Economic Espionage Act of 1996
The Economic Espionage Act of 1996 (Pub.L. 104–294, 110 Stat. 3488, enacted October 11, 1996) was a 6 title Act of Congress dealing with a wide range of issues, including not only industrial espionage (e.g., the theft or misappropriation of a trade secret and the National Information Infrastructure Protection Act), but the insanity defense, the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United States Sentencing Commission reports regarding encryption or scrambling technology, and other technical and minor amendments.
- 1 Structure of the Act
- 2 Protection of trade secrets
- 3 Enforcement
- 4 Further developments
- 5 Impact of the Act
- 6 See also
- 7 References
- 8 Further reading
Structure of the Act
|I||Protection of trade secrets||Inserts 18 U.S.C. §§ 1831–1839 as Chapter 90 of Title 18 of the United States Code|
|II||National Information Infrastructure Protection Act of 1996||Amends 18 U.S.C. § 1030 regarding fraud and related activity in connection with computers.|
|III||Transfer of persons found not guilty by reason of insanity||Amends 18 U.S.C. § 4243 with regard to such persons being transferred to the custody of the United States Attorney General|
|IV||Establishment of Boys and Girls Clubs||Authorizes grants by the United States Department of Justice to the Boys and Girls Clubs of America|
|V||Use of certain technology to facilitate criminal conduct||Requiring the United States Sentencing Commission to provide certain information in its reports|
|VI||Technical and minor amendments||Various|
Protection of trade secrets
The act makes the theft or misappropriation of a trade secret a federal crime. Unlike the Espionage Act of 1917 (found at 18 U.S.C. §§ 792–799), the offense involves commercial information, not classified or national defense information.
|18 U.S.C. § 1831||Economic espionage||Criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign power. Penalties for violation are fines of up to US$500,000 per offense and imprisonment of up to 15 years for individuals, and fines of up to US$10 million for organizations.|
|18 U.S.C. § 1832||Theft of trade secrets||Criminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to US$5 million for organizations.|
|18 U.S.C. § 1833||Exceptions to prohibitions||Provisions do not apply to lawful activity by government entities, or to the reporting of any suspected violation of law to any such entity.|
|18 U.S.C. § 1834||Criminal forfeiture||Requires criminal forfeiture of any proceeds of the crime and property derived from proceeds of the crime, and any property used, or intended to be used, in commission of the crime.|
|18 U.S.C. § 1835||Orders to preserve confidentiality||The court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, subject to certain specified provisions of law.|
|18 U.S.C. § 1836||Civil proceedings to enjoin violations||Authorizes civil proceedings by the Department of Justice to enjoin violations of the Act, but does not create a private cause of action. Thus, victims or putative victims must work with the U.S. Attorney in order to obtain an injunction.|
|18 U.S.C. § 1837||Conduct outside the United States||There is extraterritorial jurisdiction where:
|18 U.S.C. § 1838||Construction with other laws||Does not affect any other civil or criminal laws with respect to misappropriation of trade secrets.|
|18 U.S.C. § 1839||Definitions|
"Trade secrets" are defined in the act consistent with generally accepted legal definitions such as those used in the Uniform Trade Secrets Act and state laws based on the UTSA. Specifically it declares:
(3) the term “trade secret” means 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
Department of Justice policy
The United States Department of Justice Criminal Division has issued a prosecution policy relating to enforcement of the Act. In general, it states:
The EEA is not intended to criminalize every theft of trade secrets for which civil remedies may exist under state law. It was passed in recognition of the increasing importance of the value of intellectual property in general, and trade secrets in particular to the economic well-being and security of the United States and to close a federal enforcement gap in this important area of law. Appropriate discretionary factors to be considered in deciding whether to initiate a prosecution under § 1831 or § 1832 include:
- (a) the scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent or foreign instrumentality;
- (b) the degree of economic injury to the trade secret owner;
- (c) the type of trade secret misappropriated;
- (d) the effectiveness of available civil remedies; and
- (e) the potential deterrent value of the prosecution.
The availability of a civil remedy should not be the only factor considered in evaluating the merits of a referral because the victim of a trade secret theft almost always has recourse to a civil action. The universal application of this factor would thus defeat the Congressional intent in passing the EEA.
Use of EEA
The Act can be employed to accomplish several purposes:
- It can be used to protect a company’s valuable intellectual property by prosecuting dishonest competitors who steal a company’s trade secrets, but
- it can also be used against a company that finds itself with trade secrets belonging to a competitor.
In United States v. Lange, the EEA was used to protect a victim company that had learned that Lange, a disgruntled former employee, had been offering to sell its secret manufacturing processes to third parties. The company reported Lange to the FBI, and Lange was arrested and subsequently convicted and sentenced to 30 months in prison. The case was successful in large part because the company undertook reasonable measures to keep its information secret, including:
- physically securing the trade secrets in question
- limiting the distribution of documentation describing the trade secret
- limiting the number of employees with access to the trade secret
- notifying such employees that they were working with confidential information, and placing warnings on trade secret information
- providing vendors with only partial information of the trade secret, so that it could not be replicated
The EEA has also been used to prosecute a Boeing manager, together with an employee he hired from Lockheed Martin with the offer of a higher salary in return for his inside information on Lockheed Martin’s pricing. Although the EEA charges were later dropped, the matter resulted in Boeing being denied $1 billion in contracts from the United States Air Force, as well as it paying a $615 million settlement to the US Government.
§ 1831 - First conviction and sentence
In February 2010, former Boeing engineer Dongfan "Greg" Chung was sentenced to 16 years in prison, following the first ever trial conviction under the 1996 Economic Espionage Act. Chung, a native of China, was convicted by the US District Court for the Central District of California of stealing Boeing trade secrets related to the US Space Shuttle program and the Delta IV rocket. He spent over 30 years providing U.S. aerospace technologies to China. Chung was convicted on charges related to more than 350,000 sensitive documents that were found concealed in crawl spaces underneath his home, including conspiracy to commit economic espionage, six counts of economic espionage to benefit a foreign country, one count of acting as an agent of the People’s Republic of China, and one count of making false statements to the FBI. The 15-year sentence is viewed as a life sentence for Chung who is 74 years old.
Chung was arrested by special agents from the FBI's Los Angeles Field Office in February 2008. He worked for Rockwell International from 1973 until its defense and space unit was acquired by Boeing in 1996, and he continued to work for Boeing as an employee and then as a contractor through 2006. Chung's arrest resulted from an investigation into the case of Chi Mak, a Chinese-American engineer convicted in 2007 of conspiring to export sensitive naval technologies to China and sentenced to more than 24 years in prison.
At Chung's sentencing, presiding judge, Cormac Carney, said that he could not “put a price tag” on national security, and that with the long sentence for Chung he wanted to send a signal to China to “stop sending your spies here.”
In April 2012, Chung's conviction was upheld by the United States Court of Appeals for the Ninth Circuit.
§ 1832 - First conviction and sentence
Most prosecutions under the Economic Espionage Act have been for violation of Section 1832 (Trade Secret Theft). The first such prosecution was of Daniel and Patrick Worthing, maintenance workers at PPG Industries in Pennsylvania who stole blueprints and diskettes. Both pled guilty in early 1997. For another example, see the first conviction in California, that of David Brian Kern.
After an August, 2007 plea of guilt for (one count) of violating the Economic Espionage Act and one count of violating the Arms Export Control Act, San Jose U.S. District Court Judge Jeremy Fogel sentenced Canadian citizen Xiaodong Sheldon Meng, 44, to 24 months in federal prison, 3 years of parole and a $10,000 fine, with forfeiture of computer equipment seized. Meng was indicted in December 2006, with 36 counts, "for stealing military software from a Silicon Valley defense contractor and trying to sell it to the Chinese military." The first to be convicted of Economic Espionage (Section 1831), Meng admitted "illegally obtaining a program used for military training from Quantum3D and later using the program in a demonstration to the People's Liberation Army Navy after he no longer worked for the firm; he attempted to sell the fighter-pilot training software programs to the Royal Thai Air Force, the Royal Malaysian Air Force and the Navy Research Center in China." He paid $500,000 bond, for temporary liberty, until August 18 when he begins serving sentence.
On June 18, 2008, Meng was the first individual sentenced under the Economic Espionage statute. Meng was the first person convicted of both the Economic Espionage Act of 1996 and the Arms Export Control Act. He received a 24-month sentence and $10,000 fine, which included a sentencing departure for cooperation, according to news reports.
Intersection with trade law
The International Trade Commission has used the EEA's definition of misappropriation to support its enforcement of US trade laws that prohibit "unfair methods of competition and unfair acts in the importation of articles ... in the United States." In Tianrui Group Company Limited LLC v International Trade Commission, the United States Court of Appeals for the Federal Circuit held that the manufacture abroad of products using a process that was developed in the United States, protected under domestic trade secret law, and misappropriated abroad, violated section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. The ITC therefore had the authority to bar the importation of such products into the United States.
Scope of trade secrets
The extent to which trade secrets are covered under § 1832 was expanded in 2012, following the reversal of a conviction in April 2012 by the United States Court of Appeals for the Second Circuit in United States v. Aleynikov In that case, it was held that the theft of the source code for a proprietary system at Goldman Sachs was never intended to be placed in interstate or foreign commerce. As Goldman had no intention of selling or licensing its system, § 1832 (as it was written at that time) did not apply. The provision was promptly amended on December 28, 2012 with the passage of the Theft of Trade Secrets Clarification Act of 2012, so that it now applies to products or services that are used or intended for use in interstate or foreign commerce.
Expansion of penalties
On January 24, 2013, § 1831 was amended to increase the maximum fines:
- in the case of individuals, from $500,000 to $5,000,000, and
- in the case of organizations, from $10,000,000 to "the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization."
Impact of the Act
This legislation has created much debate within the business intelligence community regarding the legality and ethics of various forms of information gathering designed to provide business decision-makers with competitive advantages in areas such as strategy, marketing, research and development, or negotiations. Most business intelligence (also known as competitive intelligence practitioners) rely largely on the collection and analysis of open source information from which they identify events, patterns, and trends of actionable interest. However, some techniques focus on the collection of publicly available information that is in limited circulation. This may be obtained through a number of direct and indirect techniques that share common origins in the national intelligence community. The use of these techniques is often debated from legal and ethical standpoints based on this Act.
One such example is the collection and analysis of gray literature. The techniques for developing actionable intelligence from limited circulation / limited availability documents such as selected corporate publications can raise difficult legal and ethical questions under both intellectual property laws and the Economic Espionage Act.
The Society for Competitive Intelligence Professionals provides training and publications which outline a series of guidelines designed to support business intelligence professionals seeking to comply with both the legal restrictions of the EEA as well as the ethical considerations involved. In 1999, the Society of Competitive Intelligence Professionals published its Policy Analysis on Competitive Intelligence and the Economic Espionage Act which explained how the Economic Espionage Act will not affect legitimate competitive intelligence. The National Law Journal of March 29, 2000, reviewed the Policy Analysis and reported that the Policy Analysis' conclusion was that the EEA's "impact on legitimate competitive intelligence would be negligible" and that "nearly four years" after the EEA's passage, "it appears that the [Policy Analysis'] predictions were on target."
The EEA was developed on the basis of a national philosophy that emphasizes a "level playing field" for all business competitors that arose in no small part due to the size and diversity of the American private sector. Many other nations not only lack such legislation, but actively support industrial espionage using both their national intelligence services as well as less formal mechanisms including bribery and corruption. The United States Office of the National Counterintelligence Executive publishes an annual report on Foreign Economic Collection and Industrial Espionage mandated by the U.S. Congress which outlines these espionage activities of many foreign nations.
The United States does not engage in state-sanctioned industrial espionage. In 2000, in response to European concerns, a former U.S. Director of Central Intelligence, James Woolsy, said (in the March 17, 2000 Wall Street Journal editorial) that if there is collection, it's usually focused on bribery by European companies, not on access to technologies. Woolsey said "most European technology just isn’t worth our stealing." As DCI, Woolsey testified before Congress that he was reluctant to engage in economic espionage as the endeavor is "fraught with complexities, legal difficulties (and) foreign policy difficulties."
In 2000, the European Parliament voted to carry out an investigation into the international surveillance project ECHELON. That same year the French government also began an official investigation into allegations that several collaborating nations may be using the program for illegal purposes. U.S. Central Intelligence Agency documents had been revealed to the British press, showing that the U.S. has been using the technology to monitor European business communications. The French and European allegations centered on the suspicion that such information was being passed to U.S. firms. The U.S. stated that monitoring was focused on the participation of European firms in supplying foreign WMD (weapons of mass destruction) programs, such as the Iran nuclear program, on evading sanctions in Iran and Libya, and on the bribery of foreign officials, such as French payments to Saudi Defense officials.
- "USAM Chapter 9-59.000 - Economic Espionage Act of 1996 (18 U.S.C. §§ 1831-1837)—Prosecutive Policy". United States Department of Justice Criminal Division. February 27, 2013.
- "The Economic Espionage Act: The Double-edged Sword". Dorsey & Whitney LLP. Spring 2004. Retrieved February 28, 2013.
- Text of United States v. Lange, 312 F.3d 263 (7th Cir. 2002) is available from: Findlaw resource.org
- Searle 2010, pp. 119–121
- US v. Branch and Erskine, Criminal case 2:03-CR-00715-RSWL-1 (Central District of California, filed July 17, 2003)
- Searle 2010, pp. 116–119
- United States Attorney's Office Central District of California (February 8, 2010). "Former Boeing Engineer Sentenced to Nearly 16 Years in Prison for Stealing Aerospace Secrets for China". Federal Bureau of Investigation Los Angeles. Retrieved 16 August 2010.
- United States v. Chung, 659 F.3d 815 (9th Cir. 2011), cert. denied, No. 11-1141, 2012 WL 929750 (U.S. Apr. 16, 2012).
- "Ninth Circuit Upholds First Trial Conviction Under § 1831 of the Economic Espionage Act of 1996". Harvard Law Review (Harvard Law School) 125 (8). 2012. Retrieved 27 February 2013.
- List of the first 40 Trade Secret Theft cases under the Economic Espionage Act
- David Brian Kern: Theft of Trade Secrets, Cryptologia, 2000
- Sfgate.com, Salesman gets 2 years for industrial spying
- United States v. Meng, No. CR 04-20216 JF (U.S.D.C. N.D. Calif.)
- Dan Levine (June 19, 2008). "Judge Takes Hard Line in First Economic Espionage Sentence". The Recorder. Retrieved February 27, 2013.
- John Coté (August 19, 2010). "Salesman gets 2 years for industrial spying". The San Francisco Chronicle. Retrieved February 27, 2013.
- Michael Strapp (April/May 2012). "Combating Trade Secret Theft Abroad through Legal Action at Home". Executive Counsel. Retrieved February 27, 2013.
- "In the Matter of Certain Cast Steel Railway Wheels, Processes for Manufacturing or Relating to Same and Certain Products Containing Same ; Issuance of a Limited Exclusion Order and Cease and Desist Orders; Termination of the Investigation". Federal Register. February 23, 2010. Retrieved February 27, 2013.
- Text of Tianrui Group Company Limited LLC v International Trade Commission, 661 F.3d 1322 (Fed. Cir. 2011) is available from: Findlaw
- Emily Miao (Fall 2012). "The TianRui Group Company Ltd. v. U.S. International Trade Commission: A Powerful New Weapon for Combating Trade Secret Misappropriation Abroad". McDonnell Boehnen Hulbert & Berghoff LLP. Retrieved February 27, 2013.
- United States v. Aleynikov, 676 F.3d 71, 75 (2d Cir. 2012), reversing United States v. Aleynikov, 737 F. Supp. 2d 173 (S.D.N.Y. 2010)
- Douglas Nemec and Kristen Voorhees. "Recent amendment to the Economic Espionage Act extends protection against misappropriation". Thomson Reuters. Retrieved February 27, 2013.
- Theft of Trade Secrets Clarification Act of 2012, Pub.L. 112–236
- Foreign and Economic Espionage Penalty Enhancement Act of 2012, Pub.L. 112–269
- Society of Competitive Intelligence Policy Analysis on Competitive Intelligence and the Economic Espionage Act, written by Richard Horowitz, Esq.
- Industry Spying Still Flourishes; Criminalizing Trade Secret Theft Hasn't Led to Mass Proseuctions," National Law Journal, March 29, 2000
- Committee on the Judiciary (September 16, 1996). "104th Congress (1995-1996), House Report 104-788: H.R. 3723, Economic Espionage Act of 1996". United States House of Representatives. Retrieved February 27, 2013.
- Charles Doyle (January 28, 2013). "Stealing Trade Secrets and Economic Espionage: An Overview of 18 U.S.C. 1831 and 1832". Congressional Research Service. Retrieved February 26, 2013.
- Nicola Charlotte Searle (2010). The economics of trade secrets: evidence from the Economic Espionage Act (PhD). University of St Andrews. Retrieved February 28, 2013. Unknown parameter