When valuable trade secrets are stolen, the federal government can be a powerful ally. In addition to the civil remedies available to businesses, the federal government can also criminally prosecute employees or other third parties who misappropriate proprietary information.
The Economic Espionage Act of 1996 (EEA) contains two sections, each addressing a different type of trade secret misappropriation. Section 1831 addresses foreign economic espionage and requires that the theft of a trade secret be done to benefit a foreign government, instrumentality, or agent. Meanwhile, Section 1832 criminalizes trade secret theft “related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner." The EEA also allows the federal government to prosecute the knowing possession, receipt, or purchase of misappropriated trade secrets. Penalties under the statute include monetary fines, imprisonment, and disgorgement of any profits derived from the stolen trade secret.
Recent amendments to the EEA will also broaden the scope of the statute and impose stiffer penalties on violators. The Theft of Trade Secrets Clarification Act of 2012 addresses a court decision in which the 2nd Circuit Court of Appeals threw out a trade secret theft conviction under the EEA because the stolen computer code did not meet the statute’s definition of a “product” that was “produced for” or “placed in” interstate or foreign commerce. The amendments clarify that the EEA applies to “a trade secret that is related to a product or service used in or intended for use in interstate or foreign commerce.” President Obama signed these changes into law in early 2013.
The President is also expected to sign legislation, previously approved by Congress, which would impose tougher penalties on those who violate the federal trade secret law. Under the Foreign and Economic Espionage Penalty Enhancement Act of 2012, the monetary limit for financial penalties against individuals would increase from $500,000 to $5,000,000. For corporations, fines would increase from $10,000,000 to the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.
The broader scope of the EEA and enhanced penalties may serve as a deterrent to trade secret misappropriation. However, the most effective trade secret protection strategies still start with your business, including tight internal controls and employee training. Should your business still fall victim to trade secret misappropriation, there are civil remedies available. In some cases, the federal government may also elect to pursue the criminal sanctions detailed above.
If you have any questions about how to best protect your trade secrets or need assistance devising a strategy, please contact me , Jay Surgent, or the Scarinci Hollenbeck attorney with whom you work.
