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Communications of the ACM
Legally Speaking: the Economic Espionage Act: Touring the Minefields
In 1996 the U.S. Congress passed the Economic Espionage Act (EEA).1 Viewed simply, the EEA criminalizes the theft of confidential business information. However, when dealing with information, few things involving criminalization are simple, and the EEA is not among those few.
The impetus for the EEA was the end of the Cold War. Suddenly, the U.S. found that the greatest threat to its well-being had changed from military opposition to economic competition. Considering itself to be a world leader in industrial innovation, the U.S. decided to ensure homegrown secrets of its native corporations would not be made available through theft and espionage to foreign competitors.
Significantly, the EEA did not limit its proscriptions to merely international espionage, but included prohibitions against domestic theft and use of confidential information in very broad terms. It is these broad prohibitions, when applied to the concept of "information," that make the EEA a dangerous legal companion for any worker, independent contractor, or employer involved in the information industry.
Basics and Breadth of the EEA
The EEA focuses on "trade secrets," a term with a statutory definition so expansive as to encompass anything a company may want to keep confidential, for any business motive whatsoever. The EEA reads:
- [A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, programs 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 ...
The EEA's scope is clearly not limited to intellectual property as that term is usually understood. If an employee has access to anything an employer deems confidential, then the employee is obligated to maintain the secrecy of that information, no matter how mundane or nonscientific the information may be. This is in sharp contrast to most state trade secret laws which generally highlight scientific or technical information,2 and on federal laws, which focus on copyrighted and patented works, or, implicitly, on state-defined trade secrets.
If an employee has access to anything an employer deems confidential, then the employee is obligated to maintain the secrecy of that information, no matter how mundane or nonscientific the information may be.
The EEA also takes an expansive view of the meaning of theft or espionage. There is no requirement that an individual copy or otherwise duplicate the protected information as the manner or means of providing that information to a third party. Mere disclosure of that information, through any means whatsoever, for the "economic benefit of anyone other than the owner," is prohibited. The statute can be violated merely by employees changing jobs and using information learned in a prior position for the benefit of their new employer. This point was explicitly recognized by Congress in the legislative history of the EEA:
- The statute is not intended to be used to prosecute employees who change employers or start their own companies using general knowledge and skills developed while employed. It is the intent of Congress, however, to make criminal the acts of employees who leave their employment and use their knowledge about specific products for processing these in order to duplicate them or develop similar good for themselves or a new employer in order to compete with their prior employer.3 (Emphasis added.)
Similarly, a company can find itself in violation of the EEA by hiring employees away from competitors, and then putting them to work on projects similar to those previously handled for those competitors.
In the past, civil suits have been brought against companies, based upon state law, for conversion of trade secrets accomplished through the hiring of a competitor's employee. Such civil prosecutions have been approved by some courts.4 Given this track record, as well as the express congressional intent that the EEA be used by the Department of Justice to criminally punish this type of activity, both employers and employees are well advised to think carefully about the role of a new employee when that person has valuable expertise learned at a previous job with a competitor employer. Independent contractors, similarly, must be careful about using information learned through working on one client's matter for the benefit of a later client.
Reverse engineering also falls under the EEA. This is clear from the charging language:
- Whoever, with intent to convert a trade secret, that is related to or included in a product ..., 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 ... (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information ... shall [be punished as provided in the EEA]. (Emphasis added.)5
Put simply, analyzing a competitor's product in order to replicate the code or process by which it functions, with the intent of manufacturing a similar or complementary product that might impede the economic opportunities of said competitor, falls under the prohibitions of the EEA.
Enforcement and Civil Liberties
Civil liberties continue to collide with the new laws of the information age. The EEA is no exception.
First, the EEA permits federal law enforcement authorities to use wiretaps in order to investigate violations of the EEA.6 Wiretaps are one of the most intrusive of all investigative techniques, second only to the outright arrest of a suspect or a search and seizure. Typically, they are reserved for violent or organized crime investigations. Authorization to use wiretaps in what is essentially a crime against property represents another step toward advancing interests of commerce over the integrity of the individual in the information age.
Second, the EEA limits what a person can and cannot disclose regarding knowledge obtained through legitimate means, for example, through prior employment. This prohibition is profoundly different than other intellectual property statutes, such as patent and copyright laws, which generally proscribe what can be done with knowledge rather than prohibiting mere disclosure. The difference is significant: manufacturing a commercial product via patent infringement is clearly a crime against property, whereas disclosing information, even confidential information, includes an element of speech. For this reason, the EEA runs perilously close to infringing the First Amendment right of free speech. Aside from the chilling effect the EEA has on constitutionally protected conduct, this fact may provide grounds for a successful defense in some future prosecution, especially where the government has failed to adequately investigate or prove an overt act on the part of the defendant to use or further the use of the purloined knowledge for the economic benefit of a third party (or for the defendant).
Third, the EEA requires, in any prosecution or other proceeding, that a court "enter such order and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets ..." not inconsistent with other statutory requirements.7 This provision is in direct conflict with traditional and deeply rooted notions of due process in our criminal justice system: defendants have a right to know all the evidence being used against them, to challenge that evidence, and to challenge such evidence in an open trial before the public. This provision is meant to prevent confidential information from being made public when the government brings a criminal prosecution against someone. However, in a criminal trial, this provision would tend to prevent a defendant from learning what the significant aspect of the information he or she is accused of disclosing; prevent the defendant from disclosing that information to third parties, including expert witnesses and competitors, in order to evaluate and challenge that aspect; and prevent the defendant from attacking the information and its significance in open court. In summary, it is difficult to see what force and effect any court can give to this provision if a defendant is to be given a fair trial. Nonetheless, Congress is serious in this regard—it also authorized prosecutors to take interlocutory appeals to federal appellate courts, that is, to stop a prosecution in mid-stream and appeal to a higher tribunal in those instances where trial judges have not, in the opinion of the prosecutors, adequately protected the confidentiality of the information which is the subject of the case.8
Counterpoints
One should not labor under the impression that the EEA's pitfalls are all one-sided. Specifically, one should not overlook the difficulties that victims of trade secret theft will have using the EEA as a remedy.
To be considered a trade secret, the EEA requires more than just that the information be valuable. It also requires that (1) the owner take "reasonable measures" to maintain the secrecy of the information, and (2) the value of the information to the owner is somehow derived from the fact that it is secret.
The first of these requirements places an obligation on the information's owner. A company cannot treat its trade secrets in a cavalier manner and then expect the EEA to be applicable. More to the point, one cannot merely assume that one's employees and coworkers recognize as a matter of course that secrecy is important to a project. Instead, a company must take affirmative and open steps to make clear to all concerned that the information is confidential; to impose procedures designed to protect against disclosure, accidental or otherwise; and to publicize the fact that disclosure of the pertinent information will incur penalties, such as loss of one's job. As a policy matter, these requirements may very well be difficult to implement in those technical environments where the free flow of information is taken as a matter of course, and where continued advances in state-of-the-art developments depend upon such flow.
Finally, invocation of the EEA may be equivalent to destroying a village in order to save it. Once the matter is brought to the attention of law enforcement authorities, a victim company loses substantially all control over the prosecution of the matter, and, ultimately, over whether the subject information will be made public in a trial or discovery proceeding. The Department of Justice makes the decision whether or not to press charges under federal criminal laws, and it may choose to do so even after a victim company subsequently recognizes it is not in its best interest for such a prosecution to go forward. The reasons why a company may reach this conclusion are numerous, and may include the risk of bad publicity, public disclosure of the trade secret, adverse effects on stock value due to the publicity or trade secret disclosure, and the reaching of a separate accommodation with the perpetrator. These concerns do not motivate a prosecutor, who may be more concerned with the deterrent effect to the industry at large resulting from a single prosecution than with any adverse effects a particular company may suffer from that prosecution. Moreover, once an indictment has been issued, a defendant has an opportunity to obtain and use publicly, in his or her defense, the very information the company wishes to preserve as secret. The results of an EEA prosecution, particularly one that proceeds completely to trial, will usually include the irrevocable and public disclosure of the very information whose value is founded in secrecy. For these reasons, companies will want to think twice about bringing theft of a trade secret to the attention of law enforcement authorities if there is any chance the damage due to a disclosure is limited, and if the overall confidentiality of the subject information, and therefore its value, can somehow still be maintained.
Conclusion
Criminal statutes are supposed to be clearly, intelligently, and narrowly drawn. The reason for this is the requirement that, under the constitution, no person may be deprived of life, liberty, or property without due process, that is, without fundamental fairness in an adversarial proceeding. What, then, can be more basic to such fairness than a clear, intelligent, and narrow drafting of the proscribed conduct that the state intends to punish?
The EEA fails to satisfy this standard. What is more puzzling than its many problems, however, is that the problems exist for both victims and accused. Given the EEA's breadth and application to the information industry, it would be wise for all professionals to develop some understanding of where the traps are for the unwary.
Footnotes
118 U.S.C. 1831 et seq. (1996).
2See, Joseph Savage, Criminal Justice at 13 (Fall 1997).
4The doctrine of "inevitable disclosure," was approved by some of the U.S. Circuit Courts of Appeals and disapproved by others.
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