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The Economic Espionage Act of 1996
January 01, 1996

OVERVIEW

The first federal act specifically relating to the theft of trade secrets was enacted into law on October 10, 1996. The Economic Espionage Act is a combination of two proposed bills. One bill, S 1557, was introduced in Congress to cover economic espionage by foreign governments or those acting on their behalf. The second bill, S 1556, was designed to protect against economic espionage by domestic and nongovernmental entities and individuals. The existing federal and state laws were found to be inadequate to guard against foreign and domestic theft of trade secrets in light of the emergence of vigorous global competition and the increasing use of computers and the internet for tranfsferring stolen information. According to Senator Leahy, the two bills were intended 'to reflect significant efforts to better protect our industrial lifeblood -- the imaginative ideas and the special know-how that give American companies the edge in global competition.'

Peter Torens, the Assistant Attorney General in charge of implementing the Act, spoke for the first time about this new Act at the Annual Trade Secrets Law Institute of the Intellectual Property Law Association of Chicago on December 5, 1996. He said that previous attempts to stop trade secret theft by using the law banning the interstate transportation of stolen goods was difficult. That act punished the theft of 'goods, wares or merchandise' and did not specifically mention the theft of 'property.' Thus, convictions for the theft of intangible intellectual property were hard to obtain. The Economic Espionage Act of 1996 solves these basic problems. Mr. Torens emphasized that the success of the new Act will depend upon the cooperation of the victims.

The original bill required the approval of the Attorney General to bring a prosecution. The final bill dropped that requirement in return for an agreement between the Department of Justice and Congress to require the preparation of regulations to enforce the Act which called for approval of either the Attorney General, Deputy Attorney General or Assistant Attorney General-Criminal Division.

The increase in computer crimes provided a major impetus for the Act. Mr. Torens mentioned that the damages from domestic and foreign trade secret theft total billions annually.

A Manager's Statement was filed in the Senate to 'clarify' portions of the Act. Section 1832 applies to the theft of trade secrets by domestic or foreign individuals or entities. Section 1831 penalizes trade secret theft when it is done on behalf of a foreign government. According to Mr. Torens, both of these sections have three common elements. First, the prosecutor must show that the accused knowingly took the trade secrets without authorization. Secondly, the misappropriation must be done intentionally or knowingly with the a firm belief that the information was proprietary. Finally, the prosecutor must show that the information meets the broad definition of a trade secret contained in the Act. Section 1831 adds the requirement that the accused intended to or knew that his or her actions would aid a foreign government. This aid need not be strictly economic. Aiding the country's reputation may suffice. Since this is difficult to prove, Mr. Torens believes that the initial prosecutions will be under Section 1832.

Section 1832 has three additional requirements. The prosecutor must show that: (a) some economic benefit accrued to another party;(b) the accused intended to injure the owner of the trade secret (the loss of the trade secret would satisfy such a requirement); and (c) the trade secret must be in or related to a product in interstate commerce. This latter requirement may present some difficulty if the trade secret information was being used at the research and development stage.

Mr. Torens recommended that civil attorneys keep several factors in mind when considering a request to the U.S. Attorney's Office for an investigation under the Act. Most importantly, the higher level of burden of proof beyond a reasonable doubt must be kept in mind. This is a difficult standard to meet. A victim should be in a position to help the U.S. Attorney in collecting evidence of value of the trade secret and proof of the misappropriation. Monetary losses to the victim are important and should be documented. Trade secret theft also should be reported promptly so that the evidence does not get stale and the trade secret lost by further disclosure. The resources of the Office are scarce. Most Offices are reluctant to prosecute theft of purely business information such as customer lists, marketing plans or the like.

Parallel developments of the same information by two or more people are not covered by the statute. Reverse engineering is likewise not punishable under the Act. However, as stated in the Manager's Statement, 'the important thing is to focus on whether the accused has committed one of the prohibited acts of this statute rather than whether he or she has 'reverse engineering.' If someone has lawfully gained access to a trade secret and can replicate it without violating copyright, patent or this law, then that form of reverse engineering should be fine.'

The definition of trade secrets set forth in Section 1839 of the Act is similar to the definition used in the Uniform Trade Secrets Act. It does not require novelty in the patent sense. A strict novelty requirement is not imposed in order for the material to be considered a trade secret. However, a look at the novelty or uniqueness of the information will inform the courts on whether the information is a matter of general knowledge or experience. Such general knowledge or experience derived for employment is not covered by the Act. A person who is being prosecuted must know or have a firm belief that the information he or she has taken is in fact proprietary.

The legislative history indicates that it is crucial to maintain the confidentiality of the information. An order preserving confidentiality should be considered favorably by the courts. As stated in the Manager's Statement: 'It is important that in the early stages of prosecution the issue of whether material is a trade secret not be litigated. Rather, the courts should, when entering these orders, assume that the material at issue is in fact a trade secret.' As stated by Mr. Torens, Congress did not want to deter cooperation of the victims based on the fear of further disclosure of the trade secrets.

Section 1836 of the Act grants original jurisdiction for actions brought under the Act to the Federal District Courts. Most significantly, Section 1836 provides the extraordinary remedy of allowing the Attorney General to file a civil action and seek injunctive relief against any violation of the Act. This civil injunctive provision could be a very important tool in preserving the trade secret status of the stolen information.

The Act imposes severe penalties for stealing trade secrets. Most federal criminal statutes call for a punishment of up to 5 years imprisonment. In contrast, Section 1831 of the Act allows the imposition of a $500,000 fine and up to 15 years imprisonment for individuals found guilty of trade secret theft. Organization violating Section 1831 can be fined up to $10,000,000. The theft of trade secrets under Section 1832 can bring a fine of $500,000 or imprisonment up to 10 years for individuals, and fines up to $5,000,000 for organizations.

Most significantly, Section 1834 states that the court, in imposing sentence under this chapter, 'shall order, in addition to any other sentence imposed, that the person forfeit to the United States' any property derived from the violation, and any property used or intended to be used in the commission of the violation. On its face, this forfeiture provision, for example, would require the seizure of computers and related equipment used to steal and transfer trade secret information over the internet.

The Act incorporates by reference the provisions of existing law dealing with criminal forfeiture. Under those existing procedures the victims of the crimes committed under the Act are afforded priority. The Attorney General is authorized to restore the forfeited property to the victims. The granting of priority to the victims of trade secret misappropriation is crucial. It would be devastating to a trade secret owner to become the victim of a theft and then to watch as the federal government auctioned the forfeited property embodying its trade secrets to the highest bidder. The owner must have a superior claim to the purloined property in order to preserve the confidentiality of the trade secret information.

The penalties and the far-reaching forfeiture provisions of this Economic Espionage Act should prove to be a significant deterrent to domestic and foreign economic espionage.

The Economic Espionage Act of 1996

SECTION 1. 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

Sec. 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. 1839. Definitions. 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 the 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 government 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;

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