Theft of Trade Secrets

June 1, 1998 Advisory

In 1996, Congress enacted the Economic Espionage Act ("EEA"), which created federal criminal liability for the theft of trade secrets. Until that time, the theft of trade secrets was primarily a civil matter.

In enacting the EEA, then, Congress departed from the tradition of state-prescribed trade secret laws and committed feudal resources to the fight against international and domestic espionage.

As pointed out by FBI Director Louis Freeh in testimony supporting the EEA, state trade secret laws have traditionally lacked the reach or power to deal with foreign-sponsored economic espionage. Moreover, global competition has increased the corporate incentives to learn competitors' trade secrets, and copying and transmitting secret information has become as easy as pressing a computer's "enter" key.

Economic Espionage Act of 1996
The EEA has two principal sections: one aimed at international espionage and the other directed at any theft of trade secrets. First, 18 U.S.C. § 1831 prohibits the misappropriation of trade secrets "intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent." Second, 18 U.S.C. § 1832 prohibits the misappropriation of trade secrets "to the economic benefit of anyone other than the owner thereof."

"Trade secrets" are broadly defined under the EEA. They include information that (1) the owner has taken "reasonable measures" to keep secret and (2) drives "independent economic value" from "not being generally known to" and not being "readily ascertainable through proper means by" the public. By so broadly defining trade secrets, even activities that are permitted by state law may be criminal under the EEA.

Recognizing the hazards of casting the federal criminal net so widely, Attorney General Janet Reno has pledged that all federal prosecutions under the EEA for its first five years will have to be approved by the Attorney General, the Deputy Attorney General or the Assistant Attorney General for the Criminal Division.

Initial Prosecutions
To date, there have been five publicly-reported prosecutions under the EEA: two involving the attempts of foreign companies to misappropriate the trade secrets of a domestic corporation and three involving wholly domestic misappropriations.

  1. United States v. Worthing
    In December 1996, federal prosecutors in the Western District of Pennsylvania charged Patrick Worthing with attempting to sell the trade secrets of his employer, PPG Industries Inc., to one of PPG's rivals, Owens-Corning. The government alleged that Worthing, under an assumed name, sent a letter to the CEO of Owens-Corning stating: "Would it be of any profit to Owens-Corning to have the inside track on PPG?" Owens-Corning contacted PPG, which, in turn, contacted the FBI. As a result of an FBI undercover operation, Worthing admitted stealing documents, blueprints, photographs and product samples from PPG. Worthing subsequently pled guilty under the EEA and was sentenced to 15 months' imprisonment.

  2. United States v. Davis
    In September 1997, federal prosecutors in the Middle District of Tennessee charged Steven L. Davis, an engineer working for a contractor to Gillette, with the theft of Gillette's trade secrets. Davis had been working to develop production equipment for a new shaving design. Allegedly, Davis downloaded 600 megabytes of trade-secreted data and drawings from the Gillette project and then distributed the information to competitors of Gillette by fax and e-mail. Davis was charged with violating, and subsequently pled guilty under, the EEA.

  3. United States v. Yang
    In September 1997, federal prosecutors in the Northern District of Ohio charged three people with attempting to steal secrets from Avery Dennison Corporation, a large adhesive products manufacturer. For about seven years, Avery scientist Ten Hong "Victor" Lee had secretly been selling manufacturing and research information about Avery's business to a Taiwanese company, Four Pillars. The FBI was notified, eventually filming Lee rummaging through a co-worker's confidential files. Lee subsequently pled guilty to violating the EEA, and assisted in setting up a meeting with the chairman of Four Pillars and his daughter, a Four Pillars employee; shortly thereafter they were arrested and charged with attempting to steal trade secrets in violation of the EEA.

  4. United States v. Hsu
    In mid-1997, federal prosecutors in the Eastern District of Pennsylvania charged Kai-Lo Hsu and Jessica H. Chou, employees of the Taiwanese company Yueng Foong Paper, with illicitly attempting to obtain one of the crown jewels of the Bristol-Myers corporation: its formula for its almost billion-dollar-a-year product Taxol, an anti-cancer drug. After initial overtures to an undercover FBI agent, Hsu and Chou arranged to meet the FBI agent along with a Bristol-Myers employee posing as a scientist willing to sell company secrets. After discussing their illicit interests, Hsu and Chou were arrested for violating the EEA. The matter remains pending.

  5. United States v. Trujillo-Cohen
    In November 1997, federal prosecutors in the Southern District of New York charged Mayra Justine Trujillo-Cohen, a former employee of Deloitte & Touche, with illicitly attempting to sell confidential Deloitte & Touche software programs. Allegedly, Trujillo-Cohen downloaded her employer's programs onto her laptop and later attempted to sell the programs to another company for $7 million. Trujillo-Cohen has been indicted, and the matter remains pending.

What does the future hold for the EEA? Clearly, as in the cases of Worthing, Davis, Lee and Trujillo-Cohen, corporate employees who attempt to sell their company's valuable trade secrets risk federal prosecution. Moreover, as United States v. Davis and United States v. Yang demonstrate, the EEA has given federal prosecutors an effective tool for combating international espionage. Until a national EEA jurisprudence develops, individuals and corporations must be particularly careful when involved with information that a third party might consider its trade secret or proprietary information.