March 30, 2017

The Senate Adopts My Suggestions On Amending the EEA

The Senate on November 27, 2012, approved legislation amending the Economic Espionage Act. The bill responds to a recent Second Circuit decision that narrowly interpreted the breadth of the EEA by amending 18 U.S.C. sec. 1832 to make clear that the EEA protects all trade secrets related to a product or service used in interstate commerce. As I have discussed many times on this blog, the EEA makes it a crime to, among other things, steal a trade secret knowing that the theft will hurt the owner.

In United States v. Aleynikov a jury found the defendant guilty of stealing computer code from Goldman Sachs. The Second Circuit overturned the conviction, holding among other things that the trade secret did not meet the interstate commerce prong of the statute, even though the defendant had copied the stolen code from his office in New York to a server in Germany; downloaded the code to his home computer in New Jersey; then flew to his new job in Illinois with the stolen source code in his possession; and the code was used in interstate commerce.

The court held that the Economic Espionage Act provision applies only to trade secrets that are part of a product that is produced to be placed in interstate commerce. Because the company’s proprietary software was neither placed in interstate commerce, nor produced to be placed in interstate commerce, the law did not apply—even though the stolen source code was part of a financial trading system that was used in interstate commerce every day.

In my article in BNA’s Patents, Patent, Trademark and Copyright Journal, I concluded that the effectiveness of the EEA in protecting trade secrets is hampered by statutory limitations of the current version of the EEA. In particular, I argued that Congress should amend the EEA so that it unambiguously covers the theft of trade secrets to the extent permitted by the Commerce Clause, and that it also should protect trade secrets in the development stage. The Senate’s “clarifying legislation” addressed these issues by making it clear that the EEA covers the theft of trade secrets related to a product or service intended to be used in interstate commerce.My article also includes an analysis of the approximately 124 (now 126) indictments that the government has obtained under the EEA. Based on the prosecutions the article draws conclusions about (1) the location of the cases; (2) the extent of foreign government involvement; (3) defendant’s gender; (4) defendant’s level of education; (5) relationship of defendant to the victim; (6) nationality of the defendant/purpose of the theft; (7) type of trade secrets stolen; (8) identify of the victim; (9) adequacy of protective measures; (10) dispositions; and (11) sentences.

While the bill passed by the Senate adopts some of my suggestions, it does not address the issue of whether sentences should be increased for defendants who steal the trade secrets from U.S. corporations. My article concluded that “Congress should increase the penalties for theft of trade secrets not involving a foreign entity; more than 90 percent of the prosecutions, thus far, have not involved a foreign entity, and the defendant was sentenced to probation or home confinement in almost 40 percent of the cases.”

Regardless, the Senate action reflects an important step in increasing the protection of intellectual property in the United States.

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