Call us today: 646-820-0224

Theft of Trade Secrets

Economic Espionage

Theft of trade secrets, also called economic espionage, is being used more and more by the United States and private companies, through reference to the U.S. Attorney’s office and in civil actions, to combat corporate espionage and the loss of valuable corporate information.  Trade secret crimes span the unauthorized taking of physical objects to proprietary algorithms and computer information.  The objective of the crime is to prevent U.S. companies from losing valuable innovation advances to other countries and to competitors domestically.  As enforcement increases, so does the risk to individuals who are subject to corporate policies prohibiting the storage or transfer of information to home computers, portable hard drives or other ways of accessing information outside company directives.

The white collar defense attorneys at The Henry Law Firm PLLC have represented individuals charged with theft of trade secrets in both the criminal and civil context. These cases are extremely complex, often involve huge amounts of information and are subject to difficult definitions and interpretations of what actually constitutes a trade secret. A theft of trade secret charge can carry severe jail sentences, result in deportation, loss of employment and include huge financial penalties. The penalties may be substantially increased if the trade secrets are stolen with the intent to benefit a foreign government. Theft of trade secrets is a very serious crime and may include charges related to the Computer Fraud and Abuse Act, aggravated identity theft and other federal crimes.

What is a Trade Secret

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—
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information

The definition provided by the statute is very broad and is dependent on a number of subjective determinations about whether “reasonable measures” have been taken to protect the information and whether that information has value related to its’ secrecy. As a practical matter this is an area ripe for litigation and can be the difference in conviction or acquittal. Ultimately the determinations in relation to certain trade secrets depends on the company’s valuation of the information, their policies and procedures in relation to secrecy of the information and the judgment of expert witnesses.

In attempting to further define a trade secret, comparison has been drawn to patents that require novel ideas that are a step beyond “prior art.” But, in the context of trade secrets the United States Supreme Court has said that trade secrets must be only “minimally novel.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974). A trade secret must involve information or ideas that are not known or that set it apart from what is generally known.

Congress, while debating the EEA said, “[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.” A person may not be prosecuted for using general knowledge and skills or experience that they obtain while working for a company, even if they start a competitor company, but may only be prosecuted if the government can show they stole or misappropriated a particular trade secret.

Criminal Acts

The theft of trade secrets is prohibited federally by the Economic Espionage Act (“EEA”) which is found at 18 U.S.C. 1831 through 1839. 47 U.S. states and several U.S. territories have also enacted the Uniform Trade Secrets Act consistent with Article 39 of the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”) and Article 2 of the Japanese Unfair Competition Prevention Act. The EEA contains two separate provisions that criminalize the theft or misappropriation of trade secrets. The first provision, codified at 18 U.S.C. 1831, is directed towards foreign economic espionage and requires that the theft of the trade secret be done to benefit a foreign government, instrumentality or agent. The second provision makes criminal the more common commercial theft of trade secrets, regardless of who benefits. 18 U.S.C. 1832.

For the government to bring an action under 18 U.S.C. 1831, approval should be obtained from the Assistant Attorney General for the National Security Division, through the Counterintelligence and Export Control Section. While that mandate does not apply to actions brought under 18 U.S.C. 1832 prosecutors are strongly encouraged to consult with the Computer Crime and Intellectual Property Section prior to filing criminal charges.  In other words, bringing a charge under either statute is a serious decision made at the highest levels of the Department of Justice.

18 U.S.C. 1831

A violation of 18 U.S.C. 1831 requires that the government prove the following elements:

(1) the defendant stole or, without authorization of the owner, obtained, destroyed or conveyed information; (2) the defendant knew this information was proprietary; (3) the information was in fact a trade secret; and (4) the defendant knew the offense would benefit or was intended to benefit a foreign government, foreign instrumentality, or foreign agent.

While commonly called “theft” of trade secrets, the EEA does not require the actual theft or taking away of information or a tangible object. It is enough to violate the statute if a person copies, duplicates, sketches, draws, photographs, replicates, transmits, delivers, sends, mails, communicates, or conveys the trade secret without authorization. Legislative history describes authorization as, “the permission, approval, consent or sanction of the owner” to obtain, destroy or convey the trade secret. It is important to note that while an employee or other individual may have authority to access or obtain a trade secret, they may be prohibited from conveying or duplicating the information.

In order for the government to prove a violation of the EEA, it must show that the person charged “knew or had a firm belief that the information he or she was taking was proprietary” and that they “knew that the object [they] stole was property that [they] had no lawful right to convert to [their] personal use.” A person who takes a trade secret because of ignorance, mistake or accident cannot be prosecuted.  However, many companies go to great lengths to protect their information by marking it “proprietary”, instituting security controls and having employees read policies and procedures and sign confidentiality agreements.

The ultimate question of what constitutes a trade secret is that the information, idea, object, program, formula or other item is actually a secret. It is the government’s burden to prove that a person stole or misappropriated a trade secret, and it is a question of fact for a jury to decide. The information cannot be known and may not have been disclosed in technical journals or in other ways.

What sets 18 U.S.C. 1831 apart from 1832 is the intent element requiring the actor to have known the offense would benefit “foreign government, foreign instrumentality, or foreign agent.”

“[B]enefit” is a question that must be interpreted broadly and is not limited to an economic benefit, but includes a “reputational, strategic, or tactical benefit.”

“Foreign instrumentality” means:

any agency, bureau, component, institution, association, or any legal, commercial, or business organization, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government. 18 U.S.C. § 1839(2).

“Foreign agent” means:

any officer, employee, proxy, servant, delegate, or representative of a foreign government. 18 U.S.C. § 1839(1).

However, a person can violate this provision through a foreign entity when this “entity” is not, per se, a government entity (i.e. private company) if it can be proven that there is foreign government sponsorship or “coordinated intelligence activity.”

The punishment under 18 U.S.C. 1831 is more harsh than under 1832.  A violation of 1831 carries a fine of not more than $5,000,000 or imprisonment not more than 15 years, or both.  If a company or organization is charged and convicted it “shall be fined not more than the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”

18 U.S.C. 1832

18 U.S.C. 1832 says that a person has violated the EEA if the government can prove the following elements:

(1) the defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information; (2) the defendant knew this information was proprietary; (3) the information was in fact a trade secret; (4) the defendant intended to convert the trade secret to the economic benefit of anyone other than the owner; (5) the defendant knew or intended that the owner of the trade secret would be injured; and (6) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.

The first three elements are identical to 18 U.S.C. 1831. However, the addition of elements four through six create a different set of issues when evaluating domestic and other trade secret issues. A person who intends to benefit a foreign company that is not considered a government agent or instrumentality may be properly prosecuted under this section.

In order to violate the statute a person must intend that the theft or misappropriation of the trade secret benefit someone other than the rightful owner.  That benefit must be economic and cannot be some intangible or unquantifiable benefit.  Additionally, a person to steals of misappropriates a trade secret without intend for anyone else to gain economically does not violate the statute.

In addition, the government must also prove that not only did the person intend to benefit another economically, they must have intended to “injure” the owner the trade secret.  The government does not have to prove specific malicious intent necessarily, just some practical certainty that a harm of some kind would come to the rightful owner.

The finally element requires that the government prove that the trade secret was “related to or included in a product that is produced for or placed in interstate or foreign commerce.” The easiest way to prove this elements is when a product that is being sold in states other the the state of production. This elements becomes more complicated; however, when the trade secret is an idea, is still in development, or is otherwise intangible.

Defenses

It is a defense a defense to a theft of trade secret charge if you have reverse engineered the trade secret. The Supreme Court made clear in Kewanee Oil Co., 416 U.S. at 476, that the law does not protect the owner of a trade secret from “discovery by fair and honest means, such as independent invention, accidental disclosure, or by so-called reverse engineering.” Parallel development of a product or idea is also not a theft of trade secret violation.

Forfeiture

A person convicted under the EEA is subject to mandatory forfeiture of any proceeds or property derived from violation. The court has no discretion in this circumstance and must order forfeiture. However, the court may, but does not have to order forfeiture of any property used to commit or to facilitate the commission of the crime.

Civil Enforcement

Many companies who have discovered a theft of trade secrets take two steps. First, the company will investigate and file a civil action. Second, the company will refer the violation to the U.S. Attorney’s office for possible prosecution. As part of the civil action, the company will seek an injunction that prevents further disclosure of items or information that have been stolen or misappropriated. In most instances, the civil action will be held in abeyance while the criminal action proceeds. Ultimately, the company is entitled to recover money value of the damage caused either in the civil case or through restitution in the criminal context, but not both.

Before a company decides to file an action or refer the case to the U.S. Attorney, they must consider the confidentiality of the trade secret. Congress has addressed that concern in Section 1835 which provides that the court “shall enter such orders and take such action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws.” Additionally, courts may limit or close potions of a trial and presentation of evidence without violating a person’s 6th Amendment right to a public trial in some instances. The Second Circuit specifically held:

[B]ased on a compelling claim, a district court may partially limit the public’s access if the court determines that (1) a party is likely to suffer irreparable injury if access to the proceedings is not limited, and (2) protection of the party’s secrets can be achieved “with minimal disruption of the criminal proceedings.” Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974).

Conduct Outside the U.S.

18 U.S.C. 1837 made clear that the EEA extends to conduct that occurs outside the United States.  This concept of extraterritoriality is generally prohibited unless specifically addressed within the statute.  Here, Congress clearly intended to extend its reach beyond U.S. borders, but two things must be considered:

(1) the offender is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States. 18 U.S.C. § 1837.

How Can We Help

Economic espionage is a serious matter. Trade secrets are highly prized and valuable items, and the government has a vested interest in keeping them safe. As a result, the government prosecutes these cases aggressively from the outset.  The white collar criminal defense attorneys at The Henry Law Firm PLLC have handled theft of trade secret cases and have successfully argued for reduced charges and significantly reduced penalties. We understand the inner workings of corporations, the steps they take to protect trade secrets and have access to a network of experts who can evaluate whether an item is a trade secret and its value. If you have been contacted about or charged with a theft of trade secrets case, call immediately at 646-820-0224. Early intervention is extremely important. Let the innovative federal criminal defense attorneys at The Henry Law Firm PLLC provide you with the defense you deserve.

What to Do If You Are Facing a Money Laundering Investigation

According to experts, around $5 trillion is money laundered around the world each year, and law enforcement authorities recover only a small fraction of that money. But, in spite of this gap – and quite possibly because of it – U.S. law enforcement authorities take an extremely hard line in pursuing the money laundering investigations that do end up on their radar, and it is often tertiary and unsuspecting individuals and entities that find themselves in the crosshairs of a money laundering investigation. While we might think of large banks and other financial institutions when we think of money laundering, it is common for business partners, service providers, art and antique dealers, auction houses, trustees, directors and board members, and all types of financial service providers to get caught up in a money laundering investigation. It is certainly frightening to get a visit, call, or other inquiry from a federal agent or agency – or even to hear rumors of those close to you being approached – but what you do next can have enormous implications for your future.

Understand That Criminal Liability Can Exist Even If You Were “Ignorant”

Again, federal law enforcement takes a very aggressive approach to policing money laundering, and they do this for a number of reasons. One is that it is often more feasible for law enforcement to collect evidence of financial crimes than the crimes that produced the money being laundered, such as international trafficking. Law enforcement can also approach those who may played a secondary and/or unwitting role in the money laundering and use methods to intimidate them and their businesses that might lead them to the persons committing the crimes from which the money profits flowed.

Unlike with many other criminal laws, prosecutors do not have to show that a person willfully (in other words, intentionally) violated federal laws on money laundering in order to secure a conviction. Using the concept of “willful blindness,” prosecutors can successfully argue that a person is guilty of money laundering when he makes efforts to conceal the profits of criminal activity even if he did not know the money was the product of illegal activity but had strong reason to suspect it was. For example, an art dealer facilitating transactions on behalf of a wealthy drug dealer to conceal profits might be charged with money laundering if it can be shown there was a reason to suspect the nature of the funds.

Furthermore, anyone who merely encourages or assists such a transaction (e.g. service providers) could potentially be liable even if he or she was not a primary party to the transaction.

Do Not Wait to Speak With a Criminal Defense Attorney

Does this mean every person connected with a transaction involving money derived from illegal activity is criminally liable? Absolutely not, but it does mean that prosecutors can find a way to pin criminal liability on persons in ways they may well not have imagined. Thus, it is a mistake to speak with law enforcement – or any other non-attorney for that matter (any conversation you have not protected by a privilege may be used against you) – without an attorney under the impression that you have nothing to worry about.

By speaking with a criminal defense attorney experienced in federal investigations at the first sign of a money laundering investigation, you can take steps to determine what your potential criminal liability might be (which may be none, but better to find that out in a confidential consultation with an attorney who represents only your interests), and work with that attorney in communicating with law enforcement to reach your best possible outcome, which can include a dropped investigation or favorable agreement.

Contact a New York Defense Attorney Today

The Henry Law Firm PLLC provides criminal defense to individuals and businesses throughout New York in all state and federal investigations and prosecutions. If you believe you may be under investigation for money laundering, do not hesitate to contact us today to schedule a confidential consultation regarding your matter.  

FAQ: Tax Fraud Penalties

Can I be charged with a crime if my taxes are done incorrectly?

Yes. Not only can the IRS can hand down civil penalties for improperly doing your taxes, federal prosecutors can charge you with a tax-related crime if you fail to file a tax return, provide false or fraudulent statements to the IRS, or willfully evade paying your full share of taxes.

What are the criminal penalties for failing to file a tax return?

You face up to one year in prison and up to $100,000 in fines (or up to $200,000 in the case of a corporation). These penalties also apply when a taxpayer fails to pay taxes on time or fails to supply information to the IRS.

What are the criminal penalties for making fraudulent or false statements to the IRS?

You face up to three years in prison and up to $250,000 in fines (or up to $500,000 in the case of a corporation). Making fraudulent or false statements can apply to statements made in your tax return or to government officials.

What are the criminal penalties for tax evasion?

You face up to five years in prison and up to $250,000 in fines (or up to $500,000 in the case of a corporation).

What is the difference between tax evasion and tax avoidance?

Tax avoidance is the legal process of taking advantage of strategies allowable by the tax code to reduce your taxes. Tax avoidance is therefore legal. Tax evasion is using strategies not allowed by the tax code to reduce or eliminate the taxes you pay. Tax evasion is illegal.

What are common methods of tax evasion that can result in criminal penalties?

  • Failing to report income from a side job
  • Failing to report income from rentals
  • Failing to report income paid in cash
  • Overstating deductions that do not exist, such as charitable donations not actually made

What if a person makes a mistake on their tax returns?

If you negligently make a mistake, then you still may owe civil penalties, but the government cannot convict you of a crime unless it was willful on your part. The standard of proof in showing willfulness is guilt beyond a reasonable doubt.

Can I be charged with a crime for assisting another person or entity in tax fraud?

Yes, as with most crimes, you can be charged with a tax-related crime as an accomplice if you assisted and/or encouraged another person to commit tax fraud.

Contact a New York Criminal Defense Attorney Today

The Henry Law Firm PLLC provides criminal defense to individuals and businesses throughout New York. Contact us today to schedule a confidential consultation regarding your matter.  

Do I Need My Own Lawyer in an SEC Investigation?

If your employer is being investigated by the SEC, then you likely have some questions about the SEC investigation process but may not feel comfortable asking them of your supervisor or co-workers. This is understandable, as an SEC investigation can mean significant civil penalties such as fines, permanent career and reputational damage, or loss of a job. One of the most common questions employees of a company under SEC investigation ask is whether they need their own lawyer, and they often trip themselves up by asking the wrong people to answer that question.

Your Company’s Attorneys Cannot Tell Whether You Need a Lawyer

When an employee learns that an SEC investigation is occurring, it is common for the employee to ask the HR director, the General Counsel, or even an outside law firm representing the company whether the employee needs his or her own lawyer. First, it is critical to understand that all of those people are there to serve the interests of the company, not you the employee.  Thus, it is not their job to be concerned with whether you would be better off from a legal perspective by having your own attorney.

In addition, they might not have any idea what your role in potential SEC violations were and thus whether it would serve your interests to have your own attorney or not. If company attorneys are speaking with you about events related to a potential SEC investigation (also note that the company attorneys are likely not under any obligation to tell you whether an investigation is indeed occurring or not), there is a good chance they know less than you do about potential violations at that point and are indeed speaking with you to gather that information, thus making them even less likely to be able to answer that question accurately.

The Company Attorneys Represent the Company, Not You

Beyond the issue of presenting the question of whether you need your own attorney to company lawyers, regardless of what they might say to you, the fact of the matter is that those attorneys represent the company and not you. Simply put, their allegiance and duties are directed towards representing the company’s interests, and that will always be their overriding mission.

Does this mean they are out to get you and will ultimately throw you under the proverbial bus in an SEC investigation? Not necessarily, and the company (and by extension, its attorneys) may have a strong interest in defending, so long as your interests are aligned with those of the company.

But, when push comes to shove, it is the case that they are not there to defend your interests and formulate legal strategies to protect your reputation, career, and future. In many cases, companies under SEC or other federal investigation can curry favor with law enforcement by showing that they are taking a hard line against employees in the company who have violated laws, and so penalizing and/or terminating an employee can be an action a company takes on the advice of its attorneys to reach a favorable outcome with the SEC. And this outcome may be reached on the basis of information you as the soon-to-be terminated employee provide to the company and its attorneys under the mistaken impression that doing so would help your interests.

Contact a New York White Collar Defense Attorney Today

Thus, if you have reason to suspect you face negative consequences in an SEC investigation of your employer, it is wise to reach out to your own white collar investigations attorney to discuss your options in a confidential setting. The Henry Law Firm PLLC provides white collar defense in SEC investigations to individuals and businesses throughout New York. Contact us today to schedule a confidential consultation regarding your matter.  

Other Practice Areas

White Collar Defense and Regulatory Enforcement

We defend public officials, executives, board members, securities brokers, traders, law enforcement personnel, and employees facing criminal charges, internal investigations and regulatory enforcement actions.

learn more

Criminal Appeals

Our attorneys have successfully appealed to The United States Supreme Court and other federal appellate courts throughout the country.

learn more

Federal Criminal Defense

We represent individuals who have been charged with or are being investigated for a full range of federal crimes nationwide.

learn more

Contact Us

address

535 Fifth Avenue

Suite 2520

New York, NY, 10017

social channels

  • twitter-icon
  • in-icon
  • in-icon

ATTORNEY ADVERTISING.

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Prior results do not guarantee future outcomes.