The SEC defines illegal insider trading as:
[...] buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.
So far so good. Stocks are traded by the public and material, nonpublic information should not be exploited by the few that have access to it. The SEC goes on to mention a few examples of insider trading cases, mostly involving corporate officers or financial intermediaries exploiting private information pertaining to the company.
However, at what point does information become "material" or even "non-public"? It's not quite clear in my mind as the SEC doesn't offer a strict definition, just a few legal cases outlining more or less obvious criminal behaviour. Ambiguities remain.
For example, professional investors in public equities tend to do their own research into a company when deciding whether to invest in it. This could involve calling up its suppliers, its store managers etc. to validate public information or forecasts the company is providing in its SEC filings (which include both audited and unaudited data and management opinion and forecasts). In addition, it could also mean asking a supplier or client of said company about their business relationship and any expected changes. However, by doing this one gains non-public information which, depending on how one interprets this information, may be material since an investor would presumably trade on his own research (though most likely not in breach of any fiduciary duty or relationship of trust).
This seems to be an accepted practice, however, I would like to understand at what point (or even if) it becomes illegal according SEC's insider trading rules. What is the current legal thinking here?
FWIW - I believe that doing your own research is incredibly useful and is a benefit for the greater public as well. If there wasn't a way to independently verify publicly traded companies and the data and forecasts they make available, there would be little incentive for management to stay honest.