Last week, the United States District Court for the Northern District of Illinois saw the start of a bench trial in United States v. Jin, 1:08-cr-00192 (N.D. Ill. Mar. 3, 2008), in which software engineer Hanjuan Jin is accused of stealing trade secrets from her former employer Motorola Corporation to sell to the Chinese military. Jin is also giving Yihao Ben Pu a sneak peek at what lays in store for him – last month, Pu was brought up on criminal charges in the same court for stealing the trade secrets of his former employer, hedge fund Citadel. These recent high-profile cases have some employers wondering what criminal law can help them do to protect their own trade secrets and when they should involve police or federal authorities instead of merely filing a civil suit.
The FBI has placed economic espionage on both a national and local level second on its list of priorities, right behind fighting terrorism. That means that theft of trade secrets is a national priority, and the Department of Justice has created its own Task Force on Intellectual Property with fifteen assistant United States attorneys and 20 FBI special agents.
These federal prosecutors have a variety of criminal statutes to use in enforcing the law. Both Jin and Pu have been charged under the Economic Espionage Act of 1996, 18 U.S.C. §1831 et seq. (EEA), which carries up to ten years of imprisonment for individuals and $5 million in fines for organizations. The EEA is most analogous to common law trade secret protections and the Uniform Trade Secrets Act. It protects against both foreign espionage, under §1831, and domestic espionage, under §1832. The Act is broad-sweeping, providing criminal liability for misappropriation, unauthorized duplication, and receiving of trade secrets, as well as conspiracy to do any of those things.
One difference between criminal and civil enforcement is that the EEA requires that the defendant have the criminal “intent to convert” the secret, or the intent to profit from it financially. Unlike in civil actions where plaintiffs can recover for harm to them based solely on the reputational benefit to the defendant, in criminal actions, the government must meet a high standard of proof that the defendant stole the secret for the purpose of economic gain. Therefore, criminal enforcement may be easier when a former employee has already sold the secret to a competitor or arranged to profit from it in some way.
Another important issue to consider in deciding whether to call in the police is the potential for disclosure of the trade secrets at issue during a criminal prosecution. Although prosecutors may opt to protect a victim employer’s trade secrets from disclosure by structuring the indictment to foreclose discovery of trade secret information, that choice is entirely out of the control of the employer. When materiality of those trade secrets has become an issue in prior cases, courts have refused to grant such absolute discretion to the owner of a trade secret, noting that the unredacted documents could reveal information material to theories of defense. In a civil action, however, the employer remains in control of the case and can choose to dismiss its suit or settle rather than disclose highly confidential documents.
Given these hurdles, why would you, as an employer, ever consider picking up the phone to call the police or FBI when you discover that an employee has run off with corporate secrets? There are several reasons. First, public prosecutions of these crimes make other employees more aware of the potential serious consequences of such theft. Second, the threat of imprisonment may make a judgment-proof employee more willing to divulge exactly what has happened to your trade secret and help you ameliorate the damage or go after an offending competitor behind the theft. Third, for those trade secret thefts with suspected foreign involvement, the DOJ has vast experience in pursuing targets and collecting evidence abroad, as well as substantial authority to conduct warrantless searches at U.S. borders.
At the end of the day, employers seeking monetary compensation will need to pursue a civil action to obtain financial relief. Nevertheless, criminal prosecution can be an effective complement to traditional trade secret litigation, particularly where the theft involves foreign corporations or employees who abscond abroad.