Stealing Trade Secrets and Economic Espionage An Abridged Overview of the Economic Espionage Act Updated August 19 2016 Congressional Research Service https crsreports congress gov R42682 Stealing Trade Secrets and Economic Espionage An Abridged Overview Summary Stealing a trade secret is a federal crime when the information relates to a product in interstate or foreign commerce 18 U S C 1832 theft of trade secrets or when the intended beneficiary is a foreign power 18 U S C 1831 economic espionage Section 1832 requires that the thief be aware that the misappropriation will injure the secret’s owner to the benefit of someone else Section 1831 requires only that the thief intend to benefit a foreign government or one of its instrumentalities Offenders face lengthy prison terms as well as heavy fines and they must pay restitution Moreover property derived from the offense or used to facilitate its commission is subject to confiscation The sections reach violations occurring overseas if the offender is a United States national or if an act in furtherance of the crime is committed within the United States Depending on the circumstances misconduct captured in the two sections may be prosecuted under other federal statutes as well A defendant charged with stealing trade secrets is often indictable under the Computer Fraud and Abuse Act the National Stolen Property Act and or the federal wire fraud statute One indicted on economic espionage charges may often be charged with acting as an unregistered foreign agent and on occasion with disclosing classified information or under the general espionage statutes Finally by virtue of the Defend Trade Secrets Act P L 114-153 Section 1831 and 1832 are predicate offenses for purposes of the federal racketeering and money laundering statutes P L 114-153 S 1890 dramatically increased EEA civil enforcement options when it authorized private causes of action for the victims of trade secret misappropriation In addition the EEA now permits pre-trial seizure orders in some circumstances counterbalanced with sanctions for erroneous seizures This report is an abridged version without the footnotes or attribution of CRS Report R42681 Stealing Trade Secrets and Economic Espionage An Overview of the Economic Espionage Act Congressional Research Service Stealing Trade Secrets and Economic Espionage An Abridged Overview Contents Introduction 1 Stealing Trade Secrets 1 Economic Espionage 4 Common Procedural Matters 5 Civil Remedies 5 Contacts Author Information 6 Congressional Research Service Stealing Trade Secrets and Economic Espionage An Abridged Overview Introduction The Economic Espionage Act EEA outlaws two forms of trade secret theft theft for the benefit of a foreign entity economic espionage and theft for pecuniary gain theft of trade secrets Under either proscription its reach extends to theft from electronic storage Individual offenders face imprisonment for up to 15 years for economic espionage and up to 10 years for trade secret theft Individuals also may incur fines of up to $250 000 or twice the loss or gain associated with the offense for trade secret theft For economic espionage they face fines of up $5 million or twice the loss or gain Organizations are fined more severely They can be fined up $5 million twice the loss or gain associated with the offense or three times the value of the stolen trade secret for trade secret theft For economic espionage the fines of organizations jump to a maximum of the greater of $10 million three times the value of the trade secret or twice the gain or loss associated with the offense A court may assess the same sanctions for attempt or conspiracy to commit either offense or for aiding or abetting the completed commission of the either offense A sentencing court must order the defendants to pay victim restitution and the government may confiscate any property that is derived from or used to facilitate either offense The government may seek to enjoin violations and by virtue of amendments in the Defend Trade Secrets Act of 2016 victims may be entitled to sue for double damages equitable relief and attorneys’ fees Conduct that violates the EEA’s proscriptions may also violate other federal prohibitions however Some like the Computer Fraud and Abuse Act in addition to imposing criminal penalties likewise authorize victims to sue for damages and other forms of relief under some circumstances Stealing Trade Secrets Elements Attempt and Conspiracy The trade secrets prohibition is the more complicated of the EAA’s two criminal offenses It condemns - Whoever - with intent to convert - a trade secret - related to or including in a product or service used in or intended for use in interstate commerce or foreign commerce - to the economic benefit of anyone other than the owner thereof - intending or knowing that the offense will injure the owner of that trade secret - knowingly a steals… b without authorization copies … downloads uploads alters destroys … transmits … sends … or conveys such information or receives buys or possesses such information knowing the same to have been stolen or appropriated obtained or converted without authorization or Whoever attempts or conspires to do so Whoever The term “whoever” encompasses both individuals and organizations Thus individuals and organizations may be guilty of the theft of trade secrets Subsection 1832 b confirms this intent by establishing a special fine for “organizations” who commit the offense For purposes of the federal criminal code an “organization” is any “person other than an individual ” The Dictionary Act supplies examples of the type of entities that may qualify as “persons”—“the Congressional Research Service R42682 · VERSION 7 · UPDATED 1 Stealing Trade Secrets and Economic Espionage An Abridged Overview words ‘person’ and ‘whoever’ include corporations companies associations firms partnerships societies and joint stock companies as well as individuals ” With Intent to Convert Conversion is a common law concept which is defined as “ t he wrongful possession or disposition of another’s property as if it were one’s own an act or series of acts of willful interference without lawful justification with any item of property in a manner inconsistent with another’s right whereby that other person is deprived of the use and possession of the property ” This “intent to steal” element coupled with the subsequent knowledge and “intent to injure” elements would seem to ensure that a person will not be convicted of theft for the merely inadvertent or otherwise innocent acquisition of a trade secret Trade Secret An EEA trade secret is any information that “ A the owner thereof has taken reasonable measures to keep such information secret and B derives independent economic value actual or potential from not being generally known to and not being readily ascertainable through proper means by the public ” An owner for these purposes is one “in whom or in which rightful legal or equitable title to or license in the trade secret is reposed ” Whether an owner has taken reasonable measures to ensure the secrecy of his trade information will depend upon the circumstances of the case Such measures would ordinarily include limiting access to the information and notifying employees of its confidential nature Inclusion within the definition of “trade secret” of the instruction that the owner take “reasonable measures” to secure the confidentiality of the information does not render the statute unconstitutionally vague as applied to a defendant whose conduct clearly falls within the statute’s proscription Construction of the “known or readily ascertainable” element of the secrecy definition is more perplexing On its face the EEA suggests that information is secret if it is unknown or undiscoverable by the general public even if it might be known or discoverable within the industry in which the information is relevant Congress however may have intended a more narrow interpretation of “secret ” that is the information is secret only if it is not known to or reasonably ascertainable either by the general public or within the industry in which the information has value The EEA’s definition of “trade secret” is “based largely on the definition of that term in the Uniform Trade Secrets Act ” The EEA definition initially referred to information known to or readily ascertainable by the “public ” The Uniform Trade Secrets Act UTSA definition however refers not to the public but to information known to or readily ascertainable by “other persons who can obtain economic value from its disclosure or use ” The Defend Trade Secrets Act replaced the original definition with the UTSA language Product in Commerce The trade secret must have an interstate or foreign commerce nexus More specifically it must be one “that is related to a product or service used in or intended for use in” such commerce Congress settled upon this phrase after an appellate court held that earlier language covered only theft of a trade secret related to a product that was or was intended to be sold or otherwise placed in the stream of commerce Economic Benefit of Another Someone other than the trade secret’s owner must be the intended beneficiary of the theft or destruction The thief may be but need not be the intended beneficiary Moreover a close reading of the statute argues for the proposition that no economic benefit need actually accrue economic benefit need only be intended Yet if no economic benefit is intended there is no violation Intent to Injure The government must prove that the defendant intended to injure the trade secret’s owner or that he knew the owner would be injured However it need not show actual injury The section “does not require the government to prove malice or evil intent but merely that the actor knew or was aware to a practical certainty that his conduct would cause some Congressional Research Service R42682 · VERSION 7 · UPDATED 2 Stealing Trade Secrets and Economic Espionage An Abridged Overview disadvantage to the rightful owner ” Again the element addresses the defendant’s state of mind not reality Nothing in the statute’s language demands that the government prove actual injury Knowingly The last of the section’s three mens rea requirements demands that the defendant be aware that he is stealing downloading or receiving a stolen trade secret There is some dispute over whether this requires the prosecution to prove that the defendant knew that he was stealing downloading or receiving proprietary information or that he knew that he was stealing downloading or receiving a trade secret Stealing and the Like A person may be guilty of the theft of a trade secret only if he “knowingly” steals a trade secret replicates a trade secret destroys or alters a trade secret or receives a stolen trade secret Each of the alternative means of deprivation is cast in a separate subsection The first subsection covers not only stealing a trade secret but also concealing it or acquiring it by fraud Trade secrets are information and thus can be simultaneously held by an owner and a thief As a result the second subsection covers situations where the owner is not necessarily deprived of the information but is denied control over access to it It proscribes unauthorized copying downloading uploading or otherwise conveying the information It also outlaws alteration or destruction of a trade secret The Justice Department has argued that this second means of misappropriation includes instances where a faithless employee former employee or cyber intruder commits the trade secret to memory and subsequently acts in manner necessary to satisfy the other elements of the offense It makes the point with some trepidation however This is not to say however that any piece of business information that can be memorized is a trade secret As noted the EEA does not apply to individuals who seek to capitalize on their lawfully developed knowledge skill or abilities When the actions of a former employee are unclear and evidence of theft has not been discovered it may be advisable for a company to pursue its civil remedies and make another criminal referral if additional evidence of theft is developed Where available tangible evidence of theft or copying is helpful in all cases to overcome the potential problem of prosecuting the defendant’s “mental recollections” and a defense that “great minds think alike ” The third subsection outlaws the knowing receipt of stolen trade secret information Conviction requires proof that a trade secret was stolen or converted in violation of one of the other subsections and that the defendant knew it Attempt Defendants who attempt to steal a trade secret face the same penalties as those who succeed Attempt consists of intent to commit the offense and a substantial step toward the attainment of that goal This would indicate that the information which the defendant seeks to steal need not be a trade secret as long as he believes it is Conspiracy Defendants who conspire to steal a trade secret also face the same penalties as those who commit the substantive offense “In order to find a defendant guilty of conspiracy the prosecution must prove that the defendant possessed both the intent to agree and the intent to commit the substantive offense In addition the government must prove that at least one conspirator committed an overt act that is took an affirmative step toward achieving the conspiracy’s purpose ” It is no defense that circumstances unbeknownst to conspirators render success of the scheme unattainable as for example when the defendants plotted to steal information that was not in fact a trade secret Consequences Individual offenders face imprisonment for up to 10 years and fines of up to $250 000 The court may fine an organization up to $5 million upon conviction Both individuals and organizations face a higher maximum fine if twice the gain or loss associated with the offense exceeds the statutory maximum i e $250 000 $5 million A sentencing court must also order the defendant to pay restitution to the victims of the offense Property derived from or used to Congressional Research Service R42682 · VERSION 7 · UPDATED 3 Stealing Trade Secrets and Economic Espionage An Abridged Overview facilitate commission of the offense may be subject to confiscation under either civil or criminal forfeiture procedures The Attorney General may sue for injunctive relief and owners for damages equitable relief and attorneys’ fees Finally the offense is a RICO predicate offense and consequently a money laundering predicate offense Economic Espionage The EEA’s economic espionage and theft of trade secret offenses share many of the same elements There are four principal differences The theft of a trade secret must involve the intent to benefit someone other than the owner It must involve an intent to injure the owner And it must involve a trade secret “that is related to or included in a product that is produced for or placed in interstate or foreign commerce ” Economic espionage on the other hand must involve an intent to benefit a foreign entity or at least involve the knowledge that the offense will have that result It does not require an intent to injure the owner And it applies to any trade secret notwithstanding the absence of any connection to interstate or foreign commerce Finally economic espionage is punished more severely The maximum term of imprisonment is 15 years rather than 10 years and the maximum fine for individuals is $5 million rather than $250 000 For organizations the maximum fine is the greater of $10 million or three times the value of the trade secret rather than $5 million As in the case of stealing trade secrets the maximum permissible fine may be higher if twice the amount of the gain or loss associated with the offense exceeds the otherwise applicable statutory maximum And the crime is likewise a RICO and consequently a money laundering predicate offense Section 1831 condemns - Whoever - intending or knowing the offense will benefit - a foreign government a foreign instrumentality or a foreign agent - knowingly - a steals … b without authorization copies … downloads uploads alters destroys … transmits … sends … conveys a trade secret or c receives buys or possesses a trade secret - knowing the same to have been stolen or appropriated obtained or converted without authorization or Whoever attempts or conspires to do so Foreign Beneficiary A casual reader might conclude that any foreign entity would satisfy Section 1831’s foreign beneficiary element Section 1839’s definition of foreign agent and foreign instrumentality however makes it clear that an entity can only qualify if it has a substantial connection to a foreign government The definition of foreign instrumentality refers to foreign governmental control or domination The description of a foreign agent leaves no doubt that the individual or entity must be the agent of a foreign government The theft of a trade secret demands an intent to confer an economic benefit Economic espionage is not so confined Here “benefit means not only economic benefit but also reputational strategic or tactical benefit ” Moreover unlike the theft offense economic espionage may occur whether the defendant intends the benefit or is merely aware that it will follow as a consequence of his action As in the case of trade secret theft however the benefit need not be realized it is enough that defendant intended to confer it Congressional Research Service R42682 · VERSION 7 · UPDATED 4 Stealing Trade Secrets and Economic Espionage An Abridged Overview Common Procedural Matters Protective Orders It would be self-defeating to disclose a victim’s trade secrets in the course of the prosecution of a thief Consequently the EEA authorizes the trial court to issue orders to protect the confidentiality of trade secrets during the course of a prosecution and permits the government to appeal its failure to do so The government may not appeal an order to reveal information it has already disclosed to the defendant Nevertheless in such instances appellate review of a district court’s disclosure order may be available through a writ of mandamus Extraterritoriality The Supreme Court has said on a number of occasions that “ i t is a longstanding principle of American law ‘that legislation of Congress unless a contrary intent appears is meant to apply only within the territorial jurisdiction of the United States ’” With this in mind Congress specifically identified the circumstances under which it intended the economic espionage and theft of trade secrets provisions to apply overseas Either offense may be prosecuted as long as the offender is a U S national or an act in furtherance of the offense is committed within this country The legislative history indicates that these are the only circumstances under which violations abroad may be prosecuted This may mean that foreign conspirators may not be charged unless some overt act in furtherance of the scheme occurs in the United States It may also preclude prosecution when trial would have been possible in the absence of an express provision For example in the absence of the limiting provision the courts would likely conclude that Congress intended to allow prosecution of overseas offenses of foreign nationals that have an impact within the United States Prosecutorial Discretion For five years after passage of the Economic Espionage Act neither economic espionage nor trade secret violations of its provisions could be prosecuted without the approval of senior Justice Department officials Prosecutors must still secure approval before bringing charges of economic espionage but approval is no longer necessary for the prosecution of theft of trade secret charges Civil Remedies For some time the EEA authorized the Attorney General to bring a civil action to enjoin violations of its provisions but it did not authorize a corresponding private cause of action The Defend Trade Secrets Act created a private cause of action Private Cause of Action The EEA now provides that “ a n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in or intended for use in interstate or foreign commerce ” Not just anyone who suffers damage as the result of trade secret misappropriation “owners” may sue EEA however defines the term “owners” to include licensees The trade secrets protected by civil suit are the same as those protected by the criminal proscriptions The definition of the action that gives rise to liability—“misappropriation”—is taken from the Uniform Trade Secrets Act The term encompasses acquiring disclosing or using a trade secret taken from its owner by scurrilous “improper” means Pre-trial Seizure Perhaps EEA’s most distinctive feature is its pre-trial seizure procedure It allows an owner who alleges that his trade secret has been appropriated to apply to the court for an ex parte order seizing the purported trade secret The procedure is replete with restrictions on its use some reminiscent of the limitations on a temporary restraining order TRO in federal civil actions inadequacy of alternatives a threat of immediate and irreparable harm a likelihood Congressional Research Service R42682 · VERSION 7 · UPDATED 5 Stealing Trade Secrets and Economic Espionage An Abridged Overview of success on the merits and a favorable balance of harms Yet the procedure is confined to instances where a TRO is insufficient “The ex parte seizure provision is expected to be used in instances in which a defendant is seeking to flee the country or planning to disclose the trade secret to a third party immediately or is otherwise not amendable to the enforcement of the court’s orders ” The party from whom the trade secret is seized is entitled to a hearing within seven days at which the owner of the trade secret bears the burden justifying the seizure order Anyone injured by a “wrongful or excessive” seizure may sue for the relief described in the Trademark Act that is for “damages for lost profits cost of materials loss of good will and punitive damages in instances where the seizure was sought in bad faith and unless the court finds extenuating circumstances to recover a reasonable attorney’s fee ” and in the discretion of the court prejudgment interest Damages and Equitable Relief Relying heavily on the UTSA EEA empowers district courts to award an aggrieved owner equitable relief damages and in case of willful and malicious misappropriation double damages and attorneys’ fees The court may also award attorneys’ fees to a party who prevails against a bad faith claim of misappropriation An action for the misappropriation must be brought within three years of when it is discovered or would have been discovered with the exercise of reasonable diligence Section 1837 states that the chapter 90 applies to conduct occurring outside the United States if “the offender” is a U S national or an act in furtherance of the offense is committed within the United States Section 1836 is found in chapter 90 It would therefore appear that Section 1836 applies to conduct occurring outside the United States if the offender is a U S national or an act in furtherance of the offense is committed within the United States In the absence of a Section 1837-like statement of congressional intent the Supreme Court has shown a great reluctance to recognize private causes of action based on conduct abroad Whether the concerns evidenced there influence future extraterritorial application of Section 1836’s civil remedies remains to be seen Author Information Charles Doyle Senior Specialist in American Public Law Disclaimer This document was prepared by the Congressional Research Service CRS CRS serves as nonpartisan shared staff to congressional committees and Members of Congress It operates solely at the behest of and under the direction of Congress Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role CRS Reports as a work of the United States Government are not subject to copyright protection in the United States Any CRS Report may be reproduced and distributed in its entirety without permission from CRS However as a CRS Report may include copyrighted images or material from a third party you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material Congressional Research Service R42682 · VERSION 7 · UPDATED 6 Stealing Trade Secrets and Economic Espionage An Abridged Overview Congressional Research Service R42682 · VERSION 7 · UPDATED 7