Stealing Trade Secrets

Defined under 18 U.S. Code § 1832, the theft of trade secrets is defined as knowingly misappropriating trade secrets to benefit anyone other than the owner. Trade secrets are usually things that give the owner a competitive edge in his or her industry and are protected in a way that prevents competitors or the public from learning about the secret.

This often overlaps with 18 U.S. Code § 1831, the crime of economic espionage, which is defined as knowingly targeting or acquiring trade secrets to knowingly benefit any foreign government, foreign instrumentality, or foreign agent.

Anyone convicted under 18 U.S. Code § 1831 faces a fine of up to $5,000,000 or imprisonment of up to 15 years, or both. Anyone convicted under 18 U.S. Code § 1832 may face a fine of up to $5,000,000, or imprisonment of up to 10 years, or both. A defendant will also forfeit any proceeds and property earned by stealing trade secrets. There is also a $10,000,000 fine for a foreign agent or country that benefited from the trade secret, and up to 15 years imprisonment for the person involved in the theft.

Economic espionage has traditionally targeted defense-related and high-tech industries. The theft of intellectual property, including trade secrets, is estimated to cost American firms more than $300 billion a year, according to a 2013 report by the Commission on the Theft of American Intellectual Property.

Corporate trade secrets are set to enjoy greater legal protections under the “Defend Trade Secrets Act”, which will allow companies to sue in federal court for damages related to theft of trade secrets. Until this enactment, companies were forced to seek redress in state courts for the theft of trade secrets and navigate a hodgepodge of state laws.

As well as taking part in part in the DOJ’s Intellectual Property Task Force, the FBI plays a large role in investigation economic espionage and the theft of trade secrets as the two crimes fall under the Bureau’s Counterintelligence Program, designated by the FBI Director as the Bureau’s number two investigative priority and is second only to combating terrorism.

Examples of Defenses Against Theft of Trade Secrets

​Naturally, people are always looking to think of new ideas and products to succeed in their industry and, on occasion, people discover other people’s trade secrets on their own. If this is done without access to the company’s source of the trade secret, this is not a crime. An example of this would be a person working out a formula that is designated as a trade secret by experimenting in their own laboratory instead of consulting the written formula in the company’s files. This is commonly referred to as “reverse engineering”.

Our firm often encounters cases whereby an employee changes jobs and brings over skills or techniques that he or she learned. However, a person cannot be prosecuted on the basis of an assertion that he or she was merely exposed to a trade secret while employed.

One cannot be charged with the theft of trade secrets if the owner fails to take reasonable measures to protect the security of his or her trade secrets. This defense is not often used but it could easily be applied to situations such as an employee changing jobs.

A federal indictment issued in Pennsylvania named 5 defendants with counts of wire fraud, 18 USC 1343, punishable by 20 years for the scheme to defraud Glaxo Smith Kline, a pharmaceutical research and development company of intellectual property or trade secrets related to a cure and vaccine for cancer. The offense would cost the company billions of dollars in trade secrets. Competitors could see the same products without incurring any developmental costs.

Some defenses may include that a defendant discovered the information or technology through their own independent efforts. There may also be a claim of right defense whereas the element of “knowingly” misappropriating information may be negated if he/she had a good faith belief that he had the right to use the information.

Reverse engineering claims will require expert testimony to establish a defense that the defendant involved was able to break apart the formula to figure out how it works. In such federal prosecutions, courts typically issue narrow protective orders associated with the exchange of proprietary information in discovery phase of the prosecution. The prosecution looks into employee handbooks and guides to see if remote access was granted to computers, and what internal control mechanisms there were to advise employees as to the strict confidential nature of the product they were working with. If there is a parallel civil law suit, the discovery obtained can be used in a criminal prosecution against the same defendants.