You’ve just discovered that an employee who recently left your company took your company’s valuable trade secrets with him to his new employer.  What are your options?  The conventional approach is to file a lawsuit seeking an injunction, recovery of your trade secrets and recovery of damages, if possible.  That approach may not work in every situation.  For example, the employer may have trouble obtaining evidence, may perceive that civil litigation would not provide a sufficient deterrent to other potentially thieving employees, or may conclude it would not be cost-effective to sue the departed employee. There is another option, however – a criminal referral. 

This is what happened in the recently decided Nosal case that resulted in the conviction of former Korn/Ferry recruiter David Nosal on six counts of violating the federal Computer Fraud and Abuse Act.  The conviction, following a multi-year investigation, has Mr. Nosal looking at multiple years in prison and hundreds of thousands of dollars in fines.  The case was referred to the government by Korn/Ferry after a forensic audit of Nosal by Korn/Ferry and its outside counsel. 

At its essence a criminal referral involves these steps:

1. Investigating the employee’s suspected criminal conduct;
2. Investigating any assets the employee may have that are recoverable by the Government;
3. Packaging the facts and legal support in a prosecution-ready box;
4. Bringing the case to a state or federal law enforcement agent such as a prosecutor who has the resources to prosecute it, in a jurisdiction where the law has been violated; and
5. After a successful criminal prosecution, appearing in court on behalf of the victim seeking restitution.

Consider some advantages the criminal referral may have as compared to a civil lawsuit.

First, the government has better investigatory tools that likely will yield better evidence than a private litigant might otherwise be able to get.  The government has the power to obtain documents and information that a civil litigant cannot.  The government can execute search warrants and wiretaps.  The government can go undercover in ways private lawyers cannot.

Moreover, while a defendant or third-party witness in civil litigation may play fast and loose with their responses to a private litigant’s discovery requests, that is unlikely to happen when the requests come from the government: failure to respond fully to a government request for information — either by the accused or a third party — could result in an obstruction of justice charge.  And providing false or misleading information could result in a perjury charge.  These hardball tactics may not be necessary to prosecute the employee perpetrator because, for example, the victim-employer may have readily available forensic data clearly documenting the employee’s unauthorized access to the trade secret information.  But in some cases these techniques may be necessary to prove that the employee’s new employer was complicit in the theft or later used the information.

Second, the government has better collection tools than would a civil litigant: the government can seize property for the benefit of victims and can do it very early in the process, which avoids the problem civil litigants seeking to collect on a judgment often encounter – attempts to move or conceal assets.

Third, a criminal defendant is typically highly motivated to provide restitution, in the hopes of reducing his or her exposure to jail time for their crime; this stands in direct contrast to civil defendants who typically have every incentive to make themselves judgment-proof.

Finally, a victim may be able to recover the costs of investigation, including attorney’s fees from a criminal defendant, something that is difficult in civil litigation.  The federal Mandatory Victim Restitution Act allows some crime victims to recover expenses they incur as a direct result of the criminal conduct.  While trade secret acts allow winning plaintiffs to recover their attorney’s fees, generally this can only be done after the court has ruled that the defendant acted willfully or maliciously.  This showing is not required in criminal court.

On the other hand, anyone considering inviting the government into their life must appreciate the possible loss of control of the proceedings.  It is the government, at the prosecutor’s direction and pace, which controls the prosecution, not the victim. Furthermore, one cannot rule out the possibility of the government’s shining a light on the victim and finding an unrelated “area of sensitivity.”  Before inviting the government in, it’s best to be sure that one’s own house is in order.  Moreover, prosecutors must shoulder a higher burden of proof (beyond a reasonable doubt), and their resources are often limited.

While the criminal referral may not be the best tool for every theft of trade secrets, it certainly should be one of the tools in the toolbox of a lawyer representing victims of theft of trade secrets.