Editor’s Note: This is the second in a series of posts addressing how corporate victims of trade secrets theft can enforce their intellectual property rights through the criminal justice system.  The introductory post can be found here.

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[via Flickr user cliff1066]

The criminal enforcement landscape

The federal government has intensified its focus on intellectual property theft in recent years.  For example, there is now an Intellectual Property Enforcement Coordinator  in the White House, and an Intellectual Property Task Force within the Department of Justice. The Intellectual Property Rights Coordination Center spans some two-dozen federal agencies, and has public and stakeholder outreach as part of its mission.  The fact that more trade secrets cases are being prosecuted is a direct reflection of these efforts.  More agents and prosecutors have been made available, and the federal government has become more aggressive in going after foreign officials and state-owned entities despite the diplomatic implications.  Domestic enforcement is on the rise as well, with more high-profile criminal trade secrets cases being brought than ever before.

The federal government’s principal tool in combatting trade secrets theft is the Economic Espionage Act, codified at 18 U.S.C. §§ 1831-1837.  And assignment of responsibility within the government for such cases generally mirrors the EEA’s structure.  Section 1831 covers trade secret theft intended to benefit a foreign government or instrumentality.  Those are true foreign “espionage” cases and are normally handled by the FBI’s Counterintelligence Division and DOJ’s National Security Division.  Section 1832 covers what might be considered ordinary trade secrets theft, without the foreign-government element.  Those cases are normally handled by the FBI’s Criminal Investigation Division or Cyber Division, depending on the prominence of cyber theft in the case, and DOJ’s Computer Crimes and Intellectual Property Section in conjunction with local United States Attorneys’ Offices.

Appropriate cases for referral to law enforcement

Not all trade secrets theft cases are appropriate for referral to law enforcement.  For example, the government is understandably leery of getting involved in garden-variety business disputes.  Thus, a case involving two rival companies where no malicious intent is apparent, such as inadvertent disclosure of confidential information by a common vendor, is unlikely to interest law enforcement.  But willful misconduct by a competitor or former employee, such as covert cyber intrusions, is a different story. Other factors the government will take into account include the magnitude of the theft, the sensitivity of the information at stake, the use of sophisticated means to acquire the information, and the ability of the victim to obtain justice through civil litigation.  The type of the defendant can also be important.  The involvement of a foreign entity may pique the government’s interest, and the involvement of a foreign government instrumentality almost certainly will.  In that vein, the government is also likely to be interested in cases involving an economic sector or industry that implicates broader harm to national interests.

The pros and cons of initiating a criminal investigation

Even if a case may be appealing to the government, corporate victims of trade secrets theft must carefully consider the pros and cons of initiating a criminal case.  The most obvious advantage is that criminal prosecution may eliminate the need for costly civil litigation entirely due to criminal remedies such as restitution, or limit civil litigation to damages because liability has already been established through a guilty verdict or plea.  A criminal case can also be a powerful deterrent – sending a message to current and former employees, competitors, and the world at large that there will be severe consequences for such conduct.  Other advantages include the additional discovery tools the government can bring to bear – such as search warrants, wiretaps and grand jury subpoenas – as well as the additional remedies available in criminal cases in the form of mandatory restitution, forfeitures and asset freezes.  There may also be benefits (and risks) in parallel civil litigation, a topic that I will address in a future post.

There are also drawbacks to initiating a criminal trade secrets theft case.  Chief among these is lack of control.  Once the criminal process is in motion, it takes on a momentum of its own because agents and prosecutors work for the public good, not the victim, and will be focused solely on enforcing the law.  That can, for example, create complications in the context of a civil settlement where the defendant is willing to pay an all-in total amount to achieve global peace but the government is insisting on a plea and substantial criminal fine that, as a practical matter, may significantly reduce the civil payment to the victim.

Timing and points of contact

Once the decision is made to bring a case to law enforcement, it becomes a matter of timing and points of contact.  The government encourages victims of intellectual property crimes to report such offenses promptly, and there are many circumstances in which that approach is called for.  Often, however, it is best to take the time necessary to internally investigate the facts so that a compelling case can be made for governmental involvement, and to enhance the victim’s credibility with prosecutors and agents, which is paramount.

It is also worth considering how best to approach the government.  While the FBI and DOJ will say that they evaluate all cases objectively, as a practical matter having pre-existing personal relationships can lend vital credibility to the victim’s efforts to convince the government to move forward.  Thus, for example, larger corporations may have corporate security personnel who are former law enforcement agents with the necessary contacts.  And having such contacts established in advance is always a good idea, because any company may become the victim of trade secrets theft, cybercrime, or other white collar offenses.  Similarly, qualified outside counsel will inevitably have useful working relationships from prior cases with officials in leadership positions at DOJ, the FBI, and often the local U.S. Attorney’s Office.

Of course, approaching law enforcement and convincing the government to launch a criminal investigation is only the first step on a long road.  In subsequent posts, I’ll discuss how to manage a government investigation and prosecution, and how to deal with the complex dynamics of parallel civil and criminal cases.