By Richard Horowitz
Richard Horowitz & Associates
Attorneys at Law
Law and ethics are important aspects of competitive intelligence, both to the CI practitioner and firm and to the corporate clients who use their services. They are also topics that have generated much concern regarding the acquisition of a competitor’s confidential information. In fact, however, CI, properly conducted, is not only legal but actually encouraged by the law.
In 1998, I published a paper in Competitive Intelligence Review entitled The Economic Espionage Act: The Rules Have Not Changed. The Economic Espionage Act of 1996 (EEA) made trade secret misappropriation – stealing a trade secret – a federal crime, this, for the first time in U.S. history. Prior to the enactment of the EEA, trade secret misappropriation was a matter of state law only. Despite the attempts by some to use the EEA to argue that CI professionals now face new legal risks, I argued that nothing really changed. The EEA only gave jurisdiction to federal authorities to get involved in activities that had already been illegal under state law. Companies that had been practicing CI legally would be unaffected by the EEA.
In the summer of 1998, SCIP’s Board of Directors adopted a Policy Analysis I wrote at its request entitled Competitive Intelligence and the Economic Espionage Act and made the Policy Analysis public at its 1999 Convention. In 2011, I published Competitive Intelligence, Law, and Ethics: The Economic Espionage Act Revisited Again (and hopefully for the last time), reviewing the matter and further emphasizing my position.
THE LEGAL VALIDITY OF CI
The key to understanding the legal validity of CI can be found in the Restatement of Torts, published in 1939: “The privilege to compete with others includes a privilege to adopt their business methods, ideas, or processes of manufacture. Were it otherwise, the first person in the field with a process or idea would have a monopoly which would tend to prevent competition (Section 757).” Trade secret law allows one to “figure out” another’s trade secret or confidential information, provided all the means used to acquire that information were themselves legal. As the Restatement explains, the privilege to compete is limited “when the thing copied is a trade secret.” “It is the employment of improper means to procure the trade secret, rather than the mere copying or use, which is the basis of the liability under the rule in [Section 757] (Comment a).”
These legal concepts put into perspective why properly trained CI professionals should not run afoul of trade secret law and why the EEA does not alter this perspective. As the law allows for acquiring information on a competitor as part of healthy business competition, the appropriate legal standards by which this is to be accomplished have been instilled in the CI profession over the years. The methods employed by properly trained CI professionals are therefore inherently legal, even if that professional cannot articulate the legal rationale underlying them.
THE DEFEND TRADE SECRET ACT OF 2016
Whereas the EEA is a federal criminal statute, the Defend Trade Secrets Act of 2016 established a civil federal civil cause of action for trade secret misappropriation, meaning, a trade secret holder can now sue someone for allegedly stealing their trade secrets in either state or federal court. As with the EEA however, this does not change the central issue of relevance for CI professionals – were “improper means” used in acquiring your competitor’s trade secret information.
The added “risks” of these federal criminal and civil trade secret statutes are of no consequence to the professional who have been practicing CI in a legal manner all along. Moreover, in practice one will generally find that a company’s ethical guidelines or policy is stricter than what the law allows. In other words, it is common practice that matters that seem questionable or unseemly but are in fact legal, are prohibited by a company’s ethical guidelines.
An understanding of trade secret law therefore not only leads to the conclusion that CI is legally valid but also encouraged by the law. Indeed, in my opinion the most significant passage from SCIP’s Policy Analysis on the EEA is: “Companies who have curtailed their CI efforts out of a misplaced fear of the EEA have awarded a competitive advantage to companies whose CI activities continue unimpeded.”
Richard Horowitz is an attorney who has been consulting on CI, law and ethics for 20 years. He has spoken at numerous SCIP annual conventions and chapter meetings and has advised corporations from various industries, including pharmaceuticals, telecommunications, financial services, computer and software, and aviation, regarding the legal and ethical aspects of competitive intelligence and corporate compliance. His writings on these issues can be found on his website (www.rhesq.com). He tweets @rhesqnyc.