What is a "Trade Secret"? Court Affirms Conviction for Economic Espionage and Theft of Trade Secrets.

Dr. Xiaorong You, a foreign-born U.S. citizen of Chinese origin, was a chemist employed by the Coca-Cola Company to test the chemical coatings used in the company's beverage cans. In recent years, Coca-Cola sought to utilize coatings that were free of bisphenol-A (“BPA”). In working toward its goal, it worked with six chemical companies that developed BPA-free formulas. Each company required Coca-Cola to sign nondisclosure agreements in order to protect their formulas. You was one of the only Coca-Cola employees with access to these formulas. 

Unbeknownst to Coca-Cola or You's other employers, she sought to form a new company in China that would manufacture a BPA-free chemical. She also requested funding from the Chinese government, stating she had developed the world's "most advanced" BPA-free coating technology. 

After discovering You's actions in China, Coca-Cola informed her it would terminate her employment in sixty days. In response, she transferred confidential files regarding the companies' BPA-free formulas from Coca-Cola's servers to her own devices. In addition, she transferred confidential files regarding the same information from her subsequent employer. 

A grand jury subsequently indicted You for conspiring to commit theft of trade secrets in violation of 18 U.S.C. § 1832(a)(5); seven counts of possessing stolen trade secrets, in violation of 18 U.S.C. § 1832(a)(3); wire fraud, in violation of 18 U.S.C. § 1343; conspiracy to commit economic espionage, in violation of 18 U.S.C. § 1831(a)(5); and economic espionage, in violation of 18 U.S.C. § 1831(a)(3). A jury ultimately convicted her on all counts. 

During sentencing, the district court estimated You intended to impose $121.8 million of loss on the referenced chemical companies. In reaching this calculation, the district court admitted it based its calculations on the following assumptions, among others that: (a) the Chinese market for BPA-free coatings would remain fixed; (b) You would absorb all sales in China from Chinese can makers; and (c) Chinese companies were already buying BPA-free coatings from the chemical company victims. The district court's intended loss calculation resulted in a 24-level enhancement to You's base offense level, which increased her total offense level of 41 and resulted in a recommended Guidelines range of 324 to 405 months imprisonment. The district court subsequently varied downward to impose a 168-month sentence.

You raised several issues on appeal challenging her conviction and sentence. Notably, she argued the district court's jury instructions misstated the intent requirements for economic espionage and trade-secret theft. In addition, she argued the district court's sentence was procedurally unreasonable because "intended loss" is referenced in the Guidelines' commentary and not in its actual text. In the alternative, You argued that, even if the district court could rely on the Guidelines' commentary, it miscalculated her intended loss.  

In a published opinion, the Sixth Circuit affirmed You's conviction but reversed her sentence. It held the district court properly instructed the jury regarding the mens rea requirements for You's economic espionage and trade-secret theft counts, rejecting her argument that the jury had to find that the information she took met each element in the Economic Espionage Act's definition of a "trade secret." It was sufficient, the Court held, for the jury to find that You knew she was taking "confidential information" she had no right to claim.

With respect to You's sentence, the Court held the district court properly considered her "intended loss" pursuant to the Guidelines' commentary. Finding the definition of "loss" ambiguous, the Court held it was proper for the district court to rely on the United States Sentencing Commission's interpretation of the term.

Although it held the district court could sentence You based on her "intended loss," the Court found its calculation flawed in two ways. First, although the district court rejected other estimates You provided in her grant application with the Chinese government as "speculative," it used the $2.9 billion estimate she provided regarding the annual Chinese market for can coatings. In addition, the Court found that, although the district court claimed to determine the loss amount based on You's anticipated profits, it actually used her anticipated sales with no reduction for her profit margin. A "reasonable reduction" for You's profit margin, the Court concluded, could have affected her Guidelines range and resulted in a lesser sentence. Accordingly, the Court reversed her sentence and remanded the matter for resentencing.

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