Congress Expands Scope of Criminalization of Trade Secret Theft in Economic Espionage Act. Is a Federal Civil Right of Action Next?

Trade secret protection is perhaps the easiest intellectual property protection a company can obtain. Trade secrets are also the most common type of intellectual property that is stolen.  Even with a robust trade secret protection plan and secure means of keeping those trade secrets confidential, companies can find themselves victims of trade secret misappropriation by competitors, foreign governments or devious employees.  For example, trade secret thefts have been reported by many of the largest companies in the United States, where the thieves were accused or convicted of selling those secrets to foreign companies or governments. Among the victims were DuPont, General Motors, Ford Motor Company, Goodyear Tire & Rubber, Apple, Boeing, Northrop Grumman, and many others.  Until now, if stolen trade secrets had not been used in interstate commerce, victims of some misappropriations only had expensive recourse to civil courts to enforce their trade secrets, which battles sometimes result in pyrrhic victories, particularly in states, such as California, that do not recognize the inevitable disclosure doctrine (a doctrine permitting recovery for trade secret misappropriation where the stolen trade secrets have not been used or disclosed but where their disclosure is “inevitable” due to circumstances, such as the job position of the thief at a competing company or the nature of the secrets, among other things). 

But on December 28, 2012, President Obama signed Senate Bill 3642 (S. 3642), amending the Economic Espionage Act of 1996 to cover trade secret violations for products or services used or “intended for use” in interstate commerce.

The legislation responds to the decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), which overturned a jury verdict finding the defendant violated 18 U.S.C. § 1832(a) by stealing computer code from his employer. That statute imposes fines and imprisonment for whoever intentionally steals a trade secret “that is 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 thereof.” The court refused to apply the statute because the trade secret failed to satisfy the interstate or foreign commerce requirement.

S. 3642 revises the statute by striking the underlined phrase above and inserting in its place “a product or service used in or intended for use in.”

Thus, the amended Section 1832(a) will apply to a trade secret “that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof.”

To read the version of S. 3642, click here.

Given the recent spate of high profile trade secret thefts and the Aleynikov result, Congress saw the need to expand the scope of the Economic Espionage Act. But given its expansion of the Economic Espionage Act to include even products and services that may incidentally wind up in interstate commerce, it is possible that there will be a Constitutional challenge to Congress’s Commerce Clause authority to enact that legislation, especially since it imposes criminal penalties.

Additionally, on January 1, 2013, the House cleared for White House review the Senate-amended H.R. 6029.  Under the House-passed H.R. 6029, the upper limit of penalties for individual offenses at 18 U.S.C. 1831(a) would be increased from $500,000 to $5,000,000; the upper limit for corporate offenses at Section 1831(b) would be increased 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.

Meanwhile, earlier this year, the Protecting American Trade Secrets and Innovation Act of 2012 (PATSIA) was introduced into the United States Senate as Senate Bill 3389, which would provide a civil right of action for trade secret theft under the Economic Espionage Act.

It is unclear that PATSIA would confer significantly more protection than state Uniform Trade Secrets Act (UTSA) statutes in many cases. The two statutes define “misappropriation” in exactly the same way, they both define “trade secrets” broadly, and they provide most of the same remedies: injunctive relief, actual damages, damages due to unjust enrichment, exemplary damages in the event of a willful misappropriation, and attorney’s fees for claims brought or resisted in bad faith.

But PATSIA differs from UTSA in two important ways that would, in spite of these similarities, make it a valuable arrow in the quiver of any company hoping to pose a credible threat to those who would steal their trade secrets, or to secure a remedy if theft actually occurs.  

First, unlike UTSA, PATSIA would authorize federal courts, on ex parte application, to order the seizure for up to 72 hours of property related to misappropriated trade secrets, and would provide for an expedited hearing to determine the property’s disposition. The seizure order would apply to “any property (including computers) used or intended to be used, in any manner or part, to commit or facilitate the commission of the violation alleged.” The order could be extended by the court for periods beyond 72 hours upon a showing of cause to do so. This ability to seize misappropriation-related property would allow victimized companies to avoid the frustration of merely seeking redress after the fact, or of obtaining injunctive relief of uncertain effectiveness. When dealing with a party whose unscrupulousness has already been proved by his theft of trade secrets, there is a world of difference between a Temporary Restraining Order (TRO) and a TRO accompanied by actual seizure of theft-related property.

Second, PATSIA would provide protections against misappropriation by a foreign entity, which the federal government is better suited than the states to provide. The statute would confer federal-court jurisdiction for claimants who plead that there is a substantial need for nationwide service of process for foreign misappropriation. To bring an UTSA claim in federal court, by contrast, a claimant must prove diversity of citizenship and that the amount in controversy is greater than $75,000. PATSIA would also create a private civil cause of action under the Economic Espionage Act, which makes it a federal crime to misappropriate trade secrets where it will benefit a foreign entity or where it is placed in a product in interstate or foreign commerce. 18 U.S.C. § 1831 et. seq.

If both S. 3642, expanding the Economic Espionage Act to criminalize theft of products and services “intended for use” in interstate commerce, and PATSIA, creating a civil right of action for trade secret misappropriation, become law, victims of trade secret misappropriation will have greatly enhanced remedies available to them, which may allow more avenues for successful and productive resolutions to such claims.