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Sixth Circuit Requires District Court to Estimate Loss in Trade Secrets Disputes

Commentary Federal Circuit Comment First Amendment
United States v. Howley By Ron Gonski – Edited by Daniella Adler United States v. Howley, Nos. 11–6040, 11–6071, 11–6194 (6th Cir. Feb. 4, 2013) Slip Opinion [caption id="attachment_3037" align="alignleft" width="150"] Photo By: Marcin Wichary - CC BY 2.0[/caption] The Sixth Circuit unanimously affirmed in part and vacated and remanded in part a ruling by the Eastern District of Tennessee, which found that defendants Howley and Roberts stole trade secrets and committed wire fraud in connection with Goodyear’s tire-manufacturing technology. The Sixth Circuit affirmed the defendants’ convictions but, in response to the government’s cross-appeal, vacated the sentences imposed by the District Court and remanded for resentencing. In so ruling, the Sixth Circuit indicated that the District Court did not supply an estimate of the economic loss from the theft of a trade secret and the reasons for that estimate, as it is obligated to do. FindLaw provides an overview of the case. The Non-Competes blog notes that the Sixth Circuit opinion appears to open the door for a trial judge, when determining the economic loss due to the theft of a trade secret, to consider evidence that might be inadmissible under the Federal Rules of Evidence. The defendants in this case, Sean Howley and Clark Roberts, employees of Wyko Tire Technology, were convicted of stealing trade secrets and wire fraud for photographing a tire-assembly machine at a Goodyear manufacturing plant and transferring the photographs by email. Wyko, in addition to supplying parts to Goodyear’s steel-tire manufacturing operations, was attempting to contract with a Chinese tire manufacturer to build tire-assembly machines, but lacked the necessary expertise and was struggling to come up with an adequate design. When Goodyear asked Wyko to repair some of its tire-assembly machines, Wyko sent Howley and Roberts. The defendants did not dispute the basic facts of the case, but instead contended that their conduct did not meet the statutory requirements of the relevant trade secrets statutes, 18 U.S.C. §§ 1832(a) and 1839, or the wire fraud statutes, 18 U.S.C. §§ 1343 and 1349. In reviewing the defendants’ contentions on appeal, the Sixth Circuit found that the tire-assembly machines constituted a trade secret because of the security precautions taken by Goodyear in guarding the manufacturing plant and because the technology was not easily ascertainable by the public. The court noted that “Wyko could not have found designs… at the public library or on Wikipedia.” Howley at 3. The defendants’ attempt to procure a small camera and then the use of a cell phone to photograph the equipment, in violation of Goodyear’s no-cameras policy, was sufficient to prove intent and misrepresentation. The Sixth Circuit’s opinion is significant because, in vacating the defendants’ sentences, the court held that for sentencing purposes a District Court must furnish both a reasonable estimate of economic loss and an explanation of that estimate. Howley at 6. The District Court’s minimum sentence was unreasonable for failure to provide an adequate explanation for its zero-loss estimate of how much the theft had cost Goodyear. A District Court can accept the parties’ estimate or generate its own, but “even a reasonable estimate…requires some explanation.” Id. The Sixth Circuit also noted that the District Court’s zero-loss finding would be inconsistent with the requirement that property with “independent economic value” be stolen in order to order to find a violation of the trade secrets status. 18 U.S.C. § 1832(a).