The enactment of the Economic Espionage Act of 1996 [1] (“EEA”) was greeted with great fanfare as an unprecedented and broad federal attack on foreign and domestic trade secret misappropriation. Negligent, even inadvertent conversions of trade secrets seemed subject to criminal prosecution in the broad wake of the statute. The statute’s draconian criminal penalties for individual and corporate offenders alike, coupled with its license to the Government to seek protective orders, civil injunctive relief, and forfeiture, were viewed as the preferred remedy for the victim of trade secret misappropriation. Yet the plain language of the threshold elements of EEA offenses, and the statute’s restrained interpretation and application by the United States Department of Justice, reveal a statute more limited in prosecutorial scope, with its application bound by significant legal obstacles.

The EEA does not criminalize every theft of trade secrets. Traditional notions of what a protected trade secret is and when a theft is actionable may not apply to an EEA prosecution. Ultimately, the EEA is not a panacea for the victim of a trade secret misappropriation. A civil cause of action that seeks injunctive relief and economic compensation remains the preferred and, perhaps, the most effective method for a victim to achieve an expedited and comprehensive remedy.

Indeed, the single published opinion by a federal appellate court involving an EEA prosecution sends clear warning signals to American private industry of the perils of referring suspected trade secret misappropriation to the Department of Justice for criminal prosecution. [2] The commencement of a federal criminal prosecution under the EEA may compel the disclosure of formerly confidential proprietary information to the defendant and defense counsel as part of discovery in the criminal case; the very same corporate secrets that the victim corporation sought to protect by making its referral to the Government.

United States v. Hsu, which was decided by a panel of the Third Circuit during the summer of 1998, raises troubling issues that corporations and their counsel should carefully consider when weighing the decision of whether to disclose an incident of trade secret theft to the Government or, alternatively, to pursue private remedies under available civil statutes or common law theories. [3] These private remedies, however, may not give comfort to a corporate victim that its proprietary information will be insulated from discovery in civil litigation.

Yet the EEA is not a sword of Damocles to the unknowing or unwitting corporate beneficiary of a rogue employee’s unlawful conversion of a trade secret. The multiple and substantial intent requirements of the statute would preclude the imposition of corporate vicarious liability for the ultra vires conduct of such an employee. [4] Nevertheless, corporate and other business organizations should take affirmative steps to avoid any exposure under the EEA to the risk of Government investigation through the implementation and enforcement of comprehensive and well-documented trade secret protection programs.

 

Mark D. Seltzer, Angela A. Burns *