Here are my comments to the request by the U.S. Intellectual Property Enforcement Coordinator (IPEC) for public input on existing laws related to the enforcement of trade secrets.
Docket No: IPEC-2013-XXX
RE: Trade Secret Theft Strategy Legislative Review
Submitted by: Peter J. Toren, partner, Weisbrod, Matteis & Copley, PLLC, 1900 M Street, Washington, D.C. 20036, (202) 499-7900, email@example.com
This is being submitted pursuant to the request by the U.S. Intellectual Property Enforcement Coordinator (IPEC) for public input and participation to determine if legislative changes that would enhance enforcement against, or reduce the risk of, the misappropriation of trade secrets for the benefit of foreign competitors or foreign governments.
In order to reduce the risk of misappropriation of trade secrets for the benefit of foreign competitors or foreign governments, Congress should first amend the Economic Espionage Act to include a section that specifically covers the transmission of a stolen trade secret to a company or entity located outside of the United States. As discussed in more detail below, at present, where the government cannot establish that the defendant knew that the theft was intended for the benefit of “any foreign government, foreign instrumentality, or foreign agent,” the defendant cannot be charged with economic espionage but can only be charged with violating § 1832 of the EEA, which punishes general trade secrets theft. By amending the EEA as proposed, a defendant who transmitted a valuable trade secret to a foreign corporation or entity that was not under the control of a foreign government could still face harsher punishments and such an amendment would also better reflect Congress’ intent.
Second, Congress should enact a civil counterpart to the EEA. I have conducted the most detailed study of the government’s prosecutions to-date under the EEA and based on this study have concluded that the number and type of prosecutions the EEA are unlikely to deter economic espionage. See Peter J. Toren, An Analysis of Economic Act Prosecutions: What Companies Can Learn From it and What the Government Should Be Doing About It!, BNA’s Patent, Trademark & Copyright Journal, (Vol. 84, No. 2081) (hereinafter “Toren Analyis”). In an era of limited government resources this is unlikely to change.
At present, the EEA contains two sections that criminalize, in general, the theft of trade secrets. Section 1831 criminalizes foreign economic espionage by punishing “those who knowingly misappropriate, or attempt to conspire to misappropriate, trade secrets with the intent or knowledge that their offense will benefit a foreign government, foreign instrumentality, or foreign agent.” In contrast, §1832 concerns trade secret theft by domestic actors. It is believed that because of the difficulty in proving the “benefit” element, the government has been dissuaded from charging a violation of § 1831. Indeed, the government has brought only nine prosecutions under § 1831. Toren Analysis. In comparison, the government has brought approximately 120 domestic trade secret cases. Id.
Moreover, § 1831 does not address the situation where the defendant intended to provide the trade secret to a foreign corporation absent evidence that the foreign corporation was “substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government.” 18 U.S.C. § 1839(1). As explained by the court in United States v. Lee, 2010 WL 8696087 (N.D.Cal. May 21, 2010), “benefitting a ‘foreign government, instrumentality or agent [is not] synonymous with benefitting a ‘foreign country’ or benefitting a ‘foreign corporation.’” Id. at 6. The Lee court concluded that § 1831’s use of the term “foreign government” instead of “foreign country” requires the government “to prove that the offense was to aid the government of a foreign country.” Id. at 7.
While a domestic theft of a trade secret may be a crime under the EEA, such a theft does not pose the same threat to the economic vitality of the U.S. as does economic espionage by a foreign corporation or country. Congress recognized this distinction when enacting the EEA in 1996 and has sought to maintain this distinction since then by increasing the penalties for economic espionage a number of times. The government’s inability to charge a defendant with economic espionage even where the defendant transmitted the trade secret to a country does not reflect Congress’ original intent.
The proposed amendment to the EEA would also be consistent with the Foreign and Economic Espionage Penalty Enhancement Act of 2012 (“Penalty Enhancement Act”), which amends the EEA by significantly increasing the maximum fines for stealing trade secrets with an intent to benefit a foreign government. It also directs the Sentencing Commission to review the applicable Guidelines in light of the increased penalties and especially where the crime involved: (1) “the transmission or attempted transmission of a stolen trade secret outside of the United States” or (2) “the transmission or attempted transmission of a stolen trade secret outside of the United States that is committed or attempted to be committed for the benefit of a foreign government, foreign instrumentality or foreign agent.”
While the second recommended enhancement is clearly directed towards sentencing defendants convicted of violating § 1831, the first one does not specifically track the language of either § 1831 or § 1832, and could apply to either section. Regardless, the directives in the Penalty Enhancement Act reflect a congressional belief individuals should be more severely punished where the trade secrets are sent to a foreign country. The difficulty of establishing the benefit element under § 1831, however, makes it very difficult to successfully charge and convict a defendant for economic espionage, even where, there is evidence of foreign involvement. Indeed, as noted above the government has brought only nine cases under § 1831 as compared to approximately 120 under § 1832. However, a large percentage of the cases under § 1832 involve a foreign connection, especially a Chinese connection. In particular, more than 30 percent of all of the prosecutions involved Chinese citizens or naturalized U.S. citizens originally from China. In addition, the defendant in slightly less than 30 percent of the total EEA prosecutions, misappropriated the trade secrets to benefit the Chinese government, an existing Chinese company or to start a company.
The trend of a China connection is also increasing. Since 2008, the government has indicted approximately 50 cases under both sections of the EEA, and approximately 40 percent have a China connection. In 2010, six out of seven cases that were adjudicated under the EEA involved a link to China. Despite this China connection, almost all of the cases were indicted under § 1832 which may understate the seriousness of the crime and the potential impact on U.S. companies and, by extension, on the U.S. economy. Toren Analysis.
By amending the EEA to include a third substantive section that directly addresses the transmission of trade secrets to a foreign country or corporation, it would provide prosecutors with the opportunity to charge a defendant with a section that more accurately reflects the seriousness of the crime. Many of the cases involving a China connection, in fact, could have been charged under this section, which would have been a more accurate reflection of the nature of the crime.
Second, Congress should also enact a civil counterpart to the EEA. The federal government has brought approximately only 125 EEA cases since 1996. Toren Analysis. In addition many of the cases were brought by a very small number of U.S. Attorneys’ Offices. Indeed, over 50% of U.S. Attorneys Offices nationwide have not brought a single case. Offices with relatively few prosecutions given the demographics of their jurisdiction include the District of Utah (2), the Northern District of Georgia (3), the Eastern District of Virginia (2), the Southern District of California (4), and the Western District of Washington (2). Toren Analysis. Offices with no prosecutions included the Eastern District of New York, and the District of Minnesota. Id. Less than 45 percent of all districts nationwide have prosecuted a case under the EEA. Id. Given the number of cases brought, victims must rely on state trade secret law, which does always provide an adequate remedy.
Despite the widespread adoption of the Uniform Trade Secrets Act (“USTA”), there is a lack of uniformity in state trade secrets law. For example, Illinois’s trade secret law is a broader version of the UTSA, while Alabama has a narrower version (which maintains certain common law requirements rejected by the UTSA). The differences among jurisdictions means that victims’ remedies can depend on the jurisdiction, which is not ideal. In addition, state law often does not provide extraterritorial jurisdiction, which makes such law particularly ill-suited to theft of trade secret cases involving a foreign defendant.
Accordingly, Congress should enact a federal civil trade secret statute. A civil trade secrets law should not preempt either USTA or the common law. It should provide for national service of process and extraterritorial jurisdiction in order. This will provide significant new protection against economic espionage committed by a foreign corporation.
The author of this submission was one of the first five federal prosecutors with the Computer Crime & Intellectual Property Section of the U.S. Department of Justice. While at Justice, he was involved with many of the first prosecutions under the EEA. Since entering private practice in 1998 as a partner in the New York Office of Sidley Austin, he has published many articles on theft of trade secrets and the EEA, and is the author of Intellectual Property & Computer Crimes (Law Journal Press 2003).