Trade Secret Theft

According to the Economic Espionage Act of 1996, a trade secret is any confidential plan, formula, pattern, program device, technique, code, or collection of information that, once released, could potentially benefit a business. It may be written down, memorized, stored electronically, or be in the form of a graphic. Examples include recipes for brand-new ice cream flavors, computer codes, plans for a new toy that has not yet been patented, and pictures for an unpublished children’s book. Trade secret theft differs from copyright, trademark, and patent infringement in that trade secrets are not registered with the government. Instead, the owner (or creator) of the trade secret simply keeps the information confidential until he is ready to reveal it to the public, at which point trade secret protection ends.

Protection of Trade Secrets

Some business owners have gone to extreme measures to protect their trade secrets. For instance, Coca-Cola keeps its secret soft drink recipe locked in a vault that can only be opened by the company’s board of directors, and it only reveals the ingredients to two employees at a time. But most businesses find that simpler methods of protection often suffice. Many stamp trade secret documents “confidential” and keep them in locked compartments after business hours, limit the number of people who know the secret, and use only secure computer systems to store information. However, a confidentiality agreement may be the best way to protect a trade secret. A legally binding contract, the agreement prohibits involved parties (such as company employees) from disclosing trade secret information to the public, third parties, or worse—the competition.

Examples of Trade Secret Theft

A former employee of The Smoothie Shoppe takes a job with a competitor and reveals the secret recipe for the Shoppe’s best-selling smoothie flavor to his new boss, who in turn begins marketing the flavor as his own.
A company executive purchases confidential codes that he knows have been stolen from a competitor.
An independent contractor for a company signs a confidentiality agreement but later sells the company’s secrets to a competitor.

If someone steals his trade secret, an owner can request an injunction—that is, a court order prohibiting further disclosure of the information. He may also seek financial reimbursement to cover any economic loss he might have suffered due to the theft. For example, the proprietor of The Smoothie Shoppe is entitled to royalties if his competitor sells smoothies in the top-secret flavor, but he must prove that his trade secret provided a competitive advantage and that the competitor acquired it illegally.

However, there is one case in which owners are not protected: if someone figures out the secret on his own, he is not violating a law and cannot be prosecuted. For example, if a man buys a can of paint, figures out its exact formula, and then sells a near carbon copy of that paint to the public, he is not committing trade secret theft because he did not acquire the formula illegally.

Prosecution of Trade Secret Violations

Under the Economic Espionage Act of 1996, intentional trade secret theft—including stealing, copying, and receiving secrets—is both a state and federal white collar crime. Convicted individuals face fines of up to $500,000 and ten years in jail, while corporations can be fined up to $5 million. In addition, all property and proceeds from the stolen secret can be seized and sold by the government.

Contact an Attorney

If you have been accused of violating trade secrets law, please contact our office to schedule a meeting with an attorney in your area to learn about your legal options.