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

2. 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

3. 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

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

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

6. 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)

7. 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

8. 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

9. 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

10. 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.

11. 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

12. 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

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

14. 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

15. 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

16. 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

17. 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

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

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

20. 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.

21. 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

22. 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

23. 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

24. 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

25. 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
all prosecution required approval of AG’s office

26. 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

27. 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