Competitive Intelligence and
the Economic Espionage Act
In October 1996, the U.S.
president signed into law the Economic Espionage Act (EEA). The EEA
makes stealing or obtaining trade secrets by fraud (and buying or
receiving secrets so obtained) a U.S. federal crime. Upon passage of the
EEA, some members of the competitive intelligence (CI) community
expressed concern that the EEA could have implications for the conduct
of CI. As a member of Private Investigators community Beowulf Detective
Agency is endeavoring to keep the balance between corruption and profit
by promoting education and understanding of the law and its implications
for the CI profession among interested parties and in industry at large.
Many members of the PI profession felt it was important to develop a
clear statement to define the impact of the EEA on the CI working
environment and clear up any confusion about the relationship between
the EEA and CI. This policy statement, the result of extensive research
and consultation, addresses that relationship. The policy statement was
prepared leading US attorneys and private investigators. It was
subsequently adopted by most practitioners and endorsed by leading legal
experts. Competitive intelligence is the legal and ethical collection
and synthesis of data and information to enhance business decision
making. Beowulf Detective Agency
endorses this definition.
Competitive Intelligence
Professionals have elaborated to mutual recognition
Code of Ethics for CI
Professionals
•To continually strive to
increase respect and recognition for the profession.
•To pursue one's duties with
zeal and diligence while maintaining the highest degree of
professionalism and avoiding all unethical practices.
•To faithfully adhere to and
abide by one's company's policies, objectives and guidelines.
•To comply with all applicable
laws.
•To accurately disclose all
relevant information, including one's identity and organization, prior
to all interviews.
•To fully respect all requests
for confidentiality of information. •To promote and encourage full
compliance with these ethical standards within one's company, with third
party contractors, and within the entire profession.
POLICY ANALYSIS : Competitive
Intelligence and the Economic Espionage Executive Summary
Seeking competitive information
in a legal and ethical manner is an integral component of healthy
competition. The EEA was enacted in order to enable federal law
enforcement to investigate and prosecute acts of economic espionage. It
adds federal criminal penalties to activities which were already illegal
under state law. The EEA does not interfere with the way corporations
are entitled to gain a competitive advantage in the market place by
seeking information on a competitor in a legal manner. That the EEA does
not materially affect competitive intelligence (CI) does not mean that
CI professionals need not be concerned about trade secret law. On the
contrary, the EEA has drawn attention to the necessity of insuring that
CI activities are within the parameters of trade secret law. An
understanding of trade secret law and the EEA indicates that CI
professionals who have been and will continue to conduct their business
in an ethical manner and consistent with established trade secret law
need not be concerned about the EEA debate.
Companies that have curtailed
their CI efforts out of a misplaced fear of the EEA have awarded a
competitive advantage to companies whose CI activities continue
unimpeded.
Seeking information on a
competitor is an important component of healthy competition; CI is the
term which has developed to describe this profession. Many corporations
and executives perform this function without any formal ties to the CI
profession, while others employ CI professionals or outside CI firms and
practitioners. Many large corporations have established entire CI
departments. Competitive intelligence is a recognized, accepted, and
legal way for businesses to gain a competitive advantage in the market
place. This in turn accelerates the benefits to society of competition
in the marketplace. Beowulf
Detective Agency encourages
members of Commercial
Intelligence specialists to abide
by the code of ethics; one clause in the code instructs its members to
«accurately disclose all relevant information, including one’s identity
and organization, prior to all interviews. ”The Economic Espionage Act
of October 1996 (EEA) was enacted by the U.S. Congress in response to
attempts by foreign entities to steal American trade secrets. It was not
enacted in order to regulate the CI industry nor was it enacted in
response to any problems arising out of the activities of CI
professionals. Its passage however has led to various and sometimes
conflicting opinions regarding the EEA and has created confusion
regarding its implications for the practice of CI. The EEA is a federal
criminal law and was passed in order to enable federal authorities to
investigate and prosecute acts of economic espionage. Federal
authorities charged with the responsibility of protecting national
security and the national economy were confronted with the reality that
laws dealing with the theft of trade secrets were state law, and needed
a federal law to give them the authority to investigate and prosecute
the increasing number of cases of economic espionage conducted by
foreign entities. The EEA was passed to do just that. Congress decided
however that the scope of the EEA would include the theft of a trade
secret by anyone, for anyone. In other words, the EEA is not limited to
theft of a trade secret for a foreign entity, but encompasses theft of a
trade secret by and for a domestic competitor. Herein lies the
confusion. While the EEA makes trade secret law a federal criminal
matter — this for the first time in U.S. history — the activities it
criminalizes had always been prohibited under state law and/or
inconsistent with business ethics. In other words, the rules are
fundamentally the same but the consequences of violating them are
redefined. An activity that had
always been a violation of state trade secret law can now result in not
only state civil liability but federal criminal liability as well.
Implications:
There are several reasons why
the EEA should not have any impact on the practice of competitive
intelligence. First, the act of seeking and collecting information on a
competitor is itself legal. Note the following from the Restatement of
Torts (1939): The privilege to compete with others includes a privilege
to adopt their business methods, ideas, or processes of manufacture.
Were it otherwise, the first person in the field with a new process or
idea would have a monopoly which would tend to prevent competition
(Section 757, Comment a). One limitation on this rule cited by the
Restatement is: “It is the employment of improper means to procure the
trade secret, rather than the mere copying or use, which is the basis of
liability in this section.”Information collection performed by CI
professionals centers around the sophisticated use of published
material, databases, and on-the-record interviews, techniques which
themselves are legal and proper means of acquiring information. Second,
properly trained CI professionals who have conducted themselves in an
ethical manner were not engaged in legally risky business prior to the
EEA. The appropriate legal principles have been instilled into the CI
profession over the years of its existence and subsequently adopted as
practice by properly trained industry members. The increased penalties
for trade secret theft under the EEA will not be applicable to those
whose practice has been consistent with the already existing legal
standards. Third, most situations commonly referred to as “gray zone”
areas are not trade secret violations at all. Though they raise ethical
questions, «gray zone” situations such as finding a lost document in the
street, overhearing competitors talk on a plane, having a drink with a
competitor knowing you are better at holding your liquor, removing your
name tag at a trade show, or even falsely identifying yourself as a
student, are situations which alone will not trigger trade secret
liability. Properly trained CI professionals should be able to identify
and avoid the predicaments that would place them in actual legal risk.
Fourth, the EEA will not be applied to general commercial disputes, but
to clear criminal acts of theft. The reason for the EEA’s passage was to
thwart attempts at stealing American trade secrets which would have an
impact on the competitiveness and health of the American economy. That
the U.S. Attorney General promised Congress that no charges will be
filed under the EEA for the first five years after the law’s enactment
without the approval of the Attorney General or two of her top deputies
indicates that federal authorities have no intention of becoming
entangled in the numerous trade secret disputes that do take place in
the routine course of business (see Congressional Record, October 2,
1994, S12214). To summarize, the EEA incorporates into the federal
criminal code activities that were already illegal under state law. It
does not add new burdens or restrictions to the American workforce.
An
Issue on Extraterritoriality:
About twenty percent of SCIP’s
membership is outside the USA, making the question of how the EEA
affects overseas activity pertinent. The EEA does have an
extraterritoriality clause. In principle, a statute must state that it
applies overseas for it to so apply. The extraterritoriality provisions
of the EEA apply the statute to a U.S. citizen even abroad, and to
anon-U.S. citizen (1) while on U.S. soil or (2) abroad, if the act
committed abroad violates the EEA and “an act in furtherance of the
offense was committed in the United States.”What this means in practice
is that whatever types of activities the EEA prohibits overseas are the
same as what is prohibited on U.S. soil, which, as explained, had always
been prohibited by state law and/or inconsistent with ethical conduct of
business intelligence.
EEA Compliance Plans :
An additional reason for
concern regarding the implications of the EEA on competitive
intelligence has been the many calls for “EEA compliance plans” based on
the Federal Sentencing Guidelines. The Sentencing Guide-lines do not
instruct, dictate, require, prescribe, or obligate a company to have a
compliance plan. The Sentencing Guidelines, the manual by which federal
judges must sentence a defendant, allows the judge to deduct “points
«from the sentence, i.e., lessen the sentence, if a corporate defendant,
not an individual defendant, took measures to «detect and prevent” the
criminal activity from occurring. A
proper compliance can lower the sentence of a corporation convicted of a
crime; it has no relevance to the sentencing of an individual convicted
of a crime. The list of seven “must haves” from the Sentencing
Guidelines, referred to in EEA compliance plan articles and
presentations are not obligatory (i.e., “The organization must have
established compliance standards and procedures . . .the organization
must have taken steps to communicate effectively its standards and
procedures to all employees and other agents...”). The document is
talking to the judge, not the corporate defendant. The corporate
defendant “must have” taken these steps in order for the judge to find
that a reasonable plan to “detect and prevent” crime was in place, not
that the company “must have” done these things as an independent legal
obligation. The Sentencing Guidelines do not actually use the phrase
“compliance plan.”This is the term which has developed to refer to the
measures to “detect and prevent «violations of law. A company that does
not have a compliance plan is not “in violation” of the Federal
Sentencing Guidelines, and if not convicted of a particular crime, the
lack of a compliance plan for that aspect of law will be of no
consequence. Conversely, a company convicted of a federal crime will not
be penalized for not having a compliance plan but will lose its chance
of receiving a lowered sentence. Though not a legal requirement under
the Guidelines, in practice having a compliance plan is the responsible
and indeed the expected way for a company to conduct its affairs. There
are no “EEA regulations” to comply with. One is to learn what not to do
and not do it. Generally speaking, compliance plans are geared to
aspects of law that are industry specific and encompass regulations.
Banks will have a compliance plan for Treasury Department regulations,
pharmaceutical companies for FDA regulations, securities dealers for SEC
regulations, and telecommunications companies for FCC regulations. As
the activities the EEA criminalizes are substantially the same
activities in which CI professionals should never have been engaged, an
EEA “compliance plan” should not be substantially different from the
existing professional guidelines a CI firm or professional would be
expected to have or abide by.
Answers to Frequently Asked
Questions:
1.Even if the EEA was not
intended to deal with competitive intelligence or general commercial
disputes, hasn’t it had an impact nonetheless?
Answer: The impact the EEA has had on the CI community has been
based on anxiety and confusion. Some companies have mistakenly taken the
position that the EEA has placed them in legal jeopardy because of the
activities of their CI professionals.
Ironically, companies who
curtail the legal and ethical activities of their CI professionals have
placed themselves at a competitive disadvantage to companies whose CI
activities continue unimpeded.
2.Don’t we have to wait to see
how the EEA is applied in the courts before determining what it
prohibits?
Answer:
How courts ultimately interpret
statutes is fundamental part of legal analysis. This does not mean
however that one cannot understand the basic prohibitions of a statute.
In fact, a statute can be declared unconstitutional by the courts if it
does not provide adequate notice as to what it prohibits. The intention
and purpose behind the EEA was clearly explained by Congress prior to
its enactment. This did not include an intention to alter the
fundamentals of corporate conduct, but to deter and punish the criminal
act of trade secret theft.
3.Can’t the EEA be applied to
situations it was not intended to cover?
Answer:
It is not unusual for some laws
to ultimately be applied to unforeseen situations. A law once passed may
take on a life of its own. The concern that the EEA will be applied to
routine commercial disputes was discussed and dismissed by Congress
prior to the EEA’s passage, with the Attorney General’s letter giving
further assurances to this effect. Companies who remain concerned are
well-advised to study the background of the law.
4.The definition of a trade
secret under the EEA is broader than existing trade secret law. What
implications does this have on competitive intelligence?
Answer:
The wording of the EEA’s
definition enumerates more types of information considered a trade
secret than previous legal definitions. This is because a criminal
statute should be written in explicit language so as to give notice as
to what it criminalizes; otherwise it risks being declared
unconstitutional. This does not mean that prior legal definitions
excluded types of information enumerated in the EEA’s definition. In
practice, existing legal definitions and case law interpretations cover
all sorts of financial, business, and scientific information. Whether
the information stolen is included in the EEA’s definition of a trade
secret is moot with respect to professionals whose conduct precludes
them from engaging in theft.
5.What effect if any does the
EEA have on the legal risks one may decide to take in seeking
information on a competitor?
Answer:
The EEA compounds the legal
consequences for one engaged in theft of a trade secret by adding
federal criminal penalties to an act which already triggers state civil
penalties. This added risk however is of no consequence to one who seeks
information on a competitor in a legal manner.
6 .What implication does the
EEA have on company’s efforts to protect information?
Answer:
The EEA focuses primarily on
the activities it prohibits. The EEA’s definition of a trade secret
however, like state trade secret law preceding it, requires the trade
secret holder to take reasonable measures to keep that information
secret. In practice, the holder of a trade secret must have taken those
reasonable measures in order for one who misappropriates that
information to be held liable under the EEA or state trade secret law.
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