§ 5.03 Analysis of the Act
| Jurisdiction | United States |
| Publication year | 2020 |
§ 5.03 Analysis of the Act
[1] Introduction
The structure of the EEA reflects its rather disparate origins and the confusion that surrounded major changes made in the last days of the 1996 Congressional session. The EEA contains a definition of trade secrets51 that is taken, with minor modifications, from the definition in the Uniform Trade Secrets Act (UTSA).52 At the same time, the two sections defining misappropriation53 are entirely original and have no parallels in existing trade secrets law. The first provision, codified at Title 18, Section 1831 of the United States Code, is directed towards foreign economic espionage and requires that the theft of the trade secret be done to benefit a foreign government, instrumentality, or agent.54 In contrast, the second provision makes criminal the more common commercial theft of trade secrets, regardless of who benefits.55 Finally, the remedial provisions are unique in their mix of civil and criminal penalties,56 and in their differential treatment of "domestic" and "foreign" misappropriation.
[2] Elements Common to Section 1831 and Section 1832
In general, Section 1831 punishes the theft or misappropriation of a trade secret when undertaken by anyone "intending or knowing that the offense will benefit any foreign government, foreign instrumentality or foreign agent."57 This was originally the heart of the EEA, and was designed to cope with the problem of foreign business espionage.58 In contrast, Section 1832 is a general criminal trade secrets statute. Despite its inclusion in the EEA, there is no requirement of foreign espionage in this provision. Rather, it applies to anyone in general, who knowingly engages in any misappropriation of a trade secret. While the two sections clearly are directed at different actors, they share a number of common elements. Under each section, the government must prove the following factors beyond a reasonable doubt: (1) the defendant stole or without authorization of the owner, obtained, destroyed, or conveyed information; (2) the defendant knew this information was proprietary; and (3) the information was in fact a trade secret.59
The elements for violations of Sections 1831(a)(3) and 1832(a)(3) are summarized in the following table, involving the unlawful possession, receipt or purchase of a trade secret.
| Section 1831(a)(3) | Section 1832(a)(3) |
| 1. The defendant intended or knew his actions would benefit a foreign government, foreign instrumentality, or foreign agent. | 1. The defendant intended to convert a trade secret to the economic benefit of anyone other than the owner. |
| Section 1831(a)(3) | Section 1832(a)(3) |
| 2. The defendant knowingly received, bought, or possessed a trade secret knowing the same to have been stolen or appropriated, obtained, or converted without authorization. | 2. The defendant knowingly received, bought, or possessed a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization. |
| 3. The item/information was, in fact, a trade secret. | 3. The item/information was, in fact, a trade secret. |
| N/A | 4. The defendant intended, or knew, the offense would injure the owner of the trade secret. |
| N/A | 5. The trade secret was related to or included in a product that is produced for or placed in interstate or foreign commerce. |
[a] Trade Secret
The sine qua non of an action under either Section 1831 or Section 1832 is the existence of a "trade secret." The EEA defines that term as follows:
"(3) the term 'trade secret' means all forms and types of financial, business, scientific, technical, economic or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—
"(A) the owner thereof has taken reasonable measures to keep such information secret; and
"(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascer-tainable through proper means by, another person who can obtain economic value from the disclosure or use of the information;60
Accordingly, the definition of a trade secret comprises three elements that the government must prove: (1) that the information is actually secret because it is neither known to, nor readily ascertainable by, the public; (2) that the owner took reasonable measures to maintain that secrecy; and (3) that independent economic value may be derived from that secrecy.61 Whether particular information is a trade secret is a question of fact.62 In most cases, the government will seek to establish one or more of these three elements through the testimony of an expert witness, and which testimony the defendant will seek to rebut.63
This definition, which was added late in the Congressional session,64 generally tracks the definition of trade secret in the USTA.65 However, there are some important differences between the language of the two statutes.66
First, the list of potential types of secrets is much more expansive in the EEA than in the USTA, though it has been narrowed since earlier versions of the statute. Because each of these subsections requires proof of a different element, at least one court has held that a defendant can be charged and convicted under each subsection.67 It is not clear why Congress chose to expand upon the representative list in the UTSA. However, this expansive definition means that materials that are not commonly recognizable as deserving of trade secret protection may form the basis for charges under the EEA. For example, the United States has charged two Japanese scientists with violating the EEA for allegedly passing trade secrets in the form of custom-made batches of human and animal cells to representatives of RIKEN, the Institute for Physical and Chemical Research in Japan.68
Unlike the EEA, state criminal trade secret statutes are frequently more limited in scope than their civil counterparts. For example, the California criminal trade secrets statute,69 until 1997, applied only to the theft of scientific or technical information.70 In comparison, the language of Section 1839 makes clear that the theft of business or financial information (including perhaps some types of insider trading)71 falls within the ambit of the EEA.
Indeed, the EEA specifically provides that the term trade secret
"means all forms of technical, business, scientific, technical, economic or engineering information, including patters, plans, compilations, program, devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing. . . ."72
In short, every type of information can qualify as a trade secret under the EEA as long as the other preconditions are met. Indeed, the statute's legislative history suggests giving a broad interpretation to the definition of a trade secret.73 The Ninth Circuit that while "the notion of a trade secret often conjures up magic formulas, like Coca Cola's proprietary formula, technical drawings or scientific data" and "it is no surprise that. . . . Technically complex cases have been brought under the EEA, . . . the scope of the EEA is not limited to these categories and the EEA, by its terms, includes financial and business information."74 In comparison the USTA identifies, by way of example, the following eight types of trade secret information: (1) formula; (2) pattern; (3) compilation; (4) program; (5) device; (6) method; (7) technique; and (8) process. Types of information that have qualified as a trade secret include the following:
(1) Advertising strategies, plans and techniques;75
(2) Business strategies and methods;76
(3) Combinations of generally known elements;77
(4) Compilations of information for disk storage devices and data modules;78
(5) Construction project information;79
(6) Cost information;80
(7) Customer lists and customer information;81
(8) Data;82
(9) Database;83
(10) Employee lists;84
(11) Engineering drawings and blueprints;85
(12) Manufacturing processes;86
(13) Negative Research;87
(14) Pricing information, including pricing concessions, volume rebates and rebate incentives;88
(15) Software;89
(16) Strategic plans;90
(17) Technical know-how and specifications;91
(18) Username and passcode for subscription-based website;92 and
(19) Public High School Exams.93
Information failing to qualify as trade secrets includes:
(1) Business forms and procedures;94
(2) Client names and addresses;95
(3) Course materials, training materials and instruction techniques;96
(4) Customer identity;97
(5) Customer lists known in the trade;98
(6) Distributor lists;99
(7) Functional features of devices;100
(8) Information for reverse engineering products;101
(9) Lecture material, including seminar manual;102
(10) Patented inventions;103 and
(11) Sales telemarketing scripts and pitch materials.104
Second the EEA expressly extends the definition of trade secrets to encompass information in any form, "whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing."105 The references to intangible information and the "whether or how" language strongly suggest that not only information stored in electronic form, but also information "stored" only in an individual's memory, can be the subject of prosecution for trade secrets theft. Thus, memorizing a trade secret is a means of misappropriating it under the EEA. This result is not too surprising—courts have periodically found defendants liable under civil statutes even though...
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