Senators Sheldon Whitehouse (D-R.I.) and Lindsey Graham (R-S.C.) recently proposed a draft discussion bill to amend the federal Economic Espionage Act and enhance criminal trade secret protections.  

The amendments would expand the Economic Espionage Act to expressly cover trade secret misappropriation sponsored by foreign governments and theft taken at their request, provide victims with additional procedures to protect their trade secrets in court, protect “strategies” and “negotiating positions” as trade secrets, prohibit hacking of U.S. assets by computers used abroad, and add trade secret theft as a predicate for a RICO claim.

In introducing the draft legislation, Senators Whitehouse and Graham made the following statements stressing the importance of trade secrets and protecting the United States from economic espionage.

“Trade-secret theft and economic espionage threaten American companies and our nation’s economic competitiveness. Foreign thieves and hackers must not be allowed to escape accountability through loopholes in our criminal laws,” Whitehouse said.

 “There are different ways people can steal from you: a guy can walk up to you with a gun or he can just hack your computer while sitting on his couch in another country,” Graham said. “Trade-secret theft and economic espionage can become forms of financial warfare.”

Whitehouse and Graham, who serve as chairman and ranking member of the Judiciary Committee’s Crime and Terrorism Subcommittee, indicated in their joint statement that they plan to hold a hearing in the fall regarding the draft legislation.

According to Senator Whitehouse’s summary, the draft bill would make seven key changes to the Act:

(1) Cover government sponsored hacking – This proposal would 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.

Proposal: Amend § 1831(a) by adding after “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,”.

(2) Enhance intervention of interested parties – This proposal would enhance the opportunity of owners of trade secrets to weigh in on any assessment of the importance of keeping trade secrets confidential.

Proposal: Create a new 18 U.S.C. § 1835(b) “Interested Owners.—The court shall 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, and shall consider such submission before issuing an order under subsection (a). The record for an interlocutory appeal brought by the Government shall include the submission made under seal to the court by the owner of the trade secret, and may be supplemented on appeal by a further submission under seal by the owner of the trade secret. No submission under seal made pursuant to this subsection may be entered into evidence in a prosecution.”

(3) Clarify that the statute covers trade secret theft accomplished through the use of means or facilities within the United States – This proposal would ensure that the statute would apply to a hacker whose code passes through American computers but who is never physically present in the United States.

Proposal: Amend 18 U.S.C. § 1837 by adding “(3) an act in furtherance of the offense was committed through means or facilities located in the United States and the offense resulted in an injury to an individual or entity located in the United States.”

(4) Clarify definition of “foreign instrumentality” – This proposal would ensure that companies that are substantially subsidized by foreign government entities fall within the definition of “foreign instrumentality,” and that a foreign entity led by a foreign agent can meet the definition of “foreign instrumentality.”

Proposal: Amend 18 U.S.C. § 1839(1) by adding “subsidized,” after “sponsored,” and adding “or foreign agent” after “government”.

(5) Cover theft of negotiating positions or strategies – This proposal would ensure that stealing negotiating positions or strategies (e.g. from a company or its law firm) is covered by the statute.

Proposal: Amend 18 U.S.C. § 1839(3) by adding “strategies, negotiating positions,” after “plans,”.

(6) Clarify definition of “benefit” to include any conveyance of a trade secret to a foreign government – This proposal would ensure criminal liability for all the trade secrets the thief knowingly conveys to a foreign government, not just the ones the thief knows will benefit a foreign government.

Proposal: Amend 18 U.S.C. § 1839 by adding “(5) the term ‘benefit any foreign government, foreign instrumentality, or foreign agent,’ shall include the conveyance of any trade secret to any foreign government, foreign instrumentality, or foreign agent.”

(7) Make Trade Secret Theft a RICO predicate – This proposal would ensure that RICO tools are available in trade secret and economic espionage investigations.

Proposal: Amend Section 18 U.S.C. § 1961(1) by inserting “sections 1831 and 1832 (relating to economic espionage and theft of trade secrets),” before “section 1951”.

The Information Technology and Innovation Foundation (ITIF) has praised the bi-partisan efforts of Senators Whitehouse and Graham.

“This bill will enhance the efforts of the U.S. government to create a broader policy framework for addressing cyber espionage and intellectual property theft, which will protect American businesses and jobs and promote the continued growth of the knowledge-based economy,” ITIF President Robert Atkinson said. “It will also serve notice to other nations that efforts to promote hacking of U.S. enterprises and theft of American IP will not be tolerated.”

Unfortunately, the discussion draft does not currently contain language creating a civil claim in federal court for trade secret misappropriation. Senator Whitehouse was a sponsor of the PATSIA legislation introduced last year which would create such a claim. Both the AIPLA and ABA Intellectual Property Section, as well as some legal commentators, have supported the creation of a civil claim.

Rep. Zoe Lofgren, D-Calif., however, recently introduced in the House of Representatives the Private Right of Action Against Theft of Trade Secrets Act, which would create a federal civil claim for trade secret theft, but it is much more limited than the previous PATSIA legislation.

In addition to adding a civil claim, Congress may also want to consider adding legislation making it easier to serve foreign entities/individuals accussed of misappropriating trade secrets, including revising the Criminal Rules of Civil Procedure, as several high-profile trade secret cases have recently been slowed by service challenges.

Congress has shown the ability to work in a bi-partisan manner to pass legislation to protect American trade secrets with the passage last year of legislation to expand the definition of protectable trade secrets and increase the penalties for violations of the Economic Espionage Act. It remains to be seen whether Congress will be able to do the same this year but the clock is ticking…We will keep you posted on any material legislative developments.