Criminal Theft of Trade Secrets Explained

Trade secrets are often among a company’s most valuable assets. When those secrets are stolen, U.S. law does not treat the matter as a mere business dispute—under certain circumstances, it is a crime. This article explains how criminal theft of trade secrets works, the legal standards that apply, and what happens when someone is prosecuted.

Understanding Trade Secrets in Criminal Law

To grasp criminal theft of trade secrets, it is essential to understand what qualifies as a trade secret under federal law. The Economic Espionage Act (EEA) defines the term broadly, covering a wide range of confidential business information, from formulas and designs to customer data and technical processes.

Under federal law, information is generally treated as a trade secret when:

• It consists of financial, business, scientific, technical, economic, or engineering information in any form.
• The owner takes reasonable measures to keep it secret (for example, access controls, confidentiality policies, or non‑disclosure agreements).
• The information has independent economic value because it is not generally known or readily ascertainable by others who could benefit from its disclosure or use.

Examples can include:

• A proprietary manufacturing process or algorithm.
• Non‑public pricing strategies and market forecasts.
• Customer lists and specialized distribution methods.
• Designs and prototypes for future products.

Not all confidential information is a trade secret. If a company does not actively protect the information, or if the information is widely known in the industry, it may fall outside the trade secret definition and thus outside criminal protection.

The Federal Crime of Theft of Trade Secrets

The principal federal criminal statute addressing trade secret theft is 18 U.S.C. § 1832, part of the Economic Espionage Act. It focuses on commercial theft of trade secrets related to products or services used in interstate or foreign commerce.

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In simplified terms, a person can be charged under § 1832 when they knowingly misappropriate a trade secret, intending to convert it to the economic benefit of someone other than the owner, and knowing or intending that the owner will suffer harm.

Conduct Covered by 18 U.S.C. § 1832

The statute does not only penalize the initial act of theft. It covers a range of conduct involving trade secrets.

• Direct theft or unauthorized acquisition – Stealing, taking, or otherwise obtaining the information without authorization, including through deception or fraud.
• Unauthorized copying or transmission – Copying, duplicating, downloading, uploading, photographing, transmitting, or otherwise replicating the information without the owner’s permission.
• Receiving or possessing stolen trade secrets – Receiving, buying, or possessing trade secret information when the recipient knows it was obtained without authorization.
• Attempts – Attempting to engage in any of the above conduct.
• Conspiracy – Conspiring with one or more persons to commit trade secret theft, where an overt act is taken toward that objective.

Because attempts and conspiracies are included, individuals may face criminal liability even if the trade secret theft is not fully successful.

Key Legal Elements the Government Must Prove

To convict someone of theft of trade secrets under § 1832, the government must establish several elements beyond a reasonable doubt.

Without proof that all of these elements are met, a criminal conviction under § 1832 is not legally sustainable.

How Criminal Trade Secret Theft Differs from Civil Claims

Trade secret disputes can appear in both civil and criminal court. Civil claims, such as those brought under the Defend Trade Secrets Act (DTSA) or state trade secret statutes, focus on compensating the victim with monetary damages and injunctive relief. Criminal prosecutions seek to punish wrongful conduct on behalf of the public.[10]

Key differences include:

• Burden of proof – In a criminal case, prosecutors must prove the offense beyond a reasonable doubt; civil cases require a lower standard (often a preponderance of the evidence).
• Focus on intent – Criminal statutes emphasize intentional misconduct with an aim to cause economic harm or benefit someone other than the owner.
• Penalties – Criminal cases can result in imprisonment and fines, while civil cases typically result in damages, injunctions, and sometimes attorneys’ fees.
• Government vs. private party – Criminal charges are brought by federal or state prosecutors; civil claims are initiated by the affected business or individual.

In some situations, the same conduct may lead to both a criminal prosecution and a civil lawsuit.

Federal and State Criminal Framework

Trade secret theft can be prosecuted under both federal and state laws. Federally, § 1832 targets domestic commercial theft, while related statutes may also apply, such as wire fraud or computer crime provisions in cases involving hacking or electronic transmission.

At the state level, many jurisdictions have their own criminal statutes specifically addressing trade secret theft or misappropriation. For example, Colorado’s statute makes it a crime to steal, disclose, or make unauthorized copies of a trade secret when done with the intent to deprive the rightful owner of control or to appropriate the secret for personal use.

Although terminology and penalty ranges vary, state laws typically require proof that:

• The information was secret and had value.
• The owner took measures to prevent widespread access.
• The defendant intentionally obtained or disclosed the secret improperly.

As a result, conduct that does not satisfy the federal interstate commerce requirement may still be criminally actionable under state law.

Criminal Penalties for Theft of Trade Secrets

Penalties for criminal trade secret theft can be severe, especially when large‑scale or sophisticated schemes are involved.

Federal Penalties Under 18 U.S.C. § 1832

Under the federal statute, individuals convicted of theft of trade secrets face up to 10 years in prison and can be fined under Title 18 of the U.S. Code.

For organizations, the statute authorizes substantial fines, up to the greater of $5,000,000 or three times the value of the stolen trade secret to the organization, including avoided research and development costs.

• Individuals – Potential imprisonment up to 10 years, plus fines.
• Organizations – Fines up to $5 million or three times the value of the trade secret, whichever is greater.

In especially serious cases involving foreign governments or instrumentalities, other provisions of the Economic Espionage Act can authorize even higher penalties.

State-Level Penalties

States also impose criminal penalties for trade secret theft. Using Colorado as one example, theft of trade secrets is classified as a misdemeanor, with potential jail time and fines that reflect the state’s penalty structure. Other states may treat similar conduct as a felony, particularly when the financial impact is significant.

Beyond fines and incarceration, convictions can lead to collateral consequences such as:

• Loss of professional licenses or certifications.
• Difficulty obtaining future employment, especially in sensitive industries.
• Exposure to parallel civil suits seeking damages.

Common Defenses and Lawful Conduct

Not every competitive move that exploits similar ideas or products amounts to criminal trade secret theft. Several defenses and lawful practices may defeat or limit criminal liability.

Reverse Engineering and Independent Development

One recognized defense is reverse engineering, where a person lawfully acquires a product and then analyzes it to discover how it works. The Supreme Court has recognized that trade secret law does not protect against discovery by honest means such as independent invention or reverse engineering.

Similarly, parallel or independent development of a similar technology—without using another company’s trade secrets—is generally not considered theft.

• Obtaining information from publicly available sources is not trade secret theft.
• Developing a competing product from scratch, without misappropriation, is typically lawful.

Challenging Trade Secret Status

A defendant may argue that the information at issue was not a trade secret because it lacked economic value, was widely known, or was not subject to reasonable secrecy measures. If the information is readily ascertainable or disclosed without restriction, criminal liability is harder to establish.

Lack of Required Intent

Criminal statutes require a specific intent to benefit someone other than the owner and to injure the owner economically. A defendant might argue:

• They reasonably believed they had authorization to access or use the information.
• They did not intend economic harm.
• They did not know the information was proprietary or confidential.

While such arguments are fact‑specific, they can be central to defending against criminal charges.

Practical Steps for Businesses to Prevent Criminal Theft

Because trade secret theft can trigger both criminal and civil proceedings, companies benefit from proactive measures that reduce risk and strengthen their position if misconduct occurs.

• Identify and classify trade secrets – Determine which information has economic value and needs enhanced protection.
• Implement access controls – Limit access to sensitive information to employees and contractors who truly need it.
• Use contractual protections – Employ confidentiality agreements, non‑disclosure obligations, and clear policies regarding data handling.
• Training and awareness – Educate staff about what constitutes a trade secret and the consequences of misuse.
• Incident response planning – Develop a plan for investigating suspected trade secret theft, preserving evidence, and engaging law enforcement when appropriate.

These steps both reduce the likelihood of theft and help demonstrate that the company took “reasonable measures” to keep its information secret—an important element for any trade secret claim.

Frequently Asked Questions (FAQ)

Is all misuse of confidential information a crime?

No. Misuse of confidential information may lead to civil liability without necessarily meeting the requirements for criminal prosecution. Criminal cases generally require intentional, wrongful conduct aimed at economic benefit and harm, along with satisfaction of statutory elements.

Who brings criminal trade secret cases?

Criminal trade secret prosecutions are brought by government attorneys—typically federal prosecutors under the Economic Espionage Act, and sometimes state prosecutors under state statutes. Businesses may report suspected theft and cooperate, but they do not directly control criminal charges.

Can employees be prosecuted for taking information when they leave a job?

Yes, if the departing employee intentionally takes trade secrets without authorization and intends to use them to benefit a new employer or personal venture, they may face criminal charges, particularly where the information relates to products in interstate commerce and harm to the former employer is foreseeable.[10]

What if the information was already public?

If information is already publicly available or easily obtainable, it generally does not qualify as a trade secret. In such circumstances, both criminal and civil claims become more difficult to sustain.

Can a company be prosecuted even if only one employee acted?

Yes. Organizations can face liability for trade secret theft based on the actions of employees acting within the scope of their employment or on behalf of the company. In such cases, the organization may be fined under § 1832’s corporate penalty provisions.

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Author

medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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