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Economic Espionage

August 1997

Author: Brian C. Elmer.

The Economic Espionage Act of 1996 ("Act")1 is the first federal statute specifically making criminal the theft of trade secrets. Two provisions of the Act are of interest. The first, codified at 18 U.S.C. § 1831, deals only with the theft or other misappropriation of a trade secret that benefits a foreign government, foreign instrumentality or foreign agent.

The second, more general provision, codified in 18 U.S.C. § 1832, penalizes the theft of commercial trade secrets if anyone other than the owner will benefit. Specifically, that section provides that:

(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.

Penalties. An individual violating this section can be fined up to $500,0002 and imprisoned for not more than ten years. A corporation violating this provision can be fined up to $5 million.3 Alternatively, the fine can be up to twice the value of the gain or loss resulting from the theft of the trade secret if that produces a larger fine. 18 U.S.C. § 3571(d).

Forfeiture. In addition, the Act provides for criminal forfeiture of any property or proceeds derived from a violation of the Act. 18 U.S.C. § 1834.

Civil Remedies. In addition to the criminal penalties and forfeiture provision, the Act allows the Attorney General to obtain civil injunctive relief. 18 U.S.C. § 1836.

Confidentiality. The Act requires the courts to enter orders necessary to protect the confidentiality of trade secrets in any court proceeding, consistent with the other requirements of law and the applicable rules. 18 U.S.C. § 1835.

Extraterritoriality. The Act specifically applies to conduct outside the United States if (a) the offender is a U.S. citizen or permanent resident, or (b) an act in furtherance of the offense was done in the United States.

The Act provides federal law enforcement authorities with a strong, comprehensive weapon against the theft of trade secrets, and, as a consequence, offers corporations and individuals substantially more protection than previously existed. As a corollary, it heightens the risk for a competitor who obtains another's trade secrets and the employee who leaves one company to join a competitor of that company.

What is Protected? Trade secrets are protected. A trade secret is defined as

. . . all forms and types of financial, business, scientific, technical, economic, or engineering information, including
patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if--

(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public . . .

18 U.S.C. § 1839 (3).

Elements. The elements of a violation are:

(1) the defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information;

(2) the defendant knew the information was proprietary;

(3) the information was in fact a trade secret;

(4) the defendant intended to convert the trade secret to the benefit of someone other than the owner;

(5) the defendant knew or intended that the owner of the trade secret would be injured; and

(6) the trade secret was related to or was included in a product that was produced or placed in interstate commerce.4

Some Points of Interest.

(1) The Act is much broader than theft - which normally requires the physical removal of property with the intent to deprive the owner of its use. Under the Act, no tangible property need be removed from its owner.

(2) Copying and conveying are separate. Thus, an individual who had authorization to copy information may violate the Act if he conveys it without authorization.

(3) To be a "trade secret," the information must be a secret - it cannot be generally known outside the organization - and the organization must have taken steps to protect its confidentiality, e.g., markings, physical security, confidentiality agreements.

(4) Prosecution under this section requires the approval of a senior official at the Department of Justice.

(5) Key Enforcement Organizations

(a) Computer Crime and Intellectual Property Section
Criminal Division
Department of Justice
Suite 200-West
1001 G Street, N.W.
Washington, DC 20001

(b) Economic Crimes Unit
Federal Bureau of Investigation
Room 3634
935 Pennsylvania Avenue, N.W.
Washington, DC 20535

(c) Intellectual Property Rights Branch
Office of Regulations and Rulings
U.S. Customs Service
Department of the Treasury
Washington, DC 20229

Each United States Attorney's Office is expected to designate a coordinator who will receive special training in computer crime and intellectual property law.

(6) These two new provisions are only the latest of a number of federal criminal statutes available to protect intellectual property rights. See, e.g., 17 U.S.C. § 506(a); 18 U.S.C. §§ 545, 1030, 1341, 1343, 2314, 2315, 2318, 2319, 2319A, 2320.

Endnotes:

1 Pub. L. 104-924, 110 Stat. 3489, effective October 11, 1996.
2 The normal maximum fine for an individual who commits a felony is $250,000. 18 U.S.C. § 3571(b).
3 The normal maximum fine for a corporate felon is $500,000. 18 U.S.C. § 3571(c).
4 See "Federal Prosecution of Violations of Intellectual Property Rights," Department of Justice, May 1997.

Brian C. Elmer
Retired Partner – Washington, D.C.
Email: belmer@crowellretiredpartners.com