Federal Trade Secret Theft

The federal trade secret theft framework

Federal trade secret theft is criminalized under 18 U.S.C. Sections 1831 and 1832, with the Defend Trade Secrets Act of 2016 supplementing the criminal framework with substantial civil remedies under 18 U.S.C. Section 1836. The criminal framework reaches both theft of trade secrets that benefit foreign governments (Section 1831) and theft for general commercial advantage (Section 1832), with substantial penalty differentials between the two categories.

Section 1831 (economic espionage) reaches theft of trade secrets that benefit foreign governments, instrumentalities, or agents. The provision carries up to 15 years of imprisonment for individuals and substantial fines for both individuals and entities. The economic espionage framework reflects the national security concerns associated with trade secret theft benefiting foreign powers and produces the most severe federal penalties.

Section 1832 (theft of trade secrets) reaches theft for commercial advantage or economic benefit. The provision carries up to 10 years of imprisonment for individuals and substantial fines. The Section 1832 framework reaches the bulk of federal trade secret prosecutions involving insider theft, competitor activities, and various other commercial trade secret schemes.

The trade secret definition and the proof requirements

The trade secret definition under 18 U.S.C. Section 1839 requires that the information meet specific definitional criteria. The information must derive economic value, actual or potential, from not being generally known and not being readily ascertainable through proper means. The owner must have taken reasonable measures to maintain the secrecy of the information. Each element must be established through specific proof.

The reasonable measures element is frequently contested. The proof requires evidence of specific security practices including marking of confidential information, employee training on confidentiality obligations, technical safeguards including access controls, contractual confidentiality requirements, and various other measures. The owner who has not actively protected the information may lose trade secret protection for that information.

The defense in trade secret cases can challenge the reasonable measures element through evidence about the owner specific practices. The defense can also challenge the economic value element by showing that the information was generally known in the industry, that the information was readily ascertainable through reverse engineering or independent development, or that the information did not actually have substantial economic value. Each challenge requires specific factual development.

The international dimension and the Section 1831 framework

The international dimension of trade secret cases substantially affects both prosecution and defense considerations. Cases involving foreign government beneficiaries can be prosecuted under Section 1831 with the substantially higher penalty exposure. Cases involving foreign-based defendants raise additional complexity including extradition issues, mutual legal assistance treaty considerations, and the practical challenges of cross-border prosecution.

The Section 1831 framework requires proof that the trade secret theft benefited a foreign government, instrumentality, or agent. The benefit can be direct, such as theft for a foreign state-owned enterprise, or indirect, such as theft for a foreign company with substantial government ties. The defense in Section 1831 cases should examine the specific foreign connection alleged and should challenge the connection where the evidence is weak.

The international cooperation framework affects both investigation and prosecution. The Department of Justice has developed substantial relationships with foreign law enforcement agencies that facilitate cross-border investigation of trade secret cases. The cumulative international cooperation can produce substantial evidence and can support prosecutions that would otherwise be impractical due to international elements.

Defense strategies and the parallel civil litigation

The defense strategies in federal trade secret cases include both substantive defenses to the specific elements and tactical considerations about the broader case posture. The substantive defenses can challenge the trade secret status of the information, the defendant misappropriation, and the connection between the defendant conduct and the alleged commercial advantage or foreign government benefit.

The parallel civil litigation under the Defend Trade Secrets Act and state trade secret laws frequently accompanies federal criminal trade secret cases. The civil litigation can produce discovery that affects the criminal proceeding, can produce settlement obligations that affect the defendant resources, and can produce factual records that affect the criminal sentencing. The defense should coordinate the criminal and civil defenses to ensure consistent positions and to address the cumulative implications.

The cooperation considerations in federal trade secret cases can include cooperation against co-conspirators, technical information about the methods of theft, and information about foreign government activities in cases involving Section 1831. The cooperation can produce substantial sentence reductions through Section 5K1.1 motions and can address the substantial penalty exposure that trade secret cases involve. The defense should evaluate cooperation prospects carefully and should help cooperating defendants navigate the framework effectively while protecting against the various risks that cooperation involves.

The civil seizure framework and the parallel proceedings

The Defend Trade Secrets Act civil seizure provision at 18 U.S.C. Section 1836(b)(2) permits ex parte civil seizure of property necessary to prevent the propagation or dissemination of the trade secret. The provision is among the most powerful civil enforcement tools available and can substantially affect cases involving alleged trade secret theft. The civil seizure can produce evidence that affects parallel criminal proceedings and can substantially constrain the defendant operational ability during the litigation. The defense should consider the civil seizure exposure when evaluating criminal cases and should coordinate civil and criminal defenses to address the cumulative implications of both proceedings.

The reasonable measures framework and the specific protective practices

The reasonable measures framework requires that trade secret owners take affirmative steps to protect the secrecy of the information. The specific protective practices that courts have considered include physical access restrictions to facilities containing trade secrets, electronic access controls including password protection and audit logging, confidentiality marking of documents containing trade secrets, employee training on confidentiality obligations, contractual non-disclosure agreements with employees and business partners, and various other specific measures. The defense in reasonable measures challenges should examine the specific protective practices the owner actually implemented and should identify gaps in the protection that may undermine the trade secret claim. Inadequate protection practices can substantially affect the trade secret status of specific information.