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104th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 104-788
_______________________________________________________________________
ECONOMIC ESPIONAGE ACT OF 1996
September 16, 1996.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
Mr. McCollum, from the Committee on the Judiciary, submitted the
following
R E P O R T
[To accompany H.R. 3723]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 3723) to amend title 18, United States Code, to protect
proprietary economic information, and for other purposes,
having considered the same, report favorably thereon with an
amendment and recommend that the bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 1
Purpose and Summary.............................................. 3
Background and Need for Legislation.............................. 4
Hearings......................................................... 8
Committee Consideration.......................................... 8
Committee Oversight Findings..................................... 8
Committee on Government Reform and Oversight Findings............ 8
New Budget Authority and Tax Expenditures........................ 8
Congressional Budget Office Estimate............................. 9
Inflationary Impact Statement.................................... 10
Section-by-Section Analysis and Discussion....................... 10
Agency Views..................................................... 14
Changes in Existing Law Made by the Bill, as Reported............ 15
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Economic Espionage Act of 1996''.
SEC. 2. PROTECTION OF TRADE SECRETS.
(a) In General.--Chapter 31 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 670. Protection of trade secrets
``(a) Offense.--Whoever--
``(1) with the intent to, or with reason to believe that the
offense will, benefit any foreign government, foreign
instrumentality, or foreign agent; or
``(2) with the intent to divert a trade secret, that is
related to or is 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 with the
intent to, or with reason to believe that the offense will,
disadvantage any owner of that trade secret;
wrongfully copies or otherwise controls a trade secret, or attempts or
conspires to do so shall be punished as provided in subsection (b).
``(b) Punishment.--
``(1) Generally.--The punishment for an offense under this
section is--
``(A) in the case of an offense under subsection
(a)(1), a fine under this title or imprisonment for not
more than 25 years, or both; and
``(B) in the case of an offense under subsection
(a)(2), a fine under this title or imprisonment for not
more than 15 years.
``(2) Increased maximum fine for organizations.--If an
organization commits an offense--
``(A) under subsection (a)(1), the maximum fine, if
not otherwise larger, that may be imposed is
$10,000,000; and
``(B) under subsection (a)(2), the maximum fine, if
not otherwise larger, that may be imposed is
$5,000,000.
``(c) Definitions.--As used in this section--
``(1) the term `foreign instrumentality' means any agency,
bureau, ministry, component, institution, association, or any
legal, commercial, or business organization, corporation, firm,
or entity that is substantially owned, controlled, sponsored,
commanded, managed, or dominated by a foreign government;
``(2) the term `foreign agent' means any officer, employee,
proxy, servant, delegate, or representative of a foreign
government;
``(3) 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) 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; and
``(4) the term `owner', with respect to a trade secret, means
the person or entity in whom or in which rightful legal or
equitable title to, or license in, the trade secret is reposed.
``(d) Criminal Forfeiture.--
``(1) Notwithstanding any other provision of State law, any
person convicted of a violation under this section shall
forfeit to the United States--
``(A) any property constituting, or derived from, any
proceeds the person obtained, directly or indirectly,
as the result of such violation; and
``(B) any of the person's property used, or intended
to be used, in any manner or part, to commit or
facilitate the commission of such violation, if the
court in its discretion so determines, taking into
consideration the nature, scope, and proportionality of
the use of the property in the offense.
``(2) The court, in imposing sentence on such person, shall
order, in addition to any other sentence imposed pursuant to
this section, that the person forfeit to the United States all
property described in this section.
``(3) Property subject to forfeiture under this section, any
seizure and disposition thereof, and any administrative or
judicial proceeding in relation thereto, shall be governed by
the provisions of section 413 of the Comprehensive Drug Abuse
Prevention and Control Act of 1970 (21 U.S.C. 853), except for
subsections (d) and (j) of such section, which shall not apply
to forfeitures under this section.
``(e) Orders To Preserve Confidentiality.--In any prosecution or
other proceeding under this section, the court shall enter such orders
and take such other action as may be necessary and appropriate to
preserve the confidentiality of trade secrets, consistent with the
requirements of the Federal Rules of Criminal and Civil Procedure, the
Federal Rules of Evidence, and all other applicable laws. An
interlocutory appeal by the United States shall lie from a decision or
order of a district court authorizing or directing the disclosure of
any trade secret.
``(f) Civil Proceedings to Enjoin Violations.--
``(1) Generally.--The Attorney General may, in a civil
action, obtain appropriate injunctive relief against any
violation of this section.
``(2) Exclusive Jurisdiction.--The district courts of the
United States shall have exclusive original jurisdiction of
civil actions under this subsection.
``(g) Territorial Application.--
``(1) This section applies to conduct occurring within the
United States.
``(2) This section also applies to conduct occurring outside
the United States if--
``(A) the offender is--
``(i) a United States citizen or permanent
resident alien; or
``(ii) an organization substantially owned or
controlled by United States citizens or
permanent resident aliens, or incorporated in
the United States; or
``(B) an act in furtherance of the offense was
committed in the United States.
``(h) Nonpreemption of Other Remedies.--This section shall not be
construed to preempt or displace any other remedies, whether civil or
criminal, provided by United States Federal, State, commonwealth,
possession, or territory law for the misappropriation of a trade secret
``(i) Exceptions to Prohibition.--
``(1) This section does not prohibit and shall not impair any
otherwise lawful activity conducted by an agency or
instrumentality of the United States, a State, or a political
subdivision of a State.
``(2) This section does not prohibit the reporting of any
suspected criminal activity to any law enforcement agency or
instrumentality of the United States, a State, or a political
subdivision of a State, to any intelligence agency of the
United States, or to Congress.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 31, United States Code, is amended by adding at the end the
following new item:
``670. Protection of trade secrets.''.
SEC. 3. WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND
INTERCEPTION OF ORAL COMMUNICATIONS.
Section 2516(1)(c) of title 18, United States Code, is amended by
inserting ``section 670 (relating to economic espionage),'' after
``(bribery in sporting contests),''.
Purpose and Summary
H.R. 3723, the Economic Espionage Act of l996, creates a
new crime of wrongfully copying or otherwise controlling trade
secrets, if done with the intent either to (1) benefit a
foreign government, instrumentality, or agent, or (2)
disadvantage the rightful owner of the trade secret and for the
purpose of benefitting another person. The term ``trade
secret'' is defined in the bill to include all types of
financial, business, scientific, technical, economic, or
engineering information, whether tangible or intangible, and
regardless of the means by which the information is stored,
compiled, or memorialized. The definition of the term trade
secret also requires both that the owner of the information
have taken some reasonable measures to keep the information
secret and that the information derives independent economic
value from not being generally known to the public and not
being readily ascertainable through legal means. This new crime
applies to conduct occurring in the United States and also to
conduct occurring outside the United States provided, in the
latter instance, that the offender is either a United States
person or resident alien, an organization substantially owned
or controlled by a United States citizen or permanent resident,
or an organization incorporated in the United States; or that
an act in furtherance of the offense was committed in the
United States.
The bill provides for punishments consisting of a fine,
imprisonment, or both. The maximum term of imprisonment is 25
years if the criminal act was done with the intent to benefit a
foreign government and 15 years in all other cases. The bill
also provides for a significantly increased maximum fine if the
crime is committed by an organization. If the intent of the
organization was to benefit a foreign government, the maximum
fine that may be imposed under the bill is $10 million. In all
other cases the maximum fine that may be imposed on an
organization committing this crime is $5 million.
The bill requires courts hearing cases brought under the
statute to enter such orders as may be necessary to protect the
confidentiality of the information involved in the case. The
bill also empowers the Attorney General to file a civil action,
in advance of the commencement of the criminal case, in order
to obtain appropriate injunctive relief against a violation of
the new criminal section. The bill provides for criminal
forfeiture of the proceeds of the crime and limited forfeiture
of the property used to commit the crime. Finally, the bill
amends the wiretap statute to authorize the interception of
communications in furtherance of the new crime when such
interceptions are approved by a federal court.
Background and Need for the Legislation
Introduction
For many years federal law has protected intellectual
property through the patent and copyright laws. With this
legislation, Congress will extend vital federal protection to
another form of proprietary economic information--trade
secrets. There can be no question that the development of
proprietary economic information is an integral part of
America's economic well-being. Moreover, the nation's economic
interests are a part of its national security interests. Thus,
threats to the nation's economic interest are threats to the
nation's vital security interests.
Growing Importance of Proprietary Economic Information
The United States produces the vast majority of the
intellectual property in the world. This category of property
includes patented inventions, copyrighted material, and
proprietary economic information. Trade secrets, in contrast
with copyrighted material and patented inventions, are
information as to which owners take steps to keep confidential.
The value of the information is almost entirely dependent on it
being closely held. It includes, but is not limited to,
information such as production processes, bid estimates,
production schedules, computer software, and technology
schematics. For many companies this information is the keystone
to their economic competitiveness. They spend many millions of
dollars developing the information, take great pains and invest
enormous resources to keep it secret, and expect to reap
rewards from their investment.
In the last few decades, intangible assets have become more
and more important to the prosperity of companies. A recent
analysis by the Brookings Institute indicates that in 1982, the
tangible assets of mining and manufacturing companies accounted
for 62 percent of their market value. By l992, they represented
only 38 percent of the market value. As the nation moves into
the high-technology, information age, the value of these
intangible assets will only continue to grow. Ironically, the
very conditions that make this proprietary information so much
more valuable make it easier to steal. Computer technology
enables rapid and surreptitious duplications of the
information. Hundreds of pages of information can be loaded
onto a small computer diskette, placed into a coat pocket, and
taken from the legal owner.
This material is a prime target for theft precisely because
it costs so much to develop independently, because it is so
valuable, and because there are virtually no penalties for its
theft. The information is pilfered by a variety of people and
organizations for a variety of reasons. A great deal of the
theft is committed by disgruntled individuals or employees who
hope to harm their former companies or line their own pockets.
In other instances, outsiders target a company, systematically
infiltrate it, and then steal its vital information. More
disturbingly, there is considerable evidence that foreign
governments are using their espionage capabilities against
American companies.
The term economic or industrial espionage is appropriate in
these circumstances. Espionage is typically an organized effort
by one country's government to obtain the vital national
security secrets of another country. Typically, espionage has
focused on military secrets. But as the cold war has drawn to a
close, this classic form of espionage has evolved. Economic
superiority is increasingly as important as military
superiority. And the espionage industry is being retooled with
this in mind.
It is important, however, to remember that the nature and
purpose of industrial espionage are sharply different from
those of classic political or military espionage. The phrase
industrial espionage includes a variety of behavior--from the
foreign government that uses its classic espionage apparatus to
spy on a company, to the two American companies that are
attempting to uncover each other's bid proposals, or to the
disgruntled former employee who walks out of his former company
with a computer diskette full of engineering schematics. All of
these forms of industrial espionage are problems. Each will be
punished under this bill.
At hearings before the Subcommittee, Louis Freeh, the
Director of the Federal Bureau of Investigation, testified that
the FBI is currently investigating reports and allegations of
economic espionage activities conducted against the United
States by individuals or organizations from 23 different
countries. Some of these governments are ideological and
military adversaries which continue to target U.S. economic and
technological information as an extension of the concerted
intelligence assault on the United States conducted throughout
the cold war. Other governments targeting U.S. economic and
technological information are long time political and military
allies of the United States or have been traditionally neutral.
These countries target the United States despite their friendly
relations with our government and, in some cases, take
advantage of their considerable legitimate access to U.S.
information to collect sensitive information more easily than
our traditional adversaries. Some of these countries find no
contradiction in maintaining a military alliance with the
United States while at the same time using their intelligence
services to target U.S. technologies.
Incidents of economic espionage are not limited to foreign
governments or foreign companies. A recent survey by the
American Society for Industrial Security International noted
that foreign nationals had been identified in 21% of incidents
involving intellectual property loss where the nationality of
the perpetrators was known. In cases not involving a foreign
government or a company, the perpetrator of the theft of
intellectual property was an individual with a trusted
relationship with the company, often an employee or former
employee, retiree, contractor, vendor supplier, consultant or
business partner. The survey noted that there has been a 323%
increase in reported incidents since a survey four years ago.
That study estimates the potential losses for all American
industry could amount to $63 billion annually.
Need for Legislation
At the hearing before the Subcommittee, Director Freeh
testified that the FBI has experienced difficulties in
prosecuting cases of economic espionage. While the FBI attempts
to use various criminal statutes currently in force to
investigate and prosecute this crime, these laws do not
specifically cover the theft or improper transfer of
proprietary information and, in the opinion of Director Freeh,
are insufficient to protect this type of information. He
testified further that in some instances, the FBI has conducted
investigations only to have federal prosecutors decline the
FBI's request to use further investigative procedures or to
actually prosecute the case itself out of a concern over the
lack of statutory criminal authority to do so.
The principal problem appears to be that there is no
federal statute directly addressing economic espionage or which
otherwise protects proprietary information in a thorough,
systematic manner. The statute that federal prosecutors
principally rely upon to combat this type of crime, the
Interstate Transportation of Stolen Property Act (18 U.S.C.
Sec. 2314), was passed in the 1930s in an effort to prevent the
movement of stolen property across State lines by criminals
attempting to evade the jurisdiction of State and local law
enforcement officials. That statute relates to ``goods, wares,
or merchandise.'' Consequently, prosecutors have found it not
particularly well suited to deal with situations involving
``intellectual property,'' property which by its nature is not
physically transported from place to place. Courts have been
reluctant to extend the reach of this law to this new type of
property. One court has held that ``the element of physical
`goods, wares, or merchandise' in sections 2314 and 2315 is
critical. The limitation which this places on the reach of the
Interstate Transportation of Stolen Property Act is imposed by
the statute itself, and must be observed.'' United States v.
Brown, 925 F.2d 1301 (10th Cir. 1991). Other statutes on which
the government relies to prosecute this type of crime, such as
the mail fraud statute or the fraud by wire statute, have also
proved limited in their use. The mail fraud statute is only
applicable when the mails are used to commit the criminal act
and the fraud by wire statute requires proof that wire, radio,
or television technology was used to commit the crime.
State laws also do not fill the gaps left by federal law.
While the majority of States have some form of civil remedy for
the theft of proprietary economic information, either by
recognizing a tort for the misappropriation of the information
or by enforcing contracts governing the use of the information,
these civil remedies often are insufficient. Many companies
choose to forego civil litigation because of the difficulties
in enforcing a monetary judgment against some defendants which
may have few assets or foreign governments with few assets in
the United States or because companies do not have the
resources or time to bring the civil action. Additionally,
private individuals and companies lack the investigative
resources necessary to prove that a defendant has in fact
misappropriated the proprietary economic information in
question. Only a few States have any form of criminal law
dealing with the theft of this type of information and most of
those laws are misdemeanors, rarely used by State prosecutors.
These problems underscore the importance of developing a
systematic approach to the problem of economic espionage. The
Committee believes that such a scheme will serve as a powerful
deterrent to this type of crime. Additionally, a comprehensive
federal criminal statute will better facilitate the
investigation and prosecution of this crime.
General Intentions of the Committee
This legislation is not intended to apply to innocent
innovators or to individuals who seek to capitalize on the
personal knowledge, skill, or abilities they may have
developed. The statute is not intended to be used to prosecute
employees who change employers or start their own companies
using general knowledge and skills developed while employed. It
is the intent of Congress, however, to make criminal the act of
employees who leave their employment and use their knowledge
about specific products or processes in order to duplicate them
or develop similar goods for themselves or a new employer in
order to compete with their prior employer.
H.R. 3723 has been drafted so as to minimize the risk that
the statute will be used to prosecute persons who use generic
business knowledge to compete with former employers. For
example, under the new offense the government is required to
prove that the defendant has wrongfully copied or otherwise
exerted control over a ``trade secret.'' The definition of
trade secret requires that the owner of the information must
have taken objectively reasonable and active measures to
protect the information from becoming known to unauthorized
persons. If the owner fails to attempt to safeguard his or her
proprietary information, no one can be rightfully accused of
misappropriating it. It is important to note, however, that an
owner of this type of information need only take ``reasonable''
measures to protect this information. While it will be up to
the court in each case to determine whether the owner's efforts
to protect the information in question were reasonable under
the circumstances, it is not the Committee's intent that the
owner be required to have taken every conceivable step to
protect the property from misappropriation.
The new statute also requires that the government prove
that the defendant wrongfully copied or otherwise controlled a
trade secret. It is the Committee's intent that the phrase
``copies or otherwise controls'' be read broadly to include
virtually any means by which information can be recorded,
altered, or otherwise manipulated. This phrase includes both
the taking of physical possession of the medium on which the
information is stored, recorded, or otherwise memorialized as
well as situations where the information has been copied,
duplicated, photographed, drawn, or otherwise reproduced in
some form from the original and where the original information
continues to remain in the possession of the owner. This
concept of control also includes situations in which the
information has been transmitted from one place to another
(regardless of whether by electronic means, through the mails,
or by person), even if in transmitting the information it
continues to remain in the possession of its rightful owner.
The concept of control also includes the mere possession of the
information, regardless of the manner by which the non-owner
gained possession of the information.
Hearings
The Committee's Subcommittee on Crime held one day of
hearings on H.R. 3723 on May 9, 1996. Testimony was received
from Louis Freeh, Director of the Federal Bureau of
Investigation; Tom Brunner, U.S. Chamber of Commerce; Dr. James
P. Chandler, George Washington University; Dr. Raymond
Damadian, President, Fonar Corp.; Richard J. Heffernan,
American Society of Industrial Security; Pete McCloskey,
President, Electronic Industries Association; John Melton, Vice
President SDL, Inc.; David Shannon, Senior Counsel, Intel
Corporation; Dan Whiteman, Director of Security, General
Motors; with additional material submitted by Hughes
Corporation.
Committee Consideration
On July 10, 1996, the Subcommittee on Crime met in open
session and ordered reported the bill H.R. 3723, by a voice
vote, a quorum being present. On September 11, 1996, the
Committee met in open session and ordered reported favorably
the bill H.R. 3732 with one amendment in the nature of a
substitute by voice vote, a quorum being present.
Committee Oversight Findings
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(l)(3)(B) of House rule XI is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 2(l)(C)(3) of rule XI of the
Rules of the House of Representatives, the Committee sets
forth, with respect to the bill, H.R. 3723, the following
estimate and comparison prepared by the Director of the
Congressional Budget Office under section 403 of the
Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 16, 1996.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
reviewed H.R. 3723, the Economic Espionage Act of 1996, as
ordered reported by the House Committee on the Judiciary on
September 11, 1996. CBO estimates that enacting the bill would
result in additional discretionary spending of about $3 million
over the 1997-2002 period, subject to the availability of
appropriated funds. Enacting H.R. 3723 would affect direct
spending and receipts by increasing the amount of forfeiture
receipts and penalties collected and spent by the government.
We estimate that the collection of such receipts would total
about $10 million through fiscal year 1998 and the spending of
such receipts would total about $5 million over the same
period. Because enacting the bill would affect direct spending
and receipts, it would be subject to pay-as-you-go procedures.
However, we expect that the forfeiture and penalty provisions
would have no significant net effect over time because receipts
from criminal fines and the sale of forfeited property would be
spent, generally within one year of receipt.
Bill Purpose.--Enacting H.R. 3723 would make the
misappropriation of a trade secret a federal crime. Under
current law, cases involving the theft of trade secrets are
prosecuted under various statutes; however, none is broad
enough to accommodate most cases involving the unauthorized use
of such material. Under this bill, trade secrets would include
intellectual property as well as physical property, and
violations would include duplication of information as well as
physical theft. Violators would be subject to imprisonment,
criminal fines, and forfeiture of the property involved in the
crime. In addition, this bill would enable the Attorney General
to obtain court injunctions as relief against any violations of
this bill and would enable the federal government to
investigate offenses under this bill through the use of
authorized wire, oral, or electronic intercepts.
Federal Budgetary Impact.--Based on information from the
Federal Bureau of Investigation (FBI), CBO expects that the
agency's caseload would increase as a result of enacting H.R.
3723. We estimate that, over the next six years, the government
would most likely investigate and prosecute a total of about 50
cases covered by this legislation. While pursuing
investigations would consume staff time and other resources of
the federal government, CBO estimates that the Department of
Justice and the FBI would not need significant additional
resources to enforce the provisions of the bill over the next
two years. However, after fiscal year 1999, resource needs
could exceed $1 million each year to support the increasing
caseload. CBO estimates that resource needs could total about
$3 million from fiscal year 1999 through fiscal year 2002. Any
such additional resources would be subject to the availability
of appropriated funds.
This bill also would establish penalties--including fines,
imprisonment, and the forfeiture of property involved in the
crime--for violations of its provisions. Criminal fines and
receipts from the sale of forfeited property would be deposited
in the Crime Victims Fund and spent in the following year. CBO
estimates that the government would collect additional fines
and receipts from the sale of forfeited property of about $10
million through fiscal year 1998. Based on information from the
FBI, we estimate that additional receipts paid into the Crime
Victims Fund after fiscal year 1998 could exceed $10 million a
year. Spending from the fund would increase by the same
amounts, but with a one-year lag. CBO does not expect any
significant increase in prison costs as a result of this bill.
The following table summarizes the pay-as-you-go effects of
enacting this bill.
[By fiscal year, in millions of dollars]
------------------------------------------------------------------------
1996 1997 1998
------------------------------------------------------------------------
Change in outlays...................... 0 0 5
Change in receipts..................... 0 5 5
------------------------------------------------------------------------
Mandate Statement.--H.R. 3723 contains no private-sector or
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act of 1995 (Public Law 104-4), and would have no impact
on the budgets of state, local, or tribal governments.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
June E. O'Neill, Director.
Inflationary Impact Statement
Pursuant to clause 2(l)(4) of rule XI of the Rules of the
House of Representatives, the Committee estimates that H.R.
3723 will have no significant inflationary impact on prices and
costs in the national economy.
Section-by-Section Analysis
Section 1. Title.--Section 1 states the short title of the
bill as the ``Economic Espionage Act of 1996.''
Section 2. Protection of Trade Secrets. This section adds a
new section to Chapter 31 of Title 18 of the United States
Code. The new section, section 670, creates the crime of
wrongfully copying or otherwise controlling a trade secret.
Section 670(a)--Offense.--Subsection (a) of new section 670
creates the criminal offense involving the misappropriation of
trade secrets. The offense provides that anyone who
``wrongfully copies or otherwise controls'' a trade secret, or
attempts or conspires to do so, shall be punished in accordance
with subsection (b) of that section. In order for a violation
of the statute to be proven, the government must also prove
that the defendant committed the offense either (1) with the
intent to, or with reason to believe that the offense would,
benefit any foreign government, foreign instrumentality, or
foreign agent, or (2) with the intent to divert a trade secret
related to, or included in, a product that is produced for, or
placed in, interstate or foreign commerce, to the use or
benefit of anyone other than the owner of the trade secret and
with the further intent to, or with reason to believe that the
offense would, disadvantage the owner of that trade secret.
This section punishes the theft, unauthorized appropriation
or conversion, duplication, alteration, or destruction of a
trade secret. This section is intended to cover both
traditional instances of theft, where the object of the crime
is removed from the rightful owner's control, as well as non-
traditional methods of misappropriation or destruction that
involve duplication or alteration. When these non-traditional
methods are used the original property never leaves the control
of the rightful owner, but the unauthorized duplication or
misappropriation effectively destroys the value of what is left
with the rightful owner. Given the increased use of electronic
information systems, information can now be stolen without
asportation and the original usually remains intact. The intent
of this statute, therefore, is to ensure that the theft of
intangible information is prohibited in the same way that the
theft of physical items is punished.
This section requires that the government prove that the
person charged with the crime acted with the intent to
accomplish one of two goals. One, a person will be guilty under
this section if they wrongfully copied or otherwise controlled
a trade secret with the intent to benefit any foreign
government, foreign instrumentality or foreign agent. In this
instance, ``benefit'' is intended to be interpreted broadly.
The defendant did not have to intend to confer an economic
benefit to the foreign government, instrumentality, or agent,
to himself, or to any third person. Rather, the government need
only prove that the actor intended that his actions in copying
or otherwise controlling the trade secret would benefit the
foreign government, instrumentality, or agent in any way.
Therefore, in this circumstance, benefit means not only an
economic benefit but also reputational, strategic, or tactical
benefit.
Alternatively, the government may prove that the defendant
intended the misappropriated trade secret to be used for the
economic benefit of a person other than the rightful owner
(which can be the defendant or some other person or entity). In
this situation (i.e., when the defendant does not act with the
intent to benefit a foreign government, instrumentality, or
agent) the government must prove that the defendant intended to
confer an economic benefit, not an abstract benefit or
reputational enhancement, through his actions. Therefore, a
person who discloses a trade secret but who does not intend to
gain economically from it, or intends that some other person
economically gain from trade secret, cannot be prosecuted under
this section. Additionally, when the defendant does not act
with the intent to benefit a foreign government,
instrumentality, or agent, the government must also show that
the defendant intended to disadvantage the rightful owner of
the information. This additional provision 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 disadvantage to the rightful owner.
While the term ``wrongfully'' is not defined in the statute
specifically, the use of the term in this section involves the
defendant's knowledge that his or her actions in copying or
otherwise exerting control over the information in question was
inappropriate. It is not necessary that the government prove
that the defendant knew his or her actions were illegal, rather
the government must prove that the defendant's actions were not
authorized by the nature of his or her relationship to the
owner of the property and that the defendant knew or should
have known that fact.
Section 670(b)--Punishment.--The bill provides for several
types of punishment, including fines, imprisonment, or both.
The maximum term of incarceration varies depending upon the
intent of the person convicted of the crime. If the defendant's
intent was to benefit a foreign government, foreign
instrumentality, or foreign agent the maximum term of
imprisonment is 25 years. In all other cases, the maximum term
of imprisonment is 15 years.
If an organization commits an offense under the section,
the maximum fine amount is substantially increased from that
otherwise provided under title 18. If an organization commits
an offense involving an intent to benefit a foreign government,
foreign instrumentality, or foreign agent the maximum fine
which may be imposed is $10 million. In all other
circumstances, the maximum fine which may be imposed on an
organization violating section 670 is $5 million.
Subsection (c)--Definitions.--Subsection (c) of new section
670 provides for definitions of some of the key terms used in
the section. The definition of the term ``trade secret'' is
based largely on the definition of that term in the Uniform
Trade Secrets Act. As defined in H.R. 3723, ``trade secret''
means all forms and types of financial, business, scientific,
technical, economic, or engineering information'' if certain
conditions exist, as discussed below. This information includes
patterns, plans, compilations, program devices, formulas,
designs, prototypes, methods, techniques, processes,
procedures, programs, or codes, whether such properties are
tangible or intangible, and regardless of the means by which
such property is stored or compiled, or memorialized
physically, electronically, graphically, photographically, or
in writing. These general categories of information are
included in the definition of trade secret for illustrative
purposes and should not be read to limit the definition of
trade secret. It is the Committee's intent that this definition
be read broadly.
As defined in the bill, however, in order for information
to meet the definition of trade secret, two conditions must be
proven to have existed at the time the defendant copied or
otherwise exerted control over the information. First, the
owner of the information must have taken reasonable measures to
keep such information secret. Secret in this context means that
the information was not generally known to the public or to the
business, scientific, or educational community in which the
owner might seek to use the information. The bill requires the
owner to take only ``reasonable measures'' to keep such
information secret. The fact that the owner did not exhaust
every conceivable means by which the information could be kept
secure does not mean that the information does not satisfy this
requirement. Rather, a determination of the ``reasonableness''
of the steps taken by the owner to keep the information secret
will vary from case to case and be dependent upon the nature of
the information in question.
The definition of trade secret also requires that the
information in question derive independent economic value,
whether actual or potential, from the fact that the information
is not generally known to, and not readily ascertainable
through proper means by, the public. Therefore, information
which is generally known to the public, or which the public can
readily ascertain through proper means, does not satisfy the
definition of trade secret under this section.
The term ``owner'' is defined to include the person or
entity in whom or in which rightful legal or equitable title
to, or license in, the trade secret in reposed. In this case,
owner includes both natural persons as well as organizations
(such as corporations and partnerships) entitled to own
property. It also includes federal, state, and local government
organizations, as well as foreign government organizations.
Subsection (d)--Criminal Forfeiture.--This section is
designed to permit forfeiture of both the proceeds and assets
used to facilitate the commission of the offense described in
the bill. This section requires that any person convicted of a
violation of section 670 shall forfeit all property
constituting, or derived from, any proceeds the person obtained
as the result of such violation, regardless of whether the
proceeds were obtained directly or indirectly from the criminal
conduct. This section also requires that the person convicted
of violating section 670 forfeit any of the person's property
used, or intended to be used, to commit or facilitate the
crime. But this section further provides, however, that in
determining the extent of the property to be forfeited, the
court may take into consideration the nature, scope, and
proportionality of the use of the property in the offense. The
intent of this proviso is to minimize the number of instances
in which the property forfeited is disproportionate to the harm
caused by the defendant's conduct.
The forfeiture provision supplements, and is in addition
to, the authorized punishments in the bill. The subsection
incorporates existing law that sets forth procedures to be used
in the detention, seizure, forfeiture, and ultimate disposition
of property forfeited under this subsection.
Subsection (e)--Orders to Preserve Confidentiality.--This
subsection authorizes the court to preserve the confidentiality
of alleged trade secrets during legal proceedings consistent
with existing rules of criminal procedure, civil procedure, and
evidence, and other applicable laws. The intent of this section
is to preserve the confidential nature of the information and,
hence, its value. Without such a provision, owners may be
reluctant to cooperate in prosecutions for fear of further
exposing their trade secrets to public view, thus further
devaluing or even destroying their worth.
Subsection (f)--Civil Proceedings to Enjoin Violations.--
This section empowers the Attorney General to commence a civil
action in the United States District Courts to obtain
injunctive relief against a violation of new section 670. The
standards for obtaining such injunctive relief are to be those
provided for under the Federal Rules of Civil Procedure. The
district courts shall have exclusive jurisdiction over actions
brought under this subsection. This subsection is neither
intended to create a general civil cause of action nor does it
authorize persons other than the Attorney General to commence a
civil action to enjoin a violation of section 670.
Subsection (g)--Territorial Application.--To rebut the
general presumption against the extraterritoriality of U.S.
criminal laws, this subsection makes it clear that the Act is
meant to apply to the specified conduct occurring beyond U.S.
borders. To ensure that there is some nexus between the
ascertaining of such jurisdiction and the offense, however,
extraterritorial jurisdiction exists only if the offender is a
United States citizen or permanent resident alien, an
organization substantially owned or controlled by United States
citizens or permanent resident aliens, or is incorporated in
the United States. Alternatively, extraterritorial jurisdiction
will exist if an act in furtherance of the offense was
committed in the United States.
Subsection (h)--Non-Preemption of Other Remedies.--This
subsection makes it clear that the act does not preempt non-
federal remedies, whether civil or criminal, for dealing with
the theft or misapplication of trade secrets. In particular,
the fact that the Attorney General is authorized (under
subsection (f) of section 670) to commence civil proceedings in
order to enjoin further conduct which would violate section 670
is not to be interpreted to mean that other persons and
entities may not also seek injunctive relief that may be
available in other civil actions (using state law tort or
contract claims) in order to prevent the further misuse of a
trade secret.
Subsection (i)--Exceptions to Prohibition.--The Act does
not prohibit, and is not to be deemed to impair, any otherwise
lawful activity conducted by an agency or instrumentality of
the United States, a State, or political subdivision of a
State. This subsection is intended to make it clear that the
act does not prohibit any lawfully authorized investigative,
protective, or intelligence activity by one of those government
entities. This subsection also makes it clear that it is not a
violation of section 670 to report suspected criminal activity
to a law enforcement agency or instrumentality of the United
States, a State, or political subdivision of a State, to any
intelligence agency of the United States, or to Congress.
Section 3. Wire and Electronic Communications Interception
and Interception of Oral Communications.--This section adds new
section 670 to the list of offenses which may be investigated
through the use of authorized, wire, oral, or electronic
intercepts. This section does not alter the existing standard
or procedures for obtaining the authorization to conduct such
intercepts.
Agency Views
Agency views were submitted to the Committee with respect
to H.R. 3723.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (existing law proposed
to be omitted is enclosed in black brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
TITLE 18, UNITED STATES CODE
PART I--CRIMES
* * * * * * *
CHAPTER 31--EMBEZZLEMENT AND THEFT
Sec.
641. Public money, property or records.
* * * * * * *
670. Protection of trade secrets.
* * * * * * *
Sec. 670. Protection of trade secrets
(a) Offense.--Whoever--
(1) with the intent to, or with reason to believe
that the offense will, benefit any foreign government,
foreign instrumentality, or foreign agent; or
(2) with the intent to divert a trade secret, that is
related to or is 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 with the intent to, or with reason to
believe that the offense will, disadvantage any owner
of that trade secret;
wrongfully copies or otherwise controls a trade secret, or
attempts or conspires to do so shall be punished as provided in
subsection (b).
(b) Punishment.--
(1) Generally.--The punishment for an offense under
this section is--
(A) in the case of an offense under
subsection (a)(1), a fine under this title or
imprisonment for not more than 25 years, or
both; and
(B) in the case of an offense under
subsection (a)(2), a fine under this title or
imprisonment for not more than 15 years.
(2) Increased maximum fine for organizations.--If an
organization commits an offense--
(A) under subsection (a)(1), the maximum
fine, if not otherwise larger, that may be
imposed is $10,000,000; and
(B) under subsection (a)(2), the maximum
fine, if not otherwise larger, that may be
imposed is $5,000,000.
(c) Definitions.--As used in this section--
(1) the term ``foreign instrumentality'' means any
agency, bureau, ministry, component, institution,
association, or any legal, commercial, or business
organization, corporation, firm, or entity that is
substantially owned, controlled, sponsored, commanded,
managed, or dominated by a foreign government;
(2) the term ``foreign agent'' means any officer,
employee, proxy, servant, delegate, or representative
of a foreign government;
(3) 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) 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; and
(4) the term ``owner'', with respect to a trade
secret, means the person or entity in whom or in which
rightful legal or equitable title to, or license in,
the trade secret is reposed.
(d) Criminal Forfeiture.--
(1) Notwithstanding any other provision of State law,
any person convicted of a violation under this section
shall forfeit to the United States--
(A) any property constituting, or derived
from, any proceeds the person obtained,
directly or indirectly, as the result of such
violation; and
(B) any of the person's property used, or
intended to be used, in any manner or part, to
commit or facilitate the commission of such
violation, if the court in its discretion so
determines, taking into consideration the
nature, scope, and proportionality of the use
of the property in the offense.
(2) The court, in imposing sentence on such person,
shall order, in addition to any other sentence imposed
pursuant to this section, that the person forfeit to
the United States all property described in this
section.
(3) Property subject to forfeiture under this
section, any seizure and disposition thereof, and any
administrative or judicial proceeding in relation
thereto, shall be governed by the provisions of section
413 of the Comprehensive Drug Abuse Prevention and
Control Act of 1970 (21 U.S.C. 853), except for
subsections (d) and (j) of such section, which shall
not apply to forfeitures under this section.
(e) Orders To Preserve Confidentiality.--In any prosecution
or other proceeding under this section, the court shall enter
such orders and take such other action as may be necessary and
appropriate to preserve the confidentiality of trade secrets,
consistent with the requirements of the Federal Rules of
Criminal and Civil Procedure, the Federal Rules of Evidence,
and all other applicable laws. An interlocutory appeal by the
United States shall lie from a decision or order of a district
court authorizing or directing the disclosure of any trade
secret.
(f) Civil Proceedings to Enjoin Violations.--
(1) Generally.--The Attorney General may, in a civil
action, obtain appropriate injunctive relief against
any violation of this section.
(2) Exclusive jurisdiction.--The district courts of
the United States shall have exclusive original
jurisdiction of civil actions under this subsection.
(g) Territorial Application.--
(1) This section applies to conduct occurring within
the United States.
(2) This section also applies to conduct occurring
outside the United States if--
(A) the offender is--
(i) a United States citizen or
permanent resident alien; or
(ii) an organization substantially
owned or controlled by United States
citizens or permanent resident aliens,
or incorporated in the United States;
or
(B) an act in furtherance of the offense was
committed in the United States.
(h) Nonpreemption of Other Remedies.--This section shall not
be construed to preempt or displace any other remedies, whether
civil or criminal, provided by United States Federal, State,
commonwealth, possession, or territory law for the
misappropriation of a trade secret
(i) Exceptions to Prohibition.--
(1) This section does not prohibit and shall not
impair any otherwise lawful activity conducted by an
agency or instrumentality of the United States, a
State, or a political subdivision of a State.
(2) This section does not prohibit the reporting of
any suspected criminal activity to any law enforcement
agency or instrumentality of the United States, a
State, or a political subdivision of a State, to any
intelligence agency of the United States, or to
Congress.
* * * * * * *
CHAPTER 119--WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND
INTERCEPTION OF ORAL COMMUNICATIONS
Sec. 2516. Authorization for interception of wire, oral, or electronic
communications
(1) The Attorney General, Deputy Attorney General, Associate
Attorney General, or any Assistant Attorney General, any acting
Assistant Attorney General, or any Deputy Assistant Attorney
General or acting Deputy Assistant Attorney General in the
Criminal Division specially designated by the Attorney General,
may authorize an application to a Federal judge of competent
jurisdiction for, and such judge may grant in conformity with
section 2518 of this chapter an order authorizing or approving
the interception of wire or oral communications by the Federal
Bureau of Investigation, or a Federal agency having
responsibility for the investigation of the offense as to which
the application is made, when such interception may provide or
has provided evidence of--
(a) * * *
* * * * * * *
(c) any offense which is punishable under the
following sections of this title: section 201 (bribery
of public officials and witnesses), section 215
(relating to bribery of bank officials), section 224
(bribery in sporting contests), section 670 (relating
to economic espionage), subsection (d), (e), (f), (g),
(h), or (i) of section 844 (unlawful use of
explosives), section 1032 (relating to concealment of
assets), section 1084 (transmission of wagering
information), section 751 (relating to escape), section
1014 (relating to loans and credit applications
generally; renewals and discounts), sections 1503,
1512, and 1513 (influencing or injuring an officer,
juror, or witness generally), section 1510 (obstruction
of criminal investigations), section 1511 (obstruction
of State or local law enforcement), section 1751
(Presidential and Presidential staff assassination,
kidnapping, and assault), section 1951 (interference
with commerce by threats or violence), section 1952
(interstate and foreign travel or transportation in aid
of racketeering enterprises), section 1958 (relating to
use of interstate commerce facilities in the commission
of murder for hire), section 1959 (relating to violent
crimes in aid of racketeering activity), section 1954
(offer, acceptance, or solicitation to influence
operations of employee benefit plan), section 1955
(prohibition of business enterprises of gambling),
section 1956 (laundering of monetary instruments),
section 1957 (relating to engaging in monetary
transactions in property derived from specified
unlawful activity), section 659 (theft from interstate
shipment), section 664 (embezzlement from pension and
welfare funds), section 1343 (fraud by wire, radio, or
television), section 1344 (relating to bank fraud),
sections 2251 and 2252 (sexual exploitation of
children), sections 2312, 2313, 2314, and 2315
(interstate transportation of stolen property), section
2321 (relating to trafficking in certain motor vehicles
or motor vehicle parts), section 1203 (relating to
hostage taking), section 1029 (relating to fraud and
related activity in connection with access devices),
section 3146 (relating to penalty for failure to
appear), section 3521(b)(3) (relating to witness
relocation and assistance), section 32 (relating to
destruction of aircraft or aircraft facilities),
section 1963 (violations with respect to racketeer
influenced and corrupt organizations), section 115
(relating to threatening or retaliating against a
Federal official), and section 1341 (relating to mail
fraud), section 351 (violations with respect to
congressional, Cabinet, or Supreme Court
assassinations, kidnapping, and assault), section 831
(relating to prohibited transactions involving nuclear
materials), section 33 (relating to destruction of
motor vehicles or motor vehicle facilities), section
175 (relating to biological weapons), or section 1992
(relating to wrecking trains);
* * * * * * *
<greek-d>
. <greek-d>
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