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Intelligence


                                                       Calendar No. 546
104th Congress                                                   Report
                                 SENATE
 2d Session                                                     104-359
_______________________________________________________________________
                  THE INDUSTRIAL ESPIONAGE ACT OF 1996
                                _______
                August 27, 1996.--Ordered to be printed
   Filed under authority of the order of the Senate of August 2, 1996
_______________________________________________________________________
Mr. Hatch, from the Committee on the Judiciary, submitted the following
                              R E P O R T
                         [To accompany S. 1556]
    The Committee on the Judiciary, to which was referred the 
bill (S. 1556) to amend provisions of title 18, United States 
Code, with respect to the prohibition of industrial espionage, 
and for other purposes, having considered the same, reports 
favorably thereon, with an amendment in the nature of a 
substitute, and recommends that the bill, as amended, do pass.
                                CONTENTS
                                                                   Page
  I. Purpose..........................................................4
 II. Legislative history..............................................4
III. Discussion.......................................................5
 IV. Section-by-section analysis.....................................13
  V. Regulatory impact statement.....................................18
 VI. Cost estimate...................................................18
VII. Changes in existing law.........................................19
    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:
SECTION 1. SHORT TITLE.
    This Act may be cited as the ``Industrial Espionage Act of 1996.''
SEC. 2. FINDINGS AND PURPOSES.
    (a) Findings.--Congress finds that--
          (1) sustaining a healthy and competitive national economy is 
        imperative;
          (2) the development and production of proprietary economic 
        information involves every aspect of interstate commerce and 
        business;
          (3) the development, production, protection, and lawful 
        exchange, sale, and transfer of proprietary economic 
        information is essential to maintaining the health and 
        competitiveness of interstate commerce and the national 
        economy;
          (4) much proprietary economic information moves in interstate 
        and foreign commerce and proprietary economic information that 
        does not move in interstate or foreign commerce directly and 
        substantially affects proprietary economic information that 
        does;
          (5) the theft, wrongful destruction or alteration, 
        misappropriation, and wrongful conversion of proprietary 
        economic information substantially affects and harms interstate 
        commerce, costing United States firms, businesses, industries, 
        and consumers millions of dollars each year; and
          (6) enforcement of existing State laws protecting proprietary 
        economic information is frustrated by the ease with which 
        stolen or wrongfully appropriated proprietary economic 
        information is transferred across State and national 
        boundaries.
    (b) Purpose.--The purpose of this Act is--
          (1) to promote the development and lawful utilization of 
        United States proprietary economic information produced for, or 
        placed in, interstate and foreign commerce by protecting it 
        from theft, wrongful destruction or alteration, 
        misappropriation, and conversion; and
          (2) to secure to authors and inventors the exclusive right to 
        their respective writings and discoveries.
SEC. 3. PREVENTION OF ECONOMIC ESPIONAGE AND PROTECTION OF PROPRIETARY 
                    ECONOMIC INFORMATION IN INTERSTATE AND FOREIGN 
                    COMMERCE.
    (a) In General.--Title 18, United States Code, is amended by 
inserting after chapter 89 the following new chapter:
``CHAPTER 90--PROTECTION OF PROPRIETARY ECONOMIC INFORMATION
``Sec.
``1831.  Definitions.
``1832.  Criminal activities affecting proprietary economic 
information.
``1833.  Criminal forfeiture.
``1834.  Import and export sanctions.
``1835.  Extraterritoriality.
``1836.  Construction with other laws.
``1837.  Preservation of confidentiality.
``1838.  Prior authorization requirement.
``1839.  Law enforcement and intelligence activities.
``1831. Definitions
    ``As used in this chapter:
          ``(1) The term `person' means a natural person, corporation, 
        agency, association, institution, or any other legal, 
        commercial, or business entity.
          ``(2) The term `proprietary economic information' means all 
        forms and types of financial, business, scientific, technical, 
        economic, or engineering information, including data, plans, 
        tools, mechanisms, compounds, formulas, designs, prototypes, 
        processes, procedures, programs, codes, or commercial 
        strategies, whether tangible or intangible, and whether stored, 
        complied, or memorialized physically, electronically, 
        graphically, photographically, or in writing that--
                  ``(A) the owner thereof has taken reasonable measures 
                to keep such information confidential; and
                  ``(B) the information derives independent economic 
                value, actual or potential, from not being generally 
                known to, and not being readily ascertainable, 
                acquired, or developed by legal means by the public.
        The term does not include any knowledge, experience, training, 
        or skill that a person lawfully has acquired due to his work as 
        an employee of or as an independent contractor for any person.
          ``(3) The term `owner' means the person or persons in whom, 
        or United States Government component, department, or agency in 
        which, rightful legal, beneficial, or equitable title to, or 
        license in, proprietary economic information is reposed.
          ``(4) The term `United States person' means--
                  ``(A) in the case of a natural person, a United 
                States citizen or permanent resident alien; and
                  ``(B) in the case of a nonnatural person, an entity 
                substantially owned or controlled by the United States 
                Government or by United States citizens or permanent 
                resident aliens, or incorporated in the United States.
          ``(5) The term `without authorization' means not permitted, 
        expressly or implicitly, by the owner.
``1832. Criminal activities affecting proprietary economic information
    ``(a) Any person, with intent to, or reason to believe that it 
will, injure any owner of proprietary economic information having a 
value of not less than $100,000 and with intent to convert it to his or 
her own use or benefit or the use or benefit of another, who 
knowingly--
          ``(1) steals, or without authorization appropriates, takes, 
        carries away, or conceals, or by fraud, artifice, or deception 
        obtains such information;
          ``(2) without authorization copies, duplicates, sketches, 
        draws, photographs, downloads, uploads, alters, destroys, 
        photocopies, replicates, transmits, delivers, sends, mails, 
        communicates, or conveys such information;
          ``(3) receives, buys, or possesses such information, knowing 
        the same to have been stolen or appropriated, obtained, or 
        converted without authorization;
          ``(4) attempts to commit any offense described in paragraphs 
        (1) through (3);
          ``(5) wrongfully solicits another to commit any offense 
        described in paragraphs (1) through (3); or
          ``(6) conspires with one or more other persons to commit any 
        offense described in paragraphs (1) through (3), and one or 
        more of such persons do any act to effect the object of the 
        conspiracy,
shall, except as provided in subsection (b), be fined up to $250,000, 
or twice the value of the proprietary economic information, whichever 
is greater, or imprisoned not more that 10 years, or both.
    ``(b) Any corporation that commits any offense described in 
paragraphs (1) through (6) of subsection (a) shall be fined up to 
$10,000,000, or twice the economic value of the proprietary economic 
information, whichever is greater.
    ``(c) This section does not prohibit the reporting of any suspected 
criminal activity or regulatory violation to any appropriate agency or 
instrumentality of the United States, or a political subdivision of a 
State, or to Congress.
``1833. Criminal forfeiture
    ``(a) Notwithstanding any provision of State law, any person 
convicted of a violation under this chapter shall forfeit to the United 
States--
          ``(1) any property constituting or derived from, any proceeds 
        the person obtained, directly or indirectly, as the result of 
        such violation; and
          ``(2) 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.
    ``(b) the court, in imposing a sentence on such person, shall 
order, in addition to any other sentence imposed pursuant to this 
chapter, that the person forfeit to the United States all property 
described in this section.
    ``(c) 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 section 413 of the 
Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 
853), except for subsection 413(d) which shall not apply to forfeitures 
under this section.
    ``(d) Notwithstanding section 524(c) of title 28, there shall be 
deposited in the Crime Victims Fund established under section 1402 of 
the Victims of Crime Act of 1984 (42 U.S.C. 10601) all amounts from the 
forfeiture of property under this section remaining after the payment 
of expenses and sale authorized by law.
``1834. Import and export sanctions
    ``(a) The President may, to the extent consistent with 
international agreements to which the United States is a party, 
prohibit, for a period of not longer than 5 years, the importation 
into, or exportation from, the United States, whether by carriage of 
tangible items or by transmission, any merchandise produced, made, 
assembled, or manufactured by a person convicted of any offense 
described in section 1832 of this title, or in the case of an 
organization convicted of any offense described in such section, its 
successor entity or entities.
    ``(b)(1) The Secretary of the Treasury may impose on any other 
person who knowingly violates any order of the President issued under 
the authority of this section, a civil penalty equal to not more than 5 
times the value of the exports or imports involved, or $100,000, 
whichever is greater.
    ``(2) Any merchandise imported or exported in violation of an order 
of the President issued under this section shall be subject to seizure 
and forfeiture in accordance with sections 602 through 619 of the 
Tariff Act of 1930.
    ``(3) The provisions of law relating to seizure, summary and 
judicial forfeiture, and condemnation of property for violation of the 
United States customs laws, the disposition of such property or the 
proceeds from the sale thereof, the remission or mitigation of such 
forfeiture, and the compromise of claims, shall apply to seizures and 
forfeitures incurred, or alleged to have been incurred under this 
section to the extent that they are applicable and not inconsistent 
with the provisions of this chapter.
``1835. Extraterritoriality
    ``(a) This chapter applies to conduct occurring within the United 
States.
    ``(b) This chapter applies to conduct occurring outside the 
territorial and special maritime jurisdiction of the United States, its 
territories, and possessions if--
          ``(1) the offender is a United States person; or
          ``(2) an act in furtherance of the offence was committed in 
        the United States.
``1836. Construction with other laws
    ``This chapter shall not be construed to preempt or displace any 
other Federal or State remedies, whether civil or criminal, for the 
misappropriation of proprietary economic information, or to affect the 
otherwise lawful disclosure of information by any government employee 
under section 552 of title 5 (commonly known as the Freedom of 
Information Act).
``1837. Preservation of confidentiality
    ``In any prosecution under this chapter, the court may enter such 
orders and take such other action as may be necessary and appropriate 
to preserve the confidentiality of proprietary economic information, 
consistent with rule 16 of the Federal Rules of Criminal Procedure, the 
Federal Rules of Evidence, and other applicable laws. An interlocutory 
appeal by the United States shall lie from a decision or order of a 
district court authorizing the disclosure of proprietary economic 
information.
``1838. Prior authorization requirement
    ``The United States may not file a charge under this chapter or use 
a violation of this chapter as a predicate offense under any other law 
without the personal approval of the Attorney General, the Deputy 
Attorney General, or the Assistant Attorney General for the Criminal 
Division of the Department of Justice.
``1839. Law enforcement and intelligence activities
    ``This chapter does not prohibit any and shall not impair otherwise 
lawful activity conducted by any agency or instrumentality of the 
United States, a State, or a political subdivision of a State, or an 
intelligence agency of the United States.''.
    (b) Technical Amendment.--The table of chapters for title 18, 
United States Code, is amended by inserting after the item relating to 
chapter 89 the following new item:
``90. Protection of Proprietary Economic Information........... 1831''.
SE
SEC. 4. WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND 
                    INTERCEPTION OF ORAL COMMUNICATIONS.
    Section 2516(1)(a) of title 18, United States Code, is amended by 
inserting ``chapter 90 (relating to economic espionage and protection 
of proprietary economic information in interstate and foreign 
commerce),'' after ``title:''.
                               I. Purpose
    The Industrial Espionage Act of 1996, S. 1556, would 
provide for Federal criminal penalties for the theft, 
unauthorized appropriation, or other misuse of proprietary 
economic information.
                        II. Legislative History
    The basis for the protection of proprietary economic 
information is rooted in the U.S. Constitution, which 
explicitly grants Congress the power ``to promote the progress 
of science and useful arts, by securing for limited times to 
authors and inventors the exclusive right to their respective 
writings and discoveries,'' U.S. Const. art. I, sec. 8, cl. 8, 
and which also gives Congress the power ``[t]o regulate 
Commerce * * * among the several States.'' U.S. Const. art. I, 
sec. 8, cl. 3.
    The goal of this legislation is to punish the theft, 
unauthorized appropriation, or unauthorized dissemination of 
proprietary economic information.
    This legislation was introduced by Senators Kohl and 
Specter on February 1, 1996, in the 104th Congress. On February 
28, 1996, the Subcommittee on Terrorism, Technology and 
Government Information held a hearing jointly with the Select 
Committee on Intelligence on the measure and the general issue 
of the theft of proprietary economic information. The Director 
of the Federal Bureau of Investigation, Louis Freeh, testified. 
The Committee also heard testimony from Geoffrey Shaw, the 
former CEO of Ellery Systems, Inc., of Boulder, CO, and Dr. 
Raymond Damadian, president and chairman of Fonar Corporation 
of Melville, NY. In addition, written statements were received 
from John J. Higgins, senior vice president and general counsel 
of the Hughes Electronics Corp.; Norman Augustine, president 
and CEO of Lockheed Martin Corp.; and the National Information 
Infrastructure Testbed. A classified briefing by the FBI 
Director for members of the Judiciary and Intelligence 
Committees was held on March 13, 1996. The House Committee on 
the Judiciary, Subcommittee on Crime, also held hearings on 
this issue on May 9, 1996.
    On July 25, 1996, the Judiciary Committee met in executive 
session to consider the bill. The Committee unanimously 
approved the measure, with an amendment in the nature of a 
substitute, proposed by Senators Kohl and Specter. Embodied in 
the substitute amendment were several changes to the original 
text of the bill. The first was a change in the definition of 
``owner'' intended to bring the bill into full accord with the 
General Agreement on Trade and Tariffs. The second was a change 
in the definition of ``proprietary economic information'' 
designed to clarify the scope of the definition. The third was 
a change in the elements of the offense designed to clarify the 
exact nature of the act criminalized. The fourth was a 
reduction in the possible prison term in order to align the 
penalties with those available under the National Stolen 
Property Act, 18 U.S.C. 2314. The fifth was an alteration in 
the available fines in order to allow fines be levied in 
relation to the value of the stolen information. The sixth was 
an alteration in the import and export sanctions provisions in 
order to clarify the procedures for their use. The seventh 
narrowed the extraterritorial application of the legislation. 
The eighth was the requirement of prior authorization by the 
Attorney General, the Deputy Attorney General, or the Assistant 
Attorney General for the Criminal Division of the Justice 
Department before a prosecution under the measure can be 
commenced.
                            III. Discussion
    Congress has heretofore confined its protection of 
intellectual property to patented and copyrighted material. 
With this legislation, Congress extends the protection of 
Federal law to the equally important area of proprietary 
economic information. During the course of the Committee's 
hearings, we documented that proprietary economic information 
is vital to the prosperity of the American economy, that it is 
increasingly the target of thieves, and that our current laws 
are inadequate to punish people who steal the information.
    In a world where a nation's power is now determined as much 
by economic strength as by armed might, we cannot afford to 
neglect to protect our intellectual property. Today, a piece of 
information can be as valuable as a factory is to a business. 
The theft of that information can do more harm than if an 
arsonist torched that factory. But our Federal criminal laws do 
not recognize this and do not punish the information thief. 
This is an unacceptable oversight. The Industrial Espionage Act 
is an effort to remedy the problem.
         Growing Importance of Proprietary Economic Information
    The United States produces the vast majority of the 
intellectual property in the world. This includes patented 
inventions, copyrighted material, and proprietary economic 
information. Proprietary information, in contrast with 
copyrighted material and patented inventions, is secret. The 
value of the information is almost entirely dependent on its 
being a closely held secret. It includes, but is not limited 
to, information such as production processes, bid estimates, 
production schedules, computer software, technology schematics, 
and trade secrets. It is, in short, the very information that 
drives the American economy. 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 1992, they represented 
only 38 percent of the market value. Blair, ``Ownership and 
Control: Rethinking Corporate Governance for the Twenty-First 
Century'', 234 n.57 (1995). As this 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 easily stolen. 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 company or line their own pockets. In 
other instances, outsiders target a company and systematically 
infiltrate the company then steal its vital information. More 
disturbingly, there is considerable evidence that foreign 
governments are using their espionage capabilities against 
American companies.<SUP>1
---------------------------------------------------------------------------
    \1\ S. 1556 was introduced in tandem with S. 1557, ``The Economic 
Security Act of 1996.'' S. 1557, which was referred to the Select 
Committee on Intelligence, specifically addresses the problem of 
foreign government-sponsored theft of proprietary economic information. 
S. 1557 includes enhanced penalties when the theft is sponsored by a 
foreign government. On April 30, 1996, the Intelligence Committee 
favorably reported a measure almost identical to S. 1557 as title V of 
S. 1718, ``The Intelligence Authorization Act for Fiscal Year 1997.''
---------------------------------------------------------------------------
    We use the term economic or industrial espionage advisedly. 
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 even 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. When we use 
the phrase industrial espionage, we include 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, 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 
troubling, and they are punished as the theft of proprietary 
economic information in this measure.
   Increasing Incidents of Theft of Proprietary Economic Information
    Director Freeh testified at the Subcommittee's February 
hearing that ``[f]oreign governments * * * actively target U.S. 
persons, firms, industries, and the U.S. Government itself to 
steal or wrongfully obtain critical technologies, data and 
information in order to provide their own industrial sectors 
with a competitive advantage.'' Director Freeh reported that in 
the last year, the number of cases of economic espionage that 
the FBI is investigating doubled from 400 to 800. Twenty-three 
countries are involved in those cases.
    During 1992 hearings before the House Committee on the 
Judiciary, Subcommittee on Economic and Commercial Law, the 
Director of the Central Intelligence Agency, Robert Gates, 
stated that:
          Our fundamental assessment is that while the end of 
        the Cold War did not bring an end to the foreign 
        intelligence threat, it did change the nature of that 
        threat. The threat has become more diversified and more 
        complex. In a world that increasingly measures national 
        power and national security in economic terms as well 
        as military terms, many foreign intelligence services 
        around the world are shifting the emphasis in 
        targeting. Foreign targeting of American technology 
        continues; technology is important for economic as well 
        as military reasons. Since the U.S. continues to be on 
        the cutting edge of technological innovation, 
        technology theft will remain a major concern for us.
``The Threat of Foreign Economic Espionage to U.S. 
Corporations: Hearings Before the Subcomm. on Economic and 
Commercial Law of the House Comm. on the Judiciary,'' 102d 
Cong., 2d sess. 59 (1977).
    A report of the National Counterintelligence Center in 1995 
indicated that biotechnology, aerospace, telecommunications, 
computer software, transportation, advanced materials, energy 
research, defense, and semiconductor companies are all top 
targets for foreign economic espionage. These sectors are 
``aggressively targeted'' according to the report. ``National 
Counterintelligence Center, Annual Report to Congress on 
Foreign Economic Collection and Industrial Espionage,'' 15 
(1995). That report identified 20 different methods used to 
conduct industrial espionage. The traditional methods include 
recruiting an agent and then inserting the agent into the 
target company, or breaking into an office to take equipment 
and information. According to the report, ``computer 
intrusions, telecommunications targeting and intercept and 
private-sector encryption weaknesses * * * account for the 
largest portion of economic and industrial information lost by 
U.S. corporations.'' Id. at 16. Most American companies are 
poorly prepared to deal with these sophisticated and 
coordinated efforts to obtain their proprietary economic 
information.
    But even as American companies are attempting to deal with 
foreign espionage, they also have to deal with theft by 
insiders. A survey by the American Society for Industrial 
Security of 325 companies in 1995 found that almost half of 
them had experienced trade secret theft of some sort during the 
previous two years. Heffernan and Smartwood, ``Trends in 
Intellectual Property Loss Survey,'' 4 (1996). They also 
reported a 323-percent increase in the number of incidents of 
intellectual property loss. Id. A 1988 National Institute of 
Justice study of trade secret theft in high technology 
industries found that 48 percent of 150 research and 
development companies surveyed had been the victims of trade 
secrets theft. Mock and Rosenbaum, ``A Study of Trade Secrets 
Theft in High-Technology Industries,'' National Institute of 
Justice Discussion Paper 6 (1988). Almost half of the time the 
target was research and development data while 38 percent of 
the time the target was new technology. Id. at 16. Forty 
percent of the victims found out about the theft from their 
competitors. Id.
    The Committee has learned of several disturbing examples of 
how this theft is occurring. For example, in Arizona, an 
engineer for an automobile air bag manufacturer was arrested in 
1993 for selling manufacturing designs, strategies, and plans. 
He asked the company's competition for more than half a million 
dollars--to be paid in small bills. And he sent potential 
buyers a laundry list of information they could buy. He asked 
$500 for the company's capital budget plan; $1,000 for a piece 
of equipment; and $6,000 for planning and product documents. 
See ``Industrial Espionage By 2 Mesa Men Alleged,'' the Phoenix 
Gazette, Aug. 31, 1993, at A1. The engineer subsequently 
reached a plea agreement with the U.S. Government and was 
sentenced to less than 6 months in prison.
    Just last year, Bill Gaede, the former employee of two 
major computer companies, admitted to stealing vital 
information on the manufacture of microchips and selling it to 
China, Cuba, and Iran. For almost a decade, he copied 
manufacturing specifications worth millions of dollars. And 
armed with this material, the Chinese, Cubans, and Iranians 
have been able to close the gap on our technology leads. Late 
last year, the FBI arrested this man and charged him under the 
Federal stolen property and mail fraud laws. See ``Troubling 
Issues in a Silicon Valley Spy Case,'' the New York Times, July 
8, 1996, at D1. Gaede has recently reached a plea agreement 
with the U.S. Government.
    During its hearings, the Committee learned how an employee 
of Ellery Systems in Boulder, CO, transmitted that company's 
source code to another person in what appeared to be an attempt 
to appropriate the source code for his own personal use. Ellery 
Systems was a computer firm that supplied software technology 
to various government projects, primarily in NASA astrophysics 
activities. That theft of their source code, possibly at the 
behest of a foreign government, ultimately destroyed the 
financial viability of Ellery Systems. But all efforts to 
prosecute the putative thief failed because of gaps in current 
law.
    Dr. Raymond Damadian, the inventor of magnetic resonance 
imaging technology and founder of an MRI manufacturing company, 
Fonar Corp., told the Committee that his company had been the 
subject of persistent infiltration and theft. In one case, an 
unauthorized service company hired former Fonar engineers to 
give them the proprietary technology--the diagnostic software 
and schematics--needed to service Fonar MRI machines. When 
Fonar discovered the misappropriation, it sought an injunction 
in Federal court. The injunction was issued, but the service 
company simply violated the injunction, flouting all possible 
penalties.
    Director Freeh told the Committee about an FBI 
investigation involving the theft of proprietary information 
from two major pharmaceutical manufacturers. Two people were 
offering to sell trade secrets involving two fermentation 
processes covered by active patents. In February 1990, an FBI 
undercover agent posed as a potential buyer and was offered the 
information on one process for $1.5 million. The second process 
was for sale for $6 to $8 million.
    As a result of industrial espionage, American companies 
have been severely damaged. The NCIC report concluded that 
``[i]ndustry victims have reported the loss of hundreds of 
millions of dollars, lost jobs, and lost market share.'' NCIC, 
supra, at 16. The ASIS survey concluded that the potential 
losses could total $63 billion. Heffernan and Smartwood, supra, 
at 15.
    In response to the growing problem of the theft of 
proprietary economic information, the FBI has shifted the focus 
of its Development of Espionage, Counterintelligence and 
Counterterrorism Awareness (DECA) Program. This program has 
been in place for more than 20 years. But in the last few 
years, DECA has widened its efforts to address industrial 
espionage. DECA coordinators in each of the FBI's 56 field 
offices maintain contact with companies in their region and now 
regularly brief them about methods and prevention of industrial 
espionage. During the 1993 and 1994 fiscal years, the FBI 
briefed almost 20,000 companies under the DECA Program.
                      Gaps in Current Federal Law
    Developments in the law, however, have not kept pace with 
this rapidly changing environment. Although Congress has 
enacted patent and copyright protection laws, and computer 
crime statutes, no Federal law protects proprietary economic 
information from theft and misappropriation in a systematic, 
principled manner. As a result, prosecutors have had trouble 
shoe-horning economic espionage into these laws. Sometimes they 
have succeeded, but often they have failed. See Toren, ``The 
Prosecution of Trade Secrets Thefts Under Federal Law,'' 22 
Pepp. L. Rev. 59, 64-94 (1994).
    One provision Federal prosecutors have attempted to use is 
the Depression-era National Stolen Property Act, 18 U.S.C. 
2314-15. This law was designed to foil the ``roving criminal'' 
whose access to automobiles made movement of stolen property 
across State lines so easy that State and local officials were 
stymied in their pursuit. While the law works well enough for 
crimes involving traditional ``goods, wares, and merchandise,'' 
it was drafted at a time when computers, biotechnology, and 
copy machines did not even exist. Consequently, it is not 
particularly well suited to deal with situations in which 
intangible information alone is wrongfully duplicated and 
transmitted electronically with a few keystrokes.
    Moreover, recent court decisions suggest that this statute 
is limited to tangible property. In Dowling v. United States, 
473 U.S. 207 (1985), the Supreme Court reversed the conviction 
of a man who had distributed bootlegged Elvis Presley records. 
He violated copyright law, but the Court suggested that the 
National Stolen Property Act only applies to tangible goods. 
Id. at 216. Later appellate courts have interpreted Dowling to 
preclude prosecution of the theft of ``purely intellectual 
property.'' United States v. Brown, 925 F.2d 1301, 1307 (10th 
Cir. 1991). We do not address whether these cases properly 
understood the legislative intent of the National Stolen 
Property Act, but merely point out that this caselaw makes 
prosecutions for the theft of proprietary economic information 
under the act difficult, making the need for this legislation 
more and more urgent.
    Other existing statutes used by law enforcement agencies to 
combat economic espionage have similar limitations. Although 
proprietary information is property under the mail and wire 
fraud statutes, 18 U.S.C. 1341-43, see U.S. v. Carpenter, 484 
U.S. 19, 28 (1987), prosecutors have found it difficult to use 
these statutes because the theft often does not involve the use 
of mail or wire. In addition, since a thief merely copies 
information and does not necessarily ``defraud'' the company 
permanently of the data, prosecutions are more difficult.
    Under many Federal statutes, even basic concepts can prove 
problematic. For example, if an individual ``downloads'' 
computer source code without permission of the owner, has a 
theft occurred even though the true owner never lost possession 
of the original and is not permanently deprived of its use? 
Another difficulty with existing law is that it fails to afford 
explicit protection to the confidential nature of the 
information in question during enforcement proceedings. By its 
nature, proprietary economic information derives value from its 
exclusivity and confidentiality. If either or both are 
compromised during legal proceedings, the value of the 
information is diminished.
    As a result of these problems, the FBI has had difficulty 
conducting investigations or had prosecutions declined. 
Director Freeh pointed to one case in which an association of 
consultants, all of whom were long-term employees of U.S. 
corporations, attempted to sell proprietary high technology to 
foreign powers. The FBI sought consensual monitoring of a 
subject. Its request was turned down by an Assistant U.S. 
Attorney, citing Brown as holding that the consultants' actions 
did not constitute criminal behavior. Director Freeh pointed to 
another example in which the FBI investigated an information 
broker who was engaged by two foreign companies to gather 
proprietary bid information from a major U.S. company regarding 
a multimillion dollar international construction project. The 
information broker contacted several employees from the U.S. 
company, paid them for information, and passed the information 
onto the foreign companies. The broker was then paid a large 
sum of money for his services. For lack of a more applicable 
violation, the case was investigated as a wire fraud violation, 
but a U.S. Attorney's office declined to prosecute. 
Significantly, a similar investigation regarding the same 
construction project and foreign companies was initiated in the 
United Kingdom. This investigation resulted in prison sentences 
for two other information brokers headquartered in England.
                         State Laws Inadequate
    State laws do not fill in the gaps left by Federal law. 
What State law there is protects proprietary economic 
information only haphazardly. The majority of States have some 
form of civil remedy for the theft of such information--either 
adopting some version of the Uniform Trade Secrets Act, 
acknowledging a tort for the misappropriation of the 
information, or enforcing various contractual arrangements 
dealing with trade secrets. These civil remedies, however, 
often are insufficient. Many companies chose to forgo civil 
suits because the thief is essentially judgment proof--a young 
engineer who has few resources--or too difficult to pursue--a 
sophisticated foreign company or government. In addition, 
companies often do not have the resources or the time to bring 
suit. They also frequently do not have the investigative 
resources to pursue a case. Even if a company does bring suit, 
the civil penalties often are absorbed by the offender as a 
cost of doing business and the stolen information retained for 
continued use. Only a few States have any form of criminal law 
dealing with the theft of this type of information. Most such 
laws are only misdemeanors, and they are rarely used by State 
prosecutors.
                  Need for a Comprehensive Federal Law
    These, and other problems, underscore the importance of 
developing a systematic approach to the problem of economic 
espionage. Only by adopting a national scheme to protect U.S. 
proprietary economic information can we hope to maintain our 
industrial and economic edge and thus safeguard our national 
security. Foremost, we believe that the greatest benefit of the 
Federal statute will be as a powerful deterrent. In addition, a 
Federal criminal law is needed because of the international and 
interstate nature of this activity, because of the 
sophisticated techniques used to steal proprietary economic 
information, and because of the national implications of the 
theft. Moreover, a Federal criminal statute will provide a 
comprehensive approach to this problem--with clear 
extraterritoriality, criminal forfeiture, and import-export 
sanction provisions.
         S. 1556 Does Not Apply to General Knowledge and Skills
    This legislation does not apply to innocent innovators or 
to individuals who seek to capitalize on their lawfully 
developed knowledge, skill or abilities. Employees, for 
example, who change employers or start their own companies 
should be able to apply their talents without fear of 
prosecution because two safeguards against overreaching are 
built into the law.
    First, protection is provided by the definition of 
``proprietary economic information'' itself. The definition 
requires that an owner take objectively reasonable, proactive 
measures, under the circumstances, to protect the information. 
If, consequently, an owner fails to safeguard his or her 
proprietary information, then no one could be rightfully 
accused of misappropriating it. Most owners do take reasonable 
measures to protect their proprietary economic information, 
thereby placing employees and others on clear notice of the 
discreet, proprietary nature of the information.
    The bill explicitly states that the term proprietary 
economic information does not include the general knowledge, 
skills or experience that a person has. A prosecution under 
this statute must establish a particular piece of information 
that a person has stolen or misappropriated. It is not enough 
to say that a person has accumulated experience and knowledge 
during the course of his or her employ. Nor can a person be 
prosecuted on the basis of an assertion that he or she was 
exposed to proprietary economic information while employed. A 
prosecution that attempts to tie skill and experience to a 
particular piece of proprietary economic information cannot 
succeed without showing that the particular material was stolen 
or misappropriated. The Government cannot prosecute an 
individual for taking advantage of the general knowledge and 
skills or experience that he or she obtains or comes by during 
his tenure with a company. Allowing such prosecutions to go 
forward and allowing the risk of such charges to be brought 
would unduly endanger legitimate and desirable economic 
behavior.
     As the Pennsylvania Supreme Court noted in Spring Steels 
v. Molloy, 400 Pa. 354, 363 (1960):
          It is not a phenomenal thing in American business 
        life to see an employee, after a long period of 
        service, leave his employment and start a business of 
        his own or in association with others. And it is 
        inevitable in such a situation, where the former 
        employee has dealt with customers on a personal basis 
        that some of those customers will want to continue to 
        deal with him in [that] new association. This is * * * 
        natural, logical and part of human fellowship * * *
This legislation does not criminalize or in any way hamper 
these natural incidents of employment. The free and unfettered 
flow of individuals from one job to another, the ability of a 
person to start a new business based upon his or her experience 
and expertise, should not be injured or chilled in any way by 
this legislation. Individuals must have the opportunity to take 
advantage of their talents and to seek and accept other 
employment that enables them to profit from their abilities and 
experience. And companies must have the opportunity to employ 
these people. This measure attempts to safeguard an 
individual's career mobility and at the same time to preserve 
the proprietary economic information that underpins the 
economic viability of the very company that would offer a 
person a new job.
    The second safeguard is provided by the bill's use of the 
term ``knowingly.'' For a person to be prosecuted, the person 
must know or have a firm belief that the information he or she 
is taking is in fact proprietary. Under theft statutes dealing 
with tangible property, normally, the thief knows that the 
object he has stolen is indeed a piece of property that he has 
no lawful right to convert for his personal use. The same 
principle applies to this measure--for someone to be convicted 
under this statute he must be aware or substantially certain 
that he is misappropriating proprietary economic information 
(although a defense should succeed if it is proven that he 
actually believed that the information was not proprietary 
after taking reasonable steps to warrant such belief). A person 
who takes proprietary economic information because of 
ignorance, mistake or accident cannot be prosecuted under the 
act. (The bill also provides a similar safeguard by requiring 
that the appropriation be without authorization.)
    This requirement should not prove a great barrier to 
legitimate and warranted prosecutions. Most companies go to 
considerable pains to protect their proprietary economic 
information. Documents are marked proprietary; security 
measures put in place; and employees often sign confidentiality 
agreements.
                    IV. Section-by-Section Analysis
                         Section 1. Short Title
    This section sets forth the short title of the Act, which 
emphasizes that the focus of the bill is on ``industrial 
espionage'' and the protection of trade secrets. ``Industrial 
espionage'' means activity directed at the U.S. Government or 
U.S. corporations, establishments, or persons for the purpose 
of unlawfully obtaining proprietary economic information. The 
emphasis of this legislation is on the theft of that 
proprietary economic information.
                    Section 2. Findings and Purpose
    This section sets forth the congressional findings upon 
which the Act is predicated and the remedial purposes of the 
Act. The section reflects congressional determinations that the 
development and production of trade secrets is integral to the 
maintenance of a healthy and competitive national economy and 
that, in turn, maintenance of a competitive national economy is 
imperative to national security. This section also recognizes 
that the Constitution grants Congress the power to protect and 
enforce the exclusive rights of authors and inventors to their 
writings and discoveries. One of the Act's purposes is, 
therefore, to promote the development and lawful utilization of 
proprietary economic information by protecting it from theft, 
unauthorized misappropriation or conversion. Notwithstanding 
the holding of Dowling v. United States, 473 U.S. 207 (1985), 
it is intended that the provisions of the Act should apply 
regardless of whether the conduct at issue could also fall 
within the prohibitions of the copyright laws.
             Section 3. Prevention of Industrial Espionage
    This section is the core component of the Act and would add 
a new Chapter ``90--Protection of Proprietary Economic 
Information'' to title 18, United States Code.
Sec. 1831. Definitions
    This section sets forth definitions of certain key items 
used in the new chapter and builds upon the definitions already 
set out in chapter 1 of title 18.
    (a) ``Person'' is defined to include both individuals and 
entities, such as corporations, agencies, and associations.
    (b) ``Proprietary economic information'' is defined as a 
type of intellectual property connoted by four characteristics: 
(1) it is proprietary; (2) its nature is economic, business, 
scientific, technical, or engineering; (3) it consists of 
information, data, plans, tools, mechanisms, compounds, 
formulas, designs, prototypes, processes, procedures, programs, 
codes, or commercial strategies; and (4) it derives value from 
its exclusivity. These features distinguish it from other forms 
of intellectual property, such as literary or artistic works. 
Both tangible and intangible forms of property and all forms of 
data or information are covered, regardless of how stored or 
memorialized. Additionally, the definition makes clear that the 
owner of the property must have taken objectively reasonable 
and proactive steps to keep the information confidential; that 
is, information or data that is available generally to the 
public is not included. The efforts to protect material, 
however, need not be heroic merely reasonable. The term 
``proprietary economic information'' also does not include 
general knowledge, experience, training, or skill acquired by a 
person as a result of his or her employment or hire by any 
owner.
    This definition is closely modeled on the definition of a 
``trade secret'' used in the Uniform Trade Secrets Act. It 
parallels similar definitions used by many States in their own 
trade secrets legislation. Thus, it is familiar to most firms, 
businesses, and individuals who commonly deal with trade 
secrets and intellectual property. Congress intends to draw 
upon the considerable case law and experience interpreting 
``trade secrets'' to illuminate the meaning of the term 
``proprietary economic information.''
    (c) ``Owner'' is defined to include any person, including 
the U.S. Government, having legal, beneficial, or equitable 
title to, or license in, the proprietary economic information 
in question.
    (d) ``U.S. Person'' is defined to mean U.S. citizens or 
permanent resident aliens in the case of natural persons; and, 
in the case of nonnatural persons, entities substantially owned 
or controlled by the U.S. Government or by U.S. citizens or 
permanent resident aliens, or incorporated in the United 
States.
    (e) ``Without authorization'' is defined to mean without 
permission of the owner. It is intended to emphasize that 
innocent or negligent actors cannot be prosecuted under the 
statute. See, in this regard, the additional comments regarding 
section 1832 in the Discussion and below.
Sec. 1832. Criminal activities affecting proprietary economic 
        information
    This section punishes the theft, unauthorized 
appropriation, and unauthorized conversion, duplication, 
alteration, or destruction of proprietary economic information. 
This section is written to cover both traditional instances of 
theft, where the object of the crime is removed from the 
rightful owner's control and possession, as well as 
nontraditional methods of misappropriation and destruction, 
involving electronic duplication or alteration. With these 
nontraditional methods the original property never leaves the 
dominion or control of the rightful owner, but the unauthorized 
duplication or misappropriation effectively destroys the value 
of what is left with the rightful owner. In an electronic 
environment, information can be stolen without asportation, and 
the original usually remains intact. Our intent, therefore, is 
to ensure that the theft of intangible information is 
prohibited in the same way that theft of physical items are 
protected.
    This section requires that the person intends that his 
actions will injure the owner of the information. This does not 
require that the prosecution prove malice or evil intent. It 
merely requires that the actor knew or was aware to a practical 
certainty that his conduct would cause such a result. The actor 
must intend to use the information for his or her personal 
benefit or the benefit of another. By benefit we mean economic 
benefit not abstract or reputational enhancements. This 
provision means that a person who discloses proprietary 
economic information but does not intend to materially gain 
from it or intend the recipient to so benefit cannot be 
prosecuted.
    The requirement that the information have a value of not 
less than $100,000 is jurisdictional and is not intended to be 
an element of the crime; the prosecution need not prove that 
the person knew the exact value of the information. In 
determining the value of the information, the prosecution may 
use the valuation technique that is appropriate in light of the 
circumstances of the case. A variety of valuation methods have 
been used in civil and criminal cases involving trade secrets. 
See generally Rosenhouse, Annotation, Proper Measure of Damages 
for Misappropriation of Trade Secrets, 11 A.L.R.4th 12. <SUP>2 
They include determining the profits that the owner would have 
realized had the information remained proprietary. See, e.g., 
Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387, 1392-94 (4th 
Cir. 1971). In other cases, the value of the stolen information 
has been calculated by determining the profits that the 
defendant gained by selling it. See, e.g., Univ. Computing Co. 
v. Lykes-Youngstown Corp., 504 F.2d 518, 535-36 (5th Cir. 
1974). Courts have also recognized the research and development 
costs of the proprietary economic information as a proper 
measure of its value. See, e.g., Salsbury Lab., Inc. v. Merieux 
Lab., Inc., 735 F. Supp. 1555, 1579 (M.D. Ga. 1989), aff'd in 
part and rev'd in part, 908 F.2d 706 (11th Cir. 1990). Other 
methods of valuing proprietary economic information may also be 
available. The Committee believes that these techniques are 
valid.
---------------------------------------------------------------------------
    \2\ We recognize that damages in a civil suit are not the exact 
equivalent of value. But in the course of determining the compensatory 
damages available to a victorious plaintiff, many courts have developed 
methods for valuing trade secrets.
---------------------------------------------------------------------------
    The actor must knowingly steal the information, or take it 
without authorization, or transmit it without authorization. A 
knowing state of mind with respect to an element of the offense 
is (1) an awareness of the nature of one's conduct, and (2) an 
awareness of or a firm belief in or knowledge to a substantial 
certainty of the existence of a relevant circumstance, such as 
whether the information is proprietary economic information as 
defined by this statute. The statute does not require proof 
that the actor knew that his conduct violated Federal law. The 
Committee intends that the knowing state of mind requirement 
may be satisfied by proof that the actor was aware of a high 
probability of the existence of the circumstance, although a 
defense should succeed if it is proven that the actor actually 
and reasonably believed that the circumstance did not exist. 
This is similar to the practice of the proposed Model Penal 
Code (section 2.02(7)). This approach deals with the situation 
that has been called willful blindness, the case of the actor 
who is aware of the probable existence of a material fact--for 
example, that he has no authority, or that the information is 
proprietary--but does not satisfy himself that it does not in 
fact exist.
Sec. 1833. Forfeiture
    This section is designed to permit recapture of both the 
proceeds and implements of the offenses specified in the 
chapter. This provision may prove especially telling, since the 
proceeds of proprietary economic property theft may be 
staggering in certain cases. These forfeiture provisions are 
meant to supplement, not replace, the authorized punishments in 
appropriate cases. The section incorporates through reference 
existing law that sets forth procedures to be used in the 
detention, seizure, forfeiture, and ultimate disposition of 
property forfeited under this section. It provides for an in 
personam action against the offender, rather than only one 
against the property itself, and it preserves the rights of 
innocent third parties.
Sec. 1834. Import and export sanctions
    This section authorizes the President to prohibit, for a 
period of up to 5 years, the importation into, or exportation 
from, the United States of any product produced, made, 
assembled, or manufactured by a person convicted of any offense 
under section 1832. This sanction, too, is meant to enhance the 
bill's prophylactic effect by imposing another important 
sanction on offenders. Any sanctions so imposed are enforceable 
through a civil action that may be brought by the Secretary of 
the Treasury and which could result in the imposition of a 
civil penalty of not less than $100,000. It is anticipated that 
this sanction will generally be used against egregious and 
persistent violators.
Sec. 1835. Extraterritoriality
    To rebut the general presumption against the 
extraterritoriality of U.S. criminal laws, this section makes 
it clear that the Act is meant to apply to certain conduct 
occurring beyond U.S. borders. To ensure that there is some 
nexus between the assertion of such jurisdiction and the 
offense, extraterritorial jurisdiction exists only if the 
offender is a citizen, permanent resident alien, or corporation 
of the United States; or an act in furtherance of the offense 
is committed in the United States. In pursuing such cases, it 
is expected that the Department of Justice will focus its 
investigative and prosecutorial resources on those instances in 
which there has been a substantial harm to U.S. interests.
Sec. 1836. Construction with other laws
    This section makes clear that the Act does not preempt non-
Federal remedies, whether civil or criminal, for dealing with 
the theft or misappropriation of economic proprietary 
information. Many States have criminalized the theft of 
intellectual property, but enforcement may be frustrated by the 
ease with which such property is transferred across State or 
national boundaries.
Sec. 1837. Preservation of confidentiality
    This section authorizes a court to preserve the 
confidentiality of alleged proprietary economic information 
during legal proceedings under the Act consistent with existing 
rules of criminal procedure and evidence, and other applicable 
laws. This preserves the information's confidential nature and, 
hence, its value. Without such a provision, owners may be 
reluctant to cooperate in prosecutions for fear of exposing 
their proprietary information to public view--thereby 
destroying its worth.
Sec. 1838. Prior authorization requirement
    This section requires that the Attorney General, the Deputy 
Attorney General, or the Assistant Attorney General for the 
Criminal Division of the Department of Justice must personally 
approve in advance any charge under this bill. This duty is 
nondelegable. This provision has been added as a safeguard 
against overzealous invocation of this new law. It is intended 
to help ensure that businesses and individuals are not chilled 
from making legitimate business decisions.
Sec. 1839. Law enforcement and intelligence activities
    This section makes clear that the new chapter does not 
prohibit any lawfully authorized investigative, protective, or 
intelligence activity of the United States.
    Section 4. Wire and Electronic Communications Interception and 
                  Interception of Oral Communications
    This provision adds newly created crimes to the list of 
offenses which may be investigated with authorized wire, oral, 
or electronic intercepts.
                     V. Regulatory Impact Statement
    Pursuant to paragraph 11(b), rule XXVI of the Standing 
Rules of the Senate, the Committee, after due consideration, 
concludes that Senate bill 1556 will not have direct regulatory 
impact.
                           VI. Cost Estimate
                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 21, 1996.
Hon. Orrin G. Hatch,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1556, the Industrial Espionage Act of 1996, as 
reported by the Senate Committee on the Judiciary on July 30, 
1996. CBO estimates that enacting the bill would result in no 
significant net impact on the federal budget. Enacting S. 1556 
would affect direct spending and receipts by increasing the 
amount of forfeiture receipts and penalties collected and spent 
by the government, but we estimate that such effects would not 
occur until after fiscal year 1998. Thus, the bill would not be 
subject to pay-as-you-go procedures, which apply only through 
fiscal year 1998. In any event, we expect that the bill would 
have no significant net effect on the federal budget 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 S. 1556 would make it a federal 
crime to steal proprietary economic information having a value 
of at least $100,000 from an owner of such information. Under 
current law, cases involving economic espionage are prosecuted 
under various statutes; however, none is broad enough to 
accommodate most cases of economic espionage. Under this bill, 
economic information 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. Enacting this 
bill also would allow the President to prohibit a person 
convicted of economic espionage from importing goods into, or 
exporting goods from, the United States for a period up to five 
years. Violators of such Presidential orders would be subject 
to civil fines and the forfeiture of related property.
    Federal Budgetary Impact. While pursuing investigations 
would consume staff time and other resources of the federal 
government, CBO estimates that the Department of Justice and 
the Federal Bureau of Investigation (FBI) would not need 
significant additional resources to enforce the provisions of 
the bill over the next several years. Based on information from 
the FBI, CBO assumes that few cases would be investigated and 
prosecuted over the next several years, but that the caseload 
would grow over time. Corporations, which constitute the 
majority of victims of industrial espionage, are reluctant to 
publicly admit theft out of fear that they would be forced to 
reveal proprietary information when the case goes to court. In 
addition, prosecutions under this bill would require prior 
approval of the Attorney General (AG) or certain members of the 
AG staff. As a result of this requirement, CBO anticipates that 
the number of cases prosecuted would be kept to a minimum 
because prosecutors would only pursue those cases with 
substantial evidence. CBO estimates that, in the long term, the 
government's caseload could significantly increase and 
additional resources could be needed if corporations become 
more comfortable with reporting economic espionage and the 
government pursues more cases involving economic espionage. 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 the provisions of this bill. Such 
criminal fines and receipts from the sale of forfeited property 
would be deposited in the Crime Victims Fund and spent in the 
following year. Civil penalties would be paid to a receipt 
account in the Treasury, but we expect that any such revenues 
would not be significant. CBO estimates that because it would 
take at least two years to investigate and prosecute a case, 
the government would not collect any fines or receipts from the 
sale of forfeited property through 1998. Based on conversations 
with the FBI, we estimate that additional receipts paid into 
the Crime Victims Fund after fiscal year 1998 could exceed $5 
million a year. Spending from the fund would increase in the 
same amounts, but with a one-year lag. In addition, CBO does 
not expect any significant increase in prison costs as a result 
of this bill.
    Mandate Statement. S. 1556 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 contacts are Jonathan 
Womer and Susanne Mehlman.
            Sincerely,
                                         June E. O'Neill, Director.
                      VII. Changes in Existing Law
    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the changes in existing law made 
by the bill, as reported by the committee, are shown as follows 
(existing law proposed to be omitted is enclosed in bold 
brackets, new matter is printed in italic, and existing law 
with no changes is printed in roman):
                           UNITED STATES CODE
          * * * * * * *
                TITLE 18--CRIMES AND CRIMINAL PROCEDURE
                            PART I.--CRIMES
        Chapter                                                     Sec.
1. General provisions.............................................     1
          * * * * * * *
89. Professions and occupations...................................  1821
90. Protection of Proprietary Economic Information................  1831
          * * * * * * *
       CHAPTER 90--PROTECTION OF PROPRIETARY ECONOMIC INFORMATION
Sec.
1831.  Definitions.
1832.  Criminal activities affecting proprietary economic information.
1833.  Criminal forfeiture.
1834.  Import and export sanctions.
1835.  Extraterritoriality.
1836.  Construction with other laws.
1837.  Preservation of confidentiality.
1838.  Prior authorization requirement.
1839.  Law enforcement and intelligence activities.
Sec. 1831. Definitions
    As used in this chapter:
          (1) The term ``person'' means a natural person, 
        corporation, agency, association, institution, or any 
        other legal, commercial, or business entity.
          (2) The term ``proprietary economic information'' 
        means all forms and types of financial, business, 
        scientific, technical, economic, or engineering 
        information, including data, plans, tools, mechanisms, 
        compounds, formulas, designs, prototypes, processes, 
        procedures, programs, codes, or commercial strategies, 
        whether tangible or intangible, and whether stored, 
        compiled, or memorialized physically, electronically, 
        graphically, photographically, or in writing that--
                  (A) the owner thereof has taken reasonable 
                measures to keep such information confidential; 
                and
                  (B) the information derives independent 
                economic value, actual or potential, from not 
                being generally known to, and not being readily 
                ascertainable, acquired, or developed by legal 
                means by the public.
        The term does not include any general knowledge, 
        experience, training, or skill that a person lawfully 
        has acquired due his work as an employee of or as an 
        independent contractor for any person.
          (3) The term ``owner'' means the person or persons in 
        whom, or United States Government component, 
        department, or agency in which, rightful legal, 
        beneficial, or equitable title to, or license in, 
        proprietary economic information is reposed.
          (4) The term ``United States person'' means--
                  (A) in the case of a natural person, or 
                United States citizen or permanent resident 
                alien; and
                  (B) in the case of nonnatural person, an 
                entity substantially owned or controlled by the 
                United States Government or by United States 
                citizens or permanent resident aliens, or 
                incorporated in the United States.
          (5) The term ``without authorization'' means not 
        permitted, expressly or implicitly, by the owner.
Sec. 1832. Criminal activities affecting proprietary economic 
                    information
    (a) Any person, with intent to, or reason to believe that 
it will, injure any owner of proprietary economic information 
having a value of not less than $100,000 and with intent to 
convert it to his or her own use or benefit or the use or 
benefit of another, who knowingly--
          (1) steals, or without authorization appropriates, 
        takes, carries away, or conceals, or by fraud, 
        artifice, or deception obtains such information;
          (2) without authorization copies, duplicates, 
        sketches, draws, photographs, downloads, uploads, 
        alters, destroys, photocopies, replicates, transmits, 
        delivers, sends, mails, communicates, or conveys such 
        information;
          (3) receives, buys, or possesses such information, 
        knowing the same to have been stolen or appropriated, 
        obtained, or converted without authorization;
          (4) attempts to commit any offense described in 
        paragraphs (1) through (3);
          (5) wrongfully solicits another to commit any offense 
        described in paragraphs (1) through (3); or
          (6) conspires with one or more other persons to 
        commit any offense described in paragraphs (1) through 
        (3), and one or more of such persons do any act to 
        effect the object of the conspiracy,
shall, except as provided in subsection (b), be fined up to 
$250,000, or twice the value of the proprietary economic 
information, whichever is greater, or imprisoned not more than 
10 years, or both.
    (b) Any corporation that commits any offense described in 
paragraphs (1) through (6) of subsection (a) shall be fined up 
to $10,000,000, or twice the economic value of the proprietary 
economic information, whichever is greater.
    (c) This section does not prohibit the reporting of any 
suspected criminal activity or regulatory violation to any 
appropriate agency or instrumentality of the United States, or 
a political subdivision of a State, or to Congress.
Sec. 1833. Criminal forfeiture
    (a) Notwithstanding any provision of State law, any person 
convicted of a violation under this chapter shall forfeit to 
the United States--
          (1) any property, constituting or derived from, any 
        proceeds the person obtained, directly or indirectly, 
        as the result of such violations; and
          (2) 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.
    (b) The court, in imposing a sentence on such person, shall 
order, in addition to any other sentence imposed pursuant to 
this chapter, that the person forfeit to the United States all 
property described in this section.
    (c) 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 
section 413 of the Comprehensive Drug Abuse Prevention and 
Control Act of 1970 (21 U.S.C. 853), except for subsection 
413(d) which shall not apply to forfeitures under this section.
    (d) Notwithstanding section 524(c) of title 28, there shall 
be deposited in the Crime Victims Fund established under 
section 1402 of the Victims of Crime Act of 1984 (42 U.S.C. 
10601) all amounts from the forfeiture of property under this 
section remaining after the payment of expenses and sale 
authorized by law.
Sec. 1834. Import and export sanctions
    (a) The President may, to the extent consistent with 
international agreements to which the United States is a party, 
prohibit, for a period of not longer than 5 years, the 
importation into, or exportation from, the United States, 
whether by carriage of tangible items or by transmission, any 
merchandise produced, made, assembled, or manufactured by a 
person convicted of any offense described in section 1832 of 
this title, or in the case of an organization convicted of any 
offense described in such section, its successor entity or 
entities.
    (b)(1) The Secretary of the Treasury may impose on any 
person who knowingly violates any order of the President issued 
under the authority of this section, a civil penalty equal to 
not more than 5 times the value of the exports or imports 
involved, or $100,000, whichever is greater.
    (2) Any merchandise imported or exported in violation of an 
order of the President issued under this section shall be 
subject to seizure and forfeiture in accordance with sections 
602 through 619 of the Tariff Act of 1930.
    (3) The provisions of law relating to seizure, summary and 
judicial forfeiture, and condemnation of property for violation 
of the United States customs laws, the disposition of such 
property or the proceeds from the sale thereof, the remission 
or mitigation of such forfeiture, and the compromise of claims, 
shall apply to seizures and forfeitures incurred, or alleged to 
have been incurred under this section to the extent that they 
are applicable and not inconsistent with the provisions of this 
chapter.
Sec. 1835. Extraterritoriality
    (a) This chapter applies to conduct occurring within the 
United States.
    (b) This chapter applies to conduct occurring outside the 
territorial and special maritime jurisdiction of the United 
States, its territories, and possessions if--
          (1) the offender is a United States person; or
          (2) an act in furtherance of the offense was 
        committed in the United States.
Sec. 1836. Construction with other laws
    This chapter shall not be construed to preempt or displace 
any other Federal or State remedies, whether civil or criminal, 
for the misappropriation of proprietary economic information, 
or to affect the otherwise lawful disclosure of information by 
any government employee under section 552 of title 5 (commonly 
known as the Freedom of Information Act).
Sec. 1837. Preservation of confidentiality
    In any prosecution under this chapter, the court may enter 
such orders and take such other action as may be necessary and 
appropriate to preserve the confidentiality of proprietary 
economic information, consistent with rule 16 of the Federal 
Rules of Criminal Procedure, the Federal Rules of Evidence, and 
other applicable laws. An interlocutory appeal by the United 
States shall lie from a decision or order of a district court 
authorizing the disclosure of proprietary economic information.
Sec. 1838. Prior authorization requirement
    The United States may not file a charge under this chapter 
or use a violation of this chapter as a predicate offense under 
any other law without the personal approval of the Attorney 
General, the Deputy Attorney General, or the Assistant Attorney 
General for the Criminal Division of the Department of Justice.
Sec. 1839. Law enforcement and intelligence activities
    This chapter does not prohibit any and shall not impair 
otherwise lawful activity conducted by an agency or 
instrumentality of the United States, a State, or a political 
subdivision of a State, or an intelligence agency of the United 
States.
          * * * * * * *
 CHAPTER 119--WIRE 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 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) any offense punishable by death or by 
        imprisonment for more than one year under sections 2274 
        through 2277 of title 42 of the United States Code 
        (relating to the enforcement of the Atomic Energy Act 
        of 1954), section 2284 of title 42 of the United States 
        Code (relating to sabotage of nuclear facilities or 
        fuel), or under the following chapters of this title: 
        chapter 90 (relating to economic espionage and 
        protection of proprietary economic information in 
        interstate and foreign commerce), chapter 37 (relating 
        to espionage), chapter 105 (relating to sabotage), 
        chapter 115 (relating to treason), chapter 102 
        (relating to riots) chapter 65 (relating to malicious 
        mischief), chapter 111 (relating to destruction of 
        vessels), or chapter 81 (relating to piracy);
                                <greek-d>



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