May 1, 2009 ... 2009 MID-YEAR MEETING ... See also, Computer Fraud and Abuse Act (“CFAA”)
, 18 U.S.C. § 1030. ... The Economic Espionage Act of 1996.
COMPUTER FRAUD & ABUSE AND INTELLECTUAL PROPERTY
ABA SECTION OF LABOR AND EMPLOYMENT LAW: TECHNOLOGY IN THE PRACTICE AND WORKPLACE COMMITTEE
2009 MID-YEAR MEETING
Seattle University School Of Law Seattle, Washington April 29 – May 1, 2009
Summary of The Economic Espionage Act of 1996 Presented by: Mauricio F. Paez JONES DAY 222 E. 41st Street New York, N.Y. 10017 mfpaez @jonesday.com
Mauricio Paez is a technology, intellectual property, and corporate transactions international attorney, advising Jones Day’s global clients in technology commercial transactions in Asia, Europe, Latin America, and the United States. His practice includes advising Firm clients on multi-jurisdictional outsourcing, licensing, and other commercial arrangements involving technology and technology-related services. This practice also includes advising clients on various data security, privacy, and related intellectual property issues.
-2-
I.
Introduction There was no federal statute explicitly criminalizing the theft of commercial trade secrets
until Congress enacted the Economic Espionage Act of 1996 (the “EEA”).1 In doing so, Congress criminalized the theft of trade secret using such practices as foreign espionage, and the theft of commercial trade secrets for economic or commercial advantage.2 Until then, federal prosecutors relied on other, less fitting federal statutes as the means of prosecuting trade secret cases.3 States also lacked the resources to investigate these crimes, and the lack of uniformity made the enforcement of trade secret theft uncertain and subject to substantial jurisdictional hurdles. In deed, although many states enacted some form of the civil Uniform Trade Secrets Act, there remain no effective criminal response to the theft of trade secrets. Under the EEA, federal prosecutors where given an essential tool to (i) protect against the theft of trade secrets for the benefit a foreign government, instrumentality, or agent,4 and (ii) prohibit the commercial theft of trade secrets carried out for economic or commercial advantage, irrespective of whether the perpetrator is foreign or domestic, and regardless of whether or not it benefits a foreign government, instrumentality or agent.5 Although Congress appeared to focus on the protection of U.S. businesses against foreign espionage, such as by imposing more severe penalties against such conduct, the vast majority of prosecutions under the EEA have related to the theft of commercial trade secrets under 18 U.S.C. § 1832. Thus, the main focus of this paper 1
Pub. L. No. 104-294, 110 Stat. 3488 (codified as 18 U.S.C. §§ 1831-1839).
2
See H.R. Rep. No. 104-788 (1996).
3
See, e.g., The National Stolen Property Act, 18 U.S.C. § 2314. However, the National Stolen Property Act did not apply to the theft of purely intellectual property. See Dowling v. United States, 473 U.S. 207, 216 (1985); United States v. Brown, 925 F.2d 1301, 1307-08 (10th Cir. 1991). Also, mail and wire fraud statutes where not always optimal. The only federal statute explicitly targeting the theft of trade secrets was limited to government employees. 18 U.S.C. § 1905. See also, Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. The CFAA was not specifically tailored to the address the theft of trade secrets, and in fact applies regardless of whether the information or data constitutes a trade secret. 4
18 U.S.C. § 1831.
5
18 U.S.C. § 1832.
-3-
is to summarize the essential elements relating to the theft of commercial trade secrets for economic or commercial advantage under 18 U.S.C. § 1832. II.
The Economic Espionage Act of 1996 A.
Foreign Economic Espionage.
Section 1832 of the EEA prohibits the theft of trade secrets by any person or entity for the benefit of a foreign government, instrumentality, or agent:
(a) In General.-- Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly-(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret: (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret: (3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization: (4) attempts to commit any offense described in any of paragraphs (1) through (3); or (5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (4), and one or more of such persons do any act to effect the object of conspiracy. shall, except as provided in subsection (b), be fined not more than $500,000 or imprisoned not more than 15 years, or both. (b) Organizations-- Any organization that commits any offense described in subsection (a) shall be fined not more than $10,000,000.6 B.
Commercial Economic Espionage.
By comparison, Section 1832 criminalizes the theft of commercial trade secrets carried out for commercial advantage: 6
18 U.S.C. § 1831(a) (emphasis added).
-4-
(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 $5,000,000.7 C.
The Common Elements
Although each section provides for distinct offenses, they are very much related. That is, in each case, the government must prove beyond a reasonable doubt that:
7
•
The defendant misappropriated information (or attempted or conspired to do so);
•
The defendant knew or believed that the information was a trade secret; and
•
The information was in fact a trade secret.8
18 U.S.C. § 1832(a) (emphasis added).
8
See 18 U.S.C. §§ 1831 and 1832. However, if the charge is one involving attempt or conspiracy, according to the 3rd Circuit, the government need not prove that the information the defendant sought actually constituted a trade secret. See United States v. Hsu, 155 F.3d 189, 204 (3d Cir. 1998).
-5-
Also, both section criminalize the knowing receipt, purchase, destruction, or possession of a trade secret.9 Where the offense relates to the theft of commercial trade secrets under Section 1832, the government must also prove that (i) the defendant intended to convert the trade secret to the economic benefit of anyone other than the owner of the trade secret; (ii) the defendant knew or intended that the owner of the trade secret would be injured, and (iii) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.10 By adding “knowing” under Section § 1832(a) after the interstate or foreign commerce requirement, the plain reading of the statute suggests that the defendant need not have known that the trade secret was related to or included in a product that was produced for or placed in interstate or foreign commerce. Thus, the government need only show that the trade secret was developed for existing or future products intended for distribution in interstate or foreign commerce.11 D.
Definition of Trade Secret
The term “trade secret” in the EEA is based on the trade secret definition in the Uniform Trade Secrets Act.12 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) 9
18 U.S.C. § 1831(a)(3); 18 U.S.C. § 1832(a)(3).
10
18 U.S.C. § 1832(a).
11
See, e.g., Untied States v. Yang, 281 F.3d 534, 551 (6th Cir. 2002) (holding that a patent application had sufficient nexus to interstate commerce because it involved a product already generating millions of dollars in sales and was also related to a product produced and sold in the U.S. and Canada). 12
See H.R. Rep. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4031.
-6-
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.”13 Much of the controversy surrounding the EEA related to the undefined phrase “reasonable measures.” Some commentators expressed concern that companies would be required to implement all necessary steps required to maintain the information secret. However, in a number of civil cases, which remain relevant for purposes of interpreting this phrase in the definition of a trade secret, companies are generally expected to guard the secrecy of such information through means commensurate with the information’s estimated value.14 Typical steps usually include (i) use of nondisclosure and confidentiality agreements; (ii) employee and visitor facility access controls; (iii) computer passwords, encryption, and firewalls; (iv) implementation of document protection and retention policies; and (v) training concerning confidentiality. The combination of measures deemed “reasonable” will be measured based on a fact-based test of reasonableness, and not a rule requiring air-tight security measures.15 As a consequence, much of the case law relating to the protection of trade secrets remains relevant when evaluating whether the theft of information for economic advantage constitutes a crime under Section 1832, including case law holding the lack of trade secret protection arising from: (i) lack of secrecy, (ii) effects of disclosure (including inadvertent disclosure), (iii) failure implement reasonable measures of protection, and (iv) lack of independent economic value. E.
Misappropriation
13
18 U.S.C. § 1839(3) (emphasis added).
14
See, e.g., United States v. Lange, 312 F3d 263, 266 (7th Cir. 2002).
15
See H.R. Rep. 104-788 reprinted in 1996 U.S.C.C.A.N. 4021, 4026, 4031; See, e.g., Elm city Cheese Co. v. Federico, 752 A.2d 1037, 1049-53 (Conn. 1999) (holding that the victims failure to require a non-disclosure, confidentiality or non-competition agreement with the defendant was reasonable “in light of the close personal relationship” enjoyed by the parties over the years).
-7-
To constitute a violation of Section 1832, the government must prove that the trade secret was misappropriated through one of the acts prohibited in Section 1832(a)(1) – (5). In this regard, misappropriation includes gaining access to trade secrets using less traditional methods, such as by copying, duplicating, sketching, drawing, photocopying, downloading, delivering, sending, mailing, communicating, or conveying the information.16 Misappropriation also includes the knowing receipt, purchase, or possession of misappropriated trade secrets.17 Moreover, by including within the definition of trade secret “all forms and types” of information, “whether tangible or intangible, and whether and how stored,” the statute codifies then existing case law holding that memorization of intangible trade secret information that is later conveyed constitutes misappropriation.18 It is important to note that, in this context, generalized know-how, skill or abilities of a company’s employees are not covered. That is, according to the legislative history, the EEA does not apply “to individuals that seek to capitalize on the personal knowledge, skill, or abilities they may have developed” in changing employers.19 Recognizing that secret information may be stolen without ever leaving the custody or control of its owner, Congress prohibited copying, duplicating, sketching, drawing, photographing, downloading, uploading, altering, destroying, photocopying, replicating, transmitting, delivering, sending, mailing, communicating, or conveying trade secrets.20 In this context, the government need only show that the appropriation of the trade secret was “without 16
18 U.S.C. § 1832(a)(1) – (2).
17
18 U.S.C. § 1832(3).
18
See, e.g., Stampede Tool Warehouse v. May, 651 N.E.2d 209, 217 (Ill. App. Ct. 1995) (“A trade secret can be misappropriated by physical copying or by memorization”). 19
See H.R. Rep. 104-788 at 7 (1996) reprinted in 1996 U.S.C.C.A.N. 4021, 4026; See also, United States v. Martin, 228 F.3d 1, 11 (1st Cir. 2000) (opining that Section 1832(a) “was not designed to punish competition, even when such competition relies on the know-how of former employees of a direct competitor. It was, however, designed to prevent those employees (and their future employers) from taking advantage of confidential information gained, discovered, copied, or taken while employed elsewhere.”) (emphasis in original). 20
18 U.S.C. § 1832(a)(2).
-8-
authorization” from the owner, and not the means to access or possess the trade secret.21 Accordingly, an employee or licensee who has authorization to possess a trade secret during the regular course of employment violates the EEA if he or she transfers it without the owner’s permission for economic gain. F.
Applicability to Conduct Outside the United States
Unlike most federal criminal statutes, which generally are presumed to apply to conduct inside the United States and its territories, the EEA expressly applies to conduct outside the U.S. if “(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States.”22 As a consequence, U.S. companies and their affiliates operating abroad may be subject to prosecution and enforcement under the EEA. G.
Enforcement
The weakness of the EEA is that it is a criminal statute. It does not provide for a private civil right of action. Only the United States Attorney General can bring cases for violations of the EEA, including preliminary injunctions. Consequently, a company believing that it is a victim of trade secret theft will have to contact and convince the United States Attorney to prosecute the case. Alternatively, the company may still pursue all other remedies it may have under other federal and state laws.
21
Cf., e.g., the CFAA, where the showing of “without authorization” and “exceeds authorization” is key in showing misappropriation of data. 22
18 U.S.C. § 1837.
-9-
III.
Conclusion It is important that companies put in place adequate measures to protect trade secret
information from theft. It is equally important to implement adequate processes and controls to avoid any imputed conduct of an employee’s theft of trade secrets belonging to another company – at the time of hire and thereafter. A $10,000,000 fine and an abundance of bad press can very quickly take a business down. When making referrals to the United States Attorney to prosecute trade secret theft, companies should prepare the appropriate information that satisfies the elements of the statute in order to facilitate the investigation and prosecution of the case. In this regard, the involvement of legal counsel will be very useful in the early stages of the investigation.
- 10 -
