Economic Espionage: Everything You Need to Know
The Economic Espionage Act is a comprehensive framework by which law enforcement agencies can prosecute those who steal trade secrets.10 min read
2. Why Is the Economic Espionage Act Important?
3. Background of the Economic Espionage Act
4. Main Provisions of the Economic Espionage Act
5. Practical Issues of the Economic Espionage Act
6. Clarification of the Economic Espionage Act
7. Case Examples
8. Frequently Asked Questions
What Is the Economic Espionage Act?
The Economic Espionage Act was established by Congress on October 11, 1996, as a comprehensive framework by which law enforcement agencies can prosecute those who steal trade secrets.
Why Is the Economic Espionage Act Important?
The definition of "trade secret" is broad. Trade secrets are defined as all types of scientific, business, financial, economic, technical, or engineering information. This information can come in various forms, including programs, codes, processes, procedures, techniques, and methods.
Both the tangible and intangible are covered under the EEA.
As long as an owner has taken the necessary precautions, also known as "reasonable measures," to keep the information a secret, he or she is protected by the EEA.
Violating the EEA entails severe penalties. Individuals convicted under the foreign government section of the Economic Espionage Act face up to 15 years in prison and a fine of up to $500,000. When entire organizations are convicted, that fine can go up to $10,000,000.
For domestic theft, individuals face up to 10 years in prison and a fine. An organization faces a fine up to $5,000,000. Anyone found guilty may have to forfeit property derived from the stolen information.
Both the party obtaining the secret information and the party that receives it are punishable by law under the EEA. To be convicted, an individual must have taken, recorded, or transmitted information in some form without authorization.
As a business owner, it's important to take the necessary means to ensure that your company's trade secrets remain safe.
Background of the Economic Espionage Act
Two hearings were held to discuss the need for federal legislation regarding trade secret theft. The first was held February 28, 1996, before the Senate Select Committee on Intelligence and the Senate Judiciary Subcommittee on Terrorism. The second was held May 9 before the Subcommittee on Crime of the House of Judiciary Committee.
The lead witness in both hearings was the Director of the FBI, the Honorable Louis J. Freeh. He recognized the need for new legislation for industry leaders in Silicon Valley, namely among aerospace companies.
Peter Torens, the Assistant Attorney General at the time, was responsible for implementing the act at the Annual Trade Secrets Law Institute of the Intellectual Property Law Association of Chicago on December 5 of the same year. Torens claimed that keeping individuals from stealing trade secrets under the previous law was too difficult. The increase in computer-related crimes in the mid-90s demanded an updated act to avoid damages from trade secret theft.
Before the Economic Espionage Act (EEA), trade secret cases were prosecuted under wire fraud, mail fraud, racketeering, and other statutes from the Uniform Trade Secrets Act. The EEA also replaced the 1948 Trade Secrets Act, which was limited to federal employee prosecutions. Therefore, the EEA is a universal trade secret theft act.
Elements needed to prove a violation of the EEA are straightforward and are outlined under 18 U.S.C. Sections 1831 and 1832:
- The defendant stole, obtained without authorization, destroyed, or conveyed information
- The information was, in fact, a trade secret, and the defendant knew this information was a trade secret
Cases that have been filed under the EEA have included trade secret theft by Taiwan companies and additional Federal Bureau of Investigation (FBI) cases involving espionage and trade theft. Given the nature of the crime, United States companies are encouraged to understand the EEA and how it pertains to trade violations.
Main Provisions of the Economic Espionage Act
The EEA's main provisions outline the criminalization of knowing thefts involving unauthorized duplication, receipt, or possession of a trade secret to benefit a foreign government (18 U.S.C. Section 1831) or for commercial or economic gain (18 U.S.C. Section 1832). It includes stealing trade secrets related to a product with the knowledge the theft will hurt the owner. The EEA also includes a statute covering attempts and conspiracies to commit the crime.
When it was passed, it wasn't clear how the EEA would be used because the provisions are broad. However, Congress intended the measures to be reserved for "flagrant and egregious cases of information theft." Cases under the EEA can only be filed with approval from the U.S. Criminal Division's Attorney General or Assistant Attorney General.
Practical Issues of the Economic Espionage Act
Early cases revealed some issues that came up during criminal proceedings. These issues may have compromised the information the EEA was designed to protect. These early cases also suggested guidelines that companies should follow to prevent information theft.
Indictments stemming from the EEA are often the result of FBI "sting" operations. In these cases, companies are aware of what's going on, they understand the penalties of not obeying the law, and they reach out to the proper authorities. Collecting evidence of EEA violation is difficult, which is why the FBI must investigate these claims undercover.
If a U.S. company learns of attempts to steal its trade secrets illegally, it's important to inform the authorities and cooperate with the investigation. Such cooperation, however, is not without risk.
It's also important to remember that not all business practices are considered "trade secrets." To qualify as a trade secret, the owner must have taken reasonable measures to keep the information a secret. The information must also have economic value by being kept secret.
The EEA does not apply to information discovered through reverse engineering or parallel development. Any skills or knowledge someone learns through lawful means while working on a trade secret are likewise not subject to prosecution.
Clarification of the Economic Espionage Act
The Trade Secrets Clarification Act of 2012 expanded the EEA's scope. It clarified that the EEA applies to trade secrets relating to both services and products used in commerce. The amendment passed due to a decision by the U.S. Court of Appeals for the Second Circuit involving prosecution against an ex-Goldman Sachs employee who stole a trading system source code.
Before the clarification, the EEA only criminalized trade secrets involving products being produced for commerce. As such, it didn't extend to this defendant's actions, since the trading system was used for internal purposes. The amendment effectively closed a loophole.
U.S. vs. Worthing
In 1997, the first individual to be tried under the EEA was Patrick Worthing, an employee of PPG Industries, Inc. He was accused of stealing blueprints, computer discs, research, and other information from the fiberglass research company. He also tried selling the information to PPG's competitor.
After receiving Worthing's letter offering the stolen information, the competing company, Owens-Corning, notified PPG. PPG then called the FBI. This led to an undercover investigation.
Both Worthing and his brother were indicted and pleaded guilty. Worthing was sentenced to 15 years, and his brother, who was a minor accomplice, served five years' probation.
U.S. vs. Hsu
In 1997, the second case under EEA was brought to trial. It involved the attempted theft of trade secrets from Bristol-Myers Squibb Company regarding its anti-cancer drug Taxol. The defendants were employees of a Taiwanese company who offered bribes to a Bristol-Myers employee.
Unknown to the defendants, the information broker they contact in the United States was an FBI agent.
U.S. vs. Davis
Stephen Davis, an employee of Wright Industries in Nashville, Tennessee, was hired by Gillette to develop new shaving equipment. According to case reports, Davis downloaded data and distributed samples to multiple Gillette competitors. He then attempted to negotiate with these competitors regarding the sale of additional information.
The plan failed, and Davis was charged and pleaded guilty.
U.S. vs. Yang
Pin Yen Yang, President of Four Pillars Enterprise Company of Taiwan, and his daughter got an Ohio chemical engineer with Avery Dennis Corp. to cooperate and provide information regarding the company's adhesive products.
The arrangement between the parties lasted for several years, and Four Pillars received more than $50 million worth of trade secret information. However, the Ohio employee confessed after being caught. In exchange for leniency, he agreed to cooperate with the FBI.
After a sting operation, the Yangs were arrested and indicted for attempt and conspiracy to misappropriate information under the EEA.
U.S. vs. Trujillo-Cohen
A former Deloitte-Touche accounting firm employee was charged with trying to sell secret computer programs. She downloaded programs onto her laptop and tried selling them for $7 million. Trujillo-Cohen was charged and pleaded guilty.
U.S. vs. Campbell, et. al.
Carroll Lee Campbell, his wife, and Paul Edward Soucy were all involved in trying to sell information owned by the Gwinnett Daily Post to the Atlanta Journal-Constitution. Mr. Campbell and Mr. Soucy were employees of Gray Communications at the Daily Post and the Rockdale Citizen, respectively.
They contracted the Atlanta Journal-Constitution, offering information in exchange for $150,000. The newspaper forwarded all communications to the U.S. Attorney's office, who then got the FBI involved. After a sting operation, the defendants were arrested. Campbell spent 90 days in jail and had to pay $2800 in restitution. Charges against his wife were dropped, and Soucy was sentenced to three years' probation.
Reuters Holdings PLC investigation
One of the most highly publicized cases dealt with Reuters Holdings PLC, a business firm placed under grand jury investigation. Charges included trying to obtain trade secrets illegally from its rival, Bloomberg. Specifically, Reuters sought to get Bloomberg's operating code for its financial trend analytics system.
Frequently Asked Questions
- How does the Economic Espionage Act differ from the Defend Trade Secrets Act?
The Defend Trade Secrets Act (DTSA) was created as amendments to the Economic Espionage Act (EEA). Although part of the EEA, the DTSA is typically thought of as a separate statute.
The DTSA creates a federal private case for trade secret misappropriation. Before the DTSA, private cases were a matter of state law, which was based on the older Uniform Trade Secret Act. The DTSA borrows from that prior act but has noticeable changes.
First of all, the DTSA places misappropriation claims jurisdiction on federal courts. It also allows for property seizures when necessary to prevent trade secret theft. Finally, the DTSA extends immunity from liability to individuals under confidential disclosures of trade secret information.
The DTSA doesn't place a limit on the type of information it can protect. To qualify for trade secret protection, a trade secret must be secret, have economic value as a secret, and have been subject to efforts to keep it a secret.
The DTSA also provides standing to pursue a trade secret claim when the information relates to a product or service used in foreign or interstate commerce. This also protects confidential customer information.
The DTSA does not pre-empt state law protection for trade secrets nor create new rights regarding sensitive information. Rather, the DTSA creates subject matter jurisdiction for trade secret claims in federal court and new rights for trade secret owners to have the government seize trade secret-related properties when necessary.
- What is an "ex parte seizure"?
An ex parte seizure of property is used to prevent the misappropriation of trade secrets. In certain cases, seizing property is necessary under the DTSA. Ex parte seizures are only allowed in extraordinary circumstances, such as when a defendant is attempting to flee the country or to immediately disclose a trade secret.
Before a court can issue an ex parte seizure order, it must determine the defendant will evade or not comply with the law and that the trade secret owner will suffer irreparable injury. Harm to the owner must outweigh harm to the defendant's interests, and there must be a likelihood of success in seizing the property.
In addition, the defendant must be in actual possession of the unpublished trade secret with the threat to move, hide, sell, or destroy it.
- What is misappropriation?
Misappropriation is the wrongful, illegal acquisition of a trade secret. Anyone who knows the information is a trade secret and obtains it without authorization is misappropriating information. Misappropriation might include bribery, theft, misrepresentation, a breach of duty, or espionage to obtain information.
- What is the statute of limitations on misappropriation?
According to the DTSA, the statute of limitations on misappropriation is three years from the date of the misappropriation or when reasonable diligence was discovered. The statute of limitations does not run again from each unauthorized use of the trade secret, only from the first misappropriation.
Individuals are immune from liability under the DTSA if:
- A disclosure has been made to the authorities to report or investigate a violation
- A disclosure is made in a complaint during a lawsuit or other legal proceeding
- A disclosure is made to an attorney or in a court by someone who filed a lawsuit for retaliation by an employer for the individual's reporting a suspected violation
Immunities must be disclosed in a contract or agreement. An employer can also provide a nondisclosure agreement to employees when the employer reports suspected violations.
- Who is considered the trade secret owner?
Under the DTSA, the "owner" of a trade secret is not only the original legal owner. It's also the titleholder or licensee of a trade secret.
- What is the difference between espionage and corporate spying?
In practical terms, the difference between espionage and corporate spying is about 20 years in prison and $10 million. Industry espionage refers to the stealing and selling of trade secrets, which is a clear violation of the law. Corporate spying, on the other hand, can be legal.
Corporate spying is not a crime when its methods are legal. For example, secret shoppers are often used to evaluate retail stores. Investigators may be hired to eavesdrop at trade shows. These incidences of corporate spying are not illegal espionage, although it can be easy to cross the line.
Illegal spying, however, is considered a crime. For example, in 2006, Hewlett-Packard hired investigators to perform an illegal method of obtaining private information. The company had to pay $14.5 million to the state of California and damages to the reporters it spied on. However, Hewlett-Packard had not committed a federal crime.
- What is the difference between EEA prosecution and a civil suit?
Unlike civil suits, EEA is a criminal law, which the FBI will investigate and U.S. Attorneys will prosecute. A defendant must be found guilty "beyond a reasonable doubt," as opposed to merely the "preponderance of evidence" required in civil cases. EEA cases will usually proceed more quickly than civil suits, due to the Speedy Trial provisions of the Sixth Amendment.
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