SACRAMENTO / BRADLEY INMAN : Industrial Spies Take Note: Prosecuting Theft of Secrets Just Got Easier
In 1985, U.S. District Judge Murray Schwartz in Delaware tried to force Coca-Cola Co. to divulge its secret formula. He didn’t succeed, but since that time businesses have been nervous about losing trade secrets in open court.
In California, companies can now rest a little easier. A bill approved by the state legislature last month and signed into law by Gov. George Deukmejian limits public and media access to criminal trials that involve trade secrets. Introduced by Assemblyman Charles Quackenbush (R-Cupertino), the legislation also makes it easier to prosecute theft of trade secrets.
Nearly 90% of all trade secret cases never go to trial because defendants who possess confidential information often threaten to reveal trade practices in open court as part of their defense, according to expert testimony before the legislature.
“A defendant’s first move upon being charged with trade secret theft is to serve subpoenas on the victim,” said Santa Clara County Deputy District Atty. Kenneth Rosenblatt, who proposed the legislation to Quackenbush.
“Claiming that the thrust of his or her defense will be that the secret is in fact public information, the defense will request thousands of documents disclosing other trade secrets,” said Rosenblatt, who heads up the county’s high-tech crime unit.
For example, in a case pending before the San Jose Municipal Court, George Hwang and Alfred Chan are charged with stealing trade secrets from Intel Corp. In this case, both the district attorney and Intel are concerned about trade secrets being leaked in oral testimony or from documents subpoenaed by the defense.
Dubbed “gray mail,” the practice often discourages victimized companies from pressing charges against trade secret thieves.
Rosenblatt concedes that “closing courtrooms is a delicate task,” but “the problem is that California’s criminal law does not provide for protection of trade secrets,” he said.
Quackenbush points out that current law permits judges to restrict public access in civil cases, and state law already provides exceptions to the rule in other criminal cases. For example, proceedings can be closed to protect child witnesses in sex cases and other witnesses whose lives may be in danger.
The California Constitution states that, “when there is good cause for such action based upon justice or protection of the parties,” closure is permitted.
The Quackenbush measure establishes specific rules for when a judge can close criminal proceedings in a trade secret case. The bill authorizes the court to issue a protective order when the owner of a trade secret asserts during a trial that confidential information may be divulged. Either the prosecutor or the company can petition for closed doors.
“Keep in mind that, under this legislation, the only time a judge can close the proceedings is when there is a substantial probability that the trade secret will be endangered,” said Quackenbush.
Nevertheless, the bill had its critics. Initially, both the California Newspaper Publishers Assn. and the American Civil Liberties Union opposed it. They said the legislation would set off a constitutional clash because of a defendant’s right to a public trial.
“It’s a difficult balancing act between the public’s right to know and the value of business trade secrets,” said Margaret Pena, legislative director for the ACLU in Sacramento. “At first it was tipped the wrong way.”
However, the ACLU dropped its opposition when the bill was amended requiring the court to make findings that there is no overriding public interest in the proceedings being closed.
The publishers decided to take no position on the legislation after Quackenbush put a requirement in the bill that the court notify the news media that a request had been made to seal papers or close access to a trial. The changes also give interested groups, such as newspapers, an opportunity to protest a judge’s decision to close proceedings.
Finally, the newspaper lobby is still insisting that any state legislation on trade secrets should give judges clear direction on what constitutes cause for closing a trial.
“If it’s a valid trade secret, then it should be protected,” said attorney Ed Davis, who specializes in media law and assisted the newspaper group in crafting its position. “But we were worried that judges and prosecutors might be cavalier about what is and what isn’t a secret.”
Follow-up legislation is being crafted to address this specific concern.
Minimum Wage Rise Seems Likely, Someday
The California Industrial Welfare Commission just wrapped up public hearings on the minimum wage, but don’t expect swift action on increasing the $4.25-per-hour wage floor.
Before the minimum can be increased, the state will go through an elaborate bureaucratic exercise that involves stacks of paperwork, several studies, nearly a dozen hearings and hundreds of hours of debate.
According to state law, the Industrial Welfare Commission decides single-handedly whether the minimum wage shall be increased, but it never acts on impulse.
The last time the commission increased the minimum wage, it took more than two years of wrangling. The new limit was approved in December, 1987, and it went into effect on July 1, 1988. (On April 1 of this year, the federal minimum wage was increased to $3.80. Next March, it goes to $4.25. But the higher state minimum takes precedence.)
Theoretically, the commission could decide to increase the wage limit at its meeting this month based on input from the three hearings that were held in June.
“Don’t count on it,” said Karla Yates, executive officer of the commission. Several vacancies on the commission haven’t been filled by the governor or confirmed by the Senate, so even getting a quorum could be an obstacle.
Besides, before any action is taken on the minimum wage, the commission must call for the creation of a special wage board to investigate the need for an increase, which means more study, hearings and discussion.
“When it comes to increasing the minimum wage, we go out of our way to encourage participation,” Yates said.
If two-thirds of the wage board members agree to increase the minimum wage, then the commission must go along. But this, too, is very unlikely: The membership of the board is evenly divided between employers and employees.
