Federal and State Laws Dealing with Trade Secrets

There are two basic legal schemes that now may indirectly impact the collection of any intelligence, one already in place when CI began to emerge and the other passed in 1996. ^[2] They are, respectively the Uniform Trade Secrets Act (UTSA) and the U.S. Economic Espionage Act of 1996 (EEA). They both may have an impact on the collection of data for use in developing CI for one, simple reason: they limit what those collecting any economic and competitive information can do vis-à-vis trade secrets.

It is critical to be aware of these laws because they apply to everyone in the U.S. marketplace and affect the way in which all must operate with respect to trade secrets. If you violate them, then you or your employer, or both, may face civil, or even criminal, liability. However, to trigger those legal protections, your competitor must be very careful in the ways in which it identifies, handles, and protects its trade secrets. It must be kept clearly in mind that, if you are not dealing with a trade secret, then these laws do not come into play.

At the state level there are two types of civil protections for trade secrets. Over forty states have already enacted laws, which are all variations of the UTSA (last revised in 1985). ^[3] In the remaining states, their common law (that is, judge-made law) also protects trade secrets. ^[4] And in these states, the common law generally utilizes the same principles set forth in the UTSA. ^[5] An additional level of protection is now provided by a federal criminal law, the EEA. ^[6]

State Civil Law: The Uniform Trade Secrets Act. Under state law, a business can bring a civil suit for damages that were caused by "misappropriation" of a "trade secret." Under UTSA, and similarly under the common law of states that have not adopted the UTSA, each of these concepts is carefully defined. First, under the UTSA, a trade secret is comprehensively defined. It is information of virtually any sort, including a formula, pattern compilation, program, device, method, or process that (1) derives economic value from not "being generally known to, and not being readily ascertainable by proper means by" other people or companies who could gain economic value from getting and using it and (2) is subject to "efforts that are reasonable under the circumstances to maintain its secrecy." It is critical to keep in mind that a trade secret must meet both these criteria to be covered by the UTSA. Thus, a firm that simply stamps every document "confidential" does not provide the documents with trade secret protection. The document must also contain something of economic value that meets the legal test described previously.

"Misappropriation" of a trade secret requires the existence of one of two critical steps: (1) somewhere along the line, the trade secret is acquired by someone who knows, or should know, that the trade secret was acquired by improper means; or (2) the person who gets the trade secret knows, or should know, that it was a trade secret and that it was acquired by accident or mistake.

That means, in short, a claim of misappropriation of a trade secret under state law arises only when both of two key events have happened:

1. Someone obtains, uses or discloses another person's trade secret.

2. The person against whom the claim of misappropriation is made:

   1. acquired the trade secret by improper means

   2. knew or should have known that somewhere along the line the trade secret was acquired by improper means

   3. knew or should have known that the trade secret was acquired by accident or mistake

   4. knew or should have known that somewhere along the line the trade secret was disclosed in violation of a confidentiality provision

Federal Criminal Law: The Economic Espionage Act of 1996. The EEA is very similar, in some ways, to the UTSA. ^[7] However, the two key differentiations to keep in mind are that EEA is a criminal law and that it operates at the federal level. That means that violators face jail sentences and/or fines. It also means the EEA applies in every state, whether or not the state has already adopted the UTSA.

Under the EEA, a trade secret is virtually any type of information, in any form, (1) whose owner has taken "reasonable measures to keep such information secret," and (2) that derives independent economic value "from not being generally known to, and not being readily ascertainable through proper means by, the public." This federal criminal law then goes on to penalize the theft and unauthorized duplication of a trade secret, as well as the receipt and transfer of a trade secret.

Following the passage of the act, the U.S. Department of Justice adopted written guidelines on how it views the EEA. ^[8] So far, there have been only a limited number of prosecutions under the EEA. ^[9] The typical case involves an ex-employee or current employee stealing trade secrets. So, to date, it has not been applied in any context dealing with competitive intelligence professionals or a company's CI program.

Misappropriation of Trade Secrets. While both of these laws appear to be quite sweeping, there are several important concepts embodied in both the UTSA and the EEA that actually mean that their impact on legitimate competitive intelligence collection activities is negligible:

• First, the information anyone is trying to protect with either the UTSA and EEA must be specifically identifiable. It is not enough to say, "Everything here is a trade secret." To protect information, someone must first identify it.

• Second, the information involved really must be a trade secret. One key to determining if this is the situation is to ask the following question: Has what you are seeking to protect been the subject of reasonable efforts to keep it secret? If the answer is no, it cannot be a trade secret. For example, if it is a document and "Confidential—Trade Secret" is stamped at the bottom of each page, you can be well on the way to protecting it under UTSA and EEA. On the other hand, if the same document is included in promotional materials being given to thousands of customers, it is not a trade secret, no matter how you stamp it.

• And third, under both the EEA and UTSA, is the information you think you are protecting as a trade secret "readily ascertainable by proper means?" That concept, found in both laws, means that the deduction or reconstruction by proper means of what may, in fact, be a trade secret is not a violation of either law. This is because deduction or reconstruction is not the same as misappropriation, and the act of misappropriation is also needed to trigger legal protections. ^[10]

All this means that trade secret protection can be lost through disclosures, whether accidental or purposeful, made in any of the following common contexts:

• Information is revealed in published literature, such as trade journal articles or interviews.

• Scholarly articles, containing information sought to be protected, are published by in-house scientists.

• Key data is disseminated to customers in the form of technical bulletins.

• A technical paper containing confidential information is delivered to a trade and professional group.

• Publication of "secret" matter occurs because it is readable in the background of photographs in an annual report.

• Performance data is partially revealed in advertising claims.

• Disclosures of company secrets are made by the company through course instructions to customers.

• Labels on products disclose presumed secret ingredients as well as the relative quantities of ingredients.

• Advertisements in newspapers and trade papers contain significant, previously undisclosed, product details.

• Important technical disclosures are made in the printed operating instructions provided to customers.

• Presumably secret products are displayed at a trade show, where they can be examined by attendees.

Remember that whenever anyone obtains small pieces of intelligence, each of which has been found properly, and then their analysts eventually build a picture of the target's critical intentions, including a trade secret (which it wants to keep secret), they have not broken any law. They have just engaged in good, solid CI collection and analysis. For example, the Japan External Trade Organization (JETRO) is regarded by federal intelligence agencies as "the most sophisticated commercial-intelligence-gathering body operated by a foreign government on US soil." However, the same sources concede that "JETRO ... is almost certainly complying with American law." ^[11]