March 30, 2017

The U.S. is Not a Hypocrite When It Comes to the Protection of Intellectual Property

In a September 24, 2013, column entitled American hypocritical approach to economic espionage,” Orly Lobel, Professor of Law the University of San Diego, writes that the U.S. no longer has the moral high ground when it comes to protecting intellectual property, in general, and trade secrets in particular. In support of this position, she claims that the U.S. has lost its position because of the “shifting international perception that the U.S. is not the target but the predator” and that the U.S. has extended trade secret protection to information that is better left unprotected. This has resulted in “trying to halt the engines of economic progress while those secrets in most need of protection go unwatched in the confusion.” The conclusions, however, are based on a selective and misleading application of the facts and a fundamental misunderstanding of trade secret law.Professor Lobel first claims that “surveys” show that the U.S. is now as bad as China when it comes to stealing trade secrets. However, Professor Lobel only cites a single survey of German business executives that apparently took place after the revelations about Edward Snowden were disclosed. Simply put, Professor Lobel’s claim is not supported by her evidence.

Professor Lobel’s next erroneous conclusion concerns the application of the Economic Espionage Act (“EEA), which criminalizes the theft of trade secrets. At the time Congress enacted the EEA in 1996, it was most concerned about economic espionage, i.e. the theft of trade secrets committed by foreign agents against U.S. businesses, but at the 11th hour, Congress included a section that also make criminal the more run of the mill theft of trade secret cases. Professor Lobel asserts that while the EEA applies to both Americans and non-Americans, it has “applied most vigorously against foreign nations, such as Chinese scientists who send back information they’ve acquired at American institutions.” This statement is patently false. I recently conducted the first and, so-far, only in-depth analysis of all government prosecutions under the EEA and the results indicate that the majority of prosecutions have not involved foreign nationals, but have involved U.S. citizens stealing trade secrets from U.S. companies. Moreover, the cases involving foreign nationals, almost exclusively Chinese are extremely serious. Almost without exception they involve the theft of very valuable trade secrets from leading U.S. companies. These are not cases that simply involve Chinese scientists “sending back information that they’ve acquired at U.S. institutions,” and are far more serious than this benign assertion would have one led to believe.

For example, in the most serious EEA case ever, Dongfan Greg Chung was found guilty of stealing trade secrets from his employer Boeing and from Rockwell Helicopter with the intent to benefit the People’s Republic of China. During a search of his house, the FBI discovered more than 300,000 pages of Boeing and Rockwell documents with approximately 250,000 pages kept in binders in an unfinished storage area under Chung’s house. The defendant first offered his services to the Harbin Institute of Technology in China in 1979 expressing his wish to contribute “to China’s Four Modernizations,” and continued to provide information to Chinese affiliated entities for over twenty years.

The following is a description of only some of the other notable EEA cases with a link to China:
* Earlier this month, two former Eli Lilly scientists were charged with providing over $55 million of Eli Lilly trade secrets relating to cancer, cardiovascular disease and diabetes drugs to Shanghai-based Jiangsu Hengrui Medicine Co.

* In February of 2012, the Department of Justice unsealed an indictment i charging that the Panang Group, which has Chinese government ties, was behind the attempted theft of trade secrets from DuPont relating to the obscure, but valuable technology to produce titanium dioxide, a white pigment used in paints and other products. DuPont had allegedly been successful in keeping the information secret for over 50 years by, in part, allowing most employees to know about only individual parts of the process.

* Kexue Huang, a Chinese national pleaded guilty to stealing trade secrets relating to insecticides from Dow Chemical, where he was employed as a research scientist and from Cargill relating to a new food product with the intent to benefit Beijing University.

* Xiang Dong Yu was sentenced to 70 months imprisonment for stealing trade secrets from the Ford Motor Company. Before telling Ford he had accepted a job in China, Yu downloaded 4,000 Ford documents onto an external hard drive. When Yu returned to the United States in October of 2009, the FBI discovered 41 Ford system design specification documents had been downloaded onto his laptop computer belong to his new employer, Beijing Automotive Company.

* Yuan Li pleaded guilty to stealing trade secrets from Sanofi-Aventis, where she worked as a research chemist and offering to sell them through the U.S. branch of a Chinese chemical company.

* Hong Meng pleaded guilty to stealing trade secrets from DuPont relating to organic LEDs. While still employed by DuPont, Meng accepted a position with Beijing University and through an intermediary sent 109 chemical samples to himself at the university. Meng had been nominated for the Nobel Prize in Chemistry.

These cases confirms an understanding that, as part of development process, China’s intelligence services, as well as private companies and other entities, frequently seek to exploit Chinese citizens or persons with family ties to China who can use their insider access to U.S. corporations to steal trade secrets using a variety of methods. Professor Lobel provides no evidence, and there is none, that the United States is involved in the same type of systemic theft of trade secrets from foreign businesses.

Professor Lobel next argues that by extending trade secret protection to include non-scientific and non-technical information “you divert attention from efforts to prevent justifiably protected secrets while at the same tie inhibiting the economic growth associated with the freer movement of ideas.” This assertion is incorrect for a number of reasons. While Professor Lobel may be correct that the freer exchange of ideas leads to increased growth, she does not explain how the failure to protect business related information such as business plans, customer supply lists and pricing schemes would lead to increased economic growth.
The founding fathers rightly believed technological progress would be impeded if inventors and other creators of intellectual property were given a perpetual monopoly over their works. Encouraging people to build on existing inventions leads to further advances and benefits society. Article 1, Section 8 of the Constitution reflects this understanding: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their Respective Writings and Discoveries.” Thus, the Constitution expressly provides that patent and copyright protection may only be given for “limited times,” which recognizes the importance to society of allowing those to build on what has gone before.

In contrast, the historical basis for protection of trade secrets is entirely different. The protection of trade secrets encourages ethical business transactions and not to foster creativity. Accordingly, trade secrets have no definite term of protection. As long as the information is secret they are protected. However, once a trade secret is disclosed they are no longer legally protected. Moreover, trade secret law does not prevent a party from using the trade secret information so long as the information is not acquired through improper means or in violation of a confidential relationship. Trade secret law does not protect against independent discovery or creation of the same information. Nor does it prevent a competitor from reverse engineering a product and from using the secrets uncovered to manufacture and sell an identical product. Patent law, in contrast, does not distinguish between information acquired legitimately or illegitimately. A party that uses and independently created invention would still infringe a pre-existing patent for that invention. Professor Lobel fails to explain how protecting more kinds of business related information is “inhibits the economic growth associated with the freer movement of ideas.”

Contrary to Professor Lobel’s claims a number of recent studies have shown that foreign companies and countries are actively seeking to steal trade secrets from U.S. companies. Gen. Alexander, head of the military’s CyberCommand characterized the losses caused by cybertheft as “the greatest transfer of wealth in history.” While this oft-quoted statement may be overstated, there is no doubt that that the theft of intellectual property, in general, and trade secrets, in particular, represents a real threat to the economic well-being of the United States. To suggest that the United States should reduce protection for intellectual property in face of real and well-documented threats simply does not make sense.

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