18 U.S.C. § 1831 Element ThreeThe
a Trade Secret
The definition of the term "trade secret" in the EEA is very broad.
includes, generally, all types of information, however stored or maintained,
which the owner has taken reasonable measures to keep secret and which has
independent economic value. 18 U.S.C. § 1839 defines a "trade secret"
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
- the owner thereof has taken reasonable measures to keep such
information secret; and
- the information derives independent economic value, actual or
from not being generally known to, and not being readily ascertainable
proper means by, the public.
Unlike patents, which must be both novel and a step beyond "prior
trade secrets must be only "minimally novel." Kewanee Oil Co. v. Bicron
Corp., 416 U.S. 470, 476 (1974). In other words, a trade secret must
some element that is not known and sets it apart from what is generally
According to the legislative history of the EEA, "[w]hile we do not strictly
impose a novelty or inventiveness requirement in order for material to be
considered a trade secret, looking at the novelty or uniqueness of a piece
information or knowledge should inform courts in determining whether
is a matter of general knowledge, skill or experience." 142 Cong. Rec.
S12212 (daily ed. Oct. 2, 1996).
The legislative history makes clear that the definition of the term
trade secret does not include general knowledge, skill or abilities.
employees, for example, who change employers or start their own companies
be prosecuted based on an assertion that they were exposed to a trade secret
while employed, unless the government can establish that they stole or
misappropriated a particular trade secret. The legislative history makes
that "[t]he government can not prosecute an individual for taking advantage
the general knowledge and skills or experience that he or she obtains or
by during his tenure with a company. Allowing such prosecutions to go
and allowing the risk of such charges to be brought would unduly endanger
legitimate and desirable economic behavior." 142 Cong. Rec. S12201, 12213
ed., Oct. 2, 1996). This does not mean, however, that employees who leave a
company to start their own companies or work elsewhere can never be
under the EEA. Where the employees stole or without authorization
a trade secret from their employer, they may be prosecuted under the EEA,
assuming, of course, that the other elements can also be satisfied.
The sine qua non of information constituting a trade secret
that it is not publicly known. Whether the information was secret before it
obtained by the defendant is a question of fact. The government often has
difficult burden of proving a negative, i.e., that the information was not
generally available to the public. In this regard, prosecutors should make
that the information had not been publicly disclosed through, for example,
technical journals or other publications and should determine whether the
information was obvious to the victim's competitors in the industry. Often
information that a company regards as its proprietary "crown jewels" is
well-known in the industry and, therefore, not protected.
Every part of the information need not be completely confidential to
for protection as a trade secret. A trade secret can include a combination
elements that are in the public domain if the trade secret constituted a
"effective, successful and valuable integration of the public domain
Rivendell Forest Prods. Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042,
(10th Cir. 1994); see also Apollo Technologies v.
Indus., 805 F. Supp. 1157, 1197 (D.N.J. 1992).
Trade secrets are also fundamentally different from other forms of
property in that the owner of a trade secret must take reasonable measures
the circumstances to keep the information confidential. 18 U.S.C. §
1839(3)(A). This requirement, not imposed upon owners of other types of
property, is necessary to insure that a person cannot obtain a monopoly on
that are in the public domain.
The extent of the security measures taken by the owner of the trade
secret need not be absolute, but must be reasonable under the circumstances,
depending on the facts of the specific case. See e.g.,
Hi-Bred Int'l v. Holden Found Seeds, 35 F.3d 1226, 1235 (8th Cir. 1994);
Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 848-49
Cir. 1993). "Reasonable efforts" can include advising employees of the
of a trade secret, limiting access to the information to a "need to know
requiring employees to sign confidentiality agreements, MAI Sys. Corp. v.
Computer, 991 F.2d 511, 521 (9th Cir. 1993), and keeping secret
under lock. 1 Roger Milgrim, Milgrim on Trade Secrets, § 1.04
Each trade secret owner must assess the value of the protected
and the risk of its theft in devising reasonable security measures. Under
principle, prosecutors must be able to establish that the security measures
by the victim to protect the trade secret were commensurate with the value
trade secret. For example, prosecutors should determine the extent of the
security used to protect the trade secret, including physical security,
security, and the company's policies on sharing information with, for
sub-contractors and licensed vendors. If investigation reveals, for
that any low-level employee in a very large company could gain access to the
information, it might not qualify as a trade secret.
Courts have held that information may remain a trade secret even if
owner discloses the information to its licensees, vendors, or third parties
limited purposes. See, e.g., Rockwell Graphic Sys., Inc.
Industries, Inc., 925 F.2d 174 (7th Cir. 1991). The owner of the trade
secret must, however, take reasonable security measures when it does
information, such as requiring non-disclosure agreements. Further, a trade
secret can lose its protected status if it is disclosed, for example, either
through legal filings (such as by the issuance of a patent), or through
accidental or intentional disclosure by an employee at conferences, at trade
shows, or in writings. See e.g., Apollo Technologies v.
Centrosphere Indus., 805 F. Supp. 1157, 1198 (D.N.J. 1992). At least
court has held that information can lose its status as a trade secret
anonymous posting on the Internet, even for a very limited time.
Technology Ctr. v. Netcom On-Line Com., 923 F. Supp. 1231 (N.D. Cal.
Finally, the trade secret must derive "independent economic value .
. from not being generally known to . . . the public." 18 U.S.C. §
1839(3)(B). The value of the trade secret can be established by showing
trade secret fetched on the open market. For example, in United States
Bottone, 365 F.2d 389 (2d Cir.), cert. denied, 385 U.S. 974
the court held that the value of stolen chemical formulae could be based on
European drug manufacturers were willing to pay. Similarly, in United
Greenwald, 479 F.2d 320 (6th Cir.), cert. denied, 414 U.S. 854 (1973), the
Circuit held that the value of the misappropriated trade secret could be
established from the "viable, albeit limited" market among chemical
the type of formulae misappropriated and from licensing agreements or sales
the chemical formulae that were misappropriated. Id. at 322.
In those instances where the value of the trade secret cannot be
established through the use of a legitimate market, courts have approved the
of a "thieves" market as a proper means of valuing stolen goods or property
a variety of federal statutes. See, e.g., United States v. Stegora, 849
291, 292 (8th Cir. 1988) (18 U.S.C. § 2314); United States v. Drebin,
F.2d 1316, 1328 (9th Cir. 1977) (18 U.S.C. § 2314); Churder v. United
387 F.2d 825, 833 (8th Cir. 1968) (18 U.S.C. § 641); United States v.
Oberhardt, 887 F.2d 790, 793 (7th Cir. 1989) (18 U.S.C. § 641); United
v. Berkwitt, 619 F.2d 649, 657 (7th Cir. 1980) (18 U.S.C. § 2311).
In many situations involving the misappropriation of trade secrets,
however, monetary value is not easily established, either because the trade
secret is often stolen at the development stage or because the victim
chosen not to sell or license the technology. Consequently there is no true
market value, i.e., what a willing buyer would pay a willing seller in the
market. In such situations, federal courts generally have rejected a strict
market valuation approach and have found that "where the goods have no
ascertainable market value, 'any reasonable method may be employed to
equivalent monetary value. . . .'" United States v. Drebin, 557 F.2d 1316,
(9th Cir. 1972) (quoting United States v. Lester, 282 F.2d 750, 755 (3d Cir.
1960), cert. denied, 364 U.S. 937 (1961)); see also United States v.
265 F.2d 876, 880 (3d Cir. 1959). These methods include consideration of
development, research and production costs. See, e.g., United States v.
900 F.2d 1350, 1356 (9th Cir. 1990); United States v. Stegora, 849 F.2d 291,
(8th Cir. 1988). But see Abbott v. United States, 239 F.2d 310, 313 (5th
1956) (value for the purposes of 18 U.S.C. § 2314 includes only market
value).Although development, research and production costs may be relevant
value of the trade secret, prosecutors should be careful in relying
on this method of valuation. The true value of the information may be far
or far less than the cost of development and may depend on immeasurable
attributes, such as the originality or soundness of the underlying ideas.
[cited in Criminal Resource Manual 1132; USAM 9-59.100]