2009). As the United States continues its leadership in technology, the protection of trade secrets remains a vital aspect of promoting economic and national security.
In many cases, trade secret misappropriation may be redressed through civil remedies. Most states have enacted some form of the Uniform Trade Secret Act, which was drafted by the National Conference of Commissioners on Uniform State Laws (UTSA). Only four states (Massachusetts, New Jersey, New
York, and Texas) have not enacted the UTSA. For a review of issues arising from parallel civil and criminal investigations and cases, see Tyler G. Newby’s article, Parallel Proceedings in Trade Secret and Economic Espionage Cases, in this issue of the Bulletin.
In appropriate cases involving aggravated conduct, criminal prosecution is necessary to deter and punish the misappropriation of a trade secret. Each of the following case scenarios, which are based on prior cases and investigations, highlight different trade secret misappropriation scenarios that a federal prosecutor may be called upon to consider:
State-sponsored targeting of trade secrets and technology misappropriated with the intent to benefit a foreign government or an instrumentality of a foreign government.
Atrusted employee with access to valuable company information who, after becoming disgruntled, downloads and transmits the information to others outside the company who offer it to the “highest bidder.”
An employee, who after learning how a new prototype is made, decides to form his own company and use the trade secret and other proprietary information to launch his own competing product.
A competitor who devises a scheme to gain access to company information for use in fulfilling an international contract.
Employees who execute a plan to steal proprietary information and take it to another country and are stopped at the airport.
After being offered a senior position with a direct competitor, and before tendering his resignation, an employee uses his supervisory position to request and obtain proprietary information he would not normally be entitled to access. After taking as much proprietary information as he can, he submits his resignation and takes the materials of his former employer to his new position and employer.
This article provides an overview of some of the common issues and challenges in prosecuting trade secret and economic espionage cases. The article reviews the primary objectives of the Economic spionage Act of 1996; the distinctions between the two offenses under the statute, including conomic espionage under § 1831 and trade secret theft under § 1832; the three components of a trade secret; two common investigative scenarios for trade secret and economic espionage; the importance of protective orders during each phase of the prosecution; and some best practices to consider in charging and proving a trade secret case.
Atrusted employee with access to valuable company information who, after becoming disgruntled, downloads and transmits the information to others outside the company who offer it to the “highest bidder.”
An employee, who after learning how a new prototype is made, decides to form his own company and use the trade secret and other proprietary information to launch his own competing product.
A competitor who devises a scheme to gain access to company information for use in fulfilling an international contract.
Employees who execute a plan to steal proprietary information and take it to another country and are stopped at the airport.
After being offered a senior position with a direct competitor, and before tendering his resignation, an employee uses his supervisory position to request and obtain proprietary information he would not normally be entitled to access. After taking as much proprietary information as he can, he submits his resignation and takes the materials of his former employer to his new position and employer.
This article provides an overview of some of the common issues and challenges in prosecuting trade secret and economic espionage cases. The article reviews the primary objectives of the Economic spionage Act of 1996; the distinctions between the two offenses under the statute, including conomic espionage under § 1831 and trade secret theft under § 1832; the three components of a trade secret; two common investigative scenarios for trade secret and economic espionage; the importance of protective orders during each phase of the prosecution; and some best practices to consider in charging and proving a trade secret case.