Trade Secrets

1072 words | 4 page(s)

Misappropriation of trade secrets has become commonplace. Globalization, elimination of borders, computer technologies and communication advancements make organizations increasingly vulnerable to this type of risks. In the meantime, with the growing intensity of market competition, the need to preserve and protect trade secrets is becoming a matter of competitive priority, since only companies that produce unique and inimitable products/services have a chance to outperform their competitors. Not surprisingly, the body of law governing the process of investigation in the context of economic espionage and trade secrets misappropriation continues to expand. Even when a foreign entity becomes an object of prosecution, local and national law enforcement agencies have the authority to engage in international activities to detect, prevent, and react to economic espionage. Unfortunately, even the best laws cannot eliminate the risks of trade secrets misappropriation in the developed world.

Issues Involved in Investigating Economic Espionage and Trade Secrets
The system of law and law enforcement in the developed world, including the United States, is quite sophisticated. As a result, investigating economic espionage and trade secrets misappropriation is no longer problematic. Still, the process of investigation and prosecution is not without faults. The first issue is the lengthy process used to prove a trade secret. According to the current legislation, namely, the Economic Espionage Act of 1996, a proof of trade secret is provided based on information, reasonable measures used to protect it, and the presence of an economic value from not being disclosed to the public (Krotoski, 2009). At present, the definition of trade secret information is too broad to ensure its effective and sufficient application in the cases of economic espionage (Krotoski, 2009). As a result, at times, law enforcement agencies become overloaded with cases of trade secrets that are to be prosecuted. Moreover, organizations and prosecutors may face difficulties defining the boundaries of “reasonable measures” taken to protect trade secrets from disclosure.

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The second issue is actually that of trade secret disclosure, which should or should not take place during prosecution. It is difficult to imagine how a case of economic espionage or trade secrets misappropriation can be adequately investigated without disclosing this trade secret to the parties involved in prosecution and the public. In the absence of the universal criteria for what qualifies as trade secret, deciding which information is to be kept secret is particularly problematic. Therefore, prosecutors and investigators must take caution while interpreting the provisions of the Economic Espionage Act of 1996 and the way it applies in certain cases.

Espionage versus Misappropriation of Trade Secrets
It is interesting to note that the Economic Espionage Act of 1996 does not make any clear distinction between economic espionage and misappropriation of trade secrets. According to §1831-39 of the discussed Act, economic espionage is defined as “the theft or misappropriation of a trade secret with the intent or knowledge that the offense will benefit any foreign government, foreign instrumentality, or foreign agent.” Still, the Economic Espionage Act of 1996 makes a distinction between the two different types of offenses. The first, economic espionage, is interpreted as misappropriation of trade secrets for the benefit of a foreign government or agent (Krotoski, 2009). The second is the act of trade secrets misappropriation that is committed to derive an economic benefit from sharing this secret with anyone but its owner (Krotoski, 2009). Apparently, the damage caused by the first type of trade secret misappropriation can be much more substantial than that caused by the second type of offense: even the biggest economic benefits can hardly be compared to the national security threats posed by misappropriation of foreign trade secrets. Still, thousands of organizations suffer from the loss of their trade secrets to competitors and foreign agents. According to Drab (2003), between 2000 and 2001, Fortune 1000 companies lost nearly $59 billion in trade secrets and proprietary information. The FBI provides a more compelling argument: every year, $200 billion are lost by organizations and the state due to economic espionage (Drab, 2003).

Investigating Economic Espionage without Divulging Trade Secrets
As mentioned earlier, one of the biggest issues facing prosecutors in trade secrets and economic espionage cases is how to investigate the case without divulging trade secrets. According to §1835 of the Economic Espionage Act of 1996, the court is obliged to protect the secrecy of the trade information involved in economic espionage cases. However, this provision of the EEA contradicts the defendant’s right to have access to legal materials under the Fifth and Sixth Amendments (Seltzer & Burns, 1999). Consequently, at present, the decision to disclose or not to disclose trade secret information during prosecution and trials is entirely up to the district court participating in the case. Disclosure of such information may be necessary to confirm that the information meets the criteria of trade secret.

Foreign Entities Involved in Economic Espionage Cases
Of particular difficulty is investigating and prosecuting the cases of misappropriation involving foreign entities and agents. First, when economic espionage and trade secrets misappropriation becomes international, investigators must obtain electronic evidence abroad (Krotoski, 2009). At present, the 24/7 High Tech Crime Network operates to assist law enforcement agencies in obtaining such evidence, but investigators must be prepared to face the difficulties with obtaining such evidence from the countries, which do not participate in this network.

The second issue is related to border searches, as borders are not always explicitly defined and special attention needs to be paid to so-called “functional equivalents of borders” (Krotoski, 2009). Despite the growing sophistication of laws and technologies, no organization can be totally secured from the risks of economic espionage. New technologies open the gateway to various legal and trade secret manipulations, and law enforcement agencies cannot always catch up with their pace.

Economic espionage and misappropriation of trade secrets is a matter of organizations’ concern. Trade secrets often become a chief source of competitive advantage for companies around the globe. The current state of law provides law enforcement agencies and prosecutors with abundant opportunities to detect, investigate, and react to cases of economic espionage. The law also allows investigating such cases without divulging trade secrets. Unfortunately, even the best laws cannot eliminate the risks of trade misconduct and their legal and economic consequences.

  • Drab, D. (2003). Economic espionage and trade secret theft: Defending against the pickpockets of the new millennium. Xerox.
  • Krotoski, M.L. (2009). Economic espionage and trade secrets. U.S. Department of Justice.
  • Seltzer, M.D. & Burns, A.A. (1999). Criminal consequences of trade secret misappropriation: Does the Economic Espionage Act insulate trade secrets from theft and render civil remedies obsolete? Boston College.

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