The US Court of Appeals for the Seventh Circuit vacated a district court decision awarding substantial restitution for trade secret theft, determining that a loss calculation made by the district court was erroneous and that the amount the defendant was ordered to pay in restitution required the government to provide a complete accounting of the amount spent by the financial institutions in their investigation of the trade secrets theft. United States of America v. Yihao Pu, Case No. 15-1180 (7th Cir., Feb. 24, 2016) (Williams, J).

The defendant, Yihao Pu, worked for two different financial institutions that traded stocks and other assets on behalf of clients. While at work, Pu copied various computer files from his employers and saved the information to his own personal storage device. The files were part of each company’s proprietary software that allowed them to execute strategic trades at high speeds. The files were company trade secrets, and Pu’s copying of the files was a significant data breach.

Typically a crime that involves theft of computer data trade secrets leads to the sale of that data or to a situation where a company interested in the stolen data hires the person who stole it. In this case, Pu used the data to conduct computerized stock market trades for himself and lost approximately $40,000.

According to the US Sentencing Commission’s guidelines, district courts are permitted to determine the “intended loss” to the victim of trade secret theft when no “actual loss” occurred. Although there was no actual loss in this case, the district court sentenced Pu to 36 months in prison and ordered him to pay more than $750,000 in restitution.

Pu appealed the district court’s decision. He challenged the intended loss calculation and the restitution amount, and argued that the factual findings did not support the district court’s conclusion that he intended to cause a loss of approximately $12 million to the financial institutions.

The Seventh Circuit agreed and vacated the district court decision, ruling that the factual findings did not support the district court’s loss calculation and that the calculation itself was erroneous. The Court explained that if a district court concludes that the “intended loss” holds the same value as the cost of development of the trade secret, the court must have evidence that the defendant intended to cause a loss to the victims that equaled the cost of development. Here, there was no evidence that Pu intended to cause the financial institutions any loss. Furthermore, the Seventh Circuit reasoned that the district court erred in deciding on a restitution amount because the government was required to provide a complete accounting of the loss caused by the offense before the district court could determine the restitution amount. There was no such evidence, or even evidence that reflected an accounting of the financial institutions’ investigation costs. As the Seventh Circuit warned, “[t]he government must provide an explanation, supported by evidence, of how each professional’s time was spent investigating the data breach, being certain that the evidence provides adequate indication that the hours claimed are reasonable.”