EEA

Subscribe to EEA

Robert B. Milligan, Partner and Co-Chair of Seyfarth’s National Trade Secret, Computer Fraud, and Non-Compete practice group, just finished co-editing and co-authoring a prominent new California trade secret treatise.

This Supplement to the Third Edition practice guide addresses the Defend Trade Secrets Act (DTSA ), which was enacted in 2016.  This Supplement includes additional practical tips and strategies related to the DTSA. This is one of the first books on the new law.

This supplement addresses:

  • A general overview of the DTSA, including its history and impact.
  • The DTSA’s scope and remedies afforded by it.
  • Analysis of recent case law discussing the DTSA’s whistleblower immunity provision and employer compliance with the DTSA’s whistleblower immunity notice provision.
  • A comparison of the DTSA to the California Uniform Trade Secrets Act (CUTSA or the CUTSA), the Economic Espionage Act (EEA), the Computer Fraud and Abuse Act (CFAA), and Section 337 of the Federal Tariff Act of 1930 (Section 337).

The treatise can be purchased by State Bar IP Section Members for $25 and by Non-Members for $30.

For more information, click here.

Why spend millions of dollars employing a bunch of bright, talented employees to develop your business when you can just hire a worker from your rival to steal all their research?  As on every test you took in school, isn’t getting the right answer more important than figuring out how to solve the problem?

Competition for business is fierce.  Small price differences or lower development costs can win your company any number of contracts.  How can one effectively compete in today’s marketplace?

Some companies, in a word, cheat.

Korea-based KCC Silicones hired chemist Michael Agodoa of Michigan-based rival Wacker Chemical Corp. as a consultant in 2010.  Rather than taking years to determine the proper formulas and millions in experimentation costs on plastics used in extrusion, silicone mold making materials, and elastomers, KCC employed Mr. Agodoa to steal over 100 of Wacker’s trade secrets.

Isn’t this what business people call a “win-win” situation?   Mr. Agodoa probably made enough extra cash to have a nice vacation or two.  KCC didn’t have to waste any time testing and certainly received a large “ROI” (return on investment).  Business, after all, is business.

Wacker Chemical spent two decades developing and refining their manufacturing methods.  Mr. Agodoa’s defense was that he shared Wacker’s knowledge and experience “in the spirit of scientific cooperation” over a period of two years.  In other words, KCC bought eighteen years’ worth of intelligence for the price of one consultant.

Facing up to forty-six months behind bars, Mr. Agodoa plea-bargained his way to a two-year federal prison sentence and a $7,500.00 fine.  Wacker Chemical’s losses were estimated at more than $15 million.

Trade secrets are valuable weapons in today’s global marketplace.  Trade secrets are often very costly to develop, and may provide the competitive edge for your company.  Although Mr. Agodoa only faced federal trade secret charges, the addition of even harsher criminal penalties under the Economic Espionage Act will hopefully make employees think twice about taking that moonlighting “consulting” job.

Federal prosecution for trade secret theft is a “closing the door after the horse has left the barn” approach.  Yes, it is nice to know that your trade secrets are protectable and additional statutes are increasing that protection.  As employers, however, it may be prudent to make your employees aware of the potential penalties before they decide to sell your proprietary information.  The Office of the National Counterintelligence Executive is a good place to look for materials that may be useful in your workplace.

As with students of every age, the temptation is to take the path of least resistance.  Just as with students, the reward is potentially great; your company could win that lucrative contract or catch up to the competition in a short amount of time.  Just find a way to “borrow” your competitor’s know-how.

With trade secret theft, and the Economic Espionage Act, the penalty is not a few days of vacation from school and a meeting with some toothless academic honor board.

You, like Mr. Agodoa, get to head straight to a federal penitentiary.

For more details on U.S. v. Agodoa, 13-cr-20525, (E. D. Mich. 2014), see the Rubber News article and the Bloomberg News article.

Spell check features in word processing programs sent correction fluid the way of the buggy whip. Walter Liew and Robert Maegerle, however, saw a $28 million dollar payout to sell the secrets to, among other things, typewriter correction fluid. It is doubtful that they can “white out” the bars of their new prison cells, though.

Liew, a California engineering consultant, and Maegerle, a former engineer, were convicted in what may be the first federal jury conviction under the Economic Espionage Act of 1996 for economic espionage, trade-secret theft, witness tampering, and making false statements.

What could be so incredibly secret and technical about correction fluid?

The white pigment in correction fluid is titanium dioxide. Titanium dioxide is used in hundreds of items, including paints, plastics, paper, rubber, cosmetic products, and food. Titanium dioxide is also used in electrical ceramics and semiconductor devices. The annual global sales of titanium dioxide are approximately $17 billion dollars.

Maegerle’s former employer holds trade secrets on how to make titanium dioxide, and accounts for one-fifth of the annual global sales of the chemical. Liew received the trade secrets from Maegerle and sold them for $28 million to China-based Pangang Group. Allegedly a Chinese state-owned company, Pangang is building a new plant to produce titanium dioxide in China.

The stolen trade secrets included a drawing of a plant system, an internal report about a computer model for a chemical process, a plant flow sheet and a basic data document containing the process and equipment needed to design a titanium dioxide production line.

Each defendant now faces up to 15 years in federal prison and hundreds of thousands of dollars in fines. Pangang was also charged but did not face trial because prosecutors were unable to serve legal documents on the company in China.

Liew’s wife Christina was also charged with economic espionage, trade secret theft and witness tampering. She will be tried separately.

With economic espionage statutes supplementing trade secret law, the government now has additional weapons against trade secret theft. Now, aggressive and determined efforts to steal U.S. intellectual property can be thwarted. Additional deterrents to would-be espionage targets are realized through larger penalties for conviction under both economic espionage and trade secret laws.

Liew and Maegerle understood that the simplicity of the underlying product covered by the trade secret does not detract from the trade secret’s importance to competitors. Although appeals are planned, it is unlikely that the defendants will have access to trade secrets protecting other “simple” devices, such as the locks on their prison doors.

For more information on U.S. v. Liew, 3:11-cr-00573, (N. D. Cal., 2014), see the Bloomberg News article and the FBI press release.

On Tuesday, December 11, 2013 at 12:00 p.m. Central, Seyfarth attorneys Michael D. Wexler, Molly M. Joyce and Justin K. Beyer will present the twelfth and final installment in our 2013 Trade Secrets webinar series, focusing on criminal liability for trade secret misappropriation.

The topics they will cover include

  • Trade secret misappropriation: what it is and how does it happen
  • An introduction to criminal liability under Economic Espionage Act and the Computer Fraud and Abuse Act
  • A discussion of recent court decisions finding criminal liability for violation of these Acts
  • How to work with criminal prosecutors to compliment your civil claims for trade secret misappropriation
  • Best practices to avoid misappropriation and what to do when you suspect misappropriation has occurred, including a discussion of forensic investigation options

Our panel consists of attorneys with significant experience litigating trade secret issues, advising clients on trade secret protection, drafting confidentiality and restrictive covenant agreements, and conducting trade secret audits. This CLE is recommended for management, HR personnel and in-house counsel.

There is no cost to access this program, however, registration is required.

If you have any questions, please contact events@seyfarth.com.

*CLE credit is available. Seyfarth has applied for CLE credit in IL, NY, and CA. If you would like us to pursue CLE credit in any additional states, please contact events@seyfarth.com. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

In Parts I and II of this post, we looked at the Court’s ruling on Nosal’s motion for acquittal and new trial following his conviction of three CFAA counts, two EEA counts and one count of conspiracy. In this final part, we look at what may lie ahead for Nosal and lessons employers may learn from this case.

What’s Next for Nosal?

Sentencing in this case is now scheduled for October 9, 2013. Nosal faces a maximum statutory penalty of five years’ imprisonment and a fine of $250,000, plus potential restitution, on the conspiracy and CFAA counts, and 10 years’ imprisonment and a fine of $250,000, plus potential restitution, on the EEA counts.

Presumably, this matter will once again end up before the Ninth Circuit which will determine whether the conviction and the Court’s denial of Nosal’s motions for acquittal and a new trial will stand or whether they run afoul of the Ninth Circuit’s earlier en banc decision in this case. Earlier, Judge Kozinski, writing for the majority, affirmed the dismissal of CFAA counts against Nosal finding that the statute was intended to punish hacking, not misappropriation of trade secrets in violation of an employer’s acceptable use policies. In the opinion, Judge Kozinski stated that to hold otherwise would make a federal crime out of non-business related conduct in violation of acceptable use policies such as “g-chatting with friends, playing games, shopping or watching sports highlights.” A strong dissent by Judge Barry Silverman argued that this case has nothing to do with such innocent violations of employer policy, apparently suggesting that such conduct, although “unauthorized access,” would not fall under the CFAA because the required element of fraud is missing. Conversely, Judge Silverman stated that this case was about fraudulent and unauthorized access to a computers with the intent to steal valuable information.

Perhaps any future ruling will address password sharing and provide useful guidance on how to design acceptable use policies prohibiting conduct running afoul of the CFAA, without offending Judge Kozinski’s sensibilities. Stay tuned.

What can employers learn from this case?

Obviously, Nosal’s former employer did a lot of things right which allowed the government to successfully prosecute and convict Nosal. For starters, his former employer protected its trade secrets by in a number of ways, including that: (1) it did not permit trade secrets to be sent outside the company; (2) it required usernames and passwords to access computers; (3) it housed its database containing the trade secrets at a secure data center with restricted access; (4) it protected the database with a firewall and anti-virus software; (5) it monitored users’ downloading activity; (6) the database warned users with messages that information was to be used for “company business only”; and (7) lists exported from the database stated the information was “Proprietary & Confidential.” Based on these efforts, the Court concluded that Nosal’s former employer took reasonable steps to protect its trade secrets.

However, although ultimately not determinative in this case, the Court also noted evidence of things that Nosal’s former employer did not do, including that: (1) it did not prevent users from e-mailing source lists outside the company; (2) it did not prevent users from printing source lists; (3) it did not encrypt source lists or protect them with separate passwords; and (4) it did not have a procedure for preventing employees from printing and taking source lists home. It is possible some of these additional safeguards may have made misappropriation more difficult, or even prevented it altogether.

There are also a number of additional safeguards and procedures not referenced in the order that companies should consider as part of “best practices” in preventing trade secret theft. For example, the order is silent as to Nosal’s former employer’s onboarding procedures, and whether it used non-disclosure and trade secret protection agreements to protect sensitive information. It is also unclear what, if anything, his former employer did to educate and to continue to remind its workers regarding their obligations to protect company information. There is also no information as to whether his former employer conducted exit interviews, and whether it used exit interview certifications requiring departing workers to confirm they did not have any company trade secrets or confidential or proprietary information. All of these may be helpful tools in protecting company information. While none of these efforts by themselves prevent misappropriation, workers who are informed and understand that a company values and protects such assets are presumably less likely to misappropriate.

In Part I of this post, we reviewed the Court’s ruling on Nosal’s conviction on the CFAA counts. Here in Part II, we turn to the Court’s ruling on the EEA counts, and the exclusion of evidence regarding Nosal’s non-compete provision.

B.    Nosal’s Conviction on the EEA Counts:

Nosal was convicted of two counts under the EEA for downloading, copying and duplicating his former employer’s trade secrets without authorization, and for receiving and possessing his former employer’s stolen trade secrets. In relevant part, the EEA provides:

Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended
for use in interstate or foreign commerce, 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;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated,
obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1) through (3);

…

shall, except as provided in subsection (b), be fined under this title or imprisoned not more
than 10 years, or both.

18 U.S.C. § 1832(a).

Nosal raised four arguments for acquittal or a new trial on the EEA counts: (1) instruction that jury could find Nosal guilty of conspiracy to commit the EEA violations even if there was no trade secret was erroneous; (2) there was insufficient evidence that the source lists were trade secrets; (3) there was insufficient evidence that Nosal and his co-conspirators knew or believed that the source lists were trade secrets; and (4) there was insufficient evidence that Nosal and his co-conspirators knew or believed that taking the source lists would cause his former employer economic harm. The Court rejected each of these arguments.

1.     Requirement of Existence of Actual Trade Secret

Nosal argued for acquittal or a new trial on all counts claiming the Court erroneously instructed the jury that it could find him guilty of conspiracy to misappropriate, receive, possess, and transmit trade secrets even if the source lists were not trade secrets as long as he “firmly believed” they were.

The Court rejected this argument based on authority holding that legal impossibility is not a defense to conspiracy charges, including United States v. Hsu, 155 F.3d 189, 193 (3d Cir. 1998). The defendants in Hsu were charged with attempt and conspiracy to steal trade secrets, and sought discovery to prove that the documents they had attempted to obtain were not trade secrets. The Hsu court ruled that the documents were not relevant because legal impossibility is not a defense to either attempt or conspiracy. Id. at 203. The Court further cited the Supreme Court’s recognition that conspiracies are distinct and independent evils punishable by themselves. Salinas v. United States, 522 U.S. 52, 65 (1997).

The Court also found that the legislative history of EEA specifically supported a finding that a “firm belief” satisfied the “knowingly” element. The Court further concluded that any error in the instruction was harmless because the jury found Nosal guilty of the substantive EEA counts, and to do so it had to find that at least one of the source lists was a trade secret. The Court also dismissed several other arguments, including that the conspiracy instruction was a constructive amendment of the indictment because it sought conviction based on the theory that Nosal “firmly believed” the source lists were trade secrets, even if they were not.

2.     Evidence the Source Lists Were Trade Secrets

Nosal also argued for acquittal or a new trial on the EEA counts because there was insufficient evidence the source lists were, in fact, trade secrets, and specifically that the information was not drawn from publicly available sources and that the source lists had not been publicly disclosed.

The Court dismissed this argument citing evidence introduced at trial that would support a finding that the source lists were compilations of both public and non-public information, and that the jury could have inferred based on Nosal’s efforts to retrieve the source lists that the information therein was not entirely public.

The Court also held that the jury could reasonably have found that the trade secret status of the source lists was not destroyed by disclosure to third parties based on evidence that such disclosure was relatively rare and that the alleged trade secrets had not been disclosed to third parties, or had been disclosed only subject to a confidentiality agreement.

Finally, based on a review of the balance of evidence, the Court concluded there was sufficient evidence to conclude his former employer had taken “reasonable” steps to protect the source lists as trade secrets.

3.     Evidence Conspirators Knew Source Lists Were Trade Secrets

Nosal also demanded acquittal or a new trial because there was not sufficient evidence that he and his co-conspirators knew the source lists were trade secrets. The Court disagreed, holding there was sufficient evidence showing both that the co-conspirators were aware that the specific source lists were, in fact, trade secrets, and that the co-conspirators attempted to keep their activities secret, from which the jury could have inferred they knew the information was trade secret.

4.     Evidence Conspirators Knew Taking Source Lists Would Cause Harm

Nosal also argued for acquittal or a new trial because there was insufficient evidence that the co-conspirators intended or knew that their actions would injure his former employer, as is required by the EEA. In reviewing the evidence, the Court concluded there was sufficient evidence from which the jury could conclude that the co-conspirators knew their actions would injure his former employer, including that they were starting a business to compete with his former employer.

C.     Exclusion of Evidence Regarding Non-Compete

Finally, Nosal demanded a new trial on all counts claiming he was prejudiced by not being allowed to argue that a non-compete provision in his independent contractor agreement with his former employer was illegal.

The Court stated that, in ruling on motions in limine, it precluded either party from presenting evidence or argument as to whether the provision was actually legal and enforceable. In rejecting Nosal’s demands, the Court held that there was no convincing argument that this ruling was in error, or that Nosal was so unfairly prejudiced by evidence and argument presented at trial relating to the non-compete as to require a new trial.

In the final part of this post, we will look at what may be next for Nosal, and also look at some lessons employers can learn from this case.

On April 25, 2013, a federal jury convicted Executive Recruiter David Nosal on three counts under the Computer Fraud and Abuse Act (“CFAA”), two counts under the Economic Espionage Act (“EEA”), and one count of conspiracy to violate the CFAA and EEA, for Nosal’s conduct leaving his former employer and establishing a competing business in 2004 and 2005.

The conviction followed an FBI investigation and multiple indictments alleging that Nosal conspired with former co-workers to gain unauthorized access to his former employer’s computers system and to illegally obtain its trade secrets – source lists of candidates compiled for search assignments – to use in his competing business.

On August 7, 2013, U.S. District Judge Edward Chen heard argument on Nosal’s motions for acquittal and a new trial and took both motions under submission. On August 15, 2013, the Court issued its ruling, denying both motions in a 39-page order.

This is Part I of a three part post. In this post we will look at the Court’s order on Nosal’s conviction of the CFAA counts. In Part II, we will review the EEA counts. Finally, in Part III, we will try to foresee what the future may hold for Nosal and look at some lessons employers can learn from this case.

A.     Nosal’s Conviction on the CFAA Counts:

Nosal was convicted of three counts under the CFAA for accessing his former employer’s computers and obtaining information on three separate occasions. In relevant part, the CFAA provides criminal penalties for:

[whoever] knowingly and with intent to defraud, accesses a protected computers without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computers and the value of such use is not more than $5,000 in any 1-year period;

18 U.S.C. § 1030(a)(4).

In his motions, Nosal argued broadly that he was entitled to acquittal or a new trial on the CFAA counts because: (1) no person gained unauthorized access to his former employer’s computers within the meaning of the CFAA; (2) the deliberate ignorance jury instruction was confusing; (3) there was insufficient evidence that Nosal had the requisite mental state to commit the CFAA violations; and (4) there was insufficient evidence of a conspiracy.

1.     Unauthorized Access to his former employer’s Computers

In support of the “no unauthorized access” argument, Nosal argued that: (1) under the Ninth Circuit’s en banc decision in this case (United States v. Nosal, 676 F.3d 854 (9th Cir. 2012)), there can be no CFAA violation because any access to his former employer’s computers was gained with the permission of the password holder and there was no circumvention of technological barriers; (2) Nosal’s former co-workers were authorized to access the computers; and (3) Nosal was authorized to receive certain information in the course of his work as an independent contractor for his former employer.

The Court rejected Nosal’s first argument, holding that “[n]owhere does the court’s opinion in Nosal hold that the government is additionally required to allege that a defendant circumvented technological access barriers in bringing charges under § 1030(a)(4)” and also noted that the indictment actually does allege circumvention of a technological barrier because “password protection is one of the most obvious technological access barriers that a business could adopt.”

The Court also dismissed Nosal’s second argument that his former co-workers were authorized to access his former employer’s computer, holding that the evidence established they did not have his former employer’s authorization and “that it is the actions of the employer who maintains the computers system that determine whether or not a person is acting with authorization.” In so doing, the Court distinguished Nosal’s argument that the verdict was criminalizing the allegedly common practice of employees sharing passwords with each other to access their employer’s computers systems by explaining that here, an employee of his former employer impermissibly gave her password, not to a co-worker, but to former employees who were not authorized to access the computers.

The Court also rejected Nosal’s argument that his former co-workers were authorized to access his former employer’s computers on the relevant dates, finding that the evidence sufficiently established that they were not authorized. Finally, the Court rejected Nosal’s argument that he was authorized to receive certain information from his former employer’s computers in his work as an independent contractor, holding he was only authorized to receive limited information relevant to specific work he was doing for his former employer, but that the information he received was for his competing business.

2.     Deliberate Ignorance Jury Instruction

Nosal also argued that an instruction that the jury could find that he had acted “knowingly” to violate the CFAA if he was aware of a high probability that his former executive assistant or former co-workers had gained unauthorized access to the computers or misappropriated trade secrets, and he deliberately avoided learning the truth, was confusing because his former executive assistant was at all relevant times employed by his former employer and was authorized to access the computers while the other former co-workers were not employed by his former employer and were not authorized.

The Court held that Nosal had waived this argument by not raising it earlier. Moreover, the Court held that the instruction was sufficiently clear that the jury could not convict Nosal on the CFAA counts if they concluded his former executive assistant has accessed the computers, because such access would not have been “unauthorized.”

3.     Evidence Nosal had Knowledge of Unauthorized Downloads

Nosal further argued that there was insufficient evidence he had knowledge of downloads from his former employer’s computers were unauthorized because the downloads were not conducted by his former executive assistant. Reciting substantial evidence presented at trial by the government, including evidence that Nosal gave his former co-workers specific directions about information he wanted from his former employer’s computers, that he knew a former co-worker had a large amount of data taken from the computers, that he knew they were not authorized to obtain the information, and that Nosal’s executive assistant did not know how to do so, the Court concluded the government had proved beyond a reasonable doubt that Nosal knew of, was deliberately indifferent to, and/or had conspired to commit the CFAA violations.

4.     Evidence of Conspiracy

Nosal also argued that there was not sufficient evidence of conspiracy. The Court dismissed this argument, concluding that the same evidence that Nosal had knowledge of the downloads from his former employer’s computers was sufficient to support the verdict on the conspiracy count.

In Part II of this post, we will look at Nosal’s conviction on the EEA counts.

To accommodate our global audience, Seyfarth’s eighth installment in its 2013 Trade Secrets Webinar Series will be available as an on-demand broadcast this month! On Tuesday, August 27, 2013, Seyfarth attorneys Dominic Hodson, Wan Li, and Robert Milligan will discuss non-compete and trade secret issues in China, including best practices to protect trade secrets and confidential information in the country. The similarities and differences in approach among China and other Asian countries, jurisdictions, or provinces will be touched upon and compared to the United States. This webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these regions and ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Topics of discussion will include:

  •  Standards for enforceability of non-compete and non-disclosure agreements in China, including recent case discussion
  • Standards for protecting trade secret and confidential information in China including an overview remedies, court administration, and typical time line
  • Practical considerations for U.S. companies and multi-national companies doing business in China to effectively protect their trade secrets and confidential information
  • Comparison to other Asian countries, jurisdictions, or provinces regarding non-compete and trade secret considerations
  • Challenges that U.S. companies face in pursuing trade secret and non-compete claims against foreign individuals and companies in the U.S., including discussion of ITC actions, the Economic Espionage Act, and a recent case discussion.

If you have specific questions relating to this topic that you would like our speakers to address during the on-demand broadcast, please submit to tradingsecrets@seyfarth.com by August 20, 2013. Questions submitted after August 20, 2013 will be answered by email.

The on-demand broadcast will be available on August 27, 2013 at 9:00 a.m. Central; 10:00 p.m. Asia/Shanghai.

There is no cost to access this broadcast, however, registration is required.

If you have any questions, please contact events@seyfarth.com.

*CLE credit is available. Seyfarth has applied for CLE credit in IL, NY, and CA. If you would like us to pursue CLE credit in any additional states, please contact events@seyfarth.com. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

By Robert Milligan and Joshua Salinas

Representative Zoe Lofgren (D- CA) has been very active in the technology and innovation legislation space of late. Last week, Representative Lofgren and Senator Ron Wyden (D-OR) formally introduced companion bills, nicknamed “Aaron’s Law,” in the House and Senate seeking to amend the Computer Fraud and Abuse Act. Almost unnoticed was the fact that Representative Lofgren also introduced last week a potentially significant bill that would provide a private civil claim for trade secrets theft under the Economic Espionage Act (“EEA”).

Specifically, Representative Lofgren introduced H.R. 2466, which is titled “Private Right of Action Against Theft of Trade Secrets Act of 2013” (“PRATSA”). Similar to the PATSIA legislation that was proposed last year, PRATSA provides a private civil action for trade secrets theft by amending the EEA.

PRATSA is much for simpler than PATSIA, however, and adds only the following two subsections to 18 U.S.C. Section 1832:

‘(c) Any person who suffers injury by reason of a violation of this section may maintain a civil action against the violator to obtain appropriate compensatory damages and injunctive relief or other equitable relief. No action may be brought under this subsection unless such action is begun within 2 years of the date of the act complained of or the date of the discovery of the damage.

‘(d) For purposes of this section, the term ‘without authorization’ shall not mean independent derivation or working backwards from a lawfully obtained known product or service to divine the process which aided its development or manufacture.’

Section 1832 presently provides:

(a) Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended for use in interstate or foreign commerce, 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–

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.

(b) Any organization that commits any offense described in subsection (a) shall be fined not more than $5,000,000.

PRATSA has some key distinctions from PATSIA:

(1) it does not require a complaint describing in specificity reasonable secrecy measures or a declaration regarding the substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country;

(2) it does not provide for civil ex parte seizure orders;

(3) the statute of limitations is two years, not three;

(4) it provides for a more narrow civil claim by just providing a claim for a violation of Section 1832 rather than a violation of Section 1831 or a stand-alone misappropriation claim (e.g. a misappropriation of a trade secret that is related to or included in a product that is produced for or placed in interstate or foreign commerce); and

(5) it does not provide for a comprehensive list of remedies such as exemplary damages or attorneys’ fees.  

These deviations may help PRATSA where PATSIA struggled as some members of the legal community contested some of PATSIA’s provisions, including the definition of nationwide service of process and the scope and procedures regarding ex parte seizure orders.

It is important to recognize that by amending the EEA, PRATSA may inherently lead to conflicts with state trade secret laws. In particular, Section 1838 provides that the EEA “shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret….” Thus, a trade secret holder could potential bring claims under both their state’s respective trade secret laws and the EEA.

One benefit of PRATSA is that it attempts to resolve a deficiency under the current EEA. Specifically, PRATSA expressly exempts “reverse engineering” from violation of Section 1832. While the legislative history of the EEA suggests that traditional defenses available in a civil action for theft of trade secrets are equally applicable to a criminal violation, the EEA’s lack of specific language providing for a reverse engineering defense has troubled some commentators because the statute arguably implicates certain reverse engineering activities previously thought to be lawful. Regardless of its amendment for a private civil claim, PRATSA’s reverse engineering exemption will provide clarity to the existing statute.

Finally, one important implication of providing a private civil claim under the EEA is the extraterritoriality provision in Section 1837, which provides that the EEA also applies to conduct occurring outside the United States if the offender is a (a) citizen or permanent resident alien of U.S., or (b) organization organized under U.S. law. This may strengthen companies’ abilities to protect against trade secrets theft to or for foreign individuals, companies or governments provided either of these above requirements are satisified. In the criminal context, however, prosecutors have recently struggled in effectuating service of process over foreign companies under the Federal Criminal Rules of Procedure. Accordingly, additional modifications may be needed to this proposed legislation to ensure that it adequately addresses the threat posed to U.S. companies by foreign trade secret theft.

After a first reading of the proposed bill and recognizing it is likely a work in progress, we like PRATSA, particularly if it is modified to include Section 1831 claims in addition to Section 1832 claims (as well as possibly a stand-alone misappropriation claim), appropriate remedies (e.g. exemplary damages and attorneys’ fees), and it more adequately addresses trade secret theft by foreign actors. Its simple approach may contribute to its success. It left alone a lot of the hotly debated provisions from PATSIA upon which many legal commentators were unable to reach an agreement. Yet, PRATSA’s true value lies in its potential to provide a private civil claim for trade secret theft in federal court which may have certain advantages over state court, such as the ability to obtain discovery through the federal subpoena power and the potential to more adequately address trade secret theft by foreign individuals, companies, or governments.