A Short Review of the Economic Espionage Act Debate

[Arik Johnson]

Richard Horowitz, one of the authorities on CI ethics and the law, has sent the following retrospective around to colleagues in the field. I asked if he'd mind if I cross-posted here on his behalf for discussion. Both Richard and I are looking forward to hearing what everyone thinks; if you believe as I believe, had Richard's position on the subject been listened/adopted to more deeply so many years ago, CI would be a much more important field today. Please let us know what you think - the following is reprinted on Richard's permission. - Arik

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It is ten years this month since the National Law Journal reported on the Policy Analysis that SCIP’s Board of Directors asked me to write on the Economic Espionage Act (EEA).  SCIP’s board adopted this analysis as the society’s policy and made it public at its 1999 annual convention.  After ten years I thought it appropriate to review the issue.

 

Competitive Intelligence is not an inherently legally risky profession.  In response to the passage of the Economic Espionage Act in October 1996 however SCIP held a two-day symposium on the implications of this new law.  While many lawyers on the first day of the conference took the position that the EEA drastically changed how CI professionals should carry out their professional responsibilities, I stated the following on the second day of the symposium:

[That] the EEA was not intended to regulate the CI community nor was it developed in response to any problems arising from the CI community; that the EEA does not change the rules of the game-only the consequences of violating them, and that my concern was not that the Department of Justice would misuse this law but that companies and their attorneys might attempt to use the EEA to intimidate their competitors who are attempting to collect competitive intelligence on them.

In 1998 I wrote a detailed legal analysis of this issue: The Economic Espionage Act: The Rules Have Not Changed,Competitive ....  This passage from my article emphasizes the scope of the misinformation the CI industry had to contend with:

Adding to the confusion regarding the EEA has been series of articles and presentations that has created the impression that the EEA fundamentally alters how CI professionals must conduct their affairs: "New Spy Law Could Cramp Economy," "New Spy Act To Boost White-Collar Defense Biz," "Go Directly To Jail: New Federal Law Protects Trade Secrets," "U.S. Economic Espionage Act: Tough EEA Enforcement Reveals Need for Strict Compliance," "The Economic Espionage Act: A Wake-Up Call," "The Economic Espionage Act: Turning Fear Into Compliance," "Economic Espionage Act: A Whole New Ball Game." Among the more notable assertions:

 

"Your industry is crawling with criminals. And you maybe one of them. So might your company. . . Cases involving a customer list used to be a concern only of private lawyers; now they can be investigated by the FBI and prosecuted by the Department of Justice.  All of this came about with the enactment of the [EEA]… the fact of its passage will surely lead to greater interest infederal jurisdiction over civil trade secret disputes."

 

After debates with lawyers at various conferences throughout the coming year, SCIP asked me to write its policy analysis on the EEA – SCIP Policy Analysis on Competitive Intelligence and the Economic E... – which as I stated above SCIP’s board adopted as the society’s policy and made public at its 1999 annual convention.  The Policy Analysis contains letters of endorsement from three legal authorities, Elkan Abramowitz, Mark Halligan, and Peter Toren.

 

Before publishing this analysis I met with the FBI’s deputy general counsel who told me that the intention of the EEA was to foster competition, not stifle competition, that the FBI is not in the business of resolving trade secret disputes, and that by enacting the EEA, there was no intention to change the intricacies of trade secret law.  Our exchange of correspondence: Correspondence with FBI Deputy General Counsel on the SCIP EEA Poli....

 

A year later The National Law Journal reported on this matter: National Law Journal article on SCIP's Policy Analysis on CI and th....  The article stated that [SCIP] was “hypersensitive about suggestions that their work is espionage or industrial spying” so they asked me to “prepare[d] an analysis of the new law [which] conclude[ed] that its impact on legitimate competitive intelligence gathering would be negligible.  Nearly four years later, it appears that Mr. Horowitz' predictions were on target.”

 

In the conclusion of my 1998 The Rules Have Not Changed article I wrote the following: “Perhaps the most important lesson to be learned from this matter is that the ethical standard is more restrictive than the legal standard.  Properly trained CI professionals who recognize what this standard means and have incorporated it into their business practice need not be distracted or concerned by the EEA debate.”

 

Along these lines I believe of interest to SCIP members are the revisions SCIP’s then Ethics Chair, Carl Ward, asked me to make to its Code of Ethics.  SCIP’s Board of Directors incorporated these revisions into the society’s Code: Correspondence with former SCIP Ethics Chair on the Revision of SCI....

Also of interest, in 2004 I co-authored an article with Jan Herring: Forging a Strategic Alliance with Your Legal Department, with Jan H....

After giving numerous presentations throughout the years at SCIP annual conventions and chapter meetings on the legal and ethical aspects of CI, I decided to give a slightly different presentation at SCIP’s 2009 convention which I titled “Is The CI Industry Obsessed With Ethics?”  The opening sentence of the presentation’s description:

 

Ethics remains a matter of serious concern for all CI professionals and often creates distress and acrimonious debate within the CI industry.  But should this be?  Is the CI industry overly concerned with ethics or is what CI professionals do itself ethical? 

I gave this presentation to show that of all the information gathering professions, the CI industry is the most conservative in its information collection techniques yet at the same time the most preoccupied and scrutinized about law and ethics.  I explained how this developed and its implications.

I began this e-mail by stating that Competitive Intelligence is not an inherently legally risky profession.  In my 1998 The Rules Have Not Changed article I wrote that “Cl practitioners who are properly trained and abide by SClP's Code of Ethics should not run afoul of trade secret law or the EEA. This is because the appropriate legal standards have been instilled in the CI profession in the decade that SCIP has been in existence. Again, from personal experience I know many CI professionals who ‘are doing everything right’ from a legal perspective but cannot explain why this is so in legal terms.”

This remains true today.  I concluded my 1998 article with the following: “Finally, I encourage those who disagree with any part of my analysis to critique or challenge it in writing.”  To date no one has and my challenge still stands.

 

Richard Horowitz

Richard Horowitz & Associates

Attorneys at Law

450 Seventh Avenue, 9th Floor

New York, NY  10123

Tel: [phone]

Fax: [phone]

E-mail: [e-mail]

www.rhesq.com

www.InternationalSecurityResources.com

[Tadeusz Lemańczyk]

Where I would be allowed to examine "a slightly different presentation at SCIP’s 2009 convention which" Richard Horowitz "titled Is The CI Industry Obsessed With Ethics?"?

[Richard Horowitz]

Ask SCIP if they taped the 2009 presentations.


Richard Horowitz

[Tadeusz Lemańczyk]

For example, does the word "deception" [1 [U] the act of deceiving 2 [C] something that deceives; a trick (Longman Interactive American Dictionary ©Addison Wesley Longman 1997)] appear in your presentation "Is The CI Industry Obsessed With Ethics?"? Because it appears in § 1832. Theft of trade secrets ["steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information" ( http://www.tscm.com/USC18_90.html )]. Is the CI industry really obsessed with that word? Should therefore the technique of gathering information like that ( http://fedcba.ning.com/xn/detail/2516803:Comment:10538 ) acceptable in police investigations be also acceptable in Competitive Intelligence work?

[Richard Horowitz]

What point are you trying to make?

[Tadeusz Lemańczyk]

Not ethics differentiates Competitive Intelligence from Industrial Espionage [thanks to you, Industrial Espionage outlined anew by me to my Polish students yesterday ( http://fedcba.ning.com/xn/detail/2516803:Comment:10547 )] but law.

[Tadeusz Lemańczyk]

Let me add from yesterday's comment of Monika Zalewska ( http://fedcba.ning.com/profile/MonikaZalewska ), one of those Polish students, the following words:

for a considerable part of society (and especially in "the battle" called business, which is nowadays played all over the world) moral rules simply don't exist
[dla sporej części społeczeństwa (a szczególnie w prowadzonej dziś na całym świecie "bitwie", jaką jest biznes) prawo moralne zwyczajnie nie istnieje]
http://fedcba.ning.com/xn/detail/2516803:Comment:10571

[Tadeusz Lemańczyk]

Believe me, Arik, I've been examining very carefully publications quoted by you ( http://rhesq.com/CI/CIR.pdf , http://rhesq.com/CI/SCIP%20EEA%20Policy%20Analysis.pdf , http://rhesq.com/CI/FBI%20Correspondence%20.PDF , http://rhesq.com/CI/National%20Law%20Journal.pdf , http://rhesq.com/CI/Code%20Correspondence.pdf , http://rhesq.com/CI/CI%20Mar_Apr%2004%20Herring%20A.pdf ). I'll return to them tomorrow. Let me therefore write now only about one thing. One of my students incited me yesterday to apply two old American posters ( http://fedcba.ning.com/xn/detail/2516803:Comment:10416 ). Why in the second of them is that soldier encouraged to tell his girl only that he loves her, and nothing more? :-)

[Claudia Clayton]

Thanks for posting this Arik. I am a relative newcomer to CI - only 8-9 years now - than some of you. It was invaluable to me when I began in this specialty to understand the legal and ethical issues in a way that I could APPLY and do this work. Two different opportunities to hear Richard provide his insight which was both accurate and practical were the key to everything I have done since. Richard provides the clearest and most pragmatic approach to this I have heard. While specific companies or clients should and sometimes do provide further guidance on certain projects for certain activities, Richard offers an excellent baseline which serves as a compass for what to do and not do overall. So far, I haven't run into anyone who disagrees!

Claudia

[Tadeusz Lemańczyk]

The crucial definition for our discussion is that of "trade secret" ( http://www.tscm.com/USC18_90.html ), isn't it? I'd like to begin with the following question. To be a trade secret, "the information" must "derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public". At http://www.lawguru.com/cgi/bbs/user/faq.cgi?id=260 , it is described as follows "To be a trade secret the information must have some value due to its secrecy. This criteria is almost always proven when secrecy is proven, since companies typically do not put forth effort in a lawsuit to protect and recover control of valueless information." All of us know that very often a real trade secret emerges from behind the sum of many pieces of information. That "sum" is kept secret by the owner but those "many pieces" are not. Is therefore CI's destiny to achieve ethically the same thing which intelligence gathering thieves try to achieve illegally?

[Mark Johnson]

The issue was important then and now. The law as written certainly raised cautionary flags which were vital for CI professionals to consider. Like many of the laws congress passes, however, this one played out very differently in enforcement. The first prosecution of this law to actually result in jail time was in 2008 - fully 12 years after the enactment of the act. The DFW SCIP chapter has twice had FBI agents charged with enforcing this particular act speak to our chapter about their insights and experiences. In many instances in early years of the act, there were more instances of scaring off the perpetrators rather than capture and prosecution. The first convictions have been very egregious instances which clearly have had foreign espionage involvement - foreign corporations at the least, with some hints of foreign government complicity.

I believe CI ethics have been made more clear because this act forced us to more clearly define our boundaries. Most CI professionals never got anywhere near the level required for this act to kick in. But discussion of the principles caused us to better define the shades of grey at the fringes of acceptable practice.

[Richard Horowitz]

Mark,

I agree with most of what you wrote except this - the law, I presume you're referring to the EEA - didn't raise cautionary flags which were important for people to consider. It only gave juridisdiction for federal authorities to get involved with these matters. It didn't change what you could or couldn't do.

I agree with what you wrote: "I believe CI ethics have been made more clear because this act forced us to more clearly define our boundaries"

I wrote the same things in my 2002 rebuttal piece (on my website www.rhesq.com) "In short, rather than present risks and threats to corporate America, the EEA has enhanced the practice of competitive intelligence. By highlighting illegal activity, the EEA has emphasized the legality of accepted competitive intelligence techniques."

I also agree with this that you wrote: "Most CI professionals never got anywhere near the level required for this act to kick in."

Again, I wrote this in my 1998 The Rules Have Not Changed article (also on my website): "Competitive intelligence "gray zone" hypotheticals do not entail the type ofimproper behavior anticipated by trade secret law."

The key to all of this is understanding that the EEA only created federal jurisdiction and not any new prohibited activities. That's why it was so clear, to me at least, when the EEA was passed in 1996 that CI won't be affected.

Richard Horowitz

[Seena Sharp]

Richard, you continue to provide the information we need to know and need to re-examine on a somewhat regular basis. Reviewing this clearly details what's changed / not changed - the very essence of CI. Thanks for this update.