Economic Espionage Age: U.S. Appeals Court Ruling on Proof Favors Corporations

Trade secret experts say the U.S. Court of Appeals for the Seventh Circuit’s ruling in U.S. v. Jin (2013 U.S. App. LEXIS 19767) is a good one for corporate victims of trade secret theft and underscores what a powerful tool the Economic Espionage Act (EEA) is in fighting misappropriation of vital company information. 

Crowell & Moring attorneys Stephen M. Byers and Mark A. Klapow distilled the broad scope message of the ruling into three bullet points:

•  The element requiring proof of intent to benefit someone other than the trade secret owner can be met even absent proof of intent to pass on stolen materials
• Proof of potential injury to the owner of the trade secret can be based on factors other than traditional competitive harm
• The “independent economic value” prong of the definition of a trade secret can be satisfied even where the value of the information cannot be “monetized”

The defendant in the case, Hanjuan Jin, a Motorola software engineer, was charged with criminal trade secrets theft under the EEA.  While on leave in China, Jin sought a position with a telecommunications company that supplies the Chinese military.  Jin came back to the U.S., bought a one-way ticket back to China, downloaded Motorola documents relating to the iDEN cellular telecommunications system and headed for O’Hare International Airport with a substantial amount of cash. She was caught, convicted and sentenced to four years in prison.

“The Seventh Circuit was not persuaded by Jin’s argument that she had no intent to confer an economic benefit because there was no proof that she had any intention of showing the documents to anyone else,” the Crowell & Moring attorneys explained.  The court said it was adequate that Jin intended to study the documents, making herself a “walking repository” so she could convey an economic benefit to herself by enhancing her career opportunities in China, the attorneys explained.

“This ruling illustrates that an intent to pass on documents or data containing trade secrets is not necessary to prove a violation of the EEA. Rather, it would appear that the mere intent to convey or use knowledge in an employee’s head for her own or another’s benefit can satisfy this element of the statute,” wrote the Crowell & Moring attorneys.

Intent to Harm, or Not

Jin argued that she didn’t mean to hurt Motorola.  The Seventh Circuit was not persuaded.  “This facet of the court’s opinion is interesting because it did not rely solely on the traditional concept of competitive harm—that a Chinese company could duplicate iDEN technology and lure away Motorola customers with a cheaper alternative. The court also cited the potential for other misuse of the technology that could cause harm to Motorola due to the danger that the Chinese government or others could hack into iDEN networks. That would cause injury, said the court, in the form of having to warn customers that the privacy of their communications could be compromised and taking countermeasures to secure iDEN networks.”  The court also noted all of Motorola’s efforts to protect the information for fear of adverse consequences if it got out.

Apparently the iDEN technology is considered obsolete, a point Jin said meant it lacked economic value.  Again, the Seventh Circuit was not moved.  “The court emphasized that only ‘potential’ and not ‘actual’ economic value need be shown, and that economic value can come in many forms even if the value ‘couldn’t be monetized.’”

“United States v. Jin is a reminder that the EEA remains a powerful tool for corporate victims of trade secret theft, even where proof of critical elements may at first blush seem to be lacking.  [R]eferral to law enforcement is always worth considering because the prospect of prison time is a powerful deterrent to those current or former employees who may be tempted to misuse company secrets, and a criminal prosecution provides potential tools and remedies that are unavailable in the civil context,” wrote Byers and Klapow.

Kenneth J. Vanko of Clingen Callow & McLean, in a recent blog post cited the importance of U.S. v. Jin in his 2013 round-up of key developments, but referred readers to the Sixth Circuit decision in U.S. v. Roberts which reversed the sentences of two men under the EEA because the victim of the theft, Goodyear Tire, could not adequately describe the economic loss it suffered.  The court did confirm the defendants’ convictions for misappropriation, however, Vanko noted.

“The [U.S. v. Roberts] case is significant, in my mind, for three reasons,” Vanko wrote. “First, Judge [Jeffrey S.] Sutton’s analysis affirming the EEA convictions gives a nice summary of security measures that companies often undertake when dealing with vendors who have access to confidential information. Second, the case itself (apart from the issues on appeal) demonstrates the increasing specter of criminal liability in cases of trade secrets theft—particularly when the theft is intended to benefit companies outside the United States. And third, the decision shows that district courts have wide latitude, and an independent obligation, to assess a victim’s economic loss even if the victim itself presents an estimate that might not be admissible under the rules of evidence.”

---

Byers and Klapow are both partners in the Washington, D.C. office of Crowell & Moring.  Byers' practice focuses on matters involving antitrust conspiracies, foreign bribery, trade secrets theft, computer crimes and cybersecurity, and procurement fraud. He has extensive experience with the Foreign Corrupt Practices Act, the Economic Espionage Act, the Computer Fraud and Abuse Act, and the federal False Claims Act and qui tam litigation.  Klapow’s litigation practice focuses on complex commercial cases. He has successfully represented corporate clients in federal and state courts nationwide. He is also a recognized leader in handling trade secret cases and often speaks and writes on the subject.  Their complete client alert on U.S. v. Jin can be read here.

Vanko is a member of Clingen Callow & McLean in the Chicago area, and is author of a blog dedicated to non-compete agreements (www.non-competes.com). For the past 15 years, he has concentrated on unfair competition and business transitions, and litigating and advising clients on matters related to non-competition agreements, trade secrets and fiduciary duties of loyalty.