Addressing Criminal Liability for Misuse of Trade Secrets Under Australian Law: Is the Current Legal Framework Adequate to Protect the Interests of Owners of Trade Secrets?

Abstract

The emergence and dominance of knowledge-based economies have heightened the importance of trade secrets as a “currency” for attaining competitiveness in the market and driving innovation. Yet espousing policies to govern trade secret protection, especially in the criminal law sphere, was not something on which legislative and regulatory policymakers traditionally focused. Recent legislative incentives at a global level have caused the tide to shift and, after decades of being somewhat neglected, the questions pertaining to criminal liability for trade secret misuse are finally gaining attention. The Australian response to recent initiatives ensued in 2018 with the enactment of the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) (“EFI Act”) which introduced the first statutory provisions dedicated to criminalisation of state-sponsored theft (economic espionage) of trade secrets. This Act, however, does not provide a comprehensive legal framework to address criminal liability for trade secret misuse, as it leaves outside the scope of its regulation the criminalisation of the theft of trade secrets by individuals for their own benefit. This paper analyses the adequacy of the Australian legal regime concerning criminal liability for trade secret misuse. The analysis is informed by a comparison of the legal provisions of the Australian trade secret regime with that adopted in the United States (“U.S.”) which currently offers a comprehensive framework of protection and criminalises economic espionage as well as the theft of trade secrets. This comparative analysis serves to determine: first, whether the “one way” avenue of statutory protection under Australian law suffices to protect the interests of the owners of trade secrets; and, second, whether a potential reform of the regime designed to include dedicated statutory provisions to criminalise the theft of trade secrets, as is the case in the U.S., could potentially afford a more adequate protection of the interests of trade secret owners.

1 Introduction

The current economic environment featured by the dominance of knowledge-based economies has heightened the importance of commercially valuable information as a “currency” for attaining competitiveness on the market. This has, in turn, piqued the interest and use of legal mechanisms that afford their protection, such as trade secrets and patents.¹

The proliferation of trade secrets as a vehicle directed to this end finds its rationale in the advantages they offer over patent protection. For example, when compared to patents, trade secrets protect a wider scope of information,² have a longer “lifespan”,³ and do not require formal approval from a governmental agency as a prerequisite for establishing protection. This in turn allows the process of obtaining trade secret protection to be cheaper⁴ and faster.⁵ These features make trade secret protection an attractive tool for all commercial entities and a particularly suitable and perhaps often the only viable option for small and medium-sized businesses/start-ups with limited financial capacity.⁶

Yet espousing policies to govern their protection was not something on which regulatory and legislative policymakers were traditionally focused. Since the first trade secret cases emerged in the early nineteenth century in England⁷ and the U.S.,⁸ there have been very few attempts to harmonise trade secret law at an international level.

The international treaties touching on the subject are the Paris Convention for the Protection of Industrial Property⁹ and the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).¹⁰ Both Agreements offer very limited guidance on their governance. For instance, pursuant to Art. 39, TRIPS obliged the countries that have signed it to protect “undisclosed information” (a term which encompasses trade secrets) “for the purpose of ensuring effective protection against unfair competition”.¹¹ The Agreement subsequently defines “undisclosed information”¹² and acknowledges the right of its owner to protect it against its disclosure, acquisition or use by others “in a manner contrary to honest commercial practices”.¹³ Nevertheless, TRIPS offers no specific details on how the protection of “undisclosed information” should be enforced under the national regimes or whether they should impose both civil remedies and criminal law penalties. Consequently, defining trade secrets and determining methods for their protection has been left to the national case law and legislation.

A resulting patchwork of regimes has proved inapt for the protection of trade secrets, spawning conflicting results when applied in practice, given that the specific state law versions exhibited differences as to what constitutes a trade secret, the requirements in proving misuse, and a range of procedural aspects.¹⁴ It has been suggested that the lack of uniformity has conspired to increase the risk of trade secret misuse, makes litigation time-consuming, resource-intensive and, perhaps most notably, reduces the incentive for innovation.¹⁵

This paper probes the Australian legislative framework that addresses criminal liability for trade secret misuse in instances including state-sponsored theft (economic espionage) and theft by individuals for their personal benefit. Section 2 of this article provides an overview of the existing law governing civil liability for trade secret misuse in Australia. Providing a broader overview of the existing trade secret regime serves to assess its effectiveness and outlines the justifications for its potential supplementation by criminal law sanctions. Section 3 focuses on an analysis of the provisions related to state-sponsored theft of trade secrets. The analysis commences with an introduction to the legislative backdrop preceding the enactment of the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) (“EFI Act”),¹⁶ which, inter alia, introduced provisions for sanctioning the state-sponsored theft of trade secrets under Division 92A. Further inquiry is made into the legislative solutions prescribed under Division 92A of the EFI Act in order to identify potential “deficiencies” in its wording. Section 4 focuses more closely on an analysis of the theft of trade secrets by individuals. All sections assess the effectiveness of the Australian regime vis-à-vis the solutions contained under the U.S. trade secret regime. The comparative approach has been adopted given that the U.S. currently has the most comprehensive trade secret regime.¹⁷ The U.S. framework for the protection of trade secrets is based on the principles enunciated under the Restatement (First) of Torts (“Restatement”),¹⁸ and the state model laws drafted upon the Uniform Trade Secrets Act (“UTSA”)¹⁹ addressing civil liability as well as the state-enacted provisions to criminalise the theft of trade secrets.²⁰ Another pillar of trade secret protection exists at the federal level under the Economic Espionage Act 1996 (“EEA”)²¹ and its amendment under the Defend Trade Secrets Act 2016 (“DTSA”).²²

The comparison of the regimes provides a basis for evaluation of any potential differences between the sources of law. It also lays down the foundations for drawing a conclusion in Sect. 5 as to whether the potential differences are likely to impact or undermine the efficiency of the Australian legal sources of protection or to create challenges for the owners of trade secrets when protecting their assets. This comparison further serves as a basis for providing concluding observations in Sects. 6 and 7 with respect to the necessity for re-evaluation and potential reform of the Australian regime which might foster trade secret protection in general.

2 Civil Liability for Misuse of Trade Secrets

2.1 The Australian Trade Secret Regime

The ever-increasing tendency of unlawful acquisition, use, and disclosure of trade secrets is something that Australia is certainly not immune to. Albeit dated statistics reveal concerning results, prompting a conclusion that the situation has “spiralled out of control”²³ in this country. This, it has been reasoned, was a direct consequence of the pressure to maintain competitiveness which, coupled with the spread of technological capability, makes the misuse of trade secrets a “preferred alternative” over the process of investing resources in research and development.²⁴ As discussed below, it might perhaps seem surprising that, until recently, there was no dedicated civil²⁵ or criminal body of law governing their protection.

In terms of civil law, instances exceeding contractual protection of confidential information led Australian judges to apply the equitable doctrine of breach of confidence. The primary legal vehicle that enables the enforcement of confidentiality under the doctrine is the action for breach of confidence.²⁶ The doctrinal foundations and elements of this action have evolved over time. The case law illustrates that courts have resorted to the application of property, contract, equity, tort, statute, good faith, and unjust enrichment principles to address breaches of confidentiality.²⁷ Nevertheless, at present, to succeed in an action for breach of confidence, the plaintiff needs to: (1) identify the information with precision; (2) adduce proof of its confidential character; (3) show that it was received or secured by the defendant in circumstances importing an obligation of confidence; and (4) prove actual or threatened misuse of the information.²⁸

2.1.1 Forms of Relief

Under the Australian confidentiality regime, the forms of relief in cases where a confidential obligation has been breached find their source in common law and equity. The Australian regime affords to the plaintiff means to restrain or to rectify the breach, via injunctive or monetary relief, respectively, which can extend inter partes and, by being sourced in equity, reach parties who are not privy to the contract. The injunctive relief comprises prohibitory or mandatory injunctions²⁹ and injunctions against a (former) employee (also known as barring or restraining orders).³⁰ It can also take the form of other injunctive-type orders such as search orders,³¹ and orders to deliver-up or destroy the material in possession of the defendant containing the wrongfully obtained confidential information or deriving from its misuse.³²

Instances where the confidential information has already been used or disclosed by the defendant, or where due to his or her actions such information has fallen into the public domain, are unlikely to be rectified via injunctions. The law must accordingly provide a vehicle to compensate a plaintiff for any loss suffered. The jurisdictional overlap between contract and equity allows for monetary relief for breach of commercial confidentiality to be granted, by way of common law damages, or by equity in the form of an account of profits,³³ equitable damages³⁴ or equitable compensation.³⁵ In Australia, exemplary damages are currently not available for equitable or contractual breaches of (commercial) confidence; they rest on the damages awarded for tortious breaches.

What might prove challenging in this context is the fact that the damages available to a successful party are calculated conservatively and are not as generous as damages awarded in the U.S.³⁶ This aspect of civil law enforcement might work unfavourably in terms of overall deterrence against trade secret misuse.

2.2 The U.S. Trade Secret Regime

The principles governing civil liability under U.S. trade secret law derive from both common law and statutes. The first pillar having a common law prominence consists of the principles encapsulated under the Restatement (First) of Torts (“Restatement”) promulgated in 1939.³⁷ Parallel sources for civil enforcement exist in state trade secret law regimes based on the Uniform Trade Secrets Act (“UTSA”) published in 1979, currently adopted in 51 states.³⁸ The most recent intervention in U.S. trade secret law occurred in May 2016 with the enactment of the federal civil statute under the Defend Trade Secrets Act (“DTSA”).³⁹ The driver for extending civil jurisdiction to the federal level was chiefly the need for “modernisation” of trade secret law.⁴⁰ Though the UTSA’s state-based laws already provided a civil cause of action against misappropriation of trade secrets, their “non-uniform” application spawned conflicting results when applied in practice at an interstate level given that the specific state law versions exhibited differences as to what constitutes a trade secret,⁴¹ the requirements governing proof of misappropriation, and procedural aspects.⁴²

Both the UTSA and the DTSA term the prohibited conduct “misappropriation”,⁴³ consisting of two potential prongs. One occurs in cases of wrongful acquisition via use of “improper means”⁴⁴ and the second via “wrongful use or disclosure in breach of confidence”.⁴⁵ The legislative texts also include guidance to assist judges when making a decision as to whether the defendant misappropriated the trade secret by using “improper means” or acted in “breach of confidence”.⁴⁶

2.2.1 Forms of Relief

Both instruments provide for a similar array of remedies. The successful party might seek an injunction to prevent actual or threatened misappropriation⁴⁷ and to enforce affirmative acts necessary to protect trade secrets.⁴⁸ When specifying the detailed injunction criteria, the DTSA drafters deviated slightly from the UTSA’s original text, focusing on the conditions upon which an injunction could be issued, whereas the UTSA text prescribes the terms under which an injunction could be terminated.⁴⁹ Moreover, the UTSA adopted the “lead time” approach stipulating that an injunction “(s)hall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation”.⁵⁰ The DTSA texts lacks this provision, but otherwise limits the conditions for issuing an injunction by specifying that an injunction be reasonable⁵¹ and not prevent a person from entering into an employment relationship,⁵² or conflict with an applicable state law prohibiting restraints on the practice of a lawful profession, trade or business.⁵³ Apart from these differences, both the UTSA and DTSA allow the court to grant payment of “reasonable royalties” in exceptional circumstances that would render an injunction inequitable,⁵⁴ although the phrasing of the respective provisions is slightly different.⁵⁵

The DTSA also stands as unique due to its implementation of a new injunctive mechanism: the ex parte seizure provision.⁵⁶ This mechanism allows courts, in extraordinary circumstances and based upon an affidavit or verified complaint, to issue an order to seize the “property necessary to prevent the propagation or dissemination of the trade secret the subject of the action”.⁵⁷

Both the DTSA and the UTSA provide monetary relief for actual loss⁵⁸ and any unjust enrichment⁵⁹ beyond the amount included in the actual loss caused by the misappropriation of the trade secrets, also authorising measurement by use of a “reasonable royalty” in cases where the injunction was inequitable.⁶⁰ Where the trade secret has been wilfully or maliciously misappropriated, exemplary damages of no more than twice the amount of damages previously determined may be awarded under both the UTSA and the DTSA.⁶¹ The DTSA finalises the regulation of the monetary relief by specifying that an award of attorneys’ fees or a motion to terminate an injunction will be granted if either the claim of misappropriation was made in bad faith,⁶² or the misappropriation is shown to be wilful and malicious.⁶³

2.3 A Comparison of the Regimes

The Australian and U.S. legal regimes have well-established mechanisms to address civil liability for trade secret misuse and provide means for redress. While providing a detailed analysis and comparison of the adequacy of the civil law mechanisms is beyond the scope of this article, the initial inquiry demonstrates that differences nevertheless remain and can prove challenging when trade secrets are placed in a cross-border context. The most fundamental difference is that U.S. law is now fully based on a statute that covers both civil state and federal law claims, whereas the Australian regime is governed by common law. While both systems have some advantages and disadvantages,⁶⁴ at present the U.S. statute-based approach might seem more suitable for protecting the interests of trade secret owners.

Namely, despite common law offering alleged flexibility in decision-making, businesses might see the common law approach as frustrating.⁶⁵ The common law regime brings uncertainty (as it does not limit the scope of rights) and is slow to develop (as the rules cannot be established prior to a case being brought to trial).⁶⁶ As noted by Caenegem et al:⁶⁷

Legislation has obvious advantages as a method of protecting intellectual property. In theory, at least, parliament, aided by advice from specialist bodies and committees, can reach decisions on all the factors involved in the extent and appropriate nature of protection, balancing questions of public access with fairness to the rights holder. It can also provide any administrative back-up necessary and monitor the system to determine whether changes might be required. Given the fast-moving nature of the subject and consistent historical link with the government interests … it is not then surprising to find the law of intellectual property dominated by statutory provisions. Even where protection did not originate in statutes … the need for appropriate regulation has forced parliament to introduce new statutory systems or to expand established ones. The benefits of registration and thus an a priori determination of the object of rights can only be obtained by statutory regimes.

Perhaps the Australian legislators could re-assess the adequacy of the current approach and follow the global trends that display a shift towards statutory regulation of misuse of trade secrets.⁶⁸ While the current regime offers some level of protection, it is characterised by unpredictability, challenging enforcement, and low amounts of damages.⁶⁹ As discussed in Sect. 5, such a regime might open avenues for wilful infringers to freely engage in trade secret misuse.

3 Criminal Liability for State-Sponsored Theft

3.1 The Australian Trade Secret Regime

Although Australia traditionally neglected the need for imposing criminal law sanctions for misuse of trade secrets,⁷⁰ its position recently changed pursuant to the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) which criminalised state-sponsored theft. As will be discussed further in this paper, Australia has, however, not pursued criminalisation of the theft of trade secrets by individuals for their own benefit.

This approach contrasts with that adopted in the U.S. where, for example, the theft of trade secrets was first rendered an offence at a state level in 1963⁷¹ and at a federal level in 1996.⁷² It is hence useful to inquire into the backdrop and motive for this statutory initiative in Australia, which appears to be a “one way” avenue for addressing criminal liability for misuse of trade secrets.

3.1.1 Legislative Intervention

The statutory regulation of economic espionage in Australia is a product of the broad reform of Australian federal espionage laws, culminating in the enactment of the EFI Act in 2018.⁷³ The need for reform resulted from the fact that existing legislation⁷⁴ proved outdated and lacked mechanisms to address contemporary forms of espionage.⁷⁵ According to the Australian Director-General of Security, the unprecedented level and threat of espionage was a direct consequence of the existing gaps in domestic law allowing foreign agents to steal Australia’s secret information, thereby prejudicing the national and economic interests of the country.⁷⁶ Hence, the legislature embarked on the initiative to amend the existing legislation and add new forms of espionage offences. The Director-General remarked that it was expected that the new laws would not just sanction espionage but would also have a deterrent effect against foreign spies, making Australia a “much harder target for foreign intelligence services”.⁷⁷ Justifying the need for legislative action, the Director-General stated that:⁷⁸

[F]acing no realistic prospect of criminal investigation and prosecution for their activities against us, our foreign adversaries are currently shielded from the significant disincentive of public exposure and punishment, and they are taking advantage of this gap.… Criminal prosecutions for espionage, foreign interference, secrecy, sabotage and economic espionage offences that are tested in our courts and reported in our media will send a very powerful message to those orchestrating such activity against us. Prosecutions will also discourage individuals from being caught up in these activities.

The response to this appeal was the enactment of the Espionage and Foreign Interference Act in June 2018. This Act repealed the existing scheme of four espionage offences under the Criminal Code Act 1995 (Cth),⁷⁹ via the introduction of 27 new offences. These offences criminalise a broad range of dealings with information including the theft of trade secrets on behalf of a foreign government.⁸⁰ As is generally the case with most criminal statutes, the criminalisation under this Act extends beyond the sanctioning of the actually committed offence to include penalties for its preparation, participation and planning.⁸¹

3.1.2 The Rationale Behind the Criminalisation of State-Sponsored Theft

The decision to make trade secret espionage an offence in Australia followed the revelation of statistics showing that foreign agents “were actively targeting intellectual property and trade secrets held by the private sector and universities, including medical research, mining and agricultural technologies, and data from the financial sector”.⁸² Nonetheless, the Law Council of Australia opposed the idea of criminalisation, arguing that civil relief would probably have been better suited to address these instances.⁸³

Despite the Law Council’s scepticism, the new offence was ultimately implemented through Division 92A in the Espionage and Foreign Interference Act, entitled “Theft of Trade Secrets Involving Foreign Government Principal”.⁸⁴ The offence criminalises dishonest dealings with trade secrets on behalf of a foreign government principal and can be prosecuted with the consent of the Attorney-General when established that:⁸⁵

(1)(a) the person dishonestly receives, obtains, takes, copies or duplicates, sells, buys or discloses information; and

(b) all of the following circumstances exist:

(i) the information is not generally known in trade or business, or in the particular trade or business concerned;

(ii) the information has a commercial value that would be, or could reasonably be expected to be, destroyed or diminished if the information were communicated;

(iii) the owner of the information has made reasonable efforts in the circumstances to prevent the information becoming generally known; and

(c) any of the following circumstances exists:

(i) the conduct is engaged in on behalf of, or in collaboration with, a foreign government principal or a person acting on behalf of a foreign government principal;

(ii) the conduct is directed, funded or supervised by a foreign government principal or a person acting on behalf of a foreign government principal.

Penalty: Imprisonment for 15 years.

Apart from defining the prohibited conduct⁸⁶ and providing a definition of a trade secret,⁸⁷ the Act gives only a cursory indication of the meaning of “dishonest” dealings.⁸⁸ Section 92A.1(2) of the EFI Act states that the notion targets dealings considered to be “dishonest according to the standards of ordinary people”⁸⁹ and “known by the defendant to be dishonest according to the standards of ordinary people”.⁹⁰ Section 92A.1(4)(a)–(b) also gives an indication that in the process of preparing, planning or committing the offence, the relevant “person does not need to have in mind a particular foreign government principal”⁹¹ and “may have in mind more than one foreign government principal”.⁹²

The relatively recent enactment of the EFI Act leaves no jurisprudence in terms of which the effect of the Act could be assessed. Some general perspective on its potential legal effect might be drawn via comparison to § 1831 of the EEA,⁹³ which targets the same conduct and exhibits a similar structure.⁹⁴

3.2 The U.S. Trade Secret Regime

3.2.1 The Rationale Behind the Criminalisation of Trade Secret Misuse

In the years following the promulgation of the Restatement and the UTSA,⁹⁵ trade secret misuse became a serious threat for the owners of trade secrets. The “rise” of the U.S. as a global technological leader attracted an increasing amount of international economic espionage against its industries by foreign countries which relied on spying to obtain information they had no capacity to develop on their own.⁹⁶ Both corporate and foreign raiders developed methods and techniques enabling them to misuse trade secrets, including the recruitment of insiders, targeting employees to voluntarily or involuntarily cooperate to obtain information, engage in cyber-intrusions, and establish joint ventures with U.S. companies.⁹⁷ According to the (then) FBI Director Louis J. Freeh, the ongoing investigation at the time revealed that 23 countries were involved in operations, causing U.S. trade secret owners nearly $100 billion in losses.⁹⁸ Apart from this economic harm, the trade secret misuse posed a threat to national security.⁹⁹ Evidence also indicated that foreign governments were targeting U.S. military systems and using intrusions not just to fill the gaps or to shorten timelines when developing their own military technologies, but also to identify vulnerabilities in the U.S. system and develop countermeasures.¹⁰⁰

Against this backdrop, the Restatement and the USTA offered virtually no shield for trade secret owners. The civil remedies which both instruments prescribed, proved insufficient to deter potential thieves, as many considered payment of consequent fines another “cost of doing business”.¹⁰¹

3.2.2 Legislative Intervention

By the mid-1990s, the U.S. Congress reached a consensus that a dedicated criminal federal law was needed. In October 1996, Congress enacted the first federal criminal statute on trade secrets – the Economic Espionage Act. Since there were two main types of prohibited misconduct – foreign espionage and domestic theft – the Act dedicated two sections to address each of them.¹⁰²

The EEA sets forth the basis for establishing misappropriation of trade secrets as a result of economic espionage in § 1831. The Attorney General can prosecute cases under § 1831 if there is sufficient evidence that a party:¹⁰³

(a) intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly…

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret;

(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in any of paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy

shall, except as provided in subsection (b), be fined not more than $5,000,000 or imprisoned not more than 15 years, or both.

Under § 1831 of the EEA, the prosecutor must show that the accused intended to aid, or knew that the illegally obtained information would aid, a foreign government.¹⁰⁴ There is no requirement to prove that the information in question is a trade secret.¹⁰⁵ The defendant’s belief that the information he or she wanted to misappropriate represented a trade secret,¹⁰⁶ and the belief that the information would benefit the foreign government, suffice to instigate the prosecution. At the same time, there is no requirement for the prosecutor to show that the foreign government received an actual benefit from the trade secret,¹⁰⁷ nor that the offender intended or knew that the “theft will injure any owner of that trade secret”.¹⁰⁸ The attempt or conspiracy to commit the foregoing violative acts suffices to trigger the full application of the provision.¹⁰⁹ Drafting the provision in such a manner was intended to lessen the burden of proof when instigating a prosecution.

3.3 A Comparison of the Regimes

A general overview of both provisions indicates that the prohibited conduct stipulated under Australian law subsumed under s 92A.1(1) of the EFI Act is defined more narrowly than the U.S. § 1831(a)(2) of the EEA.¹¹⁰ The latter provision, for instance, extends prosecutions against the party that without authorisation: copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret.¹¹¹ Section 92A.1(1)(c) of the EFI Act omits the italicised words.¹¹²

Whether or not the “narrow” wording might have some negative effects when applied in practice awaits judicial authority. From a comparative perspective, the legislative history behind the EEA proved that setting a narrow definition of prohibited conduct might be disadvantageous. For instance, in United States v. Aleynikov,¹¹³ the defendant was able to avoid conviction under the EEA by resorting to loopholes in the statutory wording that left certain types of conduct outside the scope of criminalisation. The defendant succeeded in arguing that the source code that he developed based on the acquired confidential information from his former employer (Goldman Sachs) in order to secure a prospective employment with a competitor (Teza) did not meet the criteria of “product” for the purposes of the EEA.¹¹⁴ Aleynikov was also able to convince the court that his activities, including downloading of Goldman Sachs’ source code to his home computer and uploading of its parts onto a German server, did not meet the criteria for establishing proof that the product was placed into interstate commerce for the purposes of the EEA.¹¹⁵

This outcome generated an immediate response from Congress by enacting the Theft of Trade Secrets Clarification Act in 2012.¹¹⁶ The Act modified and expanded § 1832(a) by replacing the previous wording “a product that is produced for or placed in” with “product or service that is used or intended for use in interstate or foreign commerce”.¹¹⁷

Jurisprudence yet to emerge will hopefully give a clarification as to whether the Australian prosecutor must prove that the defendant knew that their conduct targets theft of a trade secret or, as is the case in the U.S., whether the simple belief that the information of interest is a trade secret would suffice for instigating the prosecution.¹¹⁸ The Australian jurisprudence or the legislature might also be able to rectify the lack of clarity regarding the need for the prosecutor to demonstrate proof that the foreign principal received economic benefit¹¹⁹ from the obtained trade secret so as to instigate the prosecution.

Another difference between the EFI Act and the EEA targets the penalties associated with the trade secret espionage. For instance, the EEA under § 1831 introduced both penalties and imprisonment,¹²⁰ which differ depending on whether the espionage was committed by a single person or organisation.¹²¹ Conversely, the EFI Act only prescribed imprisonment for contravention of this provision, making no distinction regarding whether the misuse was committed by an individual or an organisation.¹²² The Australian legislature or the jurisprudence should also give an indication whether the sentencing for conspiracy should be treated the same as the committed espionage.

3.3.1 Efficiency of the Provisions

In Australia, the efficiency of the provisions in sanctioning dishonest dealings in trade secrets under the EFI Act was due to be reviewed in 2021 in line with the requirements of the Independent National Security Legislation Monitor Act 2010 (Cth) (“INSLM Act”).¹²³ Yet the Independent National Security Legislation Monitor Annual Report 2021–2022, published in 2022, has not included any information in this context apart from a reference that the results of the evaluation will be published at a later date.¹²⁴

In the U.S., despite the escalating rate of economic espionage, § 1831 of the EEA was sparingly invoked. In its first 15 years, only six cases became the subject of prosecution under the section.¹²⁵ Commentators have opined that the relatively narrowly drawn provision makes it “difficult for prosecutors to secure convictions, and thus deters them from pursuing economic espionage prosecutions”.¹²⁶ Nevertheless, the severe penalties that the Act imposed and its extraterritorial reach,¹²⁷ coupled with the awareness of increased surveillance activities by U.S. federal authorities,¹²⁸ send a strong message to deter potential thieves from undertaking the proscribed conduct. In that regard, § 1831 is an important and valuable weapon in combating economic espionage, although it has not resolved all challenges.

3.4 Extraterritorial Application

3.4.1 EFI Act

The Australian legislation under the EFI Act prescribed provisions enabling its extraterritorial application.¹²⁹ This functions to allow applicability of Australian law in espionage cases where a national element is present.¹³⁰ Currently, extraterritorial application of the provision sanctioning trade secret theft might prove particularly important for Australian companies operating in China, where new laws were recently enacted that forbid any sort of secrecy or encryption of the information vis-à-vis the Chinese authorities.¹³¹ This means that the Chinese Cybersecurity Bureau (entitled to monitor the enforcement of the laws) now has an insight into the content of any information on any trade secret possessed by Australian companies operating under the jurisdiction of Chinese law.¹³² Some commentators suggest that these laws might legalise the theft of trade secrets in China.¹³³ They perceive a risk of China acting dishonestly towards the “legally” obtained data and using it for personal benefit to “build better products, make smarter decisions, and innovate”.¹³⁴ In this context, perhaps the severe penalty of 15 years’ imprisonment prescribed under the EFI Act could prove crucial to deterring not just Chinese actors but all foreign agents from engaging in economic espionage against Australia.¹³⁵ If, however, instances like those cannot be avoided and a trade secret belonging to an Australian owner has been misused, the extraterritorial character of the new offence will at least enable the prosecutor to bring the case to justice under Australian law.

3.4.2 EEA

Under the EEA, extraterritorial applicability is reserved to cases where at least one of the following prongs is satisfied: (a) “the offender is a citizen or permanent resident of the United States or an entity organized in the United States”,¹³⁶ or (b) “an act of furtherance of the offense was committed in the United States”.¹³⁷ For instance, under § 1831(b), a U.S. citizen who lives in Singapore and misappropriates a trade secret from a French trade secret owner can still be prosecuted under the EEA. Violation of § 1831(b) and prosecution under the Act can also occur if, say, an Australian citizen uses a U.S. server to upload information that represents a trade secret and then downloads the data and misuses it in China. The extraterritorial reach is nonetheless conditioned by “showing national interest” in conducting the prosecution.¹³⁸ This “limitation” is imposed in order to avoid unnecessary spending of resources, as well as to avoid the danger of intervening in the jurisdictional matters of a foreign country.¹³⁹

4 Theft of Trade Secrets by Individuals

4.1 The Australian Approach

The above discussion concerning the criminalisation of state-sponsored theft in Australia queries why the Australian Parliament has adopted a unilateral approach in sanctioning economic espionage while leaving the criminalisation of the theft of trade secrets outside the scope of statutory regulation. Confinement of the legislation chiefly to criminalise economic espionage was certainly not the preference of Australian businesses dealing with trade secrets. In fact, this approach was heavily criticised by them. For instance, the Chief Executive of the Australian Industry Group (AIG), Innes Willox, argued that although the criminalisation of economic espionage marks a starting point in protecting Australian trade secrets from foreign threats, robust protection cannot be achieved without tougher laws designed to stop the domestic theft of trade secrets.¹⁴⁰ Although Australia does not explicitly sanction the theft of trade secrets, as discussed below, some level of protection is offered where the “crime is committed in the course of appropriating a trade secret”.¹⁴¹

4.1.1 Alternative Avenues of Protection

Examples where the theft of trade secrets can be indirectly protected include instances of unauthorised access to a computer,¹⁴² intercepting communication,¹⁴³ bribery,¹⁴⁴ burglary¹⁴⁵ or conspiracy to defraud.¹⁴⁶ Additionally, the Corporations Act 2010 (Cth) (“CA”) introduces penalties for directors, officers and employees of corporations who dishonestly use information obtained as a result of their role in the corporation. More precisely, Sec. 184 of the CA prescribes penalties against:

(3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly:

(a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or

(b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

It appears that the effect of the CA’s provisions is quite limited. There are many and varied ways in which secret corporate information may be obtained and used by third parties without the consent or assistance of corporate officials or employees. The wording of the provision is not flexible enough to remedy such scenarios, meaning that third parties will potentially be able to avoid penalties that corporate officials and employees would otherwise face for the same crime. In such scenarios, and especially if the preservation of secrecy is the paramount interest for the trade secret owner, whether the person who used and disclosed the information is associated with the corporation or not will be of a limited value. It appears that the application of the aforementioned Australian laws towards addressing criminal liability in relation to the theft of trade secrets faces similar challenges to those experienced in the U.S. prior to the enactment of the EEA.¹⁴⁷

4.2 The U.S. Approach

4.2.1 Initial Response to the Challenges

In the period before dedicated legislation was enacted to address the theft of trade secrets, U.S. courts sought to protect the interests of their owners by applying property, fraud and similar statutes.¹⁴⁸ Yet in most instances their application proved unfruitful given that these statutes were not created to protect the underlying information but to criminalise a related offence.¹⁴⁹ More precisely, the effectiveness of state laws with respect to the theft of trade secrets was limited to the presence of a physical “tangible” element.¹⁵⁰

Some U.S. states have since moved to adopt special provisions under their criminal statutes that directly regulate the theft of trade secrets. Yet these statutes are far from uniform.¹⁵¹ For instance, in some states the theft of trade secrets is qualified as a felony, while in others as a misdemeanour.¹⁵² Significant differences surfaced with respect to the penalties that might be imposed, such as the amount of the fines and the term of imprisonment.¹⁵³ There were slight variations in terms of the scope of protectable subject matter covered, types of acts that are prohibited, and the mental state which triggers conviction.¹⁵⁴ Consequently, the state statutes proved an inapt solution to combat trade secret theft that often had an interstate or international dimension.¹⁵⁵ As discussed below, this was a reason why the U.S. legislature embarked on an initiative to introduce federal criminal provisions to address the theft of trade secrets.¹⁵⁶

4.2.2 Legislative Intervention at Federal Level

The criminalisation of trade secret theft at federal level ensued in light of the empirical data predating the Act’s passage, revealing that former employees were the main actors of trade secret misappropriation.¹⁵⁷ The new legislative provision, § 1832, prescribes that individuals or organisations can be prosecuted and charged for violations of the EEA when engaged in general actions that result in misappropriation/theft of trade secrets.¹⁵⁸ As the EEA is a criminal statute, Congress excluded its applicability to cases where the trade secret is a product or relates to an employee’s personal skills and knowledge. But the increasing rate of misappropriation by employees prompted strict punishment for employees who deliberately terminated their employment in order to pursue endeavours using or relying on their employer’s trade secret.¹⁵⁹ In the parlance of the EEA, § 1832 rests liability upon several criteria: first, the misappropriation must be knowingly committed; second, the stolen trade secret “must be related to or included in a product or service that is used in or intended for use in interstate or foreign commerce”;¹⁶⁰ third, a defendant must “intend to convert a trade secret for a personal economic benefit, or the benefit of anyone other than its owner”;¹⁶¹ fourth, the defendant “must have intended to injure or knew that the offence would injure, the rightful owner”.¹⁶² This set of requirements distinguishes § 1832 from § 1831, which does not require knowledge that the act will injure the trade secret owner, being confined chiefly to the benefit that the third party will gain.

4.2.3 Practical Steps in Supressing the Misuse of Trade Secrets

Apart from legislative intervention, the U.S. regulatory bodies undertook several actions in order to address the legal challenges surrounding the protection of trade secrets. These included the elaboration of the Joint Strategic Plan on Intellectual Property Enforcement;¹⁶³ the Strategy on Mitigating the Theft of U.S. Trade Secrets;¹⁶⁴ creation of the Intellectual Property Task Force by the Department of Justice;¹⁶⁵ and Operation Network Raider – a “domestic and international enforcement initiative targeting counterfeit network hardware originating in China”.¹⁶⁶ Moreover, the Federal Bureau of Investigation (“FBI”) made the prosecution of trade secret theft a top priority and a national security issue, placing it second only to counter-terrorism.¹⁶⁷ To improve effectiveness in detecting and investigating crimes of this kind within the FBI’s Counterintelligence Division, the Economic Espionage Unit was created in 2010. This is a specialised unit focused solely on prosecuting cases under the EEA. Support is obtained from the FBI’s Cyber Division which, inter alia, focuses on intellectual property and trade secret theft.

5 Need for Re-Assessment of the “One Way Avenue” Approach?

The foregoing analysis concerning the criminalisation of state-sponsored theft in Australia leaves an open question with respect to the motives behind the Australian legislature’s decision to adopt a unilateral approach and focus solely on sanctioning economic espionage. One explanation might be that the Australian legislature was perhaps confronted with the same conceptual and practical challenges that legislative policymakers and scholars face when analysing the necessity and justification for the criminalisation of trade secret misuse.¹⁶⁸

In general, the criminal theory justifies application of criminal sanctions in cases where the conduct is “harmful to the community or offends the notions of morality”.¹⁶⁹ Yet when translated into the field of trade secret law, the application of criminal penalties against these premises might prove challenging given that the wide scope of potentially protectable subject matter and harmful conduct can deter not just the unlawful but the lawful conduct as well.¹⁷⁰ For instance, the threat of criminal sanctions might prompt law-abiding and risk-averse individuals to avoid undertaking legitimate and commercially or socially valuable activities, such as sharing knowledge, moving to other companies or starting a new business endeavour.¹⁷¹ Subsequently, the imposition of such sanctions could undermine the essence of trade secret protection such as innovation, economic efficiency, and maintenance of the standards of commercial ethics.¹⁷²

Nevertheless, the recent developments in the global context indicate that countries have gradually oriented towards introducing criminal sanctions for the theft of trade secrets.¹⁷³ Perhaps the Australian legislature should revisit the adopted position and assess the balance between the negative aspects/disadvantages and benefits/advantages of introducing criminal sanctions, considering the current landscape in which the parties dealing with trade secrets operate.¹⁷⁴

5.1 Negative Aspects of Criminalisation

5.1.1 Detrimental Impact on Employees’ Mobility

Criminal sanctions (inflicting a fear of prosecution) might interfere with employees’ working arrangements, thereby potentially affecting their mobility.¹⁷⁵ Namely, companies that predominantly rely on protection of trade secrets are generally focused on keeping trade secret information from their competitors.¹⁷⁶ Hence, they consider the employees entrusted with the trade secrets as a threat to their current and future business interests.¹⁷⁷ In order to protect the trade secrets from being used by employees in their prospective endeavours, many trade secret owners implement restraining clauses in their employment agreements.¹⁷⁸ Subsequently there is a scope for conflict because employees are generally motivated to pursue new job opportunities but their bargaining position diminishes when they cannot use their knowledge and skills to secure a job with the employer who values them the most.¹⁷⁹

Special challenges arise vis-à-vis the difficulty of distinguishing between employers’ trade secrets and employees’ “know-how”.¹⁸⁰ Considering the difficulty of establishing a precise line between the concepts, scholarly observations question whether the interests of society would be best served “by making a criminal of an employee who misjudges what he may do with information that he carries in his head on leaving his employment”.¹⁸¹

The negative effects caused by criminal sanctions not only target employees; employers can be affected, too. Employees often have the required skills to exploit and improve trade secret information.¹⁸² Yet, as recent studies demonstrate, employees who know that they will be deprived of the opportunity to use their own creative output¹⁸³ or skills and knowledge obtained in the course of their employment “are discouraged from investing in their human capital”.¹⁸⁴ By restricting the dealing with the information by the employee, the likelihood for the employer to receive a benefit from its potential improvement becomes minimal.

5.1.2 Economic Costs

From an economic perspective, criminal sanctions come at a cost.¹⁸⁵ The initial costs are associated with the investigation and prosecution of the alleged misuse.¹⁸⁶ Further costs arise in the process of appeal to the charges against potential infringers. Namely, the limited resources that prosecutors have often motivate them to opt for disproportionate punishment in order to set an example to other wilful infringers.¹⁸⁷ The targeted infringers are hence more likely to challenge the charges against them in court and subsequently raise the costs further.¹⁸⁸ Finally, the enforcement of criminal sanctions, say, via imprisonment also generates substantial costs.¹⁸⁹ These costs are borne not only by the imprisoned person but also by their family and friends as well as the institutions that organise the imprisonment.¹⁹⁰

5.2 Benefits of Criminalisation

5.2.1 Deterrent Effect Against Misuse

Criminal sanctions could prove especially effective when the available civil law remedies are insufficient to deter the harmful conduct, and protection, i.e. self-help, is costly.¹⁹¹ While most trade secret owners invest heavily in self-help measures¹⁹² to protect their assets, as foreshadowed above, the globalisation of the market,¹⁹³ increased mobility of employees, and the proliferation of electronic devices all work to make the misuse of trade secrets easier.¹⁹⁴ The gravity of the situation is perhaps best illustrated by the former U.S. Attorney General Eric Holder’s statement, who observed that: “There are only two categories of companies affected by trade-secret theft: those that know they [have] been compromised and those that do [not] know yet”.¹⁹⁵ However, if criminal enforcement cannot be pursued, the only option to seek a legal remedy for trade secret misuse is to rely on civil law.¹⁹⁶ Yet with so many potential infringers, enforcing trade secret protection becomes more challenging. Moreover, even if the affected party is prepared to pursue civil litigation, there are a number of procedural obstacles which they need to overcome to achieve a legal remedy. Perhaps, in this context, the threat of imprisonment could work to deter wilful infringers from engaging in unlawful conduct¹⁹⁷ and subsequently reduce the instances in which trade secret owners need to engage in a challenging litigation process.

5.2.1.1 Challenges Associated with Trade Secret Litigation

Civil litigation is a highly fact-dependent, long-lasting and costly process that does not always serve to protect the secrecy of information.¹⁹⁸ Observations given by the leading trade secret scholar, James Pooley, suggest that the affected party can inflict more damage by bringing a civil litigation claim compared to the actual damage caused by the misuse.¹⁹⁹

For instance, in Australia, the commencement of trade secret proceedings depends on the court’s availability to hear the case, the complexity of the case and the preparedness of the parties to engage in the process.²⁰⁰ The practice evidence illustrates that Australian courts are, however, not always quick in commencing proceedings.²⁰¹ The available data indicate that it might take up to a year before a case comes up to trial.²⁰² The process itself is very complex and its resolution can take a substantial period of time given that the investigation extends beyond the technical nature of the dispute and often contains a “significant emotional component resulting in heightened distrust between the parties”.²⁰³ The affected party often suffers exploitation by trusted insiders, such as a former employee and/or business partner.²⁰⁴ This distrust, or feeling of betrayal “if not recognized and managed, can hamper cooperation and stall case progress”.²⁰⁵ In a sense, the trade secret litigation arguably resembles a divorce dispute more than a commercial one.²⁰⁶

The defeated party in the proceedings can appeal the case either to the Court of Appeal of the Supreme Court of the particular state/territory or the High Court (upon a grant of special leave).²⁰⁷ Although in some instances the appeals can be heard quickly (within a four-month period), the practice demonstrates that it takes at least nine months before an appeal is heard.²⁰⁸

All stages of the process are associated with high costs. For example, the party filing for an injunction needs to be prepared to pay between A$50,000–100,000.²⁰⁹ The dispute at first instance itself can add between A$200,000 for simple cases or up to A$1 million for complex cases.²¹⁰ The costs associated with the appeal process vary between A$100,000–300,000.²¹¹

The monetary relief for the successful party is not generous.²¹² For example, in 2010, an Australian company won its trade secret misuse lawsuit against a former employee but received less than 10% of the damages requested.²¹³ Comparative examples illustrate similar trends. For instance, in the U.S., the resolution of Mattel, Inc. v. MGA Entm’t, Inc. took 3,620 hours of litigation for state-law claims, leading up to a US$2,172,000 award in attorneys’ fees.²¹⁴

However, even if trade secret owners have the resources to go through the litigation process, there are other factors that might impact their decision to seek a legal remedy.²¹⁵ Comparative studies on the topic illustrate²¹⁶ that, despite experiencing misuse, nearly 60% of respondents have refrained from pursuing trade secret litigation.²¹⁷ The difficulty of collecting evidence was cited as the main deterrent impeding the process.²¹⁸ Other deterrent factors were the fear of public attention that the initiation of a litigation process attracts,²¹⁹ the lack of effective legal remedies,²²⁰ the expected duration of the litigation,²²¹ overall lack of trust in the judicial system,²²² and the fear of losing the secrecy of information through the court proceedings themselves.²²³ Some respondents reported an unwillingness to engage in a litigation process because there is no guarantee that any awarded damages can be collected.²²⁴

5.2.1.2 Judgment Proof and Wilful Infringers

The lack of a penal deterrent allows wilful infringers who consider the payment of consequent fines as another “cost of doing business”²²⁵ to freely engage in trade secret misuse. At the same time, there is little hope for a remedy or prosecution where the affected parties lack the resources to initiate proceedings. A similar scenario could eventuate where the infringers left the country either before the affected parties became aware of the misuse or obtained sufficient evidence to instigate proceedings.²²⁶ Finally, there are no prospects of receiving a legal remedy where the infringers are insolvent or judgment proof.²²⁷ This is particularly problematic where the affected party has, as a result of the unlawful conduct, lost its business.²²⁸ For instance, a comparative example demonstrates that the lack of penalties for trade secret misuse allowed foreign hackers to repeatedly hack a domestic company selling similar products.²²⁹ As a result, the company filed for bankruptcy, lacking a mechanism to seek legal remedies for the misuse.²³⁰ The effectiveness of criminal sanctions in scenarios where the affected party cannot pursue civil enforcement reflects their utilitarian and expressive value,²³¹ as they enable the prohibited act to attract liability and consequences²³² by punishing the offender with a fine and/or imprisonment.²³³

5.2.2 Supporting Economic Growth

A strong trade secret regime which includes civil and criminal penalties might serve to promote the growth of small and medium-sized businesses (SMEs), and subsequently boost innovation.²³⁴ Namely, SMEs rely more frequently on trade secrets to protect their innovative assets.²³⁵ Consequently, they face a greater prospect of suffering trade secret misuse. A strong trade secret regime serves to prevent or reduce the instances where otherwise a costly and resource-intensive litigation process is required.²³⁶

Further, a strong trade secret regime supports cross-border transactions and allows businesses to undertake joint ventures or collaborations involving trade secrets.²³⁷ When companies expand their overseas operations, their joint-venture partners almost inevitably require information related to the source of goods, recipes, manufacturing processes, and so on.²³⁸ The disclosure of every new piece of information increases the risk of trade secret misuse.²³⁹ Without a strong trade secret regime, entering into what otherwise seem to be promising investments could come to be regarded as a risky business operation by trade secret owners who could therefore discourage their pursuit.²⁴⁰

A strong trade secret regime supports economic growth by enabling recruitment and retention of skilled employees.²⁴¹ Commentary on this topic suggests that a strong trade secret regime allows employers to “hire for skill rather than for loyalty and assign employees where their talents would be most beneficial to the business rather than keeping them away from projects involving confidential information”.²⁴²

Lastly, a strong trade secret regime and effective enforcement can prove essential for ensuring the commercial development of the country that institutes it.²⁴³ Comparative studies show that weak systems and ineffective enforcement have hampered the economic development of some countries, e.g. Brazil, when compared with countries that, like the U.S, have strong trade secret protection.²⁴⁴

6 The Way Forward

The foregoing discussion demonstrates that there are valid arguments against and in favour of criminalisation of the theft of trade secrets.²⁴⁵ However, the current Australian trade secret regime, featured by a lack of criminal sanctions for trade secret theft coupled with challenging civil law enforcement and low monetary damages, could potentially promote the idea of trade secret misuse as a “high profit low risk venture”.²⁴⁶ It appears that, against such a backdrop, introducing criminal sanctions for trade secret theft could prove to be a more sensible approach. If the Australian legislature decides to reassess the adequacy of the current regime, it could perhaps consider both the legal and practical avenues that could be pursued to achieve greater trade secret protection.

6.1 Legal Steps – Possible Adoption of the U.S. Approach

Adoption of the U.S. approach of criminalisation of the theft of trade secrets via the enactment of a provision similar to § 1832 of the EEA is perhaps not a foreseeable option; nevertheless, it should be carefully considered by the legislature as it could be an appropriate vehicle to deter misuse. Yet if this avenue is to be pursued, the scope of this provision needs to be carefully drafted, given the potential risk of its effect extending “outside of the articulated rationale for criminal liability and endangering other legitimate interests”.²⁴⁷

Scholars have already made some suggestions as to the potential avenues for amendment of the text of § 1832 of the EEA so that the mens rea and actus reus could be fashioned in a way that diminishes the potentially negative effects of criminalisation.²⁴⁸ In terms of the protectable subject matter and prohibited conduct, the provision should indicate that subjective intent is not sufficient and the qualification of an item of information as a trade secret by the affected party is not prevailing.²⁴⁹ The assessment needs to be made from an objective point of view and to demonstrate that the theft of the information could harm the owner’s interests.²⁵⁰ The prohibited conduct must be precisely defined “to enable people to know whether they risk criminal liability for a contemplated course of conduct, and avoid inefficient enforcement of the criminal law through flawed prosecution”.²⁵¹ This is especially important given that criminal sanctions pose risks to valuable conduct and, hence, their application should be reserved for behaviour that is most clearly harmful.²⁵² For instance, the provision should make it clear that conduct “undertaken for the purpose of reverse engineering or other lawful means of discovery” would not attract criminal liability.²⁵³

Further, elements such as “what counts as an unauthorized taking, the degree to which information can retain its status as a secret despite the industry’s knowledge of it, the kinds of harm that are actionable – should also be defined precisely”.²⁵⁴ Given that the charges for attempt and conspiracy of trade secret misuse have no equivalent in civil law, provisions should clearly indicate that “not every suspicious act can constitute the basis for these offenses”.²⁵⁵ There are many common acts across different industries (and particularly the creative ones) which, if observed retrospectively, could be labelled suspicious.²⁵⁶ For example, program developers often engage in acts that generally underlie the process of cyber-espionage, such as keeping copies of the files they work on,²⁵⁷ using other people’s log-in details to access confidential information, or storing confidential information on servers across different locations.²⁵⁸

The type of information that is protected under the criminal law should also be defined.²⁵⁹ For instance, stealing information concerning national security and stealing a company’s commercially valuable information should not receive the same treatment.²⁶⁰ According to Dreyfuss and Lobel, prosecution should be confined to cases where society might be particularly interested in protecting a certain type of information, i.e. a stronger national interest could be demonstrated.²⁶¹ The authors also suggest that in this context a national classification of the categories of protected information would be particularly beneficial.²⁶²

If the Australian legislature opts to pursue a legal initiative and enact such a provision, one avenue would be its implementation under criminal legislation. Given that intellectual property in Australia is regulated at federal level,²⁶³ the provision could be introduced under Sec. 131 of the Criminal Code Act²⁶⁴ which regulates theft in general.

However, rethinking criminal enforcement might not be enough. The state of Australian trade secret law should be assessed and remedied overall. An appropriate response to the present state of the law, reflecting a patchwork of legal provisions, might be the introduction of a dedicated trade secret statute, resembling that adopted in the U.S., which codifies both criminal and civil liability, i.e. offers a comprehensive model of protection.

6.2 Practical Steps – Education and Governmental Support

If the legislative initiative cannot be pursued, then a sensible approach would be to take practical steps, i.e. increase education.²⁶⁵ This could be done by organising best-practice workshops to encourage greater sharing of knowledge about measures to track and identify trade secret misuse, and the ways in which employees’ contracts are managed.²⁶⁶

Finally, it appears that, in Australia, the legislative provisions are the only “weapon” that trade secret owners have when battling trade secret misuse. There are no initiatives similar to those taken by U.S. governmental organisations whose operation is directed to detection and prevention of economic espionage and trade secret theft.²⁶⁷ Perhaps the Australian legislature should also appeal for greater support from governmental organisations and collaboratively establish agencies to combat these challenges.

7 Conclusion

Driven by the deterrent effect that criminal laws have, some countries have amended their larceny statutes or enacted special provisions to criminalise the theft of trade secrets. This trend commenced in the U.S., where the larceny statutes of some states were the first to criminalise the theft of intangible property. A federal initiative followed, going a step further by introducing a dedicated statute to criminalise the theft and espionage of trade secrets.

Australia, on the other hand, has not criminalised the theft of trade secrets, although businesses could now conceivably benefit from the criminalisation of state-sponsored espionage under the EFI Act. In this regard, the EFI Act could serve in some measure to combat economic espionage, although it remains uncertain if it could resolve the challenges as expected. What remains intriguing is why, to date, Australia has not yet contemplated the criminalisation of the theft of trade secrets? The existing gap in the domestic law leads to an unprecedented level or threat of theft that allows domestic and foreign agents to steal Australia’s secret information, prejudicing the national and economic interests of the country. The Australian legislature should, therefore, introduce either legislative or practical measures to improve trade secret protection.