DOJ revamps trade secret protection strategy

As the federal government continues to sharpen its focus upon the protection of U.S. intellectual property, over the past several months there have been some significant developments in connection with federal trade secrets law.

In February, the Obama administration launched its new strategy to mitigate the theft of U.S. trade secrets. The rollout was quite a production, featuring comments by Attorney General Eric Holder, deputy secretaries of commerce and state, representatives of the director of national intelligence and U.S. trade representative, and a panel discussion involving Department of Justice Criminal Chief Lanny Breuer and high profile business leaders.

The new strategy represents the latest step in the evolution of federal trade secret protection and includes various initiatives to build public-private partnerships to combat intellectual property theft. It contains five "action items" to address what has been described as an ever-increasing threat to U.S. national security and the economy. Specifically, it calls for:

Focusing diplomatic efforts to protect trade secrets overseas. This action item calls for a sustained and coordinated international engagement with U.S. trading partners, the utilization of trade policy tools to increase international enforcement efforts, increased international cooperation and training, and partnerships with global organizations to strengthen cross-border diplomatic and law enforcement cooperation.

Promoting voluntary best practices by private industry to protect trade secrets. This action item urges for the U.S. intellectual property coordinator to work with various federal agencies to facilitate efforts to develop best practices to protect trade secrets. The program is voluntary and encourages companies to evaluate the effectiveness of their existing protection programs.

Enhancing domestic law enforcement operations. Since Holder established his Task Force on Intellectual Property, the FBI has increased the number of trade secret theft investigations by nearly a third. The defense and intelligence communities as well as DOJ will also work with the private sector to improve existing protections and share information they have gathered about potential threats.

Improving domestic legislation. In addition to the Clarification Act and the Enhancement Act, discussed in more detail below, the U.S. intellectual property enforcement coordinator will work with various federal agencies to review existing federal law to determine if legislative action is necessary to improve the current trade secret protection regime. Any such recommendations will be forwarded to Congress after that review is concluded.

Public awareness and stakeholder outreach. The final aspect of the administration's plan is to use various means of communication to increase awareness of the negative effects of trade secret theft upon the U.S. economy generally and trade secret owners specifically. The FBI, U.S. Patent & Trademark Office, and Department of Commerce will continue to utilize existing resources and programs to achieve heightened awareness of these issues.

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The launch of the new strategy came on the heels of an executive order signed by President Barack Obama in February aimed at improving information-sharing among government agencies and the private sector through a "Cybersecurity Framework." That order, titled "Improving Critical Infrastructure Cybersecurity," attempts to reconcile various approaches to computer security in a world that is constantly becoming more dependent on technology. Adoption of the framework is voluntary, although the order may lead to new regulations in the future.

The administration is not alone in taking action. In December 2012, the president signed the Theft of Trade Secrets Clarification Act. That act was a direct legislative response to United States v. Aleynikvov, 676 F.3d 71 (2d Cir. 2012), in which the 2nd U.S. Circuit Court of Appeals held that the Economic Espionage Act (EEA) did not criminalize the theft of trade secrets that were wholly internal to a company and not intended to be introduced into the stream of commerce. The defendant in Aleynikov, a former Goldman Sachs employee, downloaded and then took the company's proprietary high frequency trading system when he left Goldman. The decision rested on the ground that the system was not related to, or included in, a product that would be placed in the stream of commerce. The Clarification Act amended the EEA to ensure that the EEA does, in fact, criminalize such behavior.

The next month, the president signed the Foreign and Economic Espionage Penalty Act, which amended the EEA to increase the potential fines upon those who steal U.S. trade secrets for the benefit of a foreign government or instrumentality. The fines are now especially deterrent, as the Enforcement Act increased the potential fine penalties from $500,000 to $5,000,000 for individuals and to $10,000,000 or three times the value of the stolen trade secret to the victim organization - which can include research and development or other avoided costs.

These recent developments signal a significant push towards more robust enforcement of trade secret protection laws in the months and years to come. This renewed focus upon the protection of intellectual property is unsurprising given this administration's stated commitment to investigating and bringing more criminal intellectual property prosecutions. In 2009, the president appointed the first White House intellectual property enforcement coordinator. Then, in 2010, the DOJ reestablished its Task Force on Intellectual Property, whose mission is to increase criminal and civil enforcement of intellectual property laws with a focus on combating the international theft of trade secrets.

In his remarks during the rollout of the strategy memorandum last week, Holder stated (as he has previously on several occasions) that trade secret protection is a "top priority" of the DOJ. These recent steps demonstrate that the department takes that commitment seriously. As the federal government continues to build a more active role for itself in this area, companies and their executives should also closely examine the efficacy of their trade secret protection policies and adopt industry best practices where appropriate.

Thomas P. O'Brien is a partner at Paul Hastings LLP. He can be reached at thomasobrien@paulhastings.com.

John J. O'Kane IV is an associate at Paul Hastings LLP. He can be reached at johnokane@paulhastings.com.

Daniel Prince is an associate at Paul Hastings LLP. He can be reached at danielprince@paulhastings.com.