mr. kelley is the chief of the administrative law unit, office of general counsel, at fbi headquarters in washington, dc.
the development of proprietary economic information, commonly called trade secrets, is an integral part of virtually every aspect of u.s. trade, commerce, and business. protecting trade secrets is essential to maintaining the health and competitiveness of critical segments of the u.s. economy.
the ever-increasing value of proprietary economic information in the global marketplace and the corresponding spread of technology have combined to significantly increase both the opportunities and motives for conducting economic espionage and trade secret theft. as a consequence, foreign governments, organized criminal enterprises, and rogue thieves use a variety of means to target individuals and industries to gain illicit access to valuable information, data, and technologies.
this article discusses new federal legislation that will assist federal, state, and local law enforcement officers in recognizing and investigating trade secret theft. new laws became necessary because prior state and federal leg-islation had not kept pace with the rapidly changing technological environment. for example, if an in-dividual downloads a computer program code onto a disk without the permission of the code owner, has a theft occurred, even though the true owner never lost possession of the original code? if a theft occurred, is the value of the material taken determined by the value of the disk on which the code is now recorded or the value of the code itself? although congress had enacted patent and copyright protection laws, computer crime statutes, and laws designed to prevent government employees from wrongfully disclosing proprietary information obtained by virtue of their official duties,1 no federal law protected, in a systematic, principled manner, trade secrets from theft and misappropriation. legislation in the states varies but, in general, offers inadequate protection to victims of trade secret theft.2
Section 1831 Economic Espionage
Economic espionage, as described in Section 1831, refers to foreign power-sponsored or -coordinated intelligence activity, directed at the U.S. government or corporations, entities, or other individuals operating in the United States, for the purpose of unlawfully obtaining trade secrets. Section 1831 punishes the theft, misappropriation, wrongful alteration, and delivery of trade secrets when accused parties intended to, or knew that their misconduct would, benefit a foreign government, instrumentality, or agent. This section also makes punishable attempts and conspiracies to commit such offenses. The prescribed maximum punishment for an individual offender is 15 years imprisonment, a $500,000 fine, or both; for an organization,4 a fine of $10 million.
The principal purpose of this section is to prevent economic espionage, not to punish conventional commercial theft and misappropriation of trade secrets, which is the function of Section 1832. Investigators should administer Section 1831 with its principal purpose in mind and should not, therefore, attempt to apply it to misconduct by foreign corporations when there is no evidence of government-sponsored or -coordinated intelligence activity. Rather, such misconduct should be pursued under Section 1832.
To prosecute an offense under Section 1831, the prosecution must show that perpetrators acted with the intent to, or had knowledge that their actions would, aid a foreign government, instrumentality, or agent. This specific-intent requirement separates conduct that is criminal from that which is innocent.
For example, the section does not proscribe legitimate economic reporting activities conducted by diplomatic, consular, and mission personnel in the United States and abroad. Thus, an economics officer assigned to a mission in the United States may gather unclassified labor statistics, gross domestic product data, import and export figures, agricultural output measurements, and similar publicly available material, without violating the Act. On the other hand, the theft of a secret formula for a newly developed pharmaceutical would be a crime under the Act whether committed by an economics officer or a common thief.
Section 1832 Theft of Trade Secrets
Section 1832 punishes the theft, misappropriation, wrongful conversion, duplication, alteration, destruction, etc., of a trade secret. The section also punishes attempts and conspiracies. The intangible nature of trade secrets required that the section be written broadly enough to cover both conventional theft, where the physical 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 in which the original property never leaves the dominion or control of the rightful owner.
The section does not require an intent to aid a foreign government, agent, or instrumentality; rather, it is aimed at conventional commercial trade secret theft, misappropriation, criminal conversion, and so forth. Thus, it covers purely "domestic" offenses or crimes committed on behalf of foreign corporations and individuals not affiliated with a foreign government. Because this offense is considered less serious than economic espionage, it warrants less severe maximum punishments: For individuals, 10 years' imprisonment, a fine, or both; for organizations, a fine of $5 million.
Congress did not intend for the law to apply to innocent innovators or to individuals who seek to capitalize on their lawfully developed knowledge, skills, or abilities. Thus, this section incorporates a high-threshold specific-intent element. To successfully pursue a case under this section, prosecutors must show both that the accused specifically intended to convert a trade secret to the economic benefit of someone other than the rightful owner and intended to or knew that the offense would harm or injure the rightful owner. Prosecutors also must show that the accused knowingly engaged in the misconduct charged. This high threshold of proof clearly separates conduct that is criminal from that which is innocent or simply careless.
Section 1834 Criminal Forfeiture
Section 1834 is designed to permit recapture of both the proceeds and implements of the offenses specified in the chapter. This section may prove especially telling because the proceeds of trade secret theft may be staggering in certain cases. The forfeiture provisions are meant to supplement, not replace, the authorized punishments in appropriate cases. The section provides for an in personam action against the offender, rather than one against the property itself, and preserves the rights of innocent third parties. The section incorporates, through reference, existing law to provide procedures for the detention, seizure, forfeiture, and ultimate disposition of property forfeited under the section.
Section 1835-Orders to Preserve Confidentiality.
Section 1835 requires that a court preserve the confidentiality of an alleged trade secret during legal proceedings under the Act consistent with existing rules of criminal and civil procedure and evidence and other applicable laws. This preserves the trade secret's confidential nature and, hence, its value. Without such a provision, owners may be reluctant to cooperate in cases for fear of exposing their trade secrets to public view, thereby destroying the law's value.
Section 1836 Civil Proceedings to Enjoin Violations
Section 1836 authorizes the U.S. attorney general to seek appropriate civil remedies, such as injunctions, to prevent and restrain violations of the Act. This provision is analogous to Section 1964(a) of Title 18 (part of the Racketeer Influenced and Corrupt Organizations Act). Under it, the district courts may prevent and restrain violations of the new chapter by taking such actions as 1) ordering individuals to divest themselves of any interest, direct or indirect, in any enterprise; 2) imposing reasonable restrictions on the future activities or investments of a person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise used to perpetrate the offense; and 3) dissolving or reorganizing any organization. Thus, this section provides powerful weapons to enforcement and prosecutorial arsenals.
Section 1837 Extraterritorial Investigations
To rebut the general presumption against the extraterritorial effect of U.S. criminal laws, Section 1837 states that the Act applies to certain conduct occurring beyond U.S. borders. To ensure some nexus between the assertion of such jurisdiction and the offense, extraterritoriality is provided for 1) if the offender is a citizen, permanent resident alien, or an organization incorporated under the laws of the United States; or 2) an act in furtherance of the offense is committed in the United States.
Section 1838 State Laws
Section 1838 states that the Act does not preempt nonfederal remedies, whether civil or criminal, for dealing with the theft, misappropriation, or wrongful conversion of trade secrets. As noted above, several states have criminalized the theft of intellectual property and many have provided civil remedies as well. The Act does not supplant them.
IMPACT ON STATE AND LOCAL LAW ENFORCEMENT
Although the Economic Espionage Act defines federal offenses, its significance is not limited to federal law enforcement agencies alone. State and local law enforcement agencies can play important roles in administering the Act and protecting the proprietary information of business interests in their jurisdictions.
Identifying Offenses
All law enforcement personnel must learn to recognize the offenses defined by the Act. Some offenses seem obvious, but dealing with intangibles may require officers to expand their perceptions of property, value, theft, and espionage.
For example, if someone takes a computer with the intent to permanently deprive the rightful owner of its use and benefit, a larceny obviously has been committed. If, however, the same individual merely copies the formula for a newly developed chemical compound stored on that computer with an intent to use the formula for personal gain, would officers recognize that a crime has been committed? Similarly, if an exchange student at a local university is caught copying a professor's research notes on the use of ceramics in high-combustion engines, is it a matter for the dean or the police?
Recognizing Proprietary Thefts
Officers who respond to seemingly innocuous complaints involving commercial enterprises must be alert to trade secret theft possibilities because even owners may not realize the true gravity of an offense. What appears to be a simple breaking and entering with no apparent larceny may actually be a disguised or bungled trade secret theft.
Consider this case: A firm reports what appears to be a simple breaking and entering into a particular office but notes that nothing apparently had been taken. The evening before the break-in, however, a computer in that office had been used to prepare an important bid proposal on a multimillion dollar project. Once the significance of that fact is grasped, the responding officers will realize that they may not be dealing with a petty misdemeanor but, rather, with a serious felony.
Processing Crime Scenes
Officers responding to potential proprietary thefts must ensure that their preliminary investigation and preservation of the crime "scene" is not limited by traditional crime concepts. In the above scenario, for example, preservation of the computer keyboard for possible fingerprint analysis would be just as critical as securing the passageway through which the apparent thief gained entry. Similarly, ascertaining the identities of personnel who knew the computer in question was being used for preparation of the bid proposal would be vital to the investigation.
Tracking Patterns
State and local agencies should analyze trade secret crime reports and statistics to identify patterns in order to determine whether organized or systematic trade secret offenses are being committed in their jurisdictions. Seemingly random break-ins of high-tech firms in an industrial park, for example, may be the work of sophisticated trade secret thieves. Sharing information concerning such trends with the FBI may prove beneficial.
Reporting Foreign-Sponsored Proprietary Theft
Investigators who uncover any trade secret theft or misappropriation potentially concerning an agent or instrumentality of a foreign government must immediately notify the FBI, due to the possibility that economic espionage may be involved. Of course, liaison with the FBI is appropriate in any trade secret theft case but becomes absolutely essential in economic espionage cases.
Ensuring Secrecy
State and local agencies should educate all of their personnel on the proprietary nature of trade secrets and take measures to ensure that trade secrets entrusted to their personnel by victimized owners for investigative purposes be kept secret. Innocent disclosure of such information may destroy its value as surely as would purposeful destruction.
Advising Businesses
Given the growth in technology and the increasing focus on proprietary information, businesses may be expected to ask for guidance on how to keep their trade secrets safe. While large corporations often have their own security experts to provide this type of assistance, smaller businesses, particularly sole proprietorships and partnerships, may ask for tips or training on preventing trade secret theft and economic espionage.
Detailed responses to such questions are beyond the scope of this article, but an excellent place to start is to emphasize that an aspect of trade secret law requires that owners exercise objectively reasonable steps to keep the secret in question secret. Owners who are careless or negligent in safeguarding their secrets will not be able to meet this requirement. Owners must take affirmative steps to mark clearly information or materials that they regard as proprietary, protect the physical property in which trade secrets are stored, limit employees' access to trade secrets to only those who truly have a need to know in connection with the performance of their duties, train all employees on the nature and value of the firm's trade secrets, and so on.
CONCLUSION
The Economic Espionage Act of 1996 is a powerful tool for combating trade secret theft, whether committed by agents of foreign governments or by "freelancing" thieves. Because it fills gaps in existing federal and state laws, the Act should establish a clear framework for law enforcement agen-cies at all levels to pursue both interstate and international trade secret offenses.
Endnotes 1 18 U.S.C. ? 1905. 2 Torren, "The Prosecution of Trade Secret Thefts Under Federal Law," Pepperdine Law Review, vol. 22, no. 59, 1994, 94-95. Every state recognizes trade secrets as property that the law may protect from theft; however, the manner in which the states choose to protect them varies. Thirteen states have statutes specifically covering theft of trade secrets; 8 states include trade secrets as valuable property in their statutes governing crimes against property; 2 states include trade secrets in their computer crime statutes; 2 states list trade secrets separately from other property in their larceny statutes; and 24 states and the District of Columbia make no explicit mention of trade secrets in their penal statutes. 3 Pub. L. No. 104-294, 110 Stat. 3488, (1996). The law's complete name is the Federal Economic Espionage and Protection of Trade Secrets Law. 4 Defined at 18 U.S.C. ? 18. In general, an organization may be held accountable for the criminal acts of its agents under a theory of respondeat superior where the agents were acting, at the time of the offense, within the scope of their employment or agency.