What would constitute industrial espionage?

An industry representative asked the following question: Competing companies sometimes go to considerable lengths to gather information on each other. Are there limits on how far a company can go in this area? What are the potential impacts of using information gained through industrial espionage?

To survive in the competitive marketplace, most companies employ some form of competitive analysis to help them understand the relative strengths and weaknesses of their own and their competitors' products and prices. Much of the information is publicly available, and it is a relatively simple matter to organize and analyze it. There is nothing wrong with this practice. However, having access to publicly available information, no matter how well-organized, may not be much help in the process of preparing a competitive proposal.

For these reasons, some companies work hard to find information on their competitors that is not publicly available. How far a company can go to find this information is governed by a number of different laws.

Historically, the federal government's primary role in this area has been through the implementation of the patent system, which was established by the Constitution. The definition of a patentable idea is limited to a new and useful process, machine, manufacture, composition of matter, any new and useful improvement thereof, or a new, original and ornamental design for an article of manufacture. Patent holders are granted a limited monopoly to exploit a patented invention for a fixed number of years, after which it becomes generally available to the public. Patent protection is exclusively within the federal domain, and any attempt by a state to enact similar laws would be unconstitutional. [See, for example, Bonita Boats Inc. v. Thunder Craft Boats Inc., 489 U.S. 141 (1989), in which a Florida statute offering patent-like protection for ideas deemed unprotected under the federal patent scheme is unconstitutional.]

On the other hand, every state has developed laws to protect other types of trade-secret information from misappropriation by those who are not entitled to it. These laws typically define a trade secret broadly to include any formula, pattern, device or compilation of information that is used in one's business and that provides an opportunity to obtain an advantage over competitors who do not know or use it.

Generally, these laws prohibit persons from obtaining or using trade secrets of another without appropriate permission. The remedies for violation may include civil or even criminal liability. At a minimum, the party that is harmed can sue the offenders for damages and for injunctive relief to stop the improper use of the information. Such state laws are generally constitutional. [See, for example, Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), in which states are not forbidden to protect the kinds of intellectual property that may make up the subject matter of trade secrets.]

Trade secrets laws of this type prohibit the employment of "improper means" to procure the trade secret. Improper means include, but are not limited to, the use of illegal techniques. For example, courts have found that the use of aerial photography to spy on a construction site can constitute the acquisition of trade secrets by improper means even though no law is broken in the process. [See E.I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970).]

The term "industrial espionage" generally refers to the use of illegal or otherwise improper means to acquire trade secrets. Because direct evidence of industrial espionage is rarely available, it is not required in a suit by a wronged party. The wrongful taking of a trade secret can be found on the basis of circumstantial evidence alone.

In 1996 Congress enacted the first federal statute intended to protect owners of trade secrets against misappropriation. Thus, 18 U.S.C.:1832 subjects those who steal trade secrets to a possible 10-year prison sentence and substantial fines. Persons subject to this statute include those who copy, duplicate, sketch, draw, photograph, download, upload, alter, destroy, photocopy, replicate, transmit, deliver, send, mail, communicate or convey such information. Also subject to penalties are people who receive, buy or possess such information knowing it was stolen or otherwise obtained without permission.

Even before 1996, a company that was discovered using industrial espionage to gain an advantage in a government procurement could be eliminated from the competition on that basis alone. For example, in Compliance Corp. (B-239252, Aug. 15, 1990, 90-2 CPD 126), the General Accounting Office approved a Navy decision to exclude the protester from participating in a procurement on that basis.

There are many legitimate means of gathering information on a competitor, and companies should not shy away from using them. However, companies should ensure that their efforts to gain a competitive advantage do not put the company at risk.

-- Peckinpaugh is a member of the government contracts section of the law firm Winston & Strawn, Washington, D.C.


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