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By Tamlin H. Bason
Sens. Sheldon Whitehouse (D-R.I.,) and Lindsey Graham (R-S.C.) announced July 29 that they had circulated a “discussion draft” of a bill that would broaden the reach of the Economic Espionage Act of 1996, 18 U.S.C. §1831(a).
The bill would amend the statute to clarify that espionage sponsored by foreign governments was covered under the Act and it would provide a mechanism for increased participation by interested parties whose trade secrets were the subject of criminal proceedings under the Act. Moreover, the bill would clarify that espionage conducted on foreign soil was covered by the Act so long as some of the computer networks compromised in the espionage were in American territories. Finally, the bill would make trade secret theft a predicate offense under the Racketeer Influenced and Corrupt Organizations Act.
Whitehouse, in a statement, said that he and Graham were trying “to ensure that our prosecutors have adequate tools to fight trade secret theft and economic espionage.”
The first bill, the Theft of Trade Secrets Clarification Act of 2012, Pub. L. No. 112-236 , addresses a decision by the U.S. Court of Appeals for the Second Circuit regarding the taking of computer source code by a former employee (245 PTD, 12/21/12). In that case,United States v. Aleynikov, 676 F.3d 71, 102 USPQ2d 1458 (2d Cir. 2012)(71 PTD, 4/13/12), a computer programmer for Goldman Sachs took a copy of software source code just before leaving the company's employ and used the code in his new job at a startup company. The appeals court, however, ruled that computer source code for software that is used internally by a company but is not itself intended to be offered for sale to the public was not subject to the Economic Espionage Act of 1996.
The legislation clarified that even the theft of software source code that was used internally was actionable under Section 1831(a) so long as the software was related to a product sold in interstate commerce.
For its part, the Second Circuit recently took its own steps to limit the reach of Aleynikov. On Aug. 1 United States v. Agrawal, No. 11-1074 (2d Cir., Aug. 1, 2013), held that evidence that software that a securities trader shared with a competitor was used internally by his employer to trade securities was sufficient to satisfy the interstate commerce element of the EEA. Specifically, Argawaldetermined that the interstate commerce requirement was met by the fact that securities were traded through use of the subject software. Aleynikov has thus been effectively overturned through legislation, and its reach has been drastically narrowed with the Second Circuit.
The other bill, the Economic Espionage Penalty Enhancement Act of 2012, Pub. L. No. 112-269, stiffened fines for individuals and organizations convicted of economic espionage (02 PTD, 1/3/13). The bill increased the maximum fine for individuals convicted of economic espionage from $500,000 to $5 million. It also removed the $10 million maximum fine that could be assessed against corporations convicted under the Act. Now, corporations can face fines “not more than the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”
(a) In general.--Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, or intending or knowing that the offense is committed at the request, under the direction, or on behalf of any foreign government, foreign instrumentality, or foreign agent. . .
According to a summary of the proposal provided by Whitehouse, the purpose of the amendment is to “clarify that the statute covers instances in which (a) a foreign government agent steals and relays a trade secret to a private company; or (b) a private thief steals a trade secret at the request of a foreign government and relays the stolen trade secret to a private company.”
The bill would also amend Section 1835 to instruct a court to “allow an owner of a trade secret at issue in a prosecution under this chapter to file a submission under seal that describes the interest of the owner in a trade secret remaining confidential.”
Another amendment would make it explicit that the EEA applies to acts both committed in the United States and to acts “committed through means or facilities located in the United States” so long as “the offense resulted in an injury to an individual or entity located in the United States.”
The bill would also make trade secret theft and economic espionage RICO predicate offenses. Accordingly, lawmakers would have access to RICO tools when investigating those offenses.
There was no timetable for when the draft bill may be introduced. However, the senators, who serve as the chairman and ranking member of the Judiciary Committee's Crime and Terrorism Subcommittee, said that they plan to hold a hearing in the fall to discuss the proposal.
Text of draft bill available at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/DiscussionDraft29July13(2).pdf.
Summary of bill available at http://www.whitehouse.senate.gov/download/?id=ac13e02f-0840-4868-ba9c-06f1f8682a9d.
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