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Trade Secret Cloak and Dagger: the Economic Espionage Act of 1996

As if getting hit with a claim for misappropriation of trade secrets were not enough, many people do not realize (OK, it came as a surprise to me) that there is a criminal component to misappropriation.  That is, at least where the theft is done for purposes of passing off the secrets to a foreign government.

 

Cloak and dagger:  the Economic Espionage Act of 1996 (18 U.S.C. § 1831–1839) criminalizes the theft or misappropriation of a trade secret.  Moreover, the offense applies even where the information taken is not top secret.  (Although it makes the story so much more interesting if it is highly classified).   The EEA involves any commercial information that is neither classified nor related to national defense (in which case it is falls under the run-of-the-mill espionage act). 

 

This EEA in a nutshell:  The Act is broken into two parts.  The first, 18 U.S.C. § 1831(a), criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign power.  The second, 18 U.S.C. § 1832, criminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret.

 

So far as I can tell, the EEA isn’t used all that often, and when it is, the cases seem to look to the Uniform Trade Secret Act for guidance as to what is –  or isn’t – a trade secret.  There was one fairly high profile case decided in August, 2007 in the Northern District of California (before District Court Judge Jeremy Fogel).  In that case, Judge Fogel sentenced a Canadian citizen, Xiaodong Sheldon Meng, to 24 months in federal prison “for stealing military software from a Silicon Valley defense contractor and trying to sell it to the Chinese military.”  

 

According to my sources, another case is poised to go to trial this May in the Central District of California.  That case also involves efforts to sell (or at least deliver) to the Chinese government material that was gleaned by an employee of a military contractor. 

 

Like most criminal conduct, the penalties for violation of the EEA are steep. Penalties for violation of Section 1813(a) include fines of up to $500,000 and imprisonment of up to 15 years.  (Organizations can also be guilty of this Act, and while they won’t do any prison time, they will pay a fine of up to $10 million.)  Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to $5 million for organizations.

 

 

 

Jonathan Pink is a business lawyer with a specialty in copyright, patent and trademark litigation. His clients include many of the biggest names in the automotive and motorcycle aftermarket parts industries, and one of world's largest media companies. He has extensive experience in a wide range of intellectual property and commercial disputes including breach of contract, fraud, and the misappropriation of trade secrets. He can be reached at 949.223.7173, or at jonathan.pink@bryancave.com, and his full profile can be viewed at www.bryancave.com.

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