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Trade Secrets Disputes and Allegations of Trespass to Computer Systems

Companies increasingly face threats to their trade secrets and computer systems from individuals, employees, competitors, and foreign entities. These assets usually are critical to a company’s business model, and their theft or exposure could cause immediate irreparable damage. Therefore, both federal and state governments have passed comprehensive legislation regarding these assets to punish the theft of trade secrets and, to a lesser extent, the trespassing of computer systems.

Due to the intangible nature of these assets, employers can easily skew their definition in an attempt to accuse former employees of stealing or utilizing these possessions. Companies can use these claims to punish an employee for leaving the company, prohibit former employees from engaging in competitive behavior, and prohibit employees from engaging in new employment opportunities. Whatever the employer’s intent, the claims can be detrimental to an employee’s career and finances. Therefore, it’s essential to understand the legislation surrounding this field of law to protect yourself.

Trade Secrets Act of 1948

One piece of trade secret legislation is the Federal Trade Secrets Act of 1948, 18 U.S.C. § 1905. The Act explicitly targets federal employees and government contractors, forbidding them from making any unauthorized disclosure of confidential information.

The Act defines a trade secret as commercially valuable information that the owner goes to great lengths to keep confidential. This maintenance of confidentiality is defined as when an owner keeps information secret through confidentiality agreements, encryption, safes, etc. Additionally, the Act mentions some specific assets that can be trade secrets, such as:

  • original artistic and literary works, including but not limited to motion pictures, videos, books, art, photographs, music, and sound recordings;
  • symbols, names, colors, sounds, words, or phrases that distinguish commercially offered goods and services;
  • inventions of processes or machines that are new and inventive; and
  • confidential business information, including patents, trademarks, copyrights, and client information.

The Act also outlines some of the factors courts consider when determining a trade secret, such as:

  • the extent to which the information is known outside the company;
  • the extent to which employees know the information within the company;
  • the extent of the measures taken by the information’s owner to maintain its secrecy;
  • the value of the information to the company and its competitors;
  • the effort or cost expended by the company to obtain or acquire the information; and
  • the ease at which the information could be accessed appropriately or duplicated by others.

Under the Act, the trade secret information must meet certain ingenuity and originality standards to avoid extending protections to common knowledge. The Act extends the protection as long as the trade secret remains commercially valuable to the owner. However, this protection can be lost if the info becomes common knowledge, whether accidentally or intentionally.

The Act’s sanctions for offending federal employees include removal from office, termination of employment, a substantial fine, and imprisonment of up to one year. While the Act does not apply to state government or private sector employees, it has served as the basis for several pieces of state trade secret legislation.

Economic Espionage Act of 1996

The Economic Espionage Act (“EEA”), 18 U.S.C § 1831, was passed by Congress in 1996 to address the growing risks of trade secret theft and the breaching of computer systems by both foreign entities and competitive parties. Like the Trade Secrets Act, EEA actions must involve information that qualifies as a trade secret.

The EEA contains a theft of trade secret prohibition, which has a much more general application than the one found in the Trade Secrets Act. For example, offenses under18 U.S.C § 1831 include:

  • the obtainment of trade secrets via theft, concealment, appropriation, deception, or fraud;
  • the unauthorized copying, duplication, downloading, destruction, replication, or exposure of a trade secret;
  • the possession, purchase, or receipt of a trade secret that is known to be stolen, appropriated, or otherwise obtained without authorization; and
  • the engagement in a conspiracy with one or more individuals or entities to commit any offenses mentioned above.

The EEA specifies that if the misappropriation does not benefit a foreign entity, it must economically benefit a party other than the trade secret owner to be considered an offense. However, the EEA’s foreign economic espionage provision has a much broader application. Under this provision, offenses include non-economic benefits, such as reputational, tactical, or strategic benefits. This provision can be applied to breaches of computer systems so long as the owner can prove that it benefited a foreign entity in some way.

The EEA authorizes both substantial fines and imprisonment. In the case of economic espionage, the maximum penalties are a fine of up to five million dollars and imprisonment of up to fifteen years. However, in the case of corporations, the maximum penalty is ten million dollars or three times the value of the stolen information, whichever is greater.

In the case of trade secret theft, the maximum penalty is a fine of $250,000 for individuals or five million dollars for an organization. In addition to the fees mentioned above, trade secret theft can result in up to ten years imprisonment. The EEA also authorizes criminal or civil forfeiture of any property deemed to have been derived from an EEA offense.

Following the reporting of a suspected violation, the Economic Espionage Unit within the F.B.I. Counterintelligence Division has primary responsibility for investigating offenses under the EEA. The D.O.J. then has the power to prosecute cases involving corporate and state-sponsored trade secret theft. In addition, the Attorney General is authorized by the EEA to bring a civil action in federal court to obtain appropriate injunctive relief on behalf of the trade secret owner. However, the EEA does not provide a trade secret owner with the right to sue in federal court.

Defend Trade Secrets Act of 2016

The Defend Trade Secrets Act (“DTSA”), 18 U.S.C § 1836, was passed by Congress in 2016 to create a private cause of action in federal courts for trade secret misappropriation. The DTSA adds a “Private Civil Actions” subsection to the EEA’s civil actions to obtain injunctive relief. This subsection allows trade secret owners to bring a civil action against those they believe are misappropriating trade secrets.

The DTSA authorizes courts to issue civil ex parte orders in extraordinary conditions. These orders allow for the seizure of property to prohibit further propagation or dissemination of a specified trade secret. These orders are intended to ban people from fleeing the country or disclosing the secret to a third party. Under 18 U.S.C § 1836, the court is unable to issue a seizure order unless it finds that:

  • injunctive relief would be inadequate based on the defendant’s failure to comply;
  • immediate, irreparable damage will occur if the seizure is not ordered;
  • the party seeking the seizure order is likely to succeed in showing that the information is a trade secret;
  • that the party seeking the seizure order is likely to succeed in showing that the defendant misappropriated the trade secret via improper means;
  • the request for the seizure adequately describes what property should be seized and the location of said property;
  • the applicant’s harm outweighs the harm to the legitimate business interests of the defendant or any third parties; and
  • the information in question would be destroyed, moved, hidden, or otherwise disposed of if the defendant were given advance notice.

These orders may only authorize the narrowest seizure of property necessary to protect the trade secret and must include the date of a hearing regarding the seizure no later than seven days after its issuing. Courts must also require that the applicant seeking the order provide security. This security is equal to the amount the court determines is adequate to compensate for any damages sustained by any parties wrongfully enjoined or excessively punished by a seizure order.

The DTSA also allows courts to issue injunctive relief to stop trade secret misappropriation. Injunctions issued under the DTSA are slightly different from other injunctive relief but still must meet a set of guidelines issued by the court. In addition to the requirements outlined in Rule 65 of the Federal Rules of Civil Procedure, an injunction issued under the DTSA must:

  • contain proof of actual or threatened misappropriation of a trade secret;
  • not prevent an individual or entity from entering into new employment or business relationships or otherwise conflict with any applicable state laws prohibiting restraints on the practice of a lawful profession, trade, or business; and
  • base any conditions it imposes on factual evidence of misappropriation and not merely on suspicion of such behavior.

The DTSA also provides a cause of action for anyone who suffers injury because of a wrongfully pursued DTSA lawsuit. This provision allows the unnecessarily punished party to recover lost profits, the cost of materials damaged or seized, punitive damages, and reasonable attorney’s fees.

Here at Hoyer Law Group, PLLC, our employment attorneys can help defend you against any allegations of trade secret misappropriation or trespassing of computer systems before such allegations can inflict permanent, irreparable injury on you or your career. If you believe that you have been or are at risk of being wrongfully accused of said misappropriations, don’t hesitate to contact us online or call 888-943-1352.