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What is the Punishment for Trade Secret Theft?

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  • Written By: C. Mitchell
  • Edited By: Lauren Fritsky
  • Last Modified Date: 09 December 2016
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Trade secrets can be one of the most ambiguous intellectual property rights to protect and enforce. Unlike trademarks, copyrights, and patents, trade secrets cannot generally be registered or preemptively protected. Most laws set out definitions of what kinds of information constitute trade secrets, but there is not usually such a thing as a “registered trade secret.” In practice, this often means that it can be harder to prosecute misuse of trade secrets, though misuse is punished almost everywhere. Penalties for trade secret theft vary by jurisdiction, but typically range from monetary damages and profit disgorgement to information surrender and sometimes even jail time.

The crime of trade secret theft, often also called trade secret misappropriation, occurs when someone knowingly accesses and uses the protected information of another. Local statutes define what “protected information” qualifies as a trade secret, but common examples include business plans, sales models, marketing strategies, and sometimes even customer lists. Any proprietary information that helps a person or company do business, or any data that is crucial to how an operation works, often falls under the definition of a trade secret.

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Proving trade secret theft is often the hardest part of recouping damages. Owning information that qualifies as a trade secret is a start, but that in and of itself is not usually enough to bring a trade secret theft lawsuit. In order to punish an alleged trade secret thief, a court must be convinced not only that trade secret-worthy information existed, but also that it was intentionally taken by another for some malicious purpose.

Judges usually look to trade secret statutes in order to make this assessment. In the United States, the law of trade secrets is codified at the state level. Nearly all of the states have codified versions of a model trade secrets law known as the “Uniform Trade Secrets Act,” or UTSA. The UTSA proscribes a standard definition of trade secret and offers a set of recommended penalties for trade secret theft. Neither the UK nor Canada has any official statutory protections against trade secret theft, although each of those countries has an active body of precedential case law that judges apply when considering trade secret cases.

Most of the time, penalties for trade secret theft concern money. Those who are found liable for trade secret theft are often required to surrender any money they made by using the trade secret. They usually must also compensate the trade secret owner for lost profits and damaged image caused by the misappropriation. Sometimes, courts will order trade secret thieves to pay additional money as a penalty for the crime. These kinds of awards are known as punitive damages.

Not all punishments are monetary, however. If the alleged trade secret theft was by an employee against either a present or past employer, he or she may be fired. Similarly, if that employee had signed a confidentiality or non-compete agreement, he or she may be punished for breach of contract and unfair competition. If the trade secret theft involved fraud, either in the theft itself or in the later use of the stolen information, jail time is also usually a possibility in most places.

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