The federal government continues to take aim at those who violate trade secrets rights. On December 28, 2012, the Theft of Trade Secrets Clarification Act of 2012 (S. 3642) became law, expanding the definition of trade secrets under the Economic Espionage Act (EEA). In addition, as previously reported in a Gibbons IP Law Alert blog, the President is expected to sign legislation recently passed by Congress that triples the damages for a violation of trade secrets protection laws and provides technical changes to patent applications and protections. Also worthy of note is an 82-page report from the U.S. Department of Justice issued last month detailing federal enforcement efforts concerning trade secrets theft.

Theft of Trade Secrets Clarification Act of 2012

The broadened definition of trade secrets as defined by the Theft of Trade Secrets Clarification Act of 2012 (“TTSCA”) makes clear that trade secrets protected by the EEA may be those merely “related to” a product or service used in or intended for use in interstate or foreign commerce, even if the trade secret itself is not used directly in such a product or service. In other words, protected trade secrets now encompass technical know-how that need not become part of a product or service. The TTSCA is Congress’ answer to a Second Circuit decision in United States v. Aleynikov on February 16, 2012, as previously reported in a Gibbons IP Law Alert blog. There, in reversing a jury verdict for the United States, the Court held that, although the defendant, a computer programmer, breached his confidentiality agreement with his employer, Goldman Sachs, when he misappropriated a proprietary computer code for the employer’s high-frequency trading system, he should have never faced criminal charges for his conduct under either the EEA or the National Stolen Property Act (“NSPA”). Specifically with regard to the EEA, the Court ruled that the defendant had not stolen trade secrets related to “a product made for the purposes of interstate or foreign commerce.” The Court similarly found that the defendant had not stolen a “good,” i.e.  tangible property, as defined by the NSPA. Critical to the Court’s ruling was that Goldman Sachs’ trading system supported by the stolen computer code was used internally and not in a product or service sold commercially. That the computer code was used by Goldman Sachs to generate trades in interstate and foreign commerce did not afford it protection under the EEA. As a result of the TTSCA, however, a theft such as the one that occurred in Aleynikov would violate the EEA.

Justice Department’s Summary of the Major U.S. Export Enforcement, Economic Espionage, Trade Secret and Embargo-Related Criminal Cases

The above-noted Justice Department report details the more significant and recent enforcement actions by Federal Government agencies against private individuals and companies. The report, called the “Summary of the Major U.S. Export Enforcement, Economic Espionage, Trade Secret and Embargo-Related Criminal Cases,” summarizes “cases resulted from investigations by the Department of Homeland Security’s U.S. Immigration and Customs Enforcement, the Federal Bureau of Investigation, the Department of Commerce’s Bureau of Industry and Security, the Pentagon’s Defense Criminal Investigative Service and other law enforcement agencies.” Many of these cases resulted in criminal penalties, probation and/or monetary fees. More of these cases are likely in light of the recent litigation.

It is clear that the issue of trade secrets protection has become a focal point of private and government-led enforcement actions. The Aleynikov case and the Justice Department’s report serve as reminders that trade secrets are fertile targets of misappropriation by employees and require protective measures. Although litigation can be a tool in the arsenal of an employer seeking to protect its intellectual assets from employee theft, employers also should consider preemptive measures, for example, a trade secrets protection plan. Such a plan may include identifying and defining trade secrets, instituting measures to maintain confidentiality by employees such as confidentiality and restrictive covenant agreements, evaluating computer use policies and creating restricted areas on computer systems, strengthening security measures, and requiring all trade partners, both suppliers and customers with access to confidential information, to sign confidentiality agreements. For answers to questions regarding trade secret protection, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.

Mitchell Boyarsky is a Director in the Gibbons Employment & Labor Law Department.