The Economic Espionage Act: A New Federal Regime Of Trade Secret Protection1997 – First published in the Journal of the Patent and Trademark Office Society, volume 79 (1997), pages 191-210.
THE ECONOMIC ESPIONAGE ACT:
A NEW FEDERAL REGIME OF TRADE SECRET PROTECTION
With the enactment this past October of the Economic Espionage Act of 1996 ("EEA"), the Federal Government is set to move aggressively into the protection of private property rights in trade secrets. The overriding reasons behind the enactment of the legislation were the fully documented efforts of foreign governments to gain access to the trade secrets of U.S. companies, in order to advance the economic interests of their private sector. However, the EEA is not limited to enforcement against foreign governments, or even foreign-based companies. It applies as well to any typical trade secret dispute involving purely domestic concerns. With fines up to $5,000,000 and imprisonment of up to 10 years for the domestic theft of trade secrets, the EEA creates a new and very powerful intellectual property regime that extends well beyond the U.S. borders. The EEA itself appears in the Appendix. This article will trace the legislative history of the EEA, compare its provisions with existing, more traditional, protection of trade secrets, discuss the criminal law aspects of the EEA, and outline some of the steps that business executives will need to take to avoid problems with this new law.
Economic Espionage and the Need for Federal Legislation
Two major hearings were held to consider the need for Federal legislation to prevent the theft of trade secrets as a result of economic espionage. The first, held on February 28, 1996, was a joint hearing before the Senate Select Committee on Intelligence and the Senate Judiciary Subcommittee on Terrorism, Technology and Government Information. Both the Select Committee and the Subcommittee were chaired by Senator Arlen Specter (R.PA). He and Senator Kohl (D.WI) had already jointly introduced two bills, S.1556 and S.1557, to address this issue.
The second hearing was held before the Subcommittee on Crime of the House Judiciary Committee on May 9, 1996. The lead witness in both hearings was the Honorable Louis J. Freeh, Director of the Federal Bureau of Investigation ("FBI"). He was supported in his conviction that new Federal legislation was needed by a number of industry leaders representing principally Silicon Valley and aerospace companies. The organized intellectual property bar did not play a role in the hearings themselves although, since the 1970's, the ABA Section of Intellectual Property Law favored "the enactment of a federal criminal law applicable in appropriate circumstances to the misappropriation of trade secrets."
The hearings amply documented the two major underpinnings of the legislation:
(1) Foreign powers, through a variety of means, are actively involved in stealing critical technologies, data and information from U.S. companies or the U.S. Government for the economic benefit of their own industrial sectors.
(2) Laws then on the books -- including the Interstate Transportation of Stolen Property Act and the Mail Fraud and Fraud by Wire statutes -- were of virtually no use in prosecuting acts of economic espionage.
With respect to point (1), Director Freeh reported that the FBI was then investigating allegations of economic espionage conducted against the United States by no less than 23 different countries. Those targeted covered the entire spectrum of successful U.S. high-technology industries. The General Accounting Office ("GAO") provided detailed case histories involving five countries, identified anonymously as countries A through E. The White House Office of Science and Technology estimated that losses to U.S. businesses each year from foreign economic espionage was nearly $100 billion, with ABC News reporting that job losses from such espionage were estimated to be over six million this decade. Clearly, the witnesses at the hearings were not testifying about the "ordinary" U.S. trade secret dispute, typified for example, by the landmark Kewanee Oil decision.
With respect to point (2) -- i.e., the inadequacy of then-existing Federal statutes -- Director Freeh cited the Supreme Court's Dowling ruling that trade secrets did not constitute physical "goods, wares or merchandise," and that the 1930's Interstate Transportation of Stolen Property Act was not applicable to economic espionage. Similarly, the Mail Fraud statute would only apply to economic espionage involving the use of the mail, and the Fraud by Wire statute requires an intent to defraud as well as the use of wire, radio or television.
State laws protecting trade secrets were likewise determined to be inadequate. As concluded by the Senate Judiciary Committee:
What State law there is protects proprietary economic information only haphazardly. The majority of States have some form of civil remedy for the theft of such information -- either adopting some version of the Uniform Trade Secrets Act, acknowledging a tort for the misappropriation of the information, or enforcing various contractual arrangements dealing with trade secrets. These civil remedies, however, often are insufficient. Many companies choose to forgo civil suits because the thief is essentially judgment proof - a young engineer who has few resources - or too difficult to pursue - a sophisticated foreign company or government. In addition, companies often do not have the resources or the time to bring suit. They also frequently do not have the investigative resources to pursue a case. Even if a company does bring suit, the civil penalties often are absorbed by the offender as a cost of doing business and the stolen information retained for continued use. Only a few States have any form of criminal law dealing with the theft of this type of information. Most such laws are only misdemeanors, and they are rarely used by State prosecutors.
* * * *
A Federal criminal law is needed because of the international and interstate nature of this activity, because of the sophisticated techniques used to steal proprietary economic information, and because of the national implications of the theft. Moreover, a Federal criminal statute will provide a comprehensive approach to this problem - with clear extraterritoriality, criminal forfeiture, and import-export sanction provisions.
The Federal EEA was seen as a complement to the two-centuries-old patent and copyright laws:
For many years federal law has protected intellectual property through the patent and copyright laws. With this legislation, Congress will extend vital federal protection to another form of proprietary economic information - trade secrets. There can be no question that the development of proprietary economic information is an integral part of America's economic well-being. Moreover, the nation's economic interests are a part of its national security interests. Thus, threats to the nation's economic interest are threats to the nation's vital security interest.
Given the importance of the EEA as part of this triad of Federal laws protecting intellectual property, it is important for business executives and their counsel to have a thorough understanding of it and its relationship to "traditional" trade secret protection.
The EEA Compared With "Traditional" Trade Secret Protection
Prior to the Supreme Court's decision in Kewanee, there was significant confusion as to whether the Federal Patent Laws preempted the operation of State trade secret laws. Historically, most states had relied on the definition of trade secret found at 4 Restatement of Torts § 757, comment b (1939) that reads:
[a] trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.
However, the various U.S. Circuit Courts of Appeal disagreed as to whether state trade secret protection was preempted by the federal patent laws codified in Title 35 of the United States Code. In Kewanee, the Sixth Circuit Court of Appeals had held there was preemption. With the reversal of that ruling, the U.S. Supreme Court settled the matter noting that state trade secret protection could co-exist alongside the Federal patent laws unless the trade secret law of the particular state "clashes with the objectives of the federal patent laws."
Five years after Kewanee was decided, the ABA Special Committee on the Uniform Trade Secrets Act approved, and recommended for enactment in all states, the Uniform Trade Secrets Act ("UTSA"). While most states have enacted the UTSA in some form, the trade secret protection granted in each state is far from uniform relative to the other states. This often leads to the result that the ability to recover for theft of a trade secret becomes a choice of law or contract interpretation question.
Before looking at the differences between the EEA and the UTSA, it is important to note that there are other Federal criminal statutes relating to trade secrets. In particular, 18 USC § 1905 prohibits the unauthorized disclosure of confidential information by any officer or employee of the U.S. government, or any department or agency, when that information has been received in the course of employment or official duties, unless the disclosure is authorized by law.
As set forth in the Appendix, the EEA amends Title 18 of the United States Code by adding new chapter 90, §§ 1831-1839. This Act has two primary thrusts: (1) prevention of trade secret theft by a foreign government agent or instrumentality (hereinafter "foreign entity") or person acting on behalf of a foreign government or entity and (2) general protection from theft of trade secrets by anyone.
Definition of "Trade Secret"
Implicit within both section 1831 and 1832 is the definition of "trade secret."
In the House Report, the House noted that the definition of trade secret in the EEA is based on the definition used in the UTSA. However, in the EEA, Congress has more explicitly listed a variety of types of information, and means for storage of that information, that are not explicitly set forth in the UTSA. In so doing Congress has attempted to update the definition of "trade secret" to keep pace with growing technology, especially in the computer and information storage sectors.
Further, and more importantly, the EEA specifies two conditions which must be met in order for information to qualify for protection as a trade secret under the Act. Once again these requirements mirror the two requirements present in the UTSA, but with one major difference. In the EEA definition, the information must have actual or potential independent economic value from not being generally known to or readily ascertainable through proper means by the public. However, the UTSA is more limited in its corresponding provision by requiring that the person or persons obtaining the information by improper means must be one who can obtain economic value from disclosure or use of that information.
While the text of the EEA itself does not provide any explanation for this difference, the section-by-section analysis in the House Report provides some insight. Section 1831 does not require that there be any economic benefit intended in misappropriating the trade secret information, merely that there be some benefit. The government must prove that the person charged under the EEA acted with the intent to accomplish one of two goals:
One, a person will be guilty under this section if they wrongfully copied or otherwise controlled a trade secret with the intent to benefit any foreign government, foreign instrumentality or foreign agent. . . . The defendant did not have to intend to confer an economic benefit to the foreign [entity]. . . to himself or to any third person. Rather, the government need only prove that the actor intended his actions . . . would benefit the foreign government, instrumentality or agent in any way. Therefore . . . benefit means not only an economic benefit but also reputational, strategic or tactical.
Alternatively, the government may prove that the defendant intended the . . . trade secret to be used for the economic benefit of a person other than the rightful owner. . . . In this situation . . . the government must prove that the defendant intended to confer an economic benefit, not an abstract benefit or reputational enhancement. (emphasis added)
Thus, when a foreign government or entity is involved in the trade secret theft, the EEA covers any benefit obtained by the misappropriation of the trade secret, not just an economic one. If the theft is wholly a domestic affair, the theft must convey an economic benefit on the recipient. Accordingly, in the domestic case, "a person who discloses a trade secret, but who does not intend to gain economically from it, or intends that some other person economically gain from [it], cannot be charged" under the EEA.
In addition, in the domestic situation, the government must show that the defendant knew, or was aware with practical certainty, that his conduct would disadvantage the rightful owner of this information. Thus, the EEA provides for considerably broader protection for trade secrets that are of international interest, compared to trade secrets that are purely domestic in their reach.
Definition of "Owner"
Another important difference between the EEA and the UTSA is in the definition of an "owner" of a trade secret. The EEA defines "owner" as a "person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed." The UTSA, however, covers misappropriation of a trade secret, even by a licensee, if the trade secret is disclosed or used without implied or actual consent, and if the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. Since most license agreements contain confidentiality clauses, the UTSA would appear to cover situations of disclosure of a trade secret by a licensee within its definition of misappropriation.
In the EEA, both sections 1831 and 1832 cover various forms of misappropriation "without authorization." While this phrase is not defined within the Act itself, the legislative history indicates that "without authorization" is defined to mean "without permission of the owner." This appears to leave exposed the situation where a licensee uses or discloses trade secret information beyond the scope allowed in the license agreement. While these situations could be just as damaging to the rightful owner (licensor) as theft by a non-licensee, it is not at all clear whether such situations could be prosecuted under the EEA. In view of this, licensors of trade secrets should consider including in any license agreement a section that clearly defines which party is the "owner" of the proprietary information being licensed, and any improvements thereon, as the term "owner" is defined in the EEA.
The EEA provides several types of penalties for a violation including imprisonment, fines, criminal forfeiture and injunctive relief. Injunctive relief may be obtained by the Attorney General in a civil action to enjoin violation of the EEA. Such civil action must be brought in a U.S. district court, as they have original exclusive jurisdiction over civil actions under the EEA Section 1836.
By contrast the UTSA only provides civil remedies, such as punitive damages and injunctive relief, along with actual damages and damages for unjust enrichment.
One limitation included in the EEA concerns the applicability of the law to conduct outside the U.S. Since many U.S. corporations have assets and operations overseas, what happens if the theft occurs outside the boundaries of the U.S.? Section 1837 addresses the extraterritoriality of the EEA and provides that the EEA applies to conduct outside the U.S. only if (1) the offender is (a) a natural person who is a citizen or permanent resident of the U.S. or (b) an organization organized under U.S. or state laws (or a political subdivision thereof) or (2) an act in furtherance of the crime was committed in the U.S. Thus, the EEA does not appear to protect U.S. corporations having places of business outside the U.S., when the offender is a foreign national and the act takes place in any foreign country. The "take home" message of section 1837 is that trade secrets should be closely guarded at all times, but especially when those trade secrets are being used, or are located, outside of U.S. boundaries.
The UTSA provides that it displaces or preempts conflicting tort, restitutionary and other law of the states in which it is enacted pertaining to civil liability for misappropriation of trade secrets. Thus, attempts to recover for misappropriation of trade secrets under a common law or tort claim have not been successful in states that have enacted a form of the UTSA containing that provision.
The EEA, on the other hand, states:
This chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession or territory law for the misappropriation of a trade secret . . .(emphasis added)
Additionally, the EEA allows for the lawful disclosure of information under the FOIA.
"General Knowledge, Skills and Expertise"
Probably the most troublesome feature of the EEA relates to its applicability in instances in which an employee of company X, having knowledge of company X trade secret information, changes jobs to work for competitor company Y. When the employee performs work for company Y using skill and knowledge obtained during employment at company X, is the employee in violation of the EEA? How can company X protect itself from loss of its trade secrets? Conversely, how can the employee be expected to forget what he has learned when going to work for company Y? The problem is that the employee cannot simply forget the trade secrets of company X and must therefore attempt to compartmentalize the various bits of knowledge and expertise gained while in the employ of company X.
Early versions of the EEA included a passage stating that "knowledge, experience, training or skill that a person lawfully acquires during their work as an employee or independent contractor" for another person was not included in the term "proprietary economic information." This provision was later removed and the term "proprietary economic information" changed to "trade secret." The legislative history indicates that the EEA is not intended to be used to prosecute persons who use generic business knowledge to compete with former employees. The House Report states:
. . . under the new offense, the government is required to prove that the defendant has wrongfully copied or otherwise exerted control over a 'trade secret.' The definition of trade secret requires that the owner of the information must have taken objectively reasonable and active measures to protect the information from becoming known to unauthorized persons.
Unfortunately, this still leaves an employee in a dilemma as to what among his business/technical knowledge is considered "general knowledge" and what is over the line and classified as a "trade secret." Further it leaves company Y in the difficult position of hiring the employee for his knowledge and expertise and then having to tell him that he can only use portions of it, thus potentially limiting his effectiveness on the job, or limiting his job mobility.
Suggestions for how to resolve this dilemma are provided below after examination of the criminal law aspects of the EEA.
The Economic Espionage Act Is a Criminal Law: Criminal Law
and Procedure Apply
Employees and Businesses need to be aware of the important difference between the EEA, which is truly a criminal law, and civil suits. Unlike civil suits, the FBI will handle the investigation, and United States Attorneys will prosecute the alleged offenders. Thus, companies otherwise without resources to support litigation now may be able to enlist the help of the federal government to protect their trade secrets. And the Speedy Trial provisions of the Sixth Amendment means that these cases will be resolved significantly faster than most civil disputes. These cases should take approximately one year to prosecute. Of course, those accused of violating this Act enjoy the usual Constitutional protections. Moreover, to convict, a jury must find an accused guilty "beyond a reasonable doubt" as compared with the much lower "preponderance of evidence" standard of civil trials.
The legislation itself directly contains sections promoting the victim's interests. For example, courts must take all "necessary and appropriate" measures to preserve the confidentiality of the relevant trade secrets in a criminal or other proceeding under the EEA. If a District Court ignores the statute's confidentiality requirement and authorized the material's disclosure, the United States may take an interlocutory appeal.
The EEA contains victim compensation provisions which allow the government to confiscate any property used to commit a crime, as well as proceeds generated from the theft. Courts may then award this property to victims. The Department of Justice has an agency policy of providing restitution to victims where possible; accordingly, the EEA affords victims priority when distributing the forfeited property. The fines, however, will be retained by the government. It is not hard to imagine a case where heavy fines will impoverish a defendant, making restitution impossible and an victim business uncompensated. The fines could also render a civil, companion-trial moot for the same reason.
Perhaps the biggest adjustment business executives will have to make concerns the shift of power from the victimized business to the prosecutor. In all criminal prosecutions the prosecutor - not the victim -- is in control. Consequently, victim businesses will lack the power to direct the prosecution, engage in negotiations, or even dismiss the case. Recently, the California Supreme Court disqualified a district attorney's office because the prosecutors received funding from a "victim business" to help defray prosecution costs. Businesses who are used to relying on their own counsel, whether in-house or a law firm, will have to learn to deal with "strangers" from the U.S. Attorney's office, and their control and input into the case will be sharply limited.
Penalties under the Economic Espionage Act
Violations of this new law should cause most business executives to gasp. The following chart highlights the maximum fines and prison sentences available under the EEA.
Section 1832 Penalties (Domestic Economic Espionage)
|Maximum Jail Sentence||
|Individual Criminal Liability||10 years||$250,000|
|Corporate Criminal Liability||N/A||$5,000,000|
Section 1831 Penalties (Economic Espionage Benefiting a Foreign Country)
|Maximum Jail Sentence||
|Individual Criminal Liability||15 years||$500,000|
|Corporate Criminal Liability||N/A||$10,000,000|
Enforcement Priorities of the Department of Justice
The advent of a totally new regime for dealing with trade secret misappropriation will likely engender much anxiety in the business community. As a result of concerns that enforcement of the EEA could result in the punishment of innocent competitors embroiled in standard trade secret disputes, Attorney General Janet Reno announced that, for the next five years, all EEA complaints must be reviewed and approved at the highest levels of the Department of Justice before any charges are filed. This requirement will be inserted into the U.S. Attorney's Manual so that all "prosecutions [will] continue to be approved and diligently supervised by the Executive Office of the United States Attorney." Under this policy, only three officers can authorize a prosecution under the EEA: the Attorney General, the Deputy Attorney General, or the Assistant Attorney General for the Criminal Division. Any case that goes forward without prior approval must be reported to the Senate and House Judiciary Committees, and sanctions may be imposed on the attorneys involved. Moreover, the Department of Justice will prosecute all cases arising under this law. Overlaying the EEA with these procedural "safeguards" insures that any charges filed under the EEA will receive close scrutiny. At the same time, it introduces a political dimension to this "white-collar" criminal statute.
As of September 19, 1996, the FBI was investigating approximately 800 cases for economic espionage, yet no prosecutions have yet been brought under the EEA. The FBI has emphasized its readiness to investigate violations of this new law. Specifically, in an effort to demonstrate the Bureau's serious commitment to this legislation, Edward O'Malley, former head of the FBI's Foreign Counter Intelligence Program, traveled to France to inform that government about the United State's new policy for dealing with economic spies. O'Malley stated that he wanted to "transmit a warning to the French government . . . [that] the rules of the game have changed now, and everyone should know what they are risking."
According to at least one source in the Justice Department, no specific industry or country is targeted for enforcement of the new law. However, businesses in the high-technology industry dominate the list of potential victims cited by FBI Director Freeh. Among foreign nation targets, there is no "official" target -- friends have as much to fear as foes.
Based on the information available, the authors of this article suggest that foreign high technology companies, which regularly hire substantial numbers of new U.S. employees, or who have U.S. affiliates, will be the most likely targets.
Implications For Businesses & Employees
The new law requires both businesses and employees to take immediate steps to protect themselves from being a criminal or crime victim. Because this is a criminal law, the price of making a mistake could land one in jail! To keep from being a criminal defendant, prudent business executives should consider taking the following actions:
1) Entrance interviews should be conducted with new employees who have been formerly employed by a competitor. The interview should point out that it is the employee's own responsibility to police their own actions with respect to trade secrets of their former employer. Each new employee should be required to sign a statement that the EEA has been explained to them and that the new employer specified that the employee should use all possible efforts to avoid a violation of its provisions.
2) Any new employee's former employer should be contacted and informed of the new hire. The EEA should be specifically mentioned with the on-the-record suggestion that they instruct their former employee as to what information within his/her purview is regarded as a protected trade secret.
3) The new employee should be asked to sign a statement that the EEA has been explained to him/her and that the employer has specified that the employee should use all possible efforts to avoid a violation of its provisions.
4) "Chinese Walls" between affiliates and joint ventures should be established. Individuals who have any contact between the two entities should go through the three procedures for new hires.
The key to avoiding being convicted under the EEA would be to defeat the "intent" provisions of the Act. If a business executive can produce documented proof that he/she took affirmative steps to avoid misappropriating trade secrets, he/she decreases substantially the criminal liability by reducing the possibility of conviction beyond a reasonable doubt.
Conversely, businesses will want to protect their trade secrets and assist the prosecution of malfeasance. Thus, all businesses should consider taking the following steps:
1) Employees and contractors should sign non-disclosure agreements specific to each trade secret. Blanket statements may not support the intent provisions of the Act.
2) Entrance interviews should be conducted with all employees and contractors who may be exposed to any trade secrets. Make sure they understand and agree in writing that they know about the EEA and will protect such secrets.
3) Exit interviews should be conducted with departing employees and contractors, particularly to remind them of their continuing obligation to avoid disclosure of proprietary information.
4) As part of their employment contract, each employee or contractor should be required to regularly report back as to their future employment. If the previous employer is concerned regarding a specific matter, a letter can be sent to a new employer to put them on notice that their employee possesses protected trade secrets.
These steps should help the prosecutors prove that an improper trade secret appropriation was purposeful and not accidental.
With the enactment of the EEA, the rules of trade secret protection have been changed fundamentally. Old corporate procedures may not be adequate to assure that a company's trade secret portfolio will qualify for protection under the EEA. As important, high-technology companies will clearly need to safeguard themselves from possible violations of the EEA, however unintentional.
Given the magnitude of the penalties that could be imposed, businesses should conduct thorough and periodic legal and management audits of (1) their procedures for protecting their own trade secrets, (2) their employment practices, particularly of engineers, scientists and technicians, and (3) their record keeping policies in informing all concerned of the very real requirements of the EEA.
No one can yet predict how effective the EEA will be in protecting against economic espionage. However, given the broad bipartisan support that it enjoyed when it was enacted and the high promise held out for it by its Congressional sponsors and the President, it is certain that, at least initially, economic espionage will be actively pursued by the FBI. Test cases will obviously be chosen carefully and prosecuted vigorously. On both sides of such cases, they will provide completely unique challenges to lawyers and business executives in an extremely important area of intellectual property law.
SECTION I. SHORT TITLE.
This Act may be cited as the "Economic Espionage Act of 1996".
TITLE I-PROTECTION OF TRADE SECRETS
SEC. 101. PROTECTION OF TRADE SECRETS
(a) In General.--Title 18. United States Code, is amended by inserting after chapter 89 the following:
"CHAPTER 90--PROTECTION OF TRADE SECRETS
"1831. Economic espionage.
"1832. Theft of trade secrets.
"1833. Exceptions to prohibitions.
"1834. Criminal forfeiture.
"1835. Orders to preserve confidentiality.
"1836. Civil proceedings to enjoin violations.
"1837. Conduct outside the United States.
"1838. Construction with other laws.
"§ 1831. Economic espionage
"(a) In General.-- Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly--
"(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret:
"(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret:
"(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization:
"(4) attempts to commit any offense described in any of paragraphs (1) through (3); or
"(5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (4), and one or more of such persons do any act to effect the object of conspiracy.
shall, except as provided in subsection (b), be fined not more than $500,000 or imprisoned not more than 15 years, or both.
"(b)ORGANIZATIONS.- Any organization that commits any offense described in subsection (a) shall be fined not more than $10,000,000.
"§ 1832. Theft of trade secrets
"(a) Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will , injure any owner of that trade secret, knowingly--
"(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;
"(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;
"(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;
"(4) attempts to commit any offense described in paragraphs (1) through (3); or
"(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.
"(b) Any organization that commits any offense described in subsection (a) shall be fined not more than $5,000,000.
"§ 1833. Exceptions to prohibitions
"This chapter does not prohibit--
"(1) any otherwise lawful activity conducted by a governmental entity of the United States, a State, or a political subdivision of a State; or
"(2) the reporting of a suspected violation of law to any governmental entity of the United States, a State, or a political subdivision of a State, if such entity has lawful authority with respect to that violation.
"§ 1834. Criminal forfeiture
"(a) The court, in imposing sentence on a person for a violation of this chapter, shall order, in addition to any other sentence imposed, that the person forfeit to the United States--
"(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; and
"(2) any of the person's property used, or intended to be used, in any manner or part, to commit or facilitate the commission of such violation, if the court in its discretion so determines, taking into consideration the nature, scope, and proportionality of the use of the property in the offense.
"(b) Property subject to forfeiture under this section, any seizure and disposition thereof, and any administrative or judicial proceeding in relation thereto, shall be governed by section 413 of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853), except for subsections (d) and (j) of such section, which shall not apply to forfeitures under this section.
"§ 1835. Orders to preserve confidentiality
"In any prosecution or other proceeding under this chapter, the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws. An interlocutory appeal by the United States shall lie from a decision or order of a district court authorizing or directing the disclosure of any trade secret.
"§ 1836. Civil proceedings to enjoin violations
"(a) The Attorney General may, in a civil action, obtain appropriate injunctive relief against any violation of this section.
"(b) The district courts of the United States shall have exclusive original jurisdiction of civil actions under this subsection.
"§ 1837. Applicability to conduct outside the United States
"This chapter also applies to conduct occurring outside the United States if--
"(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or
"(2) an act in furtherance of the offense was committed in the United States.
"§ 1838. Construction with other laws
"This chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5 (commonly known as the Freedom of Information Act).
"§ 1839. Definitions
"As used in this chapter
"(1) the term 'foreign instrumentality' means any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization, corporation, firm, or entity that is substantially owned; controlled, sponsored, commanded, managed, or dominated by a foreign government;
"(2) the term 'foreign agent' means any officer, employee, proxy, servant, delegate, or representative of a foreign government;
"(3) the term 'trade secret' means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if --
"(A) the owner thereof has taken reasonable measures to keep such information secret; and
"(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public; and
"(4) the term 'owner', with respect to a trade secret, means the person or entity in whom or in which rightful legal or equitable title to , or license in, the trade secret is reposed."
(b) CLERICAL AMENDMENT.-- The table of chapters at the beginning part I of title 18, United States Code, is amended by inserting after the item relating to chapter 89 the following;
(c) REPORTS.-- Not later than 2 years and 4 years after the date of the enactment of this Act, the Attorney General shall report to Congress on the amounts received and distributed from fines for offenses under this chapter deposited in the Crime Victims Fund established by section 1402 of the Victims of Crime Act of 1984 (42 U.S.C. 10601)
"90. Protection of trade secrets..........................1831
SEC: 102 WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND INTERCEPTION OF ORAL COMMUNICATIONS.
Section 2516(1)(c) of title 18, United States Code, is amended by inserting "chapter 90 (relating to protection of trade secrets)." after "chapter 37 (relating to espionage)."
First published in the Journal of the Patent and Trademark Office Society, volume 79 (1997), pages 191-210.
*.Senior Counsel, Oblon, Spivak, McClelland, Maier & Neustadt, P.C. A former Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, Mr. Mossinghoff is a Visiting Professor of Intellectual Property Law at the George Washington University Law School.
**.Partner, Oblon, Spivak, McClelland, Maier & Neustadt, P.C. Formerly a Research and Development Chemist with a multinational chemical company, Dr. Mason holds a Doctorate in Organic Chemistry from the University of Wisconsin and a Juris Doctor from the George Washington University Law School.
***.Partner, Albo & Oblon, L.L.P. Mr. Oblon is a criminal defense lawyer based in Northern Virginia. He holds a Juris Doctor from the George Mason University School of Law. He gratefully acknowledges his law clerk, Allison Burton, for her assistance in the preparation of this article.
.P.L. 104-294. In signing the Act on October 11, 1996, the President stated that . . .
This Act is an outstanding example of my Administration, the Congress, and the business community working together to provide law enforcement with the tools to combat the problems of economic espionage and trade secret theft.
We developed two separate bills, that were introduced as S.1556 and S.1557. The former bill broadly prohibited the theft of proprietary economic information by any person. The latter bill was more narrowly drawn to proscribe such thefts by foreign nations and those working on behalf of foreign nations.
* * *
The Senate adopted S.1556 with an amendment I offered, based on S.1557, to bring together into a single vehicle the prohibition on the theft of trade secrets and proprietary information by both private individuals and corporations and by foreign governments and those acting on their behalf, and passed them using H.R. 3273, the House companion bill, as the vehicle.
Congressional Record (Senate), page S12208 (October 2, 1996)
The Managers' Statement on the EEA appears at Congressional Record (Senate), page S12212.
.104th Congress, 2d Session. Referred to herein as the "House Hearing." Between the two public hearings, a classified briefing by the FBI Director for members of the Senate Judiciary and Intelligence Committees was held on March 13, 1996. The transcript of that classified briefing is not publically available.
.Resolution 18 (1978) of the American Bar Association Patent, Trademark and Copyright Law Section. At its June 1996 meeting, following a thorough discussion of S.1556 and S.1557, the Intellectual Property Law Section approved the following resolution by a vote of 46 to 28:
Resolved, that the Section of Intellectual Property Law favors in principle the enactment of federal legislation which provides criminal penalties for theft or other wrongful appropriation of trade secrets for the benefit of a foreign government, with penalties and enforcement mechanisms which are proportionate to the seriousness of the offense in question; and Further Resolved, the Section opposes a limitation of such legislation to theft of trade secrets owned by U.S. nationals, the inclusion in such legislation of a prohibition of future export/import activities by convicted persons, mandatory forfeiture of property used in the offense which is disproportionate to the use of such property in the offense, authority to conduct wiretapping in investigating such offenses, and making such offenses predicate offenses under the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. 1961 et seq.)
Section of Intellectual Property Law, American Bar Association, Annual Report 1995-1996, pages 371-378.
.Apparently, this is a two-way street. As reported by Peter Schweizer in the January-February 1996 issue of Foreign Affairs, Vol. 75, page 10:
French Interior Minister Charles Pasqua summoned U.S. Ambassador Pamela Harriman to his office on January 26 of this year to protest U.S. spying on French commercial and technological developments. According to Le Monde, CIA agents flush with 500-franc notes tried to bribe a member of the French parliament to reveal France's negotiating position on the nascent World Trade Organization. A senior official in the Ministry of Communications was offered cash for intelligence on telecommunications and audiovisual policy. A technician for France Telecom, the national telephone network, was also approached. All three immediately notified the French Directorate of Territorial Surveillance, which ordered them to play along with the Americans and lay a trap.
.According to Director Freeh,
The industries that have been the targets in most cases of economic espionage and other collection activities include biotechnology; aerospace; telecommunications, including the technology to build the National Information Infrastructure; computer software and hardware; advanced transportation and engine technology; advanced materials and coatings, including 'stealth' technologies; energy research; defense and armaments technology; manufacturing processes; and semiconductors.
House Hearing, Statement of FBI Director Freeh.
.Senate Hearing, at p.2.
.Kewanee Oil Co. v. Bicron Corp., 416 US 470, 181 USPQ 673 (1974).
.Dowling v. United States, 473 US 207 (1985).
.18 USC §2314.
.18 USC §1341.
.18 USC §1343.
.Senate Report 104-359, 104th Cong., 2d Sess. (1996), referred to herein as the "Senate Report," pages 11 and 12.
.House Report No. 104-788, 104th cong., 2d Sess. (1996), referred to herein as the "House Report," page 4.
.Kewanee, supra, note 9, citing Sears, Roebuck & Co. v. Stiffel Co. 376 U.S. 225, 231 (1964).
.A review of the UTSA may be found in Milgrim on Trade Secrets, by Roger M. Milgrim, Matthew Bender, New York, Vol. 1, Chapter 1, Release #54 (1996).
.The states have adopted various versions of the UTSA; however, a state-by-state analysis of differences between those state laws and the EEA is beyond the scope of this article. Accordingly, the comparison will be drawn to the UTSA approved in 1979 and used as a model for the various individual states.
.This statute must be balanced against the Freedom of Information Act ("FOIA"), 5 USC § 552, since information received by government agencies is publicly available under FOIA, unless the information falls under one of the exemptions to FOIA, such as "trade secrets and commercial or financial information obtained from a person, privileged or confidential," 5 USC § 552 (b)(5).
A further criminal statute affecting intellectual property is provided by the Anticounterfeiting Consumer Protection Act of 1995 which provides for seizure of goods bearing counterfeit trademarks and substantial criminal fines for each instance of counterfeiting.
.In the EEA, § 1831 requires substantial ownership, control, sponsorship, command, management, or domination of an entity by a foreign government to be a "foreign instrumentality."
.18 USC §§ 1831 and 1832, respectively.
.As defined in § 1839, a trade secret means:
. . . all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically or in writing if-
(A) The owner thereof has taken reasonable measures to keep such information secret; and
(B) The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by the public. (emphasis added) 18 USC § 1839 (3)
.The UTSA defines "trade secret" as:
. . . information, including a formula, pattern, compilation, program, device, method, techniques or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, UTSA, § 1(4).
.For example, the EEA states that trade secrets include tangible or intangible information, regardless of whether or how that information is stored, compiled or memorialized. 18 USC § 1839.
.House Report, p. 11.
.18 USC § 1839(4).
.UTSA, § 1(2)(ii)(B)(II).
.Senate Report, p. 15.
.Sample wording for such a clause might read:
Licensor shall remain the owner of any and all trade secrets and other proprietary information transferred to Licensee under the terms of this license, and any improvements thereon, as the term 'owner' is defined in 18 USC §§ 1831-1839.
.The final version of the EEA reduced some of the penalties found in earlier versions of the bill, by dropping restrictions on import/export activities by convicted persons, reducing maximum prison terms and softening the forfeiture provisions to preserve judicial discretion and be proportionate to the use of the property in the offense. These reductions in penalties reflect some of the concerns raised by the Intellectual Property Law Section of the ABA, although wiretapping and racketeering provisions were maintained in the final bill. See note 5, supra.
.18 USC § 1836(a).
.18 USC § 1836(b).
.UTSA: §§ 2 (Injunctive relief) and 3 (Damages). Forfeiture/seizure of goods is also provided by 15 USC § 1116 and the Anticounterfeiting Consumer Protection Act of 1995 for trademark counterfeiting violations.
.See, for example, Web Communications Group v. Gateway 2000, 889 F.Supp. 316 (N.D. Ill. 1995) and Editions Play Bac, S.A. et al v. Western Publishing Co., 31 U.S.P.Q.2d 1338 (S.D.N.Y. 1993).
.18 USC § 1838.
.Senate Report, p. 2, § 1831(2).
.House Report, p. 2.
.Id. at p.7
.18 USC § 1835.
.18 USC § 1834(a)(1)&(2).
.Statement of Sen. Leahy (D.VT), Congressional Record (Senate), page S12213 (Oct. 2, 1996).
.The Act does not preempt other civil actions, such as state tort or contract claims, regarding trade secret misappropriation. 18 USC § 1838.
.The People v. Gordon Eubanks et al., 1996 Cal. LEXIS 6829; 96 Cal. Daily Op. Service 9329 (Cal. 1996).
.Congressional Record (Senate), page S12212.
.Telephone interview with Alan Hoffman, Special Counsel to the Assistant Attorney General for the Criminal Division, Department of Justice (Jan. 2 & 3, 1997).
.Address before the Assises Europeennea de l'Intelligence Economique, November 26, 1996.
.See, supra, note 7.
.See, supra, note 53.
."Secret Snares" by Stephen C. Glazier, Legal Times, December 6, 1996.