Department of Justice policy

The United States Department of Justice Criminal Division has issued a prosecution policy relating to enforcement of the Act.^[1] In general, it states:

The EEA is not intended to criminalize every theft of trade secrets for which civil remedies may exist under state law. It was passed in recognition of the increasing importance of the value of intellectual property in general, and trade secrets in particular to the economic well-being and security of the United States and to close a federal enforcement gap in this important area of law. Appropriate discretionary factors to be considered in deciding whether to initiate a prosecution under § 1831 or § 1832 include:

(a) the scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent or foreign instrumentality;

(b) the degree of economic injury to the trade secret owner;

(c) the type of trade secret misappropriated;

(d) the effectiveness of available civil remedies; and

(e) the potential deterrent value of the prosecution.

The availability of a civil remedy should not be the only factor considered in evaluating the merits of a referral because the victim of a trade secret theft almost always has recourse to a civil action. The universal application of this factor would thus defeat the Congressional intent in passing the EEA.

Use of EEA

The Act can be employed to accomplish several purposes:

• It can be used to protect a company's valuable intellectual property by prosecuting dishonest competitors who steal a company's trade secrets, but
• it can also be used against a company that finds itself with trade secrets belonging to a competitor.^[2]

In United States v. Lange,^[3][4] the EEA was used to protect a victim company that had learned that Lange, a disgruntled former employee, had been offering to sell its secret manufacturing processes to third parties. The company reported Lange to the FBI, and Lange was arrested and subsequently convicted and sentenced to 30 months in prison. The case was successful in large part because the company undertook reasonable measures to keep its information secret, including:^[2]

1. physically securing the trade secrets in question
2. limiting the distribution of documentation describing the trade secret
3. limiting the number of employees with access to the trade secret
4. notifying such employees that they were working with confidential information, and placing warnings on trade secret information
5. providing vendors with only partial information of the trade secret, so that it could not be replicated

The EEA has also been used to prosecute a Boeing manager, together with an employee he hired from Lockheed Martin with the offer of a higher salary in return for his inside information on Lockheed Martin's pricing.^[2][5] Although the EEA charges were later dropped, the matter resulted in Boeing being denied $1 billion in contracts from the United States Air Force, as well as it paying a $615 million settlement to the US Government.^[6]

§ 1831 - First conviction and sentence

In February 2010, former Boeing engineer Dongfan "Greg" Chung was sentenced to 16 years in prison, following the first ever trial conviction under the 1996 Economic Espionage Act. Chung, a native of China, was convicted by the US District Court for the Central District of California of stealing Boeing trade secrets related to the US Space Shuttle program and the Delta IV rocket. He spent over 30 years providing U.S. aerospace technologies to China. Chung was convicted on charges related to more than 350,000 sensitive documents that were found concealed in crawl spaces underneath his home, including conspiracy to commit economic espionage, six counts of economic espionage to benefit a foreign country, one count of acting as an agent of the People's Republic of China, and one count of making false statements to the FBI. The 15-year sentence was viewed as a life sentence for Chung who was 74 years old. Chung subsequently died in 2020 at age 84 from coronavirus-related complications while incarcerated at the Federal Correctional Complex, Butner.^[7][8]

Chung was arrested by special agents from the FBI's Los Angeles Field Office in February 2008. He worked for Rockwell International from 1973 until its defense and space unit was acquired by Boeing in 1996, and he continued to work for Boeing as an employee and then as a contractor through 2006. Chung's arrest resulted from an investigation into the case of Chi Mak, a Chinese-American engineer convicted in 2007 of conspiring to export sensitive naval technologies to China and sentenced to more than 24 years in prison.

At Chung's sentencing, presiding judge, Cormac Carney, said that he could not "put a price tag" on national security, and that with the long sentence for Chung he wanted to send a signal to China to "stop sending your spies here."^[9]

In April 2012, Chung's conviction was upheld by the United States Court of Appeals for the Ninth Circuit.^[10][11]

§ 1832 - First conviction and sentence

Most prosecutions under the Economic Espionage Act have been for violation of Section 1832 (Trade Secret Theft). The first such prosecution was of Daniel and Patrick Worthing, maintenance workers at PPG Industries in Pennsylvania who stole blueprints and diskettes. Both pleaded guilty in early 1997.^[12] For another example, see the first conviction in California, that of David Brian Kern.^[13]

After an August, 2007 plea of guilt for (one count) of violating the Economic Espionage Act and one count of violating the Arms Export Control Act, San Jose U.S. District Court Judge Jeremy Fogel sentenced Canadian citizen Xiaodong Sheldon Meng, 44, to 24 months in federal prison, 3 years of parole and a $10,000 fine, with forfeiture of computer equipment seized. Meng was indicted in December 2006, with 36 counts, "for stealing military software from a Silicon Valley defense contractor and trying to sell it to the Chinese military." The first to be convicted of Economic Espionage (Section 1831), Meng admitted "illegally obtaining a program used for military training from Quantum3D and later using the program in a demonstration to the People's Liberation Army Navy after he no longer worked for the firm; he attempted to sell the fighter-pilot training software programs to the Royal Thai Air Force, the Royal Malaysian Air Force and the Navy Research Center in China." He paid $500,000 bond, for temporary liberty, until August 18 when he begins serving sentence.^[14]

On June 18, 2008, Meng was the first individual sentenced under the Economic Espionage statute. Meng was the first person convicted of both the Economic Espionage Act of 1996 and the Arms Export Control Act. He received a 24-month sentence and $10,000 fine, which included a sentencing departure for cooperation, according to news reports.^[15][16][17]

Intersection with trade law

The International Trade Commission has used the EEA's definition of misappropriation to support its enforcement of US trade laws that prohibit "unfair methods of competition and unfair acts in the importation of articles ... in the United States."^[18] In Tianrui Group Company Limited LLC v International Trade Commission, the United States Court of Appeals for the Federal Circuit held that the manufacture abroad of products using a process that was developed in the United States, protected under domestic trade secret law, and misappropriated abroad, violated section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. The ITC therefore had the authority to bar the importation of such products into the United States.^[19][20][21]

Scope of trade secrets

The extent to which trade secrets are covered under § 1832 was expanded in 2012, following the reversal of a conviction in April 2012 by the United States Court of Appeals for the Second Circuit in United States v. Aleynikov^[22] In that case, it was held that the theft of the source code for a proprietary system at Goldman Sachs was never intended to be placed in interstate or foreign commerce. As Goldman had no intention of selling or licensing its system, § 1832 (as it was written at that time) did not apply.^[23] The provision was promptly amended on December 28, 2012 with the passage of the Theft of Trade Secrets Clarification Act of 2012, so that it now applies to products or services that are used or intended for use in interstate or foreign commerce.^[24] The amendment led to a conviction in United States v. Agrawal.

Expansion of penalties

On January 24, 2013, § 1831 was amended to increase the maximum fines:

• in the case of individuals, from $500,000 to $5,000,000, and
• in the case of organizations, from $10,000,000 to "the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization."^[25]

Civil cause of action

On May 11, 2016, in what Forbes called "the single most important intellectual property development since Congress enacted the America Invents Act,"^[26] the Defend Trade Secrets Act (Pub. L.Tooltip Public Law (United States) 114–153 (text) (PDF)) expanded the EEA's reach. In cases filed after that date:

• 18 U.S.C. § 1836(b) is replaced to provide for private civil actions, including (subject to appropriate safeguards) ex parte orders "providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." Remedies available to the court include the granting of injunctions, awarding of damages (including treble damages in cases of wilful and malicious misappropriation) and the awarding of costs in cases where the claim was made in bad faith.
• 18 U.S.C. § 1832(b) is amended to provide for criminal fines to be the greater of $5,000,000 or three times the trade secret's value (including any reproduction costs that the holder of the trade secret has avoided).
• 18 U.S.C. § 1961(1) is amended to include 18 U.S.C. §§ 1831–1832 in the RICO list of predicate offences signifying racketeering activity.
• 18 U.S.C. § 1833 is amended to provide for whistleblower protection for an individual who makes a confidential disclosure to a government official in cases of a suspected violation of the law, or files a sealed document to the court with respect to an antiretaliation lawsuit. As a reinforcing measure, employers are required to include a notice of such immunity in any employment agreement that governs trade secrets and other confidential information.