December 4, 2013
Intellectual Property Theft

by Justice Paul E. Pfeifer

Daniel Lalain worked as an engineer for Aero-Instruments, a Cleveland company that designs aviation and aerospace components. In June 2008, when Lalain resigned without notice, he took, among other things, electronic files copied from his work computer and duplicates of documents from his office files.

In July, Aero-Instruments commenced a civil action against Lalain. The company sought recovery for misappropriation of trade secrets and proprietary product information, and it obtained a temporary restraining order to prevent him from sharing any information with competitors. When Aero-Instruments contacted law enforcement, claiming that Lalain had stolen intellectual property, officers searched his home and recovered the property he had taken.

Aero-Instruments retained the forensic accounting department of Meaden & Moore to assess what had been taken and to appraise the value of the misappropriated property.

When Aero-Instruments determined that all of its property had been recovered and that Lalain had not disclosed any proprietary information, it dismissed the civil suit. But, in June 2009, a grand jury indicted Lalain on criminal charges of first-degree-felony theft, alleging that he had stolen intellectual property, including test data, computer equipment, and product prototypes – at least $1 million in property.

Lalain eventually pleaded guilty to an amended indictment for fifth-degree-felony theft of property. A fifth-degree felony applies to property valued at $500 or more but less than $5,000.

At sentencing, the trial court referenced a letter from Aero-Instruments describing economic losses the company had suffered from the theft of its property. The letter calculated the cost for the time spent by Aero-Instruments employees “in support of this case to be $55,456.00,” and the contract with Meaden & Moore, “to determine a valuation of the property that was taken,” cost $7,665.

The trial court sentenced Lalain to a four-year term of community control and ordered him to pay restitution to Aero-Instruments in the amount of $63,121 - $55,456 for the company investigation and $7,665 for the Meaden & Moore accounting.

Lalain filed an appeal, but the court of appeals affirmed the trial court ruling. After that, the case came before us – the Supreme Court of Ohio – for a final review.

The law that pertains here authorizes a trial court to impose restitution as part of a sentence in order to compensate the victim for economic loss. The law also provides procedures for determining the amount of restitution, which may be based on an amount “recommended by the victim, the offender, a presentence investigation report ... and other information.” Restitution “shall not exceed the amount of the economic loss suffered by the victim as a direct and proximate result of the commission of the offense.”

The law also states that if the court decides to impose restitution, it “shall hold a hearing on restitution if the offender, victim, or survivor disputes the amount.” Economic loss is defined as “any loss of income due to lost time at work because of any injury caused to the victim, and any property loss ... incurred as a result of the commission of the offense.”

Lalain argued that unless there is a specific agreement to the contrary, a restitution order cannot exceed the maximum property value that corresponds to the degree of the theft conviction. According to his argument, the trial court lacked authority to order restitution in an amount exceeding $4,999 on a fifth-degree-felony theft conviction.

He also argued that the trial court allowed Aero-Instruments to recover expenditures that were not the direct and proximate result of his crime; the company had incurred those costs to investigate the theft, to value the property, and to prepare for litigation. Lalain also maintained that the court had a duty to conduct a hearing to determine the amount of restitution.

The state, on the other hand, argued that the amount of restitution is determined by the amount of the victim’s loss, not the degree of the felony or the value of property stolen. Thus, according to the state, the trial court has discretion to order restitution in any amount consistent with the victim’s actual economic loss, even if that amount exceeds the property value used to determine the degree of the theft conviction.

The state also maintained that the trial court may order restitution without a hearing and based solely on the estimate provided by the victim when the plea agreement does not specify an amount of restitution.

According to the state, the trial court properly ordered restitution for Aero-Instruments’ costs of investigating the theft, appraising what Lalain stole, and determining whether he had compromised the confidentiality of its intellectual property, because these expenditures constituted actual economic loss sustained by the company as a consequence of the crime.

We concluded that the law limits the amount of restitution to the amount of the economic detriment suffered by the victim as a direct and proximate result of the commission of the offense. And although the law allows the court to base restitution on an amount recommended by the victim, the offender, or a presentence investigation report, it doesn’t provide restitution for the costs of preparing such a report.  The amount of restitution isn’t correlated to the degree of the theft offense.

In this case, Aero-Instruments sought $63,121 for the time spent by its employees in support of the case and to provide the prosecutor’s office with an accurate valuation of the property that was recovered. These expenditures weren’t the direct and proximate result of the commission of the theft; they were consequential costs incurred subsequent to the theft to value the stolen proepty.

Thus, by a four-to-three vote, we concluded that a trial court has discretion to order restitution in an appropriate case and may base the amount it orders on a recommendation of the victim, the offender or a presentence investigation report, but the amount ordered cannot be greater than the amount of economic loss suffered as a direct and proximate result of the commission of the offense.

We therefore reversed the court of appeals’ judgment and sent the case back for further proceedings consistent with our opinion.

EDITOR'S NOTE: The case referred to is State v. Lalain, 136 Ohio St.3d 248, 2013-Ohio-3093. Case Nos. 2012-0302 and 2012-0408. Decided July 17, 2013. Majority opinion written by Justice Terrence O'Donnell.