Tech secrets can
be troublesome

How to steer clear of the Economic Espionage Act.

The Internet has made the gathering of competitive business intelligence considerably easier and more effective. Clues to competitors’ intellectual property development and strategic plans beckon from private sector and government websites, news groups, chat rooms and other public gathering spots of the Information Age.

Such activity is so easy, it is almost criminal—but when is it really criminal? The answer lies in the Economic Espionage Act (EEA) of 1996. The act defines trade secrets broadly and protects them with two central provisions. The first, Section 1831, applies only to individuals and entities sponsored by foreign governments. The second provision, Section 1832, criminalizes economic espionage, regardless of who benefits.

Due to the perception at the time it was enacted, that foreign-sponsored crimes were more heinous, persons convicted under Section 1831 can be imprisoned for up to 15 years and fined up to $500,000, while guilty foreign corporations can be fined up to $10 million. In contrast, persons who violate the domestic espionage prohibition, Section 1832, are subject to only 10 years and/or $500,000 maximum punishment.

What has happened over the ensuing years, however, is that prosecutors have turned the guns of the EEA away from foreign invaders and aimed them squarely on the day-to-day Cold War of American business competition.

The EEA prohibits the theft of trade secrets, as well as the knowing possession or use of a misappropriated trade secret. Consequently, anyone who uses information he knows was misappropriated by others violates the statute. In addition, those who attempt but fail to steal such information, along with those who conspire to violate the statute, are subject to penalty. Under U.S. conspiracy law, a person can be found guilty of crime if he agrees with others to the objective of a criminal plan, although he himself takes no action in furtherance of it.

An employee who violates the EEA subjects his corporate employer to vicarious liability under the statute. American criminal law provides that corporations may be held liable for the acts of their agents or employees acting, at least in part, on the corporation’s behalf. Under the doctrine of collective knowledge, the requisite intent to commit the crime can be imputed to a corporation, even if no single employee violated the law, as the prosecution can establish sufficient intent by piecing together the acts of a group of employees or agents.

Of course, criminal prosecution is not the only legal disincentive to industrial spying, however that is defined. Civil lawsuits over theft of trade secrets and other intellectual property assets have skyrocketed in recent years, as skilled knowledge workers have become more mobile.

The increasing strategic value of technology in all industries, even those traditionally perceived as low tech, puts a premium on corporate security. Yet, the collapse of corporate loyalty, even in the executive suite, and the accelerating traffic of employees among competitors, means an ever-increasing potential for the transfer of information of all kinds.

How does an individual avoid being caught in the cross hairs of the EEA? If an employee moves to a new company and works in the same general area of expertise, is the information in his head subject to a ticking time bomb under the EEA?

Corporations, particularly those in the technology-rich, rapid-turnover currents of the New Economy, need more than good intentions. They should institute proactive compliance programs that include:

• education of new hires about the EEA in entrance interviews, emphasizing their responsibility to respect former employers’ trade secrets—not to mention an employee’s own—and documentation of the interviews;
• notification of former employers of new hires, so they can reinforce the message;
• questioning as to whether a breakthrough discovery may have been helped by a violation of a prior employer’s intellectual property;
• avoiding inappropriate competitive intelligence gathering, especially those activities that could be characterized as fraudulent; and
• remembering to patrol the boundaries between joint ventures and affiliates—employees active in two such entities should be subject to these same compliance measures.

Corporate compliance programs are not only good business, they inure to the benefit of the corporation should an agent or employee violate the statute. The U.S. Department of Justice guidelines regarding the prosecution of corporations directs federal prosecutors to consider whether the corporation had a compliance program in place in determining whether to prosecute. In the event of a conviction, the U.S. Sentencing Guidelines significantly reduce the amount of a fine if the corporation had an effective program in place to detect and prevent violations of the law.

The EEA is likely to become an increasing focus of law-enforcement efforts. The FBI, for example, wants to add two dedicated agents and funds to create an interagency Intellectual Property Rights Center. In addition, U.S. Attorneys’ offices and FBI field offices throughout the country have stepped up efforts to enforce the EEA.

O’Hearn is a partner in the international law firm of Jones, Day, Reavis & Pogue in Cleveland, OH. Sozio is in the firm’s corporate criminal investigations section. The opinions expressed here are solely those of the authors, not of their firm. Comments for publication should be sent to guest@comnews.com.