The Protecting American Intellectual Property Act of 2022—passed by the Senate on December 20, 2022 and signed by the President on January 5, 2023—aims to protect American IP interests by imposing sanctions on certain foreign entities and individuals significantly involved in the theft of trade secrets. The two pillars of the Act are an executive reporting requirement and a series of mandatory sanctions on entities and individuals. While this Act may be lauded because it attempts to address long-standing concerns by U.S. companies about foreign theft of intellectual property, it presents important potential consequences for federal government contractors and may portend certain legislative remedies to come.

Reporting Requirement

In six months, and annually thereafter, the Act requires the President to report to the appropriate congressional committees on, among other things, the identity of "any foreign person the President determines . . . has knowingly engaged in, or benefitted from, significant theft of trade secrets of United States persons, if the theft of such trade secrets occurred on or after such date of enactment and is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States." Sec. 2(a)(1)(A)(i). The reporting requirement also covers any foreign person providing "significant financial, material, or technological support for, or goods or services in support of or to benefit significantly from, such theft." Id. 2(a)(1)(A)(ii). Furthermore, it covers "an entity that is owned or controlled by, or that has acted or purported to act for or on behalf of, directly or indirectly, any foreign person" involved in the two activities above, and "a chief executive officer or member of the board of directors of any foreign entity identified" above. Id. 2(a)(1)(A)(iii) & (iv).

Sanctions

When the President's report identifies a foreign entity, "the President shall impose 5 or more of the following" sanctions (Sec. 2(b)(1)): that is, blocking of property; including the entity on the Department of Commerce's Bureau of Industry and Security Sanctioned Entity List; withholding Export-Import Bank assistance; prohibiting loans from U.S. financial institutions; prohibiting a financial institution from being designated as a primary dealer in U.S. government debt instruments; prohibiting a financial institution from serving as an agent of or repository for U.S. government funds; prohibiting federal procurements or contracts with the entity; prohibiting foreign exchanges; prohibiting banking transactions; banning investment in equity or debt of a sanctioned person; denying a visa to a corporate officer, principal, or shareholder with a controlling interest in a sanctioned entity; and sanctioning principal executive officers of a sanctioned entity. Id. The Act also includes mandatory sanctions for individuals whom the President identifies in the report: that is, blocking property, denying eligibility for a visa, and revoking a current visa. Id. 2(b)(2).

Scope

The Act contains expansive definitions, as well as some limits to its scope. For example, while it defines "entity" as "a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization," the Act defines a "person" as "an individual or entity." Sec. 2(g)(3) & (8). "Knowingly" includes "a person [who] has actual knowledge," as well as one who "should have known, of the conduct, the circumstance, or the result." Id. 2(g)(7). The Act also contains a "national interests" waiver, as well as exceptions for intelligence and law enforcement activities, compliance with international agreements, and sanctions on the importation of goods. Id. 2(c) & (e).

Implications for Federal Government Contractors

Again, while lauded for its attempt to protect the intellectual property of U.S. persons, the Act, and particularly its sanctions, could be a harbinger of things to come. Specifically, the Act requires the President to notify Congress if the President determines that "any foreign person … has knowingly engaged in, or benefitted from, significant theft of trade secrets of United States persons..." Sec. 2(a)(1)(A)(i). As a result of this determination, the President is then required to impose at least five different sanctions upon the offending person, which could include, among other sanctions, "prohibiting federal procurements or contracts with the entity." Id. 2(b)(2).

Thus, without clear due process protections, the President may be required to impose a number of sanctions upon entities, one of which is the debarment of entities from receiving federal contracts. Again, while protections of U.S. companies' intellectual property are critical, is the best way to achieve this by creating a shadow determination process that must lead to a number of sanctions, including potential debarment? What might be the repercussions of this Act, such as being used as a sword by entities against reputable foreign government contractors, and how might other governments respond to protect their entities from these sanctions? Furthermore, and perhaps more concerning, is whether this program is the beginning of something more from Congress, which has been continually encroaching on the federal government's debarment program for years with legislative debarments (e.g., Section 889).

Only time will tell how this Act will be received and utilized, how the President will wield this new power, and how this might be Congress's springboard for additional enforcement actions in the future. Nevertheless, we'll continue to monitor developments like this and keep you informed.