The following article appears in the journal JOM,
49 (11) (1997), pp. 63.

JOM is a publication of The Minerals, Metals & Materials Society

The Theft of Trade Secrets is a Federal Crime

Arnold B. Silverman

In general, a trade secret may consist of commercial or technical information that is used in a business and offers an advantage over competitors who do not know or use such information. For example, a trade secret may be a formula for a chemical compound, an apparatus for manufacturing a product, a manufacturing process, computer software, or valuable business information (e.g., marketing information or, under certain circumstances, a list of customers).

The U.S. Economic Espionage Act of 1996, which became effective on January 1, 1997, makes theft or misappropriation of trade secrets a federal crime. Prior to this law, both civil and criminal actions for such trade-secret misconduct were governed by state laws that, despite the existence of the U.S. Uniform Trade Secrets Act, were not uniform. While federal authorities had previously made efforts to prosecute those who stole trade secrets by employing interstate auto theft, mail fraud, or wire fraud allegations, such actions were not ideally suited to accomplishing the main objective of punishing those who engaged in the theft of trade secrets.

Conviction of the theft of trade secrets under the Economic Espionage Act can result in a fine of up to $250,000 for an individual (up to $5 million for corporations), imprisonment up to ten years, or both. If the crime is committed for the benefit of any foreign government, instrumentality, or agent, the penalties increase to fines of $500,000 (up to $10 million for an organization), imprisonment up to 15 years, or both.

The act defines a trade secret as all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program 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 the owner has taken reasonable measures to keep such information secret, and 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. The act defines owner as "the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed."

The statute contains two principal categories of crime, with the specific prohibited acts being identical. Under economic espionage, the statute states that,

"Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly
  1. steals or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;
  2. without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret;
  3. receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;
  4. attempts to commit any offense described in any of paragraphs (1) through (3); or
  5. conspires with one or more other persons to commit any offense described in any paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy shall be liable for the recited penalties."

The section on theft of trade secrets begins with the preamble

"Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly . . . performs any of the acts set forth in numbered (1)­(5) recited hereinabove shall be liable for the recited penalties." In addition, the act calls for criminal forfeiture and states that the court, in imposing sentence on a person for a violation shall, in addition to any other sentence, order that the person shall forfeit to the United States any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as a result of the violation and any of the person's property used or intended to be used, in any manner or part, to commit or facilitate the commission of such violation, if the court so determines, taking into consideration the nature, scope, and proportionality of the use of the property in the offense.

Part of the motivation for this statute was the fact that information can be disseminated without authorization widely and rapidly through the Internet. The act expressly states that it applies to conduct occurring outside the United States if the offender is a natural citizen or permanent resident alien of the United States, an organization organized under the laws of the United States, or a state or political subdivision thereof or if an act in furtherance of the offense was committed in the United States. The law also states that it is not intended to preempt other federal or state civil and criminal remedies dealing with the misappropriation of trade secrets.

The U.S. Department of Justice has initiated two criminal cases under this statute. One deals with trade secrets involved in a glass-making process; the other case deals with a pharmaceutical used to treat breast cancer.

One must be careful not to confuse a civil action (a private lawsuit under which one seeks relief such as injunctions, damages, and possible destruction of unlawfully created items) with a criminal action. A criminal action involves a governmental unit bringing an action to obtain a ruling that the defendant has violated a criminal law and seeks appropriate punishment for such conduct.

The Economic Espionage Act provides another weapon in the arsenal available to prosecute those who have engaged in the theft of trade secrets. The act also permits those who cannot afford to initiate civil litigation against one engaging in the theft of trade secrets to attempt to have the government bring a criminal action that, although not providing any direct financial relief to the trade-secret owner, may result in criminal conviction and punishment of the wrongdoer.

Arnold B. Silverman is chair of the Intellectual Property Department and a member of Eckert Seamans Cherin & Mellott, LLC, in Pittsburgh, Pennsylvania.

For more information, please contact A.B. Silverman at Eckert Seamans Cherin & Mellott, LLC, 600 Grant Street, 42nd Floor, Pittsburgh, Pennsylvania 15219; telephone (412) 566-2077; fax (412) 566-6099; e-mail ARNIE@TELERAMA.LM.COM.

Copyright © 1997 by The Minerals, Metals & Materials Society.

Direct questions about this or any other JOM page to jom@tms.org.

Search TMS Document Center Material Matters Contents JOM TMS OnLine