In April (2012) a decision by the U.S. 2d Circuit Court adversely impacted…a key element of the Economic Espionage Act (EEA) by reversing the criminal conviction of Sergei Aleynikov, a former Goldman Sachs programmer who had been caught, as they say, ‘red handed’ stealing and trading software code.
The court refused to apply the EEA to this case because the stolen trade secret(s) failed…in the Court’s judgment, to satisfy the EEA’s interstate or foreign commerce provision, thereby overturning an earlier jury verdict that found the defendant violated 18 U.S.C. § 1832(a) by stealing computer code from his employer, i.e., United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012).
In its reversal, the 2d Circuit reasoned that…‘the high speed trading code’ stolen by Alevnikov, from his employer (Goldman Sachs), was not a product (presumably, originally) designed for interstate or foreign commerce, which readers know, are requisites for EEA prosecutions.
In response to the 2d Circuit’s decision, Senator Patrick Leahy (Chair, Judiciary Committee) authored an amendment to the EEA…that slightly modified Section 1832(a). Leahy’s amendment brought, in my view, timely and futuristic clarity to the EEA by expanding its scope to protect all forms of ‘trade secrets’ which are related to a product or service that is used in interstate commerce. Leahy’s amendment duly repaired the, by now, aptly named ‘Sergei Alevnikov gap’.
Simply stated, the critical ‘word smithing’ in Senator Leahy’s amendment… now covers (trade) secrets related to a product or service that have come to be ‘used’, but may not have been originally-initially designed for interstate or foreign commerce. A genuine win!
An equally critical, but seldom acknowledged – fully understood underlier to Leahy’s amendment, in my view, is the…
- indisputable – irreversible economic fact – business reality that today 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, competitiveness, and sustainability lie in – evolve directly from intangible assets, ala intellectual, structural, and relationship capital, of which trade secrets are one category – type of intangible asset.
So, perhaps inadvertently, Leahy’s amendment did much more than merely close the so-called ‘sergei alevnikov’ gap…on December 28, 2012, President Obama signed the EEA amendment (SB 3642).
Admittedly however, for intangible asset strategists and risk specialists like myself, it may be a bit premature to engage in celebration, because…
- it’s quite conceivable a Constitutional challenge may be in the offing that contests Congress’s Commerce Clause authority to enact legislation that imposes criminal penalties, as Senator Leahy’s amendment does, and
- as most readers already know, earlier this year, PATSIA (Protecting American Trade Secrets and Innovation Act) was introduced in the U.S. Senate (SB 3389) which, if passed, would provide a civil right action for trade secret theft under the Economic Espionage Act.
Many colleagues, including myself, remain unclear…whether PATSIA would actually confer (significantly) more safeguards than the existing USTA (Uniform Trade Secrets Act) because both the USTA and PATSIA…
- define “misappropriation” in precisely the same way.
- define “trade secrets” broadly, and
- provide most of the same remedies, i.e.,
- injunctive relief,
- actual damages,
- damages due to unjust enrichment,
- exemplary damages in the event of a willful misappropriation, and
- attorney’s fees for claims brought or resisted in bad faith.
In spite of these similarities, PATSIA does actually differ somewhat from the UTSA in two ways…
- would be a useful addition to companies and institutions seeking to develop more convincing – probable special deterrents to the now global, aggressively predatorial, and increasingly sophisticated economic – competitive advantage adversaries who target – mount initiatives to misappropriate – infringe trade secrets, and
- it seems the amended EEA, along with PATSIA and USTA now (collectively) provide a substantial triad of potential judicial remedies, when, not if, theft of trade secrets occur.
Interestingly though, PATSIA, unlike the USTA, would authorize… federal courts to order (a.) the seizure, for up to 72 hours, of property related to – the product of misappropriated trade secrets, and (b.) provide for an expedited hearing to determine the seized property’s disposition.
This ‘asset seizure option’ would apply to...“any property (including computers) used or intended to be used, in any manner to commit – facilitate the commission – violation of trade secret theft.
Importantly, the ability (option) to seize misappropriated properties (asset products related to the misappropriated trade secret(s)…would allow victim companies-businesses to mitigate or possibly avoid some of the traditional frustrations of…
- merely seeking redress after the fact, or obtaining injunctive relief,
- which experience suggests there is uncertainty regarding its effectiveness.
Of course, another intent for addressing these distinctions and similarities here, i.e., between the EEA, USTA, and PATSIA) is, as many readers painfully know all too well…
- draw attention to conventional TRO’s (Temporary Restraining Orders) and
- TRO’s that allow for the immediate seizure of theft-related property-assets.
To be sure, when having to engage unscrupulousness, globally predatorial, and legacy free players on…intellectual property and proprietary intangible asset matters, regardless of the adversaries origins, sponsorship, or motives, a much strengthened – asset specific TRO may be an effective tool.
Ultimately, it appears companies – businesses victimized by trade secret misappropriation are going to have substantially enhanced and a wider range of remedies available…which hopefully will (a.) produce the correct deterrent effects, and (b.) create more viable avenues for effective resolutions to such claims.
In the interim, given these apparent positives in the persistent – asymmetric challenges of safeguarding proprietary intangible assets and intellectual properties…c-suites, boards, and management teams would find it…
- prudent to acquire more operational familiarity with their intangible assets.
- especially, given the high probability, their business is ‘intangible asset intensive and dependent’, and
- appreciate this well founded adage regarding trade secret theft, which is…
‘once an intangible asset is stolen or misappropriated, it will be challenging and certainly costly, to secure the return of these intangible assets, and seldom will the assets be ‘returnable’ fully intact, regardless, in most instances, the victim company can count on a long, slow, expensive, and resource demanding path to return itself to a state of economic and competitive advantage normalcy’!
So, the prudent takeaway is…devote resources to developing and executing superior intangible asset safeguards designed specifically to sustain control, use, ownership, and monitor asset value, materiality, and risk at the outset.
Otherwise…the value, revenue, competitive advantages, and building blocks for (company) growth, competitiveness and sustainability can quickly go to zero!
Readers Note: This post was inspired by a piece in ‘Sullivan’s Trade Secrets’ authored by Todd Sullivan of Graebe, Hanna & Sullivan.)
Michael D. Moberly [email protected] St. Louis (originally posted) January 4, 2013 the ‘Business Intangible Asset Blog’ since May 2006, 650+ posts, ‘where intangible assets, business, and effective solutions converge’.
I invite you to explore other relevant blog posts, video, books, and position papers at https://kpstrat.com/blog
