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A New Government Criminal Initiative – The Economic Espionage Act

Government prosecutors have launched a new initiative aimed at protecting intellectual property.  The Economic Espionage Act criminalizes the theft of trade secrets.  Congress passed the Act in 1996 to protect United States corporate trade secrets. 

Since it as enacted in 1996 and continuing until 2011, the government only prosecuted eight cases under the Act.  In the last year, the government has steadily increased the use of the statute as one of many tools to protect intellectual property. 

The problem of economic espionage is growing — companies lost more than $13 billion to economic espionage in the last year.  The theft of U.S. proprietary technology, including controlled dual-use technology and military-grade equipment, from unwitting U.S. companies is one of the most dangerous threats to national security.  Employees or contractors who steal documents, or download files onto portable media — are responsible for a growing percentage of cases.

In 2010, the Justice Department re-established the Task Force on Intellectual Property with the focus on protecting US companies from international theft of intellectual property.    

The statute prohibits two specific types of theft: (1) for the benefit of any foreign government, instrumentality or agent (18 USC 1831); and (2) for the economic benefit of anyone other than the owner of the trade secret (18 USC 1832).

Section 1831 requires general proof or knowledge that the act will benefit a foreign government, instrumentality or agent.  Section 1832 requires more: proof that the defendant converted the trade secret intended or knew that the act will injure the owner of the trade secret. 

The “trade secret” has to be “related to or included in a product that is produced for or placed in interstate or foreign commerce.”  A violation of Section 1831 carries a maximum penalty of 15 years imprisonment and a fine of up to $10 million; a Section 1832 violation carries a maximum penalty of 10 years imprisonment and a fine of up to $5 million.

Senator Herb Kohl, Chairman of the Antitrust Subcommittee, on the Senate Judiciary Committee has introduced legislation to increase the maximum penalty under Section 1831.

In recent cases, federal prosecutors have used the statutes to prosecute: (1) a scientist for stealing a chemical formula from his employer and sending it to a relative in India; (2) two individuals and two companies for stealing trade secrets from a sprinkler and irrigation company; (3) an individual for stealing a chemical formula from Dupont; and (4) an individual who stole trade secrets from a former employer and then used the formulas to conduct research for the Chinese government. 

For companies, the government’s aggressive use of the statute is an important reminder on the importance of protecting its proprietary information from theft. 

The Economic Espionage Act also creates a criminal alternative when companies are the victims of intellectual property theft.  Rather than relying on private civil litigation, companies can present their case to federal prosecutors and request that the government conduct a criminal case against the offending individual and/or company.  A criminal prosecution is a quick and effective way to address the threat and creates a judicial finding of theft which can form the basis for a civil action against the offending individual and/or company.

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