The economic sector is comparative at the governmental and private level. At the private level, firms strive to outdo each other with the aim of gaining competitive advantage. Equally, countries compete at the international level with the intention of enhancing economic stability. Therefore, this quest for economic supremacy at the private and governmental levels provides a fertile breeding ground for illegal and unethical acts such as economic espionage and misappropriation of trade secrets. At the corporate level, misappropriation of trade secrets can result in a firm accruing significant financial losses. As a result, governments have devised strict policies to combat misappropriation of trade secrets. This paper explores the instrumental concepts of economic espionage and misappropriation of trade secrets with the goal of outlining their effects on organizational activities and ways of preventing them.
The Economic Espionage Act of 1996 (EEA) describes economic espionage as the misappropriation of trade secrets with the intention of benefiting a foreign government, foreign instrumentality, or a foreign agent (Sims & Gerber, 2008). A trade secret, in this case, is confidential business information that serves as the fundamental competitive tool for a company. For instance, in a chemical manufacturing firm, the documents involving all the formulas to develop the various chemicals are the company’s trade secret. As stated by Sims and Gerber (2008), the United States’ attorney general points out that economic espionage targets sensitive financial, trade, and economic policy information.
Before the enactment of the Economic Espionage Act of 1996 (EEA), a policy gap existed in addressing economic espionage-related claims. Before EEA, prosecutors lacked effective tools to prosecute the individuals involved in economic crimes (Jarrett, 2009). However, the EEA has significantly enhanced the security of the United States’ economic sector. Even so, at present, experts opine that the policy needs to keep up with the rapid technological advancements experienced in the commercial industry. In this respect, several amendments are likely to be proposed on the law in future.
Importantly, several issues are involved in investigating economic espionage and trade secrets to determine the direct and indirect impact on the organization. In keeping with Jarrett (2009), these issues include the level of economic injury caused by the act to the owner of the information and the scope of criminal activity. Although all trade secrets are vital to a nation or the organization that possesses them, they have varying degrees of significance. For instance, trade secrets that are still in the development stage are not as important as those that are already in operation. Besides, information can affect the firm directly or indirectly. As a result, the investigators first cooperate with the aggrieved party to establish the potential damage that the stolen information is likely to cause (Jarrett, 2009). The establishment of the potential harm identifies the urgency in which the case should be handled.
Therefore, the process of determining the potential harm is not challenging since most organizations know the worth of each trade secret they possess. In this respect, the higher the damage, the greater the urgency that investigations should be handled to avoid the trade secret being misused. Another vital issue involved in the investigation process is determining the scope of criminal activity. As Jarrett (2009) expounds, the scope assessment involves evaluating if the criminal act involves international players. The wider the scope of the espionage, the greater the economic loss an organization is likely to incur.
Because of the substantial economic loss that emanates from the misappropriation of trade secrets, experts have developed several strategies for keeping trade secrets safe. According to Robertson, Hannah, and Lautsch (2016), measures such as non-disclosure agreements and limiting the physical and electronic access to confidential files have been outlined as the most effective. Importantly, experts advise organizations to keep updating these measures regularly to maintain their effectiveness.
The primary difference between misappropriation of trade secrets and economic espionage is that the latter is characterized by the involvement of a foreign nation. Thus, misappropriation of trade secrets is more damaging to a victim than economic espionage because of its narrow scope. The revealing of a firm’s trade secrets has an immediate impact on its profitability. However, the diverse nature of a nation’s economy insulates it from the adverse implications of economic espionage. In case an organization falls victim to these criminal acts, it can use legal remedies to sue the perpetrators and subsequently block the use of the stolen information. In the United States, for instance, the EEA specifies the legal punishment of individuals or agencies that are found guilty of stealing trade secrets.
The sensitivity of trade secrets calls for the execution of a well-protected investigation and prosecution process to avoid divulging the trade secret. According to Jarrett (2009), this goal is attained through the confidentiality provision of the EEA. The confidentiality provision of the EEA allows protective orders to be attained during the various stages of the legal process. For instance, the protective order limits the number of people who access the trade information during the hearing and also restricts its usage during the legal presentation.
Although the legal system plays a significant role in combating economic espionage or misappropriation of trade secrets, this function becomes complex if a foreign entity is involved. In particular, the involvement of a foreign entity introduces complications such as restricting the freedom of law enforcement agencies to conduct their investigations. Notably, Sims and Gerber (2008) point out that the involvement of a foreign entity attracts the interest of the foreign government, thus complicating the investigation process. In some cases, such a situation results in the deterioration of the diplomatic relations between the involved nations due to conflicting policies on trade secrets.
Economic espionage is on the rise in the contemporary society due to competitive nature of the business environment and advancements in technology. Misappropriation of trade secrets results in significant economic losses on the victim organization. As a result, experts advise that firms should use strategies such as non-disclosure agreements and limiting the physical and electronic access to confidential files to ensure the safety of trade secrets.
- Jarrett, M. H. (2009). Economic Espionage and Trade Secrets. United States Attorneys’ Bulletin, 57(5), 1-69.
- Robertson, K. M., Hannah, D. R., & Lautsch, B. A. (2015). The secret to protecting trade secrets: How to create positive secrecy climates in organizations. Business Horizons, 58(6), 669-677.
- Sims, J. E., & Gerber, B. (Eds.). (2008). Vaults, Mirrors, and Masks: Rediscovering U.S. Counterintelligence. Washington D.C: Georgetown University Press.
