June 23, 2018

“Clarification” to the Economic Espionage Act Awaits President Obama’s Signature

The House of Representatives, on December 18, 2012, joined the Senate in passing a bill (S. 3642) to “clarify” that the Economic Espionage Act of 1996 (“EEA”) covers theft of trade secrets involving products or services used or “intended for use” in interstate commerce. The bill now awaits President Obama’s signature. Click here for a copy of S. 3642.

The legislation responds to the decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), which overturned a jury verdict finding the defendant violated 18 U.S.C. 1832(a) by stealing computer code from Goldman Sachs, holding that the government must prove that the trade secret itself is “intended to, actually move in interstate or foreign commerce.” The court found it insufficient for the product merely to relate to interstate or foreign commerce and, instead, must be related to products “produced for” or actually “placed in” interstate commerce or foreign commerce.”

The S. 3642 revises the statute by replacing the phrase “or included in a product that is produced for or placed in” and inserting “a product or service used in or intended for use in.” Thus, the amended Section 1832(a) will apply to a trade secret “that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof.”

Apart from closing the loophole addressed in Aleynikov, the bill also broadens the scope of the EEA by clarifying that the statute also protects trade secrets related to services. Although no court had addressed the issue of whether the EEA covers services, a number of commentators, including this one, have suggested that the EEA does not in fact do so.

While the bill does close two potentially large loopholes that have resulted in, at least, one acquittal, there is no evidence that that these loopholes contributed to the government’s slow pace of prosecutions under the EEA, since it was adopted in 1996.

Based on my study, the primary reasons for the limited number of cases are lack of resources and the failure by many United States Attorney’s Offices to investigate and prosecute these type of cases. In fact, more than 50% of all USAOs have failed to bring even a single case under the EEA. The only United States Attorney’s Office that has been very aggressive is the United States Attorney’s Office for the Northern District of California, which has prosecuted approximately three times the number of cases compared to the next closest office. Conversely, there is nothing to indicate that the government will bring more cases if President Obama signs this bill. The limited number of criminal EEA cases strongly suggests that, while this bill is a step in the right direction of increasing the protection of intellectual property in the U.S., if Congress were truly serious about this issue, it would pass in 2013 a civil counterpart to the EEA

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