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How Private Trade Secret Cases Collide With DOJ’s War on Criminal Trade Secret Theft

March 19, 2019
Kamal Ghali and Jeff Chen
Atlanta, GA
Daily Report

The marked rise of trade secret theft prosecutions should prompt civil practitioners to consider how their civil litigation strategies may impact an ongoing criminal investigation.

On Feb. 12, the Department of Justice brought criminal charges against two individuals accused of stealing trade secrets from Atlanta-based Coca-Cola. That case is simply the latest in the Department of Justice’s escalation of trade secret theft prosecutions over the past year.

At first glance, these criminal prosecutions appear to be part of an explicit DOJ commitment to “redouble [its] efforts” to combat China-related trade secret thefts. Indeed, in November 2018, Assistant Attorney General Brian A. Benczkowski of the DOJ Criminal Division vowed to bring “every necessary resource to bear” to counter what he described as “Chinese economic aggression.” A quick review of indictments and DOJ press releases from just the past year show that the department has moved quickly to vindicate the interests of numerous corporate victims of trade secret theft including T-Mobile USA, General Electric, Apple Inc., Micron Technology Inc., DuPont, GE Aviation, Genentech, GlaxoSmithKline, Coca-Cola, American Superconductor Inc. and numerous others.

But, as others have noted, the rise in intellectual property theft prosecutions isn’t exclusively related to concerns about China. Some involve what appear to be purely domestic thefts. For example, in July 2018, a jury convicted Jared Dylan Sparks, a U.S. citizen, of stealing trade secrets from his employer, a defense contractor, by digitally uploading company files to his personal Dropbox account. In April of 2018, a federal judge sentenced the co-owner and CEO of TERiX Computer Co. stealing more than $10 million worth of intellectual property from Sun Microsystems and Oracle Corp. In June 2018, DOJ charged former Jawbone employees, alleging that they stole trade secrets after they had accepted jobs with Fitbit. And, in November 2017, DOJ appeared to confirm a criminal investigation into Uber in connection with the Uber and Waymo trade secret theft litigation.

This wave of recent intellectual property theft prosecutions isn’t likely to dissipate anytime soon. In 2016, the FBI formally announced a new strategy to combat the theft of trade secrets that “involve[d] partnering more closely with businesses.” As then-Attorney General Loretta Lynch noted, the approach was designed “to provide information and resources to individuals and companies that will help them identify and disrupt attempts on their intellectual property.” Two years later, as the number of prosecutions is on the rise, that strategy appears to be bearing fruit. As at least one commentator has noted, some technology companies now “regularly approach law enforcement in the hope of triggering criminal investigations.” And, as companies become more sophisticated about identifying digital thefts and computer hacking designed to steal trade secrets, illegal actions by rogue employees and other attempts to steal proprietary data, referrals to law enforcement will continue to rise. Moreover, the Trump administration has continued to prioritize efforts to protect the intellectual property of American businesses.

According to the White House’s February 2019 Annual Intellectual Property Report to Congress, at the end of Fiscal Year 2018, the FBI alone had 195 pending intellectual property crime investigations, including 67 related to the theft of trade secrets. Fifty-four of those investigations were opened in FY 2018 alone. And these numbers do not include figures about open criminal investigations involving the theft of proprietary data that might not rise to the level of a protected trade secret, but that may implicate other criminal statutes involving fraud and deception.  

This wave of recent federal trade secret theft prosecutions coincides with a significant increase in civil trade secret theft claims filed in federal court. Indeed, in 2016, Congress passed the Defend Trade Secrets Act, or DTSA, which created a federal private civil remedy for victims of trade secret misappropriation. Recent data suggest that DTSA has triggered an increase in federal trade secret lawsuits. For instance, in 2017, federal courts saw a 30 percent jump in the number of civil trade secret cases as compared to 2016.

Private litigants defending theft of trade secret claims in federal court must consider the possibility of a parallel federal criminal investigation involving the theft of trade secrets or other crimes. For starters, the alleged conduct at issue in a civil case brought under the DTSA often overlaps with the elements of a criminal offense under the Title 18, United States Code, Section 1832, which criminalizes the theft of trade secrets. In other words, civil trade secret theft claims may often amount to public accusations that another party has committed a federal crime. And a number of civil trade secret theft claims involve conduct that overlaps with criminal mail and wire fraud schemes, digital thefts, unauthorized access to protected computers and other conduct implicating federal criminal statutes. Such public accusations of misconduct may catch the attention of the FBI.

Moreover, businesses faced with the imminent loss of sensitive trade secret data often pursue multiple avenues for getting their data back—including proactive outreach to the FBI. In fact, such cooperation between the FBI and private industry is likely to accelerate, given the FBI’s outreach efforts since 2016. In many instances, law enforcement may welcome the fruits of a thorough private investigation by a victim; such information can catapult a federal criminal investigation well ahead of where it would otherwise be. As the House Judiciary Committee Report on the DTSA noted, “the FBI does not have the resources to investigate every case of trade secret theft.” But proactive cooperation by victims, especially victims who are compiling the evidence they will need to prevail in their civil claims, may help the FBI respond to theft events while potentially conserving scarce investigative resources.

As a practical matter, attorneys defending civil trade secret theft claims must consider the potential criminal consequences for their client and their client’s employees. In some cases, attorneys may safely conclude that the risk is quite low. In others, the nature of the allegations and the particular facts of a case may dramatically change that analysis. Where the risk is higher, attorneys must consider a number of issues, including the potential for self-incrimination during a deposition, whether to seek a stay pending the resolution of any criminal investigation, and how to appropriately respond to discovery requests. The marked rise of trade secret theft prosecutions should prompt civil practitioners to consider how their civil litigation strategies may impact an ongoing criminal investigation.

Kamal Ghali is a former deputy chief of the cyber and intellectual property crime section at the U.S. Attorney’s Office in Atlanta and leads the white collar criminal defense and cybersecurity and privacy practices at Bondurant, Mixson & Elmore, an Atlanta-based litigation and investigations firm.

Jeffrey Chen is a former law clerk for the U.S. District Court for the Northern District of California, holds a J.D. from Yale Law School and is an associate at Bondurant, Mixson & Elmore.