Trends in Trade Secret Enforcement
By Lillian Tan ’12
Trade secret protection, normally left to the jurisdiction of states, has become a growing concern of the federal government. Over the last several months, the federal government’s prosecution of trade secrets theft under the Economic Espionage Act (“EEA) (18 U.S.C. §1831 et. seq.) spiked, and it has found other means of enforcement such as Computer Fraud and Abuse Act (“CFAA”) (18 U.S.C. §1030 et seq.) and even Section 337 of the Tariff Act of 1930 (19 U.S.C. §1337(a)(1)(A)).
In the last three years alone, U.S. Attorneys have used the EEA in a number of trade secrets theft cases. Two cases, United States v. Yang and United States v. Pu, were brought to the U.S. Attorneys’ attention by companies. This highlights the fact that companies are capitalizing on the EEA and cooperating with federal law enforcement to protect trade secrets. In Yang, a former senior software engineer for CME Group was indicted for misappropriating over 1,000 source code files from a secure computer system to his personal computer with the intent to use the source code as the backbone for his future company’s system. In Pu, a quantitative financial engineer for Citadel, LLC was arrested for misappropriating proprietary trading strategies that he planned to use to develop his own hedge fund in China. In October 2011, Congress proposed an amendment to §1836 of the EEA that would create a private right of action for companies for trade secret theft under §1832. If the amendment is passed, federal prosecution of trade secret theft under the EEA would become a more readily available option of enforcement for companies.
Additionally, two cases, United States v. Chung and United States v. Huang, were brought under the §1831 of the EEA, a provision that criminalizes misappropriation of trade secrets for the benefit of a foreign government. This section of the law has been rarely used since the EEA was enacted fifteen years ago. In Chung, a Boeing employee faced charges for stealing and distributing Boeing technical documents by hiding them between pages of Chinese newspapers that he left out for trash collection. And most recently, a defendant in Huang pled guilty to exporting $300 million worth of stolen trade secrets to China and Germany and was sentenced to seven years and three months in prison.
This series of EEA prosecutions invites speculation as to why there has been an uptick in enforcement against trade secret theft and why most defendants have been Chinese individuals. In October 2011, the Office of the National Counterintelligence Executive published a report to Congress that identifies the Chinese as being the “world’s most active and persistent perpetrators of economic espionage.” The report does not explicitly state that the rise of EEA prosecutions against Chinese individuals is correlated to reducing or countering a “pervasive threat” of economic espionage. However, the content of the report suggests that trade secret theft, or economic espionage, most likely has become a priority for U.S. Attorneys.
Likewise, U.S. Attorneys have also attended and monitored the civil litigation Oracle Corporation v. SAP AG in which Oracle alleged that that a SAP subsidiary downloaded and copied without authorization Oracle’s software. Following the jury’s $1.3 billion judgment against SAP, the U.S. Attorneys then charged SAP with eleven counts of unauthorized access to an Oracle computer in violation of the CFAA.
It is also important to note that criminal prosecution is not the only area where federal trade secret protection is expanding. In TianRui Group Company, Ltd. v. International Trade Commission, the Federal Circuit held that the United States International Trade Commission has the authority, pursuant to §337 of the Tariff Act of 1930, to ban importation of goods manufactured using “unfair methods of competition,” including misappropriation of trade secrets, where the importation could harm a domestic company.