Article by William S. Ramsey, P.C.

NEW FEDERAL CRIMINAL LAW AFFECTS EMPLOYERS AND EMPLOYEES

For the first time, federal law makes trade secret violations a criminal offense, with major effects on both employees and employers in high technology industries.

The Economic Espionage Act of 1996 (Act) provides for the imprisonment of persons up to 15 years and fines to corporations of up to $10 million for trade secret theft which benefits a foreign government. Only slightly less draconian terms of imprisonment of persons of up to 10 years and fines to corporations up to $5 million are involved for trade secret theft which provides economic benefit and which does not involve foreign entities.

The Act was passed after testimony to the growing problems of information theft which were not controllable by state trade secret laws. Such state laws, which remain in effect, are civil in nature. The state laws are of limited value when the trade secret thief is an individual with few assets or is a foreign corporation. In addition, the investigation necessary to support a civil suit under the state laws may be beyond the resources of small high technology companies who are often the victims of trade secret theft. In contrast, violations of the federal Act are investigated by the FBI and cases are prosecuted by the justice department, all at no cost to the victim.

The Report of the House of Representatives Committee responsible for the Act makes it clear that the federal law is not intended to interfere with changing jobs or starting new companies by ex-employees using general knowledge and skills developed while employed. The Act is intended to make criminal the improper use of knowledge about specific products or processes by ex-employees in order to compete with their prior employer.

The Act provides a broad definition of trade secrets. A trade secret is valuable financial, business, or scientific information that the owner takes reasonable measures to keep secret and that is not generally known nor readily ascertainable by the public. Trade secrets may be as mundane as customer lists or as exotic as the configuration of a chemical processing plant. The Act defines trade secrets more broadly than does the Maryland state Trade Secret law, which requires the valuable secret be not known, nor readily ascertainable by persons who can benefit by its use, a more expert group than "the public".

There will be some secrets which are trade secrets under the Act, but which do not qualify as trade secrets under Maryland state law. For the most part, however, the secrets involved will be trade secrets under both federal and state law. Prosecution under the federal criminal Act uses the "beyond a reasonable doubt" standard of proof. Criminal intent is an element of the offense, and the procedural protections of the accused in the Bill of Rights will apply.

Every successful criminal case almost certainly will be followed by a civil suit under the appropriate state law for money to repay the injured party. A civil suit uses the less rigorous "preponderance of the evidence" standard of proof. An accused person who loses a criminal case is likely to also lose a civil case which involves the same facts. The only exceptions to the follow-up civil suit will be cases in which the defendant(s) have no assets and are unable to pay damages.

The onus on complying with the Act is on both employees and employers, who must not steal trade secrets and must not profit from stolen trade secrets. The burden on creating conditions where the Act applies is on employers, who must take reasonable steps to protect trade secrets and must insure that employees know what facts they have learned are trade secrets which they are required to protect. Finally, employers must take steps to insure that new employees do not use trade secrets learned from previous employment.

By making trade secret infringement a crime, the federal government has introduced a drastic change into the workplace. There is little disgrace in losing a civil case - honest businessmen and businesswomen can disagree on the terms of agreements, the intent of the parties, the meaning of patent claims. Only money is involved. Being branded a criminal, or even being named in a criminal indictment, however, is a different thing. It carries a social stigma most people will avoid at all costs, to say nothing of the risk of fines and imprisonment. This is the real meaning of the Act, and the reason employees and employers must pay close attention to trade secrets.

William S. Ramsey 410-740-2225

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