Trade Secrets CJ 520 / CJ 600 7.0 September 27, 2010

What is a Trade Secret? “a piece of information (such as a customer list, or a method of production, or a secret formula for a soft drink) that the holder tries to keep secret by executing confidentiality agreements with employees and others and by hiding the information from outsiders by means of fences, safes, encryption, and other means of concealment, so that the only way the secret can be unmasked is by a breach of contract or a tort.” ---DOJ

Information about Trade Secrets No federal law until 1996 Not generally known to the public Confers some sort of economic benefit Reasonable efforts taken to maintain its secrecy Once known, it no longer has any value

Why not patent it? Trade secrets more permanent Patents eventually expire Trade secret - more permanent monopoly if kept secret

Discovering a Trade Secret Two ways: Legally - reverse engineering Illegally - espionage To prevent employee disclosure Non-disclosure agreement Non-competition clause

Economic Espionage Act of 1996 First federal level law to deal with trade secrets Two types of trade secret thefts Theft of trade secret to benefit a foreign government or agent (foreign espionage) Theft of a trade secret carried out for economic advantage (commercial espionage)

Exact Behavior Punished Theft of a trade secret Copying of a trade secret Purchasing of a trade secret knowing it was stolen Attempting any of the above Conspiracy with one or more others to commit any of the above

Proof Required The information was a trade secret Covers all types of information as long as Owner took reasonable steps to keep information secret Information derives independent economic value from not being known or easily ascertainable by the general public

Examples of Trade Secrets Computer software system used in the lumber industry Measurements, metallurgical specifications, and engineering drawings to produce an aircraft brake assembly Information involving zinc recovery furnaces and the tungsten reclamation process Pizza recipe

More on Proof of a Trade Secret Does not cover an individual’s skills, knowledge or ability Information must be considered a trade secret early on Must only be “minimally novel” Information cannot be known to general public Note:the information will not be a trade secret if it is readily ascertainable by those within the information's field of specialty.

Even More on Proof of a Trade Secret Has the information ever been disclosed? Loses protected status once disclosed Disclosure Through the Patent and Copyright Processes Still a trade secret from submission to issuance Disclosure Through Industry Publications or Conferences Intentional or accidental Disclosure to Licensees, Vendors, and Third Parties May still be a trade secret under certain circumstances

Even More on Proof of a Trade Secret Disclosure Through Internet Postings May or may not lose protection Republisher of information not guilty Disclosure During Law Enforcement Investigations Still a trade secret Disclosure by the Original Misappropriator or His Co-Conspirators Does not inoculate theft from prosecution Cannot destroy trade secret status retroactively

Proof Required cont. Reasonable Measures to Maintain Secrecy Owner must take reasonable measures to protect a trade secret

Reasonable Security Measures Keeping the secret physically secure in locked drawers, cabinets, or rooms Restricting access to those with a need to know Restricting visitors to secret areas Requiring recipients to sign confidentiality, nondisclosure, or non-competition agreements

Reasonable Security Measures cont. Marking documents as confidential or secret Encrypting documents Protecting computer files and directories with passwords Splitting tasks among people or entities to avoid concentrating too much information in any one place

Proof Required cont. Independent Economic Value Must have actual or potential value Not necessary to find an exact dollar value May use dollar amount defendant was asking for the information

Proof Required cont. Defendant misappropriate the trade secret Misappropriation - covers wide range of acts Can leave owner with original copy Must have acted without owners authorization Just knowing a trade secret not enough for prosecution Can be charged for misappropriation of part of a trade secret

Types of Misappropriation Traditional theft Copying information - by any means Memorizing information Purchasing and /or receipt of information

Proof Required cont. Defendant acted with knowledge Mens Rea Must prove defendant knew information was a trade secret

Additional Element - Foreign Espionage Intent to Benefit a Foreign Government Second Mens Rea May be economic benefit Or may be a "reputational, strategic, or tactical benefit” Must prove entity substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government.

Additional Elements - Commercial Espionage Economic benefit to a third party (someone other than the owner) Defendant, competitor, or other third entity Intent to injure owner of trade secret Product produced or placed in interstate or foreign commerce Allows for federal jurisdiction

Attempts and Conspiracies To prove attempt: Have the intent needed to commit a crime defined by the EEA Perform an act amounting to a "substantial step" toward the commission of that crime To prove conspiracy: Defendant must agree with one or more people to commit a violation One or more of the co-conspirators must commit an overt act to effect the object of the conspiracy Do NOT have to prove a trade secret exists

Defenses Parallel Development Reverse Engineering Impossibility No absolute monopoly Reverse Engineering Impossibility Not allowed as a defense Government does not have to disclose trade secret to defense Advice of Counsel

Defenses Claim of Right - Public Domain and Proprietary Rights Defendant, in good faith, believed information to be in the public domain Negates Mens Rea The First Amendment Not a defense when speech is vehicle of the crime Void-for-Vagueness EEA vague or unconstitutional - not successful to date

Trade Secrets - Special Issues Civil Injunctive Relief for the United States Prevent defendant from further disclosure of trade secret Confidentiality and the Use of Protective Orders Prevent disclosure of trade secret during prosecution Extraterritoriality EEA applies to jurisdictions outside of U.S. under certain conditions Department of Justice Oversight 1996-2001 - all prosecution required approval of AG’s office

Penalties Foreign espionage Economic espionage Criminal forfeiture 15 years $500,000 fines Economic espionage 10 years $250,000 fines Criminal forfeiture Property derived from proceeds obtained Property used in commission of crime Restitution

Other Charges Disclosing government trade secrets Unlawfully accessing or attempting to access a protected computer to obtain Unlawfully accessing or attempting to access a protected computer to commit Mail or wire Criminal copyright infringement Interstate transportation and receipt of stolen property or goods State and local charges