Prior to enactment of the EEA, federal protection of intellectual property extended only to patents. Commercially valuable confidential information and trade secrets have traditionally been protected through the common law, including the Uniform Trade Secrets Act and Section 757 of the Restatement (First) of Torts. Building upon the law of trade secrets as it developed in the states, the EEA defines "trade secret" as information that: (1) belongs to the general class of information that bears "trade secret" characteristics; (2) is guarded through "reasonable measures" designed to keep the information secret; and (3) derives independent economic value through not being known or readily ascertainable through proper means by others. 18 U.S.C. § 1839(3).
The EEA casts a very broad net in terms of the type of information that is protected by federal criminal law. Currently, twenty-five states have criminal statutes relating to misappropriation of trade secrets. For the most part, those state criminal statutes (including Pennsylvania's) apply only to theft of scientific and technical information. The EEA, by contrast, also prohibits the misappropriation of financial, business and economic information, providing considerably broader federal protection of trade secrets than that afforded by most state criminal statutes.
Trade Secrets Must Be Protected By "Reasonable Measures"
Much of the early commentary on the EEA has focused on the law's requirement that the owner of proprietary economic information take "reasonable measures" (an undefined phrase) to protect the secrecy of such information in order to obtain the protections of the EEA. 18 U.S.C. § 1839(3)(A). Some have suggested that the only way a business can be sure its trade secrets are protected under the EEA is to adopt every possible means of guarding the secrecy of such information.
In civil litigation, parties seeking judicial protection of trade secrets are generally expected to guard the secrecy of such information through means commensurate with the information's estimated value. Businesses may take any number of steps to protect proprietary economic information, including the use of nondisclosure and confidentiality agreements; covenants not to compete; employee and visitor access controls; computer passwords and firewalls; implementation of document protection and retention policies; vigilant training concerning the importance of confidentiality; and exit interviews during which departing employees are reminded of their continuing duties with respect to the use and/or disclosure of confidential information. Whether any combination of these measures will be deemed "reasonable" as a means of protecting certain confidential information will depend upon the value and competitive sensitivity of the information, the nature of the threat of disclosure, and the relative cost of implementing particular security measures. However, the EEA's legislative history manifests Congress's intention to establish a fact-based test of reasonableness, and not an inflexible rule requiring maximum security.
Conduct Prohibited by the EEA
The EEA contains two operative sections describing the conduct that is prohibited by the law. Section 1831 applies to actors engaged in foreign economic espionage, and requires that the theft of trade secrets benefit a foreign government, instrumentality or agent. Section 1832 is a general criminal trade secrets statute, applicable to anyone engaged in the common misappropriation of trade secrets. Both sections punish one who knowingly: (1) steals or misappropriates trade secrets, (2) receives misappropriated trade secrets, or (3) participates in a conspiracy to misappropriate trade secrets. 18 U.S.C. §§ 1831(a) and 1832(a). The territorial scope of the EEA is very virtually limitless: it criminalizes not only acts conducted within the United States, but also foreign acts, provided the actor is a United States resident, 18 U.S.C. § 1837(1), or any "act in furtherance of the offense was committed in the United States." 18 U.S.C. § 1837(2).
Criminal Penalties
Individuals who violate section 1832 (domestic misappropriation of trade secrets) face penalties of up to ten (10) years in prison and unspecified fines. 18 U.S.C. § 1832(a). (Under federal law, the general maximum fine for felonies is $250,000.) Corporations or other organizations that violate section 1832 may be fined up to $5 million. The penalties for engaging in foreign economic espionage in violation of section 1831(foreign economic espionage) are even greater: the maximum organizational fine is increased to $10 million and the maximum prison term is raised to fifteen (15) years.
Section 1834 of the EEA provides for forfeiture of a defendant's property during sentencing. The types of property subject to the forfeiture provision include: (1) property obtained directly or indirectly as a result of the actor's criminal violation, 18 U.S.C. § 1834(a)(1); and (2) property that was used or intended to be used to commit the criminal violation. 18 U.S.C. § 1834(a)(2).
Handling An Economic Espionage Act Violation
The EEA is a federal criminal statute. As such, it is enforced by the United States Department of Justice and its United States Attorneys' offices located in each federal judicial district across the country. The EEA does not provide for a private civil right of action. Accordingly, a victim of trade secret theft seeking redress must persuade the federal prosecutor in its judicial district that the particular case is worthy of prosecution. Scarce resources have led many United States Attorneys' offices to establish monetary thresholds ($100,000 or more) for prosecution in cases involving white collar criminal activity. Prosecutors will likely be more inclined to prosecute trade secret misappropriation involving scientific and technical information than business information (which is harder to value), and where there is independent evidence of misappropriation and criminal intent. Prompt reporting of the misappropriation is crucial, as it demonstrates a sense of urgency and reduces the defendant's ability to argue that he obtained the trade secret through reverse engineering or parallel development.
In making a referral to the federal prosecutor, it is advisable to describe with maximum specificity exactly what was taken and its approximate value. The trade secret owner should also be prepared to articulate how it has taken reasonable steps to protect the misappropriated information, and to disclose any negative or embarrassing information concerning the matter. The victim's outside counsel should be an integral part of the referral decision and process, particularly if parallel civil proceedings are contemplated.
The benefits of criminal referral include cost savings (since the government will incur all direct investigation and litigation costs), swift justice, and the message that the trade secret owner sends to its competitors and to the public regarding its willingness to vigilantly protect its valuable proprietary information.
However, trade secret owners should also weigh the risks of criminal referral. Once the case is in the prosecutors' hands, the victim has relinquished full control of the litigation process, including settlement. Moreover, victims of trade secret theft should consider the impact that a criminal proceeding will have upon any parallel civil action. Should the defendant invoke his Fifth Amendment's right against self-incrimination in the criminal case, discovery in the civil lawsuit could grind to a halt, effectively staying the case and delaying the entry of injunctive relief or an award of damages. However, pursuant to section 1836 of the EEA, the government may seek appropriate injunctive relief from a United States District Court against any violation of the EEA. 18 U.S.C. § 1836.
In addition, there is a risk that the victim's confidential information will become public during the course of the criminal proceeding. Pursuant to section 1835, courts must enter confidentiality orders and take other action as may be necessary to preserve the confidentiality of trade secrets (consistent with the Federal Rules of Evidence, the Federal Rules of Criminal Procedure and other applicable laws), and it is expected that prosecutors will routinely invoke section 1835 to protect the secrecy of confidential information and trade secrets. However, persons or firms who view trade secrets as the lifeblood of their commercial activities should consider that even the requirements of section 1835 and the advocacy of an aggressive prosecutor will not necessarily protect their sensitive information from disclosure during a criminal trial. See e.g., U.S. v. Kai-Lo-Hsu, 1997 WL 679104 (E.D. Pa., Oct. 27, 1997).
Conclusion
The Economic Espionage Act of 1996 is a significant development in the law of intellectual property, as Congress has now extended meaningful federal protection to another form of proprietary economic information -- trade secrets. In light of the new legislation, trade secret owners and those engaged in competitive intelligence may wish to review their procedures regarding the treatment of commercially valuable confidential information. Careful and effective use of the EEA by federal prosecutors should contribute to the vitality of America's increasingly information-based economy.