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A Brief History of Trade Secret Law, Part 2 by Ernie Linek

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A Brief History of Trade Secret Law, Part 2 by Ernie Linek A Brief History of Trade Secret Law, Part 2 by Ernie Linek Reprinted with permission from BioProcess International 2(10):20-26 (November 2004) veryone has heard of trade federal level, because the states did secrets. Employees are not uniformly adopt the act. often asked to sign an In 1996, Congress passed the agreement regarding their EEA to close a federal enforcement protection, whereas gap in this important area of Eemployers often worry that intellectual property law and in employeesE will move to a recognition of the increasing competitor and take the company’s importance of the value of trade secrets with them. The intellectual property in general Internet appears to contain (and trade secrets in particular) to information on every company the economic well-being and now in business (and many no security of the United States. The longer in business). Much of the EEA’s definition of trade secrets is public corporate information now even broader than those of the available online would have been UTSA (1) and the 1939 viewed as trade secret information Restatement of Torts (2). It defines just a few years ago. trade secrets as What is a trade secret today? Are All forms and types of financial, trade secrets still important? Are business, scientific, technical, ILLUSTRATION BY C.A. SCOTT USING there any left to protect? If yes, PHOTOGRAPHS FROM PHOTOS.COM economic, or engineering how can those secrets be protected information, including patterns, in today’s information age? Part (B) the information derives plans, compilations, program one of this article (in BioProcess independent economic value, devices, formulas, designs, International’s October issue) actual or potential, from not prototypes, methods, techniques, discussed legal definitions of trade being generally known to, and processes, procedures, programs, secrets in the United States and not being readily ascertainable or codes, whether tangible or their implications for protection. through proper means by, the intangible, and whether or how Part two discusses federal public. (3) stored, compiled, or enforcement provisions and specific In addition to the broad memorialized physically, methods companies can use to definition of trade secrets, the EEA electronically, graphically, protect their trade secrets. includes both civil and criminal photographically, or in penalties for violations. It is not writing if — THE ECONOMIC ESPIONAGE intended to criminalize every theft (A) the owner thereof has ACT OF 1996 (EEA) of trade secrets for which civil taken reasonable measures to Although the Uniform Trade remedies may exist under state laws keep such information secret; Secrets Act (UTSA) was a valuable (such as under the UTSA). and update of the laws designed to Appropriate discretionary factors protect trade secrets, clearly more that the US Justice Department was needed, particularly on a NOVEMBER 2004 BioProcess International 1 will consider in deciding whether to The EEA does not expressly initiate a criminal prosecution under provide for any defenses. However, the EEA include the scope of the legislative history of the EEA criminal activity (including evidence Acquiring a trade suggests that defenses traditionally of involvement by a foreign secret through available in a civil action for theft of government, foreign agent, or trade secrets are equally applicable foreign instrumentality); the degree parallel to defend against criminal charges. of economic injury to the trade development Specifically, the legislative history secret owner; the type of trade or reverse indicates that acquiring a trade secret misappropriated; the secret through parallel development effectiveness of available civil engineering is or reverse engineering is not illegal. remedies; and the potential NOT illegal. Parallel Development: The owner deterrent value of prosecution. of a trade secret, unlike the holder of Some acts prohibited by the EEA a patent, does not have an absolute include unauthorized taking, monopoly on the information or copying, and receiving of trade A domestic offense also carries data that compose it. Other secrets. The EEA also prohibits any criminal penalties of up to 10 years, companies and individuals have the attempt at such activity or making the penalties for US right to discover the elements of a conspiracies with others to engage violations somewhat less severe than trade secret through their own in such activity. Moreover, the those related to foreign activity. For research and hard work. In 1974, the statute broadens this description to foreign activity, the EEA protects Supreme Court recognized this fact, include any possible means of against the conveyance of merely a stating: committing the offending acts, “benefit,” rather than an “economic If something is to be discovered at including all forms of electronic benefit,” as for domestic activity. all, very likely it will be discovered activity. The EEA covers not only This recognizes that the benefit by more than one person. the activities of corporations, but bestowed on a foreign government Even were an inventor to keep his also those by and on behalf of or instrumentality need not be an discovery completely to himself, foreign governments. economic one. something that neither the patent Foreign Activity (Economic Violators of the EEA are subject nor trade secret laws forbid, there Espionage): The EEA prescribes a fine not only to the criminal penalties is a high probability that it will be of up to $500,000 or imprisonment described above, but to the soon independently developed. If for not more than 15 years (or both) forfeiture of any proceeds obtained the invention, though still a trade to anyone who commits the by the violator, either directly or secret, is put into public use, the prohibited acts intending or indirectly, as a result of such competition is alerted to the knowing that such events will benefit violation. Moreover, the violator’s existence of the inventor’s solution a foreign government, property used or intended to be to the problem and may be instrumentality, or agent. used to commit or facilitate the encouraged to make an extra Domestic Activity (Theft of Trade commission of the violation can be effort to independently find the Secrets): The EEA similarly prohibits seized by the US government. solution thus known to be taking, copying, or receiving trade The US Justice Department may possible. (4) secrets without authorization in the also use a civil action to seek and domestic context for those trade maintain appropriate injunctive relief Reverse Engineering: Similarly, a secrets that are related to or against violation of the EEA. The person can legally discover the included in a product and placed in EEA provides no injunctive relief to elements of a trade secret by reverse interstate or foreign commerce. private parties. They must continue engineering, the practice of taking The statute adds three to resort to the traditional civil something apart to determine how it requirements that are not present injunctive remedies of state courts. was made or manufactured. The with regard to espionage on behalf The EEA clearly has a global Supreme Court recognized this of foreign governments or reach by extending beyond the important fact as well, stating that instrumentalities. The wrongful borders of the United States when the law does not protect the owner conduct must an offender is a citizen or permanent of a trade secret from “discovery by • be committed with the intent resident alien of the United States or fair and honest means, such as to convert the trade secret is an organization organized under independent invention, accidental • economically benefit anyone the laws of the United States or a disclosure, or by so-called reverse other than the owner, and state or political subdivision thereof. engineering” (4). • be committed with the intent The EEA also applies to conduct The EEA does not expressly or knowledge that the offense will outside the United States if an act to address when reverse engineering injure the owner of the trade secret. further such conduct was committed would be a valid defense; however, inside the United States. legislative history suggests that “the 2 BioProcess International NOVEMBER 2004 research and materials from the Cleveland Clinic Foundation (CCF). The accused falsely understated the The proper focus of inquiry is not whether an number of vials of research material alleged trade secret can be deduced by reverse that had been taken from a laboratory by a second defendant, by engineering, but whether IMPROPER means are initially indicating that 10 or fewer required to access it. vials had been taken, when in fact, several hundred vials were taken. An indictment is still pending important thing is to focus on It is alleged that the individuals against the second defendant, whether the accused has committed each signed a participation charging him with conspiracy, one of the prohibited acts of this agreement upon coming to economic espionage act offenses, statute rather than whether he or Harvard, in which they agreed that and transporting stolen property in she has reverse engineered. If all rights to any invention or interstate and foreign commerce. someone has lawfully gained access discovery conceived or first reduced Defendant 2 is alleged to have to a trade secret and can replicate it to practice as part of, or related to, conspired to steal from the CCF without violating copyright, patent, their university activities were DNA and cell
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