Commentaries Jones Day

In 1996, the U.S. Congress enacted the Economic Espionage Act ("EEA"). Title 18, U.S.C. §§ 1831 et seq. Under this Act, the United States, for the first time, expressly criminalized the misappropriation of trade secrets or the knowing use of misappropriated trade secrets. The United States Department of Justice ("DOJ") promised Congress that a senior DOJ official would review and approve all prosecutions under the EEA until 2001. That oversight period is about to expire. Armed with the EEA, the Federal Bureau of Investigation ("FBI") is moving aggressively to enforce the Statute, with the allocation of substantial resources for its enforcement.

Whenever a new federal criminal statute is enacted, particularly laws directed at business crime, there is a five- to 10-year learning curve prior to regular use by law enforcement agencies and the DOJ. FBI agents throughout the United States have been trained over the past five years and assigned to enforcing the EEA. Consequently, there now exists the real risk of incarceration, substantial fines, and the forfeiture of business assets for conduct that was previously considered by many to be merely aggressive business practices.

The U.S. Congress was motivated to enact the EEA by evidence that foreign governments were using their post-Cold War espionage infrastructure to support their commercial enterprises by accessing the trade secrets of U.S. companies. FBI Director Louis Freeh testified before Congress that his agents were involved in more than 800 investigations of economic espionage by foreign countries or foreign entities. The resulting legislation, however, is much broader than a proscription of economic espionage sponsored by foreign governments; it covers almost all trade secret misappropriation. With the resources and investigative tools of the FBI directed toward economic espionage activity, combined with diminished oversight by DOJ headquarters, there will be a substantial increase in prosecutions under the Statute.

The Statute broadly defines a trade secret as "all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, programmed devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if — (a) the owner has taken reasonable measures to keep such information secret; and (b) the information derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable through proper means by the public." 18 U.S.C. § 1839(3).

The Statute has both foreign and domestic prongs. The foreign prong is directed against foreign governments and against entities or individuals sponsored by foreign governments (18 U.S.C. § 1831), and the domestic prong is directed at all individuals and entities, whether foreign or domestic (18 U.S.C. § 1832). Both sections prohibit the same type of activities, which include the misappropriation by virtually any means of trade secrets, as well as the receipt, purchase, or possession of trade secrets, knowing that they were misappropriated. The Statute further prohibits attempts or conspiracies to obtain trade secrets improperly. Under U.S. conspiracy law, an individual can be convicted for agreeing to a plan with an illegal objective, although the individual did not himself participate in any illegal acts.

The foreign prong of the EEA requires proof of knowing improper taking or receipt of a trade secret, if the act was committed on behalf of a foreign government, instrumentality, or agent. 18 U.S.C. § 1831. Under the domestic prong, the sponsor of the misappropriation is irrelevant, but proof is required that the protected information is "related to or included in a product that is produced for or placed in interstate or foreign commerce," and that the accused intended or knew that the misappropriation would injure the owner of the trade secret. 18 U.S.C. § 1832(a).

The EEA provides for severe penalties, including fines up to $10 million for entities and 15 years of incarceration for individuals who violate the foreign prong, and fines up to $5 million for entities and 10 years of incarceration for individuals who violate the domestic prong. Penalties further include the forfeiture to the United States government of all proceeds from the violations and any property used to facilitate the violation. 18 U.S.C. § 1834. Potentially forfeitable property can be restrained and/or seized prior to conviction.

The EEA is not confined to U.S. borders. The statute can be enforced against conduct occurring outside of the United States if "(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States."

Prosecutions have been brought against both foreign and domestic corporations and individuals. Most of the cases have involved trade secrets pertaining to product formulas and designs, although prosecutions also have involved trade secrets as diverse as software used by a professional services firm, sales forecasts, and production results. Many of the prosecutions involved the defendant companies hiring or attempting to hire employees of the victim companies, as well as disgruntled employees selling their employers’ trade secrets.

Companies doing business in the United States or with U.S. corporations should be aware of the risks of access to competitors’ confidential business information and should take the steps necessary to avoid running afoul of EEA. A relatively minor investment for measures such as compliance controls, employee training, and nondisclosure agreements can prevent the costly, time-consuming, and disrupting involvement, whether as a victim or a suspect, in an EEA action.

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