When the Economic Espionage Act (“EEA”) was passed in 1996, it was hailed as a much-needed remedy to combat the growing threat to the United States’ national and economic security posed by efforts, largely foreign, to steal proprietary information by criminalizing such behavior. E.g., S. Rep. No. 104-359 (1996). The federal government believes that this threat is very much alive today. As noted by Senator Kohl last March, “trade secret theft and economic espionage continue to pose a threat to U.S. companies to the tune of billions of dollars a year.” 157 Cong. Rec. S1978 (daily ed. Mar. 30, 2011). Reinforcing this sentiment, an October 2011 Report of the Office of the National Counter Intelligence Executive notes that “[f]oreign economic collection and industrial espionage against the United States represent significant and growing threats to the nation’s prosperity and security” with the pace of such activity accelerating. Nat’l Office of the Counterintelligence Executive, Foreign Spies Stealing US Economic Secrets in Cyberspace: Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009-2011 (Oct. 2011), available at http://www.ncix.gov/publications/reports/fecie_all/Foreign_Economic_Collection_2011.pdf.
Against this backdrop, the federal government is redoubling its efforts to combat the theft of trade secrets. Last year the DOJ and FBI reported that they “have increased their investigations and prosecutions of corporate and state-sponsored trade secret theft,” and promise that “[t]his focus will continue.” 2010 U.S. Intellectual Property Enforcement Coordinator, Annual Report on Intellectual Property Enforcement, at 4 (Feb. 2011), available at http://www.cybercrime.gov/ipecreport2010.pdf. Indeed, counterintelligence—including a unit dedicated exclusively to Economic Espionage—is the FBI’s number two priority, second only to terrorism. See FBI, Economic Espionage, http://www.fbi.gov/about-us/investigate/counterintelligence/economic-espionage. Meanwhile, Congress is actively examining ways to bolster the EEA to “help prosecutors bring more of these criminals to justice and companies better protect their trade secrets.” 157 Cong. Rec. S1978 (daily ed. Mar. 30, 2011).
Before examining some of these efforts, this article provides a brief overview of the statutory framework of the EEA.
Criminal Offenses Under the EEA
The EEA is a far-reaching law that criminalizes two distinct but related types of trade secret misappropriation: “Economic espionage,” as defined by 18 U.S.C. § 1831, and “theft of trade secrets,” as defined by 18 U.S.C. § 1832. These offenses share three elements: (1) misappropriation of information; (2) with knowledge or belief that the information is a trade secret; and (3) that the information is, in fact, a trade secret. See DOJ, Prosecuting Intellectual Property Crimes, at 142 (3d ed. 2006). Trade secrets are defined in the EEA as “all forms and types of financial, business, scientific, technical, economic, or engineering information” provided that “the owner has taken reasonable measures to keep such information secret,” and “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). While this definition is broad, legislative history makes clear that it is not intended to encompass the general “knowledge, skill, or abilities” a person may have. H.R. Rep. No. 104-788, at 7 (1996).
In addition to the substantive offenses of economic espionage and theft of trade secrets, the EEA also punishes attempt and conspiracy to commit either offense. 18 U.S.C. §§ 1831(4)-(5), 1832(4)-(5). While trade secrets lie at the heart of the substantive offense, in the case of a conspiracy or attempt charge, “the existence of an actual trade secret” is not required, but “rather, proof only of one’s attempt or conspiracy with intent to steal a trade secret.” U.S. v. Hsu, 155 F.3d 189, 198 (3d Cir. 1998).
Economic Espionage: Nexus to a Foreign Government Requirement
The chief distinguishing feature of section 1831 economic espionage is the requirement of a nexus with a foreign government. More specifically, section 1831 punishes those who steal trade secrets “intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent.” 18 U.S.C. § 1831(a). There are two components embedded in this requirement: the intended benefit and the intended beneficiary. See U.S. v. Jin, F. Supp. 2d, 2012 WL 400681, at *41 (N.D. Ill. Feb. 8, 2012).
“Benefit” is not defined by the EEA, however, the legislative history provides that the term, as used in section 1831, “is intended to be interpreted broadly.” H.R. Rep. No. 104-788, at 11 (1996). As the House Report explains, “the government need only prove that the actor intended that his actions . . . would benefit the foreign government, instrumentality, or agent in any way. Therefore, in this circumstance, benefit means not only an economic benefit but also reputational, strategic, or tactical benefit.” Id.; see also Jin, 2012 WL 400681, at *41.
With respect to the intended beneficiary, of the three categories listed in the statute, the EEA defines both “foreign instrumentality” and “foreign agent” but not “foreign government.” The concept of a foreign government is straightforward enough, however, and other provisions of the U.S. Code define it as “the government of a foreign country, irrespective of recognition by the United States.” E.g., 18 U.S.C. § 1116. Under the EEA, a “foreign agent” is defined as “any officer, employee, proxy, servant, delegate, or representative of a foreign government.” 18 U.S.C. § 1839(2). The remaining category, “foreign instrumentality,” poses the most complexity given the broad and amorphous criteria defining the term. The EEA provides that a “foreign instrumentality” is “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.” 18 U.S.C. § 1839(1). According to the DOJ, “[t]he purpose behind the expansion of the intended beneficiaries beyond foreign governments and foreign agents is to preclude evasion of the statute by foreign governments hiding behind corporate or other shell entities.” See U.S. Attorneys’ Bulletin, Economic Espionage & Trade Secrets, at 25 (Nov. 2009).
While the EEA itself does not provide any guidance as to the degree of control or ownership the foreign government must assert over an entity to make it a foreign instrumentality, legislative history suggests that the test for “substantial” is “whether the activities of the company are, from a practical and substantive standpoint, foreign government directed.” 142 Cong. Rec. S10885 (daily ed. Sept. 18, 1996). Legislative history further provides that analysis of the substantiality of the governmental connection should not be done in a “mechanistic of mechanical manner,” and provides, as a guiding example, that “[t]he simple fact that the majority of the stock of a company is owned by a foreign government will not suffice under this definition, nor for that matter will the fact that a foreign government only owns 10 percent of a company exempt it from scrutiny.” Id. The requirement that the instrumentality be “substantially” owned, controlled, sponsored, commanded, managed or dominated by a foreign government is thus a holistic inquiry that reflects Congress’ intent that “economic espionage” cases be limited to those involving “foreign government sponsored or coordinated intelligence activity.” 142 Cong. Rep. S12, 212 (daily ed. Oct. 2, 1996). A foreign corporation that misappropriates a trade secret “without the sponsorship of, or coordinated intelligence activity by, a foreign government” should not be treated as economic espionage under section 1831 but may instead, in appropriate cases, be prosecuted under section 1832. See DOJ, Prosecuting Intellectual Property Crimes, at 159 (3d ed. 2006) (internal quotation marks omitted).
Additional Requirements for Section 1832 Theft of Trade Secrets
While section 1832 does not require proof of a nexus to a foreign government, it contains several elements not present in section 1831. In particular, there are two additional means rea components, requiring that defendant both intend to provide an economic benefit to the defendant or a third party, and also intend to injure the trade secret owner. 18 U.S.C. § 1831; see also Jin, 2010 WL 400681, at *37-41. Finally, to satisfy the requirements for federal jurisdiction, the trade secret misappropriated must be “related to or included in a product that is produced for or placed in interstate or foreign commerce.” 18 U.S.C. § 1832.
Injunctions and Protective Orders Under the EEA
The EEA also authorizes civil proceedings for injunctive relief. 18 U.S.C. § 1836(a). Although there is no private right of action under the EEA, injunctive relief may be sought by the government “to prevent further disclosure of a trade secret by the defendant or third parties during a criminal investigation . . . as part of the judgment at the end of the case,” or may be uncoupled from any criminal prosecution. See DOJ, Prosecuting Intellectual Property Crimes, at 169 (3d ed. 2006).
Another unusual feature of this criminal statute is its provision for protective orders. Recognizing that without some measure to “preserve the information’s confidential nature and, hence, its value . . . owners may be reluctant to cooperate in prosecutions for fear of exposing their proprietary information to the public,” S. Rep. No. 104-359, at 13 (1996), the EEA provides that the court “shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets,” 18 U.S.C. § 1835. Commentators have noted the inherent tension between this provision and a criminal defendant’s constitutional right to discovery. See Susan W. Brenner & Anthony C. Crescenzi, State-Sponsored Crime: The Futility of the Economic Espionage Act, 28 Hous. J. Int’l L. 389, 436 (2006).
Penalties for EEA Violations: Prison, Fine, Restitution and Forfeiture
Penalties under the EEA can be severe. In addition to a term of imprisonment of up to 15 years for section 1831 violations and 10 years for section 1832 violations, fines under the EEA can be enormous. While the statute carries a range of fines up to $15,000,000 depending upon the nature of the offense, these fines can be substantially increased given that the EEA is subject to the alternative fines provision of 18 U.S.C. § 3571(d). Under that provision, a defendant “may be fined . . . the greater of twice the gross gain or twice the gross loss” caused by the unlawful conduct. Hence, the applicable fines can be potentially staggering depending upon the value of the misappropriated trade secret.
In addition to payment of fines, EEA violators are subject to the provisions of the Mandatory Victim’s Restitution Act (“MVRA”). 18 U.S.C. §§ 1834, 2323(c). Under the MVRA, restitution requires return of property and, where that is inadequate or impossible, pecuniary compensation “in the full amount of each victim’s losses . . . without consideration of the economic circumstances of the defendant.” 18 U.S.C. §§ 3663A(b), 3664(f)(1)(A). Restitution of losses to the victim may be “in addition to” any other penalty imposed. 18 U.S.C. § 3663A(a)(1).
Finally, the EEA requires mandatory forfeiture to the government of property used, or intended to be used, in any manner or part to commit or facilitate the offense, as well as any property constituting or derived from any proceeds obtained directly or indirectly as a result of the commission of the offenses. 18 U.S.C. §§ 1834, 2323.
Increased Focus By the DOJ
Despite the breath of the EEA—and the long-standing recognition of the severity of the problem of economic espionage—historical enforcement of the EEA has been, until recently, somewhat tepid. In fact, through 2009 the government had brought relatively few EEA prosecutions. See U.S. Attorneys’ Bulletin, Economic Espionage & Trade Secrets, at 7 (Nov. 2009). But the regulatory environment has changed over the last few years. In the middle of 2010, the FBI and DOJ announced the launch of 66 investigations into theft of trade secrets and economic espionage. Press Release, Department of Justice Joins in Launch of Administration’s Strategic Plan on Intellectual Property Enforcement as Part of Ongoing IP Initiative (June 22, 2010), http://www.justice.gov/opa/pr/2010/June/10-ag-722.html. Six months later, the DOJ announced an increase in the number of EEA prosecutions and vowed to make prosecution of these cases a high priority for law enforcement. 2010 U.S. Intellectual Property Enforcement Coordinator, Annual Report on Intellectual Property Enforcement, at 4 (Feb. 2011), available at http://www.cybercrime.gov/ipecreport2010.pdf.
As part of this intensified law enforcement effort, the DOJ has stepped up prosecutions of economic espionage—a charge that was once so rare it was compared to a “unicorn sighting.” Sharon Weinberger, US Charges Scientist With Economic Espionage, 466 Nature 542, 543 (July 2010). But economic espionage case “sightings” are more common these days as illustrated by three recent cases.
In July 2010, scientist Kexue Huang was charged with stealing trade secrets related to organic insect products from his former employer, Dow Agrosciences, and using those secrets to conduct unauthorized research with the intent to benefit foreign universities connected to China. Huang ultimately pled guilty to this charge and was sentenced to eighty-seven months in prison. Press Release, Chinese National Sentenced to 87-Months in Prison for Economic Espionage and Theft of Trade Secrets (Dec. 21, 2011), http://www.justice.gov/opa/pr/2011/December/11-crm-1696.html.
In July 2011, the DOJ charged Elliott Doxer, an employee in the finance department of Akamai Technologies, with economic espionage after he offered to give information to the Israeli Consulate with the stated intention of helping Israel, and thereafter provided an undercover FBI agent with extensive information about the Akamai’s customers, employees, and security systems over a year and a half period. Like Huang, Doxer pled guilty. Doxer was sentenced to six months in prison, followed by six months of home confinement, and ordered to pay a $25,000 fine. Press Release, Brookline Man Sentenced to One for Foreign Economic Espionage, http://www.justice.gov/usao/ma/news/2011/December/DoxerElliotSentencingPR.html (December 19, 2011).
Most recently, on February 8, 2012, the DOJ unveiled another economic espionage prosecution case charging four individuals and five corporations with a long-running scheme to steal proprietary information from DuPont related to the manufacture of titanium dioxide with the intent to benefit the Chinese government, which had identified such technology as a priority for the country’s development. This case is the first economic espionage prosecution against a corporation, which is made all the more significant by the allegations that four of the corporations are controlled by the Chinese government. See DOJ Press Release, U.S. and Chinese Defendants Charged with Economic Espionage and Theft of Trade Secrets in Connection with Conspiracy to Sell Trade Secrets to Chinese Companies (Feb. 8, 2012), http://www.justice.gov/opa/pr/2012/February/12-nsd-180.html.
The increase in economic espionage prosecutions appear to be a harbinger of more to come: in announcing the DuPont case, the United States Attorney for the Northern District of California proclaimed that “fighting economic espionage and trade secret theft is one of the top priorities of this Office and we will aggressively pursue anyone, anywhere who attempts to steal valuable information from the United States.” Id.
Increased Focus by Congress
Complimenting DOJ’s prosecutorial efforts, the past year has also seen an increased focus in Congress to the problems posed by economic espionage and theft of trade secrets. Two bills are presently pending before Congress seeking to amend the EEA to provide for enhanced penalties and broader civil remedies.
First, in March 2011—at the recommendation of the U.S. Intellectual Property Enforcement Coordinator, in conjunction with the Departments of Commerce, Homeland Security, Justice and State, and the U.S. Trade Representative—Senators Kohl, Whitehouse and Coons introduced the “Economic Espionage Penalty Enhancement Act,” which would increase the maximum sentence for section 1831 violations from fifteen to twenty years and further direct the U.S. Sentencing Commission to consider increasing the penalty range for both section 1831 and 1832 violations. 157 Cong. Rec. S1978 (daily ed. Mar. 30, 2011). In introducing the Bill, Senator Kohl noted that it was “intended to be a starting point for a larger discussion about the implementation of the Economic Espionage Act, EEA, and whether additional updates and improvements are needed in light of the global economy, and advances in technology.” Id.
In bringing the Act before the Senate Judiciary Committee, Chairman Leahy echoed Senator Kohl’s sentiment, noting that the Penalty Enhancement Act is “intended to help stem a serious problem holding back economic recovery.” Statement of the Honorable Patrick Leahy at December 1, 2011 Meeting of the Senate Judiciary Committee,
http://www.judiciary.senate.gov/hearings/testimony.cfm?id=9b6937d5e931a0b792d258d9b34d9cac&wit_id=9b6937d5e931a0b792d258d9b34d9cac-0-1. The Act was favorably reported out of committee on December 8, 2011. See Press Release, Kohl’s Bipartisan Economic Espionage Bill to Protect U.S. Businesses Passes Committee (Dec. 8, 2011), http://www.kohl.senate.gov/mobile/pressrelease.cfm?customel_dataPageID_1464=4859.
Meanwhile, in October 2011, Senators Kohl and Coons introduced a separate amendment to the EEA. See Press Release, Kohl Offers Amendment to Protect American Businesses (Oct. 5, 2011), http://www.kohl.senate.gov/newsroom/pressrelease.cfm?customel_dataPageID_1464=4775. Because the EEA currently provides no private right of action, judicial protection of trade secrets is limited to cases the DOJ decides to pursue, and, in the absence of copyrighted, patented, or trademarked materials, a patchwork of state civil laws.
This latest amendment aims to close that gap by extending federal jurisdiction to private civil actions for certain types of trade secret misappropriation as an adjunct to the EEA’s criminal enforcement provisions. Like the Penalty Enhancement Act, this measure is couched in terms of economic recovery. As Senator Coons, a co-sponsor of the amendment, emphasized in announcing the proposal: “protecting American innovation is critical to protecting American jobs.” Press Release, Senator Coons Introduces Two Amendments to Currency Bill to Protect American Intellectual Property (Oct. 5, 2011), http://coons.senate.gov/newsroom/releases/release/senator-coons-introduces-two-amendments-to-currency-bill-to-protect-american-intellectual-property.
The proposed amendment creates a private cause of action for alleged trade secret misappropriations otherwise meeting the requirements of section 1832 provided that plaintiff includes, along with the filing of the complaint, a sworn declaration that “the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country.” 157 Cong. Rec. S6227 (daily ed. Oct. 5, 2011). Private plaintiffs would be able to obtain injunctive relief as well as damages. The proposal also provides for ex parte seizure of property used or intended to be used for the misappropriation or to preserve evidence for the civil action upon a finding that such seizure is necessary to prevent irreparable harm. Id.
Other issues that Senator Kohl has flagged for consideration include “whether additional protections are needed for trade secrets as part of EEA prosecutions” beyond the current provision for a protective order, and “whether whistleblower protection should be added.” 157 Cong. Rec. S1978 (daily ed. Mar. 30, 2011). Accordingly, we may expect to see further efforts to enhance the EEA in the coming months.
After a fifteen-year slumber, the government has awaken to the perceived dangers of economic espionage. Both Congress and the Executive Branch have publicly stated their intentions to treat prosecutions of economic espionage as a national priority. Beyond words, the DOJ has been investigating and prosecuting economic espionage cases on a scale not heretofore observed in the first fifteen years following the passage of the EEA.
The new regulatory environment carries significant ramifications for both domestic and foreign companies doing business in the United States. Domestic companies victimized by foreign competitors’ theft of proprietary information now frequently enlist the assistance of a powerful litigation ally—the Department of Justice—to seek redress for misappropriations. To that end, companies are increasingly retaining outside law firms to conduct investigations with the aim of handing over ready-made EEA cases to federal prosecutors. On the other hand, in the current regulatory environment, foreign companies doing business in the United States—or with persons working in the United States—are, more than ever, at risk of being criminally prosecuted for what would have been considered, until recently, as mere business disputes between competitors. If history is any guide, increased Congressional attention on a politically charged problem, coupled with grand DOJ pronouncements announcing a “war” on the crime du jour all too often creates a setting where prosecutors stretch to file criminal cases of dubious merit.
Whether the new focus on pursuing economic espionage cases is sound policy depends at a certain level on whose ox is being gored. But what is not debatable is that the government will be filing more of these cases in the days to come.