Obama Administration Solicits Public Help in Preventing Foreign Trade Secret Theft

by McDonnell Boehnen Hulbert & Berghoff LLP

Office of Management & Budget - OMBOn Tuesday, the U.S. Intellectual Property Enforcement Coordinator, Victoria Espinel, published a notice in the Federal Register "requesting any recommendations for legislative changes that would enhance enforcement against, or reduce the risk of, the misappropriation of trade secrets for the benefit of foreign competitors or foreign governments."  78 Fed. Reg. 16875 (Mar. 19, 2013).  Submissions are due by April 22, 2013.  The request for public submissions is one of the first steps in the implementation of the "Administration Strategy on Mitigating the Theft of U.S. Trade Secrets," issued on February 20, 2013 (see ""Obama Administration Reports on Efforts to Prevent Trade Secret Misappropriation").

The Administration Strategy is a five-pronged approach, coordinated by the U.S. IP Enforcement Coordinator and involving many of the executive branch departments.

First, the strategy calls for the White House to focus diplomatic efforts to protect trade secrets overseas.  Although the Administration Strategy does not expressly identify any specific countries on which it is focused, the examples of misappropriation of trade secrets for the benefit of foreign companies and countries are almost exclusively Chinese.  Consistent with this focus on China, National Security Advisor Tom Donilon later said that reports of cyber theft of confidential business information from entities in China were occurring "on a very large scale" and that the Chinese government "should take serious steps to investigate and put a stop to these activities" ("US calls for 'serious' action by China to stop cybertheft," The Washington Post, March 11, 2013).  However, a private U.S.-based cybersecurity firm had previously issued a report identifying the Chinese government (specifically, a military unit based in Shanghai) as being one of the causes of Chinese cyberattacks (see Mandiant Intelligence Center Report).  Thus, while the Strategy calls for sustained and coordinated international engagement with trading partners, such as China, it may be difficult for the Federal agencies charged with doing so (including the Departments of Commerce, Defense, Homeland Security, Justice, State, and Treasury, and the U.S. Trade Representative) to make much headway.  The Administration may find more success in the Department and PTO working with other countries through Intellectual Property Rights (IPR) working groups to fashion rules and policies to discourage trade secret theft.  The Strategy also calls for domestic law enforcement agencies to leverage international law enforcement cooperative agreements and arrangements to pursue investigations both in the U.S. and abroad.

Second, the Strategy calls for the U.S. IP Coordinator to promote voluntary best practices by private industry to protect trade secrets.  While the IP Enforcement Coordinator will work with the Departments of Justice and State (among other agencies) to encourage companies and industry groups to develop and implement voluntary best practices, the Administration Strategy expressly indicates that those best practices must be consistent with antitrust laws.  Among the areas in which the Strategy suggests focus are R&D compartmentalization, information security, physical security, and human resources policies.  But the Strategy makes it clear that compliance with best practices must be voluntary, and any identified best practices may not be suitable for all companies.

Third, the Strategy calls for the enhancement of domestic law enforcement operations.  Spearheaded by the Attorney General's Task Force on Intellectual Property and the FBI, the Department of Justice is making the investigation and prosecution of corporate and state-sponsored trade secret theft a higher priority.  The Office of the Director of National Intelligence will also coordinate the sharing of intelligence among the intelligence and law enforcement communities in order to monitor foreign government activity and prevent international trade secret misappropriation, and will also work with the private sector to warn of potential threats.

Fourth, the Strategy calls for the Administration to improve domestic legislation.  This is the prong to which the U.S. IP Coordinator's Federal Register notice is directed, and one area where there has been concrete (although incremental) progress in recent months.  The Strategy highlighted two acts passed at the conclusion of the last Congress.  First, the "Theft of Trade Secrets Clarification Act of 2012" was intended to reverse the outcome of cases like United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), in which the defendant stole the source code for a proprietary high-frequency trading system from his former employer to provide it to a new employer, but was acquitted because the source code was intended to remain secret and therefore not "related to or included in a product that is produced for or placed in interstate or foreign commerce."  That Act modified the Economic Espionage Act (EEA) to make it cover trade secrets "related to a product or service used in or intended for use in interstate or foreign commerce."  Second, the "Foreign and Economic Espionage Penalty Act of 2012" did exactly that: increased potential sentences and fines for violations of the EEA.  The U.S. IP Enforcement Coordinator is charged with coordinating an initial review of existing Federal laws within 120 days of the release of the Administration Strategy, by June 20, 2013.

Finally, the Strategy calls for various departments in the Administration to increase efforts to develop public awareness and engage in stakeholder outreach.  For example, the FBI and Department of Commerce are to continue and expand their efforts to inform the public about the threat and cost of trade secret misappropriation, using existing public awareness programs.  In addition, the PTO will include discussion of the economic implications of trade secret misappropriation in its "road show" events.

All in all, the Administration Strategy suggests a greater focus on protection of trade secrets against foreign misappropriation, as well as a more coordinated effort than in the past.  But the next steps, both in discussions with China and shaping of Federal legislation, may be critical in determining whether that effort provides greater security for domestic companies.  We will continue to monitor developments and will report back on suggested legislative changes.

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McDonnell Boehnen Hulbert & Berghoff LLP

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