ECONOMIC ESPIONAGE AND PROTECTING TRADE SECRETS: Ninth Circuit Holds That Reasonable Measures to Guard Technology are Sufficient

How can you protect your trade secrets from a vast and well-concealed international effort to steal those secrets? What constitutes a “reasonable” effort to protect that information where at least one competitor may already have the information?  The Ninth Circuit recently opined on these matters in the ongoing saga of U.S. v. Liew.

In 2014, Walter Liew and his company, USA Performance Technology, Inc., were convicted of multiple offenses, including claims under the Economic Espionage Act and conveying misappropriated trade secrets to a third party. The trade secrets related to DuPont’s technology for producing titanium dioxide, which is used in a wide range of products such as paint and Oreo cookies.

Liew and his company appealed their convictions on a number of grounds. Among other things, they argued that by selling a titanium dioxide plant to a competitor, DuPont had disclosed its trade secrets and thereby lost trade secret protection under the Act’s pre-amendment definition of a “trade secret.” (The Act was amended in 2016 to add a requirement that an alleged trade secret must not have been known to or readily ascertainable by “another person who can obtain economic value from the disclosure or use of the information.”)  They further contended that disclosing a trade secret “to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy” destroys protection, that the jury should have been instructed accordingly, and that the government had provided insufficient evidence for the convictions.

The Ninth Circuit disagreed, stating that there is no rule “requiring [proof of] nondisclosure” and rejecting the appellants’ contrary interpretation of the Supreme Court ruling in Ruckelshaus v. Monsanto Co. The Court further reasoned that DuPont’s sale of a factory to a competitor did not cause information on its chloride process to become “generally known . . . to the public” because disclosure to a single competitor is not tantamount to public knowledge. Moreover, the appellants’ argument ignored that the prosecution’s focus was on a technology not used at the plant that was sold.

Notably, the Court refused to opine on the impact the 2016 amendment may have on subsequent prosecutions under the Act. For this reason, it’s unclear whether DuPont’s trade secrets would have been afforded the same protections under the newly-amended definition of a trade secret. TSW will keep you updated as further guidance becomes available.