Header graphic for print
Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

President Obama Signs Economic Espionage Act Amendments That Significantly Enhance The Penalties For Trade Secret Theft By Foreigners

Posted in Data Theft, Espionage, Legislation

On January 14, 2013, President Obama signed the Foreign and Economic Espionage Penalty Enhancement Act of 2012.

The Act enhances the penalties for certain violations of the Economic Espionage Act.

The purpose of the Act was to amend title 18, United States Code, to provide for increased penalties for foreign and economic espionage.

Under the Act, the upper limit of penalties for individual offenses of Section 1831(a) are increased from $500,000 to $5,000,000 and  the upper limit for corporate offenses of Section 1831(b) are increased from $10,000,000 to 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.

Prior to the amendment, Section 1831 provided:

(a) In General.— Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly—

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret;

(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in any of paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in any of 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 not more than $500,000 or imprisoned not more than 15 years, or both.

(b) Organizations.— Any organization that commits any offense described in subsection (a) shall be fined not more than $10,000,000.

Accordingly, the penalties for individuals have increased from $500,000 to $5,000,000, and the penalties for organizations have increased from $10,000,000 to 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.

The Act also directs the U.S. Sentencing Commission to review and amend the federal sentencing guidelines and policy statements applicable to offenses relating to the transmission of a stolen trade secret outside of the United States or economic espionage in order to reflect the intent of Congress that penalties for such offenses reflect the seriousness of, and potential and actual harm caused by, such offenses and provide adequate deterrence. It directs the Commission to: (1) consider the extent to which such guidelines and statements appropriately account for the simple misappropriation of a trade secret; (2) consider whether additional enhancements are appropriate to account for any transmission of a stolen trade secret outside of the United States and any such transmission that is committed for the benefit of a foreign government, instrumentality, or agent; and (3) ensure reasonable consistency with other relevant directives, guidelines and statements, and related federal statutes.

The President’s approval of this Act comes after his approval in late December 2012 of other amendments to the Economic Espionage Act which broaden Section 1832(a) to apply to a trade secret “that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof.” (emphasis added).

The Department of Justice recently issued a report identifying some of its significant prosecutions under the Economic Espionage Act.

Some legal commentators, such as John Marsh, believe that the bipartisan support of these amendments may provide some momentum for the passage of additional federal legislation which would provide for a civil cause of action for certain violations of the Act. In July 2012, the Protecting American Trade Secrets and Innovation Act of 2012, S. 3389, which sought to federalize civil trade secret misappropriation in certain factual scenarios, was introduced in Congress, but the Senate Judiciary Committee ultimately did not act on the bill.

It remains to be seen whether the recent legislation will lead to the further strengthening of trade secret protections under federal law in 2013.

We will keep you updated on any significant new developments.