United States: Pooley's Corner: When Taking Trade Secrets Becomes A Crime

Authored by James Pooley

In the recent lawsuit filed against Uber by Waymo for hiring the head of its driverless car project, what would have been a normal discovery dispute over access to a report suddenly became a lot more complicated when the former Waymo executive asserted the fifth amendment, claiming that forcing disclosure of the document could incriminate him.

Trade secret litigation between companies is common, but criminal charges—or the threat of them—isn't. So how is it that commercial disputes become criminal?

The answer usually is that the trade secret holder believes it has very strong evidence of theft and decides to approach the authorities. If you are located in a state with criminal trade secret laws, you have a choice of reporting to the county prosecutor or going to the FBI or Department of Justice, who operate under the authority of the Economic Espionage Act. In a number of states, and in each of the 93 federal districts, there will be prosecutors and investigators trained in handling technology cases. If yours seems sufficiently serious, they may agree to take it on.

But would you want them to? The answer may not be obvious. Certainly, the advantages of referring your trade secret claim for criminal prosecution can seem compelling. Considering the costs and risks of typical civil litigation, the idea of calling in the resources of the public prosecutor and sitting back to watch them annoy your adversary is attractive. So the first advantage is cost. Even though you will still have to spend time to teach the investigators and prosecutors about your industry and the facts of your case, you will be spared the disruption and expense of pretrial depositions, since the discovery process is very limited. And even if you have your own lawyers monitor and coordinate the proceedings, you stand to save a great deal over what you might have had to spend in regular civil litigation.

Second, the results of a successful criminal prosecution can sometimes get you to a civil settlement quickly and with maximum leverage. If the defendant pleads or is found guilty, that result is binding in a civil case and the only issue becomes the kind of remedy or amount of money that should be awarded. And it doesn't work the same way in reverse. If the defendant is acquitted, the civil case can still proceed and can result in a judgment for the plaintiff. The reason is that the burden of proof (beyond a reasonable doubt) is so much higher in a criminal case. In this sense, using the criminal process is a no risk proposition for the victim.

The third major advantage is speed. Many trial courts are blocked in a logjam of civil litigation, with some cases taking years to get to trial. (Of course, if your case is decided and settled on a preliminary injunction, you can complete the process much faster.) However, the criminal case, unfettered by an extensive discovery process and having special preference on the calendars of most courts, will usually move to a conclusion fairly quickly. And considering the distraction from productive work that usually comes with this kind of case, faster is almost always better.

Fourth, the criminal process gives you a remedy that is usually unavailable in civil litigation: the search warrant. There is always an advantage to seizing evidence before anyone has had a chance even to think about altering or destroying it. And it's hard to imagine a more impressive way to get someone's attention than to be visited by armed law enforcement.

Indeed, one overriding advantage of criminal prosecution is its deterrent effect. Because trade secret theft is infrequently prosecuted, the news will travel fast to other employees, vendors, and competitors who might be inclined to be loose with your data. Unless the prosecution is badly mishandled, it almost doesn't matter what is the outcome of the process. You will be known as having such a serious concern for your rights, that you will call in the police.

So if using the criminal process is such a great idea, why not pursue it in every case? Why bother at all with the expense and uncertainty of civil litigation? To begin with, you may not be able to get the prosecutor to take your case. Even where the authorities are enlightened and enthusiastic about trade secret matters, they want to take on only the ones they can win under the burden of a "beyond reasonable doubt" standard.

But there are a number of potential pitfalls and disadvantages in using the criminal system. First and most important is loss of control. You've passed the ball to the prosecutor, who will now call all the plays. Once you've started the procedure, you can't stop it. Most prosecutors will consider input from the victim in deciding what risks to take or whether to dispose of the case before trial. But even though the prosecutor is a lawyer, you're not the client; the state is. It is the interest of the government in punishing wrongful conduct that controls a criminal case. As a result, the prosecutor has the final say in what happens.

This dimension of the process can be especially frustrating when you want to settle, having achieved your goal of protecting your data. But no matter what agreements, orders, or money the defendant offers, you cannot make the criminal case go away.

Another aspect of this loss of control surfaces when you try to bring or continue a civil suit at the same time that criminal charges are pending. In the typical case of surreptitious misappropriation, you need access to the defendant's testimony and documents to prove your claim. Ordinarily you get this through discovery. But when a criminal action has been filed, many of the records are in the hands of the authorities, having been seized in executing the search warrant. And if you try to take the defendant's deposition, you'll get a refusal to answer based on the right against self-incrimination. In effect, there's nothing more you can do.

Because trade secret theft is not often prosecuted, you face another risk: the police or prosecutor may mishandle the case in any number of ways. This is especially true with technology matters, where sophisticated handling may be required to preserve secrecy or prevent damage to evidence.

Indeed, another drawback to the criminal process is the possibility that the very information you are trying to protect may be even more widely disclosed. Remember that the criminal defendant has a right to a public trial. Sometimes defendants will exercise this right to the maximum, hoping that the risk of further disclosure will convince you to ask that the charges be dropped. Although the judge will normally issue orders limiting access to confidential information, this may precipitate risky confrontations over just how much of your data actually qualify as trade secrets. In deciding these issues, the judge may be affected not just by the defendant's demand for an open trial. If the case is at all newsworthy, the press will be pushing to open the courtroom and get access to the records. And not far behind them may be your competitors.

Finally, remember that the public prosecutor may not be able to achieve your goal of winning the case. The burden of proof is very high, and this fact may allow the defendant to "slip through." In addition, even a very good trade secret case can be lost through lack of resources. There may be few expert witnesses and consultants available to the government to develop the most convincing presentation. In the end, this too is an issue of control: if you want to be able to determine how the case is managed and how vigorously it is pursued, you may have to do it yourself, in the civil courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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