The Economic Espionage Act of 1996: an Experiment in Unintended Consequences?

• Publication year: 1997
• Pages: 47

26 Colo.Law. 47 Colorado Lawyer 1997.

1997, December, Pg. 47. The Economic Espionage Act of 1996: An Experiment in Unintended Consequences?

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47

Vol.26, No. 11, Pg.47

The Colorado Lawyer
December 1997
Vol. 26, No. 12 [Page 47]

Specialty Law Columns
Technology Law and Policy Review
The Economic Espionage Act of 1996: An Experiment in Unintended Consequences?
by Leslie G. Berkowitz
C1997 The Berkowitz Firm, P.C. All Rights Reserved

Column Ed.: Letty Friesen of Ireland, Stapleton, Pryor &amp Pascoe, P.C., Denver - (303) 623-2700

This column is prepared by the CBA Technology and Law Forum Committee. This month's article was written by Leslie G Berkowitz of The Berkowitz Firm, P.C. in Denver, (303) 832-8520

It is not often that a lawyer gets to write about spies and intrigue. In fact, it might seem that a law as expansive as the Economic Espionage Act of 1996 ("EEA")1 is typical of government overkill for a problem that is much more serious in the movies than in reality. Recent revelations and statistical analysis indicate that this is not the case.

Rise of Economic Espionage

Economic espionage is on the rise. A survey released in 1996 by the American Society for Industrial Security showed a 323 percent increase in incidents from 1992 to 1995.2 These incidents are occurring on both a national and international scale. The FBI reports that twenty-three foreign governments are systematically stealing intellectual assets from U.S. corporations.3 As an example, "American business executives were stunned in 1991 when the former chief of the French intelligence service revealed that his agency had routinely spied on U.S. executives traveling abroad . . . [confessing] that his agency regularly bugged first-class seats on Air France so as to pick up conversations by traveling execs, then [entering] their hotel rooms to rummage through attaché cases."4

Likewise, in 1996, FBI statistics clearly demonstrated a sharp increase in economic espionage when they reported that pending probes of thefts by foreign companies for governments doubled from the 1994 figure to 800.5 The Cold War might be dead, but the shift in emphasis to markets instead of ideology has continued to keep spies employed. The difference is that these spies have changed their targets.

As the United States shifts from an economy based on manufacturing of tangible goods to an economy based on information, there is a shift in the economic impact of crime to theft of intellectual property. According to Fortune magazine, the FBI has stated that $24 billion a year in proprietary information was being stolen.6 The victims of this theft include major companies such as GM, Hughes, and Lockheed-Martin.7 High-tech spy paraphernalia, previously thought only to be in the machinations of "Q" in the James Bond thrillers, is now readily available to individuals and companies of all sizes. Thus, stealing of secrets, big and small, is easier.

When confronted with the increase in such espionage, Congress leaped into action. The question is whether it was the right action.

Previous Legal Scheme
Of Protection

Prior to almost universal adoption of the Uniform Trade Secrets Act ("UTSA"),8 states relied primarily on common law remedies for theft of trade secrets. The Restatement Second of Torts defined trade secrets as:

any formula, pattern, device, or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.9

The U.S. Supreme Court in Kewanee Oil Co. v. Bicron Corp.10 settled the issue of whether federal patent loss preempted state trade secret law by holding that both can co-exist. Subsequently, the American Bar Association ("ABA") recommended state adoption of the UTSA. The focus of the UTSA is primarily technical information, although the courts have expanded its application to include nontechnical data, such as customer lists.11

The Colorado definition is even broader than the UTSA's. It states:

"Trade Secret" means the whole or any portion or phase of any scientific or technical information, design process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or...