Skip to main content

Primary tabs

Criminal Resource Manual

1127. 18 U.S.C. § 1831 Element Three—The Information Was a Trade Secret

The definition of the term "trade secret" in the EEA is very broad. It 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" as:

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 if-
  1. the owner thereof has taken reasonable measures to keep such information secret; and
  2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.

Unlike patents, which must be both novel and a step beyond "prior art," 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 contain some element that is not known and sets it apart from what is generally known. 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 of information or knowledge should inform courts in determining whether something is a matter of general knowledge, skill or experience." 142 Cong. Rec. S12201, 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. Therefore, employees, for example, who change employers or start their own companies cannot 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 clear that "[t]he government can not prosecute an individual for taking advantage of the general knowledge and skills or experience that he or she obtains or comes by during his tenure with a company. Allowing such prosecutions to go forward and allowing the risk of such charges to be brought would unduly endanger legitimate and desirable economic behavior." 142 Cong. Rec. S12201, 12213 (daily 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 prosecuted under the EEA. Where the employees stole or without authorization appropriated 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 is that it is not publicly known. Whether the information was secret before it was obtained by the defendant is a question of fact. The government often has the difficult burden of proving a negative, i.e., that the information was not generally available to the public. In this regard, prosecutors should make sure 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 qualify for protection as a trade secret. A trade secret can include a combination of elements that are in the public domain if the trade secret constituted a unique, "effective, successful and valuable integration of the public domain elements." Rivendell Forest Prods. Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); see also Apollo Technologies v. Centrosphere 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 under 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 ideas 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., Pioneer 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 (10th Cir. 1993). "Reasonable efforts" can include advising employees of the existence of a trade secret, limiting access to the information to a "need to know basis," requiring employees to sign confidentiality agreements, MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 521 (9th Cir. 1993), and keeping secret documents under lock. 1 Roger Milgrim, Milgrim on Trade Secrets, § 1.04 at 1-126.

Each trade secret owner must assess the value of the protected material and the risk of its theft in devising reasonable security measures. Under this principle, prosecutors must be able to establish that the security measures used by the victim to protect the trade secret were commensurate with the value of the trade secret. For example, prosecutors should determine the extent of the security used to protect the trade secret, including physical security, computer security, and the company's policies on sharing information with, for example, sub-contractors and licensed vendors. If investigation reveals, for example, 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 the owner discloses the information to its licensees, vendors, or third parties for limited purposes. See, e.g., Rockwell Graphic Sys., Inc. v. DEV Industries, Inc., 925 F.2d 174 (7th Cir. 1991). The owner of the trade secret must, however, take reasonable security measures when it does disclose the 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 one court has held that information can lose its status as a trade secret through an anonymous posting on the Internet, even for a very limited time. Religious Technology Ctr. v. Netcom On-Line Com., 923 F. Supp. 1231 (N.D. Cal. 1995).

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 what the trade secret fetched on the open market. For example, in United States v. Bottone, 365 F.2d 389 (2d Cir.), cert. denied, 385 U.S. 974 (1966), the court held that the value of stolen chemical formulae could be based on what European drug manufacturers were willing to pay. Similarly, in United States v. Greenwald, 479 F.2d 320 (6th Cir.), cert. denied, 414 U.S. 854 (1973), the Sixth Circuit held that the value of the misappropriated trade secret could be established from the "viable, albeit limited" market among chemical companies for the type of formulae misappropriated and from licensing agreements or sales for 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 use of a "thieves" market as a proper means of valuing stolen goods or property under a variety of federal statutes. See, e.g., United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988) (18 U.S.C. § 2314); United States v. Drebin, 557 F.2d 1316, 1328 (9th Cir. 1977) (18 U.S.C. § 2314); Churder v. United States, 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 States 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 company has 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 open market. In such situations, federal courts generally have rejected a strict market valuation approach and have found that "where the goods have no readily ascertainable market value, 'any reasonable method may be employed to ascribe an equivalent monetary value. . . .'" United States v. Drebin, 557 F.2d 1316, 1331 (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. Seagraves, 265 F.2d 876, 880 (3d Cir. 1959). These methods include consideration of the development, research and production costs. See, e.g., United States v. Wilson, 900 F.2d 1350, 1356 (9th Cir. 1990); United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988). But see Abbott v. United States, 239 F.2d 310, 313 (5th Cir. 1956) (value for the purposes of 18 U.S.C. § 2314 includes only market value).Although development, research and production costs may be relevant to the value of the trade secret, prosecutors should be careful in relying exclusively on this method of valuation. The true value of the information may be far more 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]