Civil and Criminal Liability for Stealing Employees
May 1, 1999
Although he or she may be the most qualified and well-trained individual in
your highly competitive market, an employer should proceed with caution when
hiring a current or former employee of a major competitor. An employer that
obtains the benefit of a competitor's confidential and proprietary information
via a competitor's former employee may be subject to both civil and criminal
liability -- even if the information is not subject to the protection of the
patent or copyright laws. Two primary legal mechanisms protect an employer's
interest in proprietary information disseminated to employees: the Uniform Trade
Secrets Act (the UTSA), and the Economic Espionage Act (the EEA, 18 U.S.C. §
1831, et seq.
Consider this situation. As Chief Operating Officer at Alpha Company, your
past year has been unsuccessfully devoted to improving the company's inventory
control system. In the meantime, your arch rival, Beta Company, has begun eating
into your market share due to its well-publicized, top-secret, state-of-the-art
inventory control system. One day you get a phone call from Beta's chief
inventory control officer, Jane Dough, who offers to assist Alpha in upgrading
its inventory control system for a $25,000 signing bonus and a salary to be
negotiated. A dream come true? Maybe. But then again, maybe not.
The UTSA, adopted in 40 states and the District of Columbia, creates a cause
of action for the misappropriation of trade secrets. The UTSA defines trade
secret broadly to cover information that: (1) derives actual or potential
economic value from not being known or readily ascertainable to competitors; and
(2) has been subject to reasonable measures to maintain its secrecy. Beta's
inventory control system may very well constitute a trade secret. Information
covered by the UTSA may include formulas, patterns, compilations of many kinds,
including customer lists, programs, devices, methods, techniques and processes.
UTSA penalties include preliminary and permanent injunctive relief, damages and,
in the case of "willful and malicious" misappropriation, double
damages and attorneys fees.
Alpha could be held liable under the UTSA even if Dough does not actually
disclose the particulars of Beta's inventory control system. A UTSA claim may
succeed if the employee's new position inevitably will lead her to rely on her
former employer's trade secrets. Given Dough's intimate knowledge of the Beta
inventory control system, her use of Beta's trade secrets to make the Alpha
system competitive with that of Beta may be inevitable.
Should it hire Dough, Alpha also may be criminally liable under the federal
Economic Espionage Act (the EEA), 18 U.S.C. § 1831 et seq. The EEA provides for
criminal penalties, including fines up to $5,000,000, asset forfeiture and
prison time, for those who "receive[], buy[], or possess[]" trade
secret information.
To successfully prosecute Alpha and Dough under the EEA, in addition to
demonstrating that the inventory control system is trade secret (under a
definition similar to that in the UTSA), the government would have to show that
(1) the system is related to a product in interstate commerce; and (2) Beta
intended to benefit itself at the expense of Alpha. In addition to EEA
liability, Alpha may also be subject to criminal liability under state law. A
number of states, including California, Florida, Georgia, New York and
Massachusetts, have state criminal statutes prohibiting trade secret theft.
Given Alpha's potential exposure the UTSA and the EEA, no matter how
attractive the offer, Alpha Company should think long and hard before retaining
Jane Dough's services. Employers offered similar "opportunities" would
be well advised to do the same.
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