FEDERAL PROSECUTION OF
VIOLATIONS OF INTELLECTUAL
PROPERTY RIGHTS

(COPYRIGHTS, TRADEMARKS AND TRADE SECRETS)


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V.     PROSECUTION OF THEFT OF TRADE SECRETS





A.     INTRODUCTION



Unlike copyright and trademark law, which trace their roots to well-established British common law principles, the law of trade secrets, while not without a common law basis, is relatively recent and rapidly evolving. In fact, it is still not universally accepted that a trade secret is a type of property. Moreover, with one minor exception, (96) until very recently there was no federal statute that explicitly criminalized the theft of trade secrets. Federal courts, however, under limited circumstances, did uphold convictions for the interstate transportation of stolen trade secrets or proprietary economic information under 18 U.S.C. § 2314, or for the disclosure of information in violation of a confidential or fiduciary relationship under 18 U.S.C. §§ 1341 or 1343.

Because federal prosecutors have had trouble "shoe-horning" the theft of trade secrets into the above statutes and because intellectual property plays an increasingly important role in the well-being of the American economy, Congress enacted the Economic Espionage Act of 1996, effective October 11, 1996. (97) Pub.L. 104-294, 110 Stat. 3489. In general, it criminalizes the theft of trade secrets. (98)



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B.     THE ECONOMIC ESPIONAGE ACT OF 1996



1.     Overview of the Statute



The Economic Espionage Act of 1996 ("EEA") contains two separate provisions that criminalize the theft or misappropriation of trade secrets. The first provision, codified at 18 U.S.C. § 1831, is directed towards foreign economic espionage and requires that the theft of the trade secret be done to benefit a foreign government, instrumentality, or agent. (99) In contrast, the second provision makes criminal the more common commercial theft of trade secrets, regardless of who benefits. 18 U.S.C. § 1832. (100) Reflecting the more serious nature of economic espionage, a defendant convicted of violating § 1831 can be imprisoned for up to 15 years and fined $500,000 or both, 18 U.S.C. § 1831(a)(5), whereas a defendant convicted for theft of trade secrets under § 1832 can be imprisoned for up to 10 years and fined $500,000 or both. 18 U.S.C. 1832(a)(5).

There are a number of important features to the EEA, including a provision for the criminal forfeiture of any property or proceeds derived from a violation of the EEA. 18 U.S.C. § 1834. The EEA also permits the Attorney General to institute civil enforcement actions and obtain appropriate injunctive relief for violations. 18 U.S.C. § 1836. Further, because of the recognized difficulty of maintaining the secrecy of a trade secret during litigation, the EEA requires that courts take such actions as necessary to preserve the confidentiality of the trade secret. 18 U.S.C. § 1835. The EEA also covers conduct occurring outside the United States where the offender is a citizen or permanent resident alien of the United States, or an act in furtherance of the offense was committed in the United States. 18 U.S.C. § 1837. Finally, all prosecutions brought under the EEA must first be approved by the Attorney General, the Deputy Attorney General, or the Assistant Attorney General of the Criminal Division. (101)



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2.     Elements common to §§ 1831 and 1832



The EEA contains two separate sections that criminalize the theft of trade secrets. Under each section, the government must prove beyond a reasonable doubt that (1) the defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information; (2) the defendant knew this information was proprietary; and (3) the information was in fact a trade secret. To establish a violation of the economic espionage provision, the government must also prove that the defendant knew the offense would benefit or was intended to benefit a foreign government, foreign instrumentality, or foreign agent.

If the government cannot establish that the defendant acted with the intent to benefit a foreign entity, the government can still establish a violation of the EEA under 18 U.S.C. § 1832 if it can establish, in addition to the first three elements described above, that: (4) the defendant intended to convert the trade secret to the economic benefit of anyone other than the owner; (5) the defendant knew or intended that the owner of the trade secret would be injured; and (6) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.

Both sections also explicitly criminalize attempts and conspiracies to engage in economic espionage and steal trade secrets. 18 U.S.C. §§ 1831(a)(4), (a)(5) and 1832(a)(4), (a)(5). Additionally, both sections make criminal the knowing receipt, purchase or possession of a stolen trade secret. 18 U.S.C. §§ 1831(a)(3), 1832(a)(3).



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a.     Misappropriation




The initial element of a criminal prosecution under either § 1831 or § 1832 is that the defendant obtained, destroyed or conveyed information without the authorization of the owner. The type of acts which are prohibited are broadly defined and include traditional instances of theft, i.e., where the object of the crime is physically removed from the owners possession, 18 U.S.C. §§ 1831(a)(1), 1832(a)(2). However, less traditional methods of misappropriation and destruction are also included within the terms of the EEA. Under 18 U.S.C. §§ 1831(a)(2) and 1832(a)(2), the prohibited acts include copying, duplicating, sketching, drawing, photographing, replicating, transmitting, delivering, sending, mailing, communicating, or conveying. With these methods the original property never leaves the custody or control of the owner, but the unauthorized duplication or misappropriation may effectively destroy the value of what is left with the rightful owner. Through copying, information can be stolen without asportation, and the original object remains intact. It was the intent of Congress "to ensure that the misappropriation of intangible information is prohibited in the same way that the theft of physical items are protected." S.Rep. No. 359, 104th Cong., 2d Sess. 16 (1996).

The government must prove that the defendant acted "without authorization" from the owner. This refers to whether the defendant had the consent of the owner to obtain, destroy or convey the trade secret. According to the legislative history, "authorization is the permission, approval, consent or sanction of the owner" to obtain, destroy or convey the trade secret. 142 Cong. Rec. S12202, S12212 (daily ed. Oct. 2, 1996). Thus, for example, where an employee has authorization from his employer to obtain a trade secret during the regular course of employment, he can still violate the EEA if he "conveys" it to a competitor without his employer's permission.



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b.     Knowledge




The first mens rea element that the government must prove is that the defendant's misappropriation was done "knowingly." Thus, it must show that the defendant knew or had a firm belief that information he or she was taking was proprietary. 142 Cong. Rec. at S12213 (daily ed. Oct. 2, 1996). Generally, under criminal statutes covering the theft of tangible property, the government must prove that the thief knew that the object he stole was property that he had no lawful right to convert it for his personal use. Applying this same principle to this statute, in order for the defendant to be convicted, the government must establish that the defendant was aware or substantially certain that he was misappropriating a trade secret. Thus, a person who takes a trade secret because of ignorance, mistake or accident cannot be prosecuted under the EEA. The legislative history goes on to suggest that:



[t]his requirement should not prove to be a great barrier to legitimate
and warranted prosecutions. Most companies go to considerable
pains to protect their trade secrets. Documents are marked proprietary;
security measures put in place; and employees often sign confidentiality
agreements to ensure that the theft of intangible information is prohibited
in the same way that the theft of physical items are protected.

Id.

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c.     Trade secret




The definition of the term "trade secret" in the EEA is very broad. It includes, generally, all types of information, however stored or maintained, which the owner has taken reasonable measures to keep secret and which has independent economic value. (102)

It is broader than the definition of "trade secret" in the Uniform Trade Secrets Act (103) in a number of respects, but prior case law should be instructive in illuminating the EEA's definition of a trade secret.

Unlike patents, which must be both novel and a step beyond "prior art," trade secrets must be only "minimally novel." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974). In other words, a trade secret must contain some element that is not known and sets it apart from what is generally known. According to the legislative history of the EEA, "[w]hile we do not strictly impose a novelty or inventiveness requirement in order for material to be considered a trade secret, looking at the novelty or uniqueness of a piece of information or knowledge should inform courts in determining whether something is a matter of general knowledge, skill or experience." 142 Cong. Rec. S12201, S12212 (daily ed. Oct. 2, 1996).

The sine qua non of information constituting a trade secret is that it is not publicly known. Whether the information was secret before it was obtained by the defendant is a question of fact. The government often has the difficult burden of proving a negative, i.e., that the information was not generally available to the public. In this regard, prosecutors should make sure that the information had not been publicly disclosed through, for example, technical journals or other publications and should determine whether the information was obvious to the victim's competitors in the industry. Often information that a company regards as its proprietary "crown jewels" is well-known in the industry and, therefore, not protected.

Every part of the information need not be completely confidential to qualify for protection as a trade secret. A trade secret can include a combination of elements that are in the public domain, if the trade secret constituted a unique, "effective, successful and valuable integration of the public domain elements." Rivendell Forest Prods. Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); see also Apollo Technologies v. Centrosphere Indus., 805 F. Supp. 1157, 1197 (D.N.J. 1992).

Trade secrets are also fundamentally different from other forms of property in that the owner of a trade secret must take reasonable measures under the circumstances to keep the information confidential. 18 U.S.C. § 1839(3)(A). This requirement, not imposed upon owners of other types of property, (104) is necessary to insure that a person cannot obtain a monopoly on ideas that are in the public domain.

The extent of the security measures taken by the owner of the trade secret need not be absolute, but must be reasonable under the circumstances, depending on the facts of the specific case. See e.g., Pioneer Hi-Bred Int'l v. Holden Found Seeds, 35 F.3d 1226, 1235 (8th Cir. 1994); Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 848-49 (10th Cir. 1993). "Reasonable efforts" can include advising employees of the existence of a trade secret, limiting access to the information to a "need to know basis," requiring employees to sign confidentiality agreements, MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 521 (9th Cir. 1993), and keeping secret documents under lock. 1 Roger Milgrim, Milgrim on Trade Secrets, § 1.04 at 1-126.

Each trade secret owner must assess the value of the protected material and the risk of its theft in devising reasonable security measures. Under this principle, prosecutors must be able to establish that the security measures used by the victim to protect the trade secret were commensurate with the value of the trade secret. For example, prosecutors should determine the extent of the security used to protect the trade secret, including physical security, computer security, and the company's policies on sharing information with, for example, sub-contractors and licensed vendors. If investigation reveals, for example, that any low-level employee in a very large company could gain access to the information, it might not qualify as a trade secret.

Courts have held that information may remain a trade secret even if the owner discloses the information to its licensees, vendors, or third parties for limited purposes. See, e.g., Rockwell Graphic Sys., Inc. v. DEV Industries, Inc., 925 F.2d 174 (7th Cir. 1991). The owner of the trade secret must, however, take reasonable security measures when it does disclose the information, such as requiring non-disclosure agreements. Further, a trade secret can lose its protected status if it is disclosed, for example, either through legal filings (such as by the issuance of a patent), or through accidental or intentional disclosure by an employee at conferences, at trade shows, or in writings. See e.g., Apollo Technologies v. Centrosphere Indus., 805 F. Supp. 1157, 1198 (D.N.J. 1992). At least one court has held that information can lose its status as a trade secret through an anonymous posting on the Internet, even for a very limited time. Religious Technology Ctr. v. Netcom On-Line Com., 923 F. Supp. 1231 (N.D. Cal. 1995).

Finally, the trade secret must derive "independent economic value . . . from not being generally known to . . . the public." 18 U.S.C. § 1839(3)(B). Since the EEA does not require that the government prove a specific jurisdictional amount, proving this element should not be difficult.

In limited circumstances, the value of the trade secret can be established by showing what the trade secret fetched on the open market. For example, in United States v. Bottone, 365 F.2d 389 (2d Cir.), cert. denied, 385 U.S. 974 (1966), the court held that the value of stolen chemical formulae could be based on what European drug manufacturers were willing to pay. Similarly, in United States v. Greenwald, 479 F.2d 320 (6th Cir.), cert. denied, 414 U.S. 854 (1973), the Sixth Circuit held that value of the misappropriated trade secret could be established from the "viable, albeit limited" market among chemical companies for the type of formulae misappropriated and from licensing agreements or sales for the chemical formulae that were misappropriated. Id. at 322.

In those instances where the value of the trade secret cannot be established through the use of a legitimate market, courts have approved the use of a "thieves" market as a proper means of valuing stolen goods or property under a variety of federal statutes. See, e.g., United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988) (18 U.S.C. § 2314); United States v. Drebin, 557 F.2d 1316, 1328 (9th Cir. 1977) (18 U.S.C. § 2314); Churder v. United States, 387 F.2d 825, 833 (8th Cir. 1968) (18 U.S.C. § 641); United States v. Oberhardt, 887 F.2d 790, 793 (7th Cir. 1989) (18 U.S.C. § 641); United States v. Berkwitt, 619 F.2d 649, 657 (7th Cir. 1980) (18 U.S.C.§ 2311).

In many situations involving the misappropriation of trade secrets, however, monetary value is not easily established, either because the trade secret is often stolen at the development stage or because the victim company has chosen not to sell or license the technology. Consequently there is no true market value, i.e., what a willing buyer would pay a willing seller in the open market. In such situations, federal courts generally have rejected a strict market valuation approach and have found that "where the goods have no readily ascertainable market value, 'any reasonable method may be employed to ascribe an equivalent monetary value. . . .'" United States v. Drebin, 557 F.2d 1316, 1331 (9th Cir. 1972) (quoting United States v. Lester, 282 F.2d 750, 755 (3rd Cir. 1960), cert. denied, 364 U.S. 937 (1961)); see also United States v. Seagraves, 265 F.2d 876, 880 (3rd Cir. 1959). These methods include consideration of the development, research and production costs. See, e.g., United States v. Wilson, 900 F.2d 1350, 1356 (9th Cir. 1990); United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988). But see Abbott v. United States, 239 F.2d 310, 313 (5th Cir. 1956) (value for the purposes of 18 U.S.C. § 2314 includes only market value.)

Although development, research and production costs may be relevant to the value of the trade secret, prosecutors should be careful in relying exclusively on this method of valuation. The true value of the information may be far more or far less than the cost of development and may depend on immeasurable attributes, such as the originality or soundness of the underlying ideas. Further, at trial, prosecutors should consider using an independent expert witness to establish the valuation of the trade secret based on alternative theories, and not rely solely on the information supplied by the victim. For example, in Stegora, 849 F.2d at 292, the court approved the government's use of an expert witness to establish that the 3M Company spent in excess of $1,000,000 for research, development and manufacturing equipment to market the product, and that a license to produce a product using the technology described in the trade secret would cost $150,000 per million dollars of sales.



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3.     Additional § 1831 Element



a.     Intent to benefit a foreign government, foreign instrumentality,     or foreign agent


The second mens rea requirement of a § 1831 violation is that the defendant intended or knew that the offense would "benefit" a "foreign government, foreign instrumentality, (105) or foreign agent." (106) Thus, the government must show that the defendant knew or had a firm belief that misappropriation would benefit a foreign entity. When this "entity" is not, per se, a government entity (e.g., a business), there must be evidence of foreign government sponsorship or "coordinated intelligence activity." 142 Cong. Rec. S12201, S12212 (daily ed. Oct. 2, 1996)

The legislative history of the EEA indicates that "benefit" is to be interpreted broadly and is not limited to an economic benefit, but includes a "reputational, strategic, or tactical benefit." H.R. Rep. No. 788, 104th Cong., 2d Sess. (1996).

The requirement that the benefit accrue to a foreign government, instrumentality or agent should be very carefully analyzed by government prosecutors. In order to establish that the defendant intended to benefit a "foreign instrumentality" the government must show that the entity was "substantially owned, controlled, sponsored, commanded, managed or dominated by a foreign government." 18 U.S.C. § 1839(1). The EEA does not define "substantially," but its use suggests that the prosecution does not have to prove complete ownership, control, sponsorship, command, management or domination. The legislative history states:

substantial in this context, means material or significant, not technical or tenuous. We do not mean for the test of substantial control to be mechanistic or mathematical. The simple fact that the majority of the stock of a company is owned by a foreign government will not suffice under this definition, nor for that matter will the fact that a foreign government only owns 10 percent of a company exempt it from scrutiny. Rather the pertinent inquiry is whether the activities of the company are, from a practical and substantive standpoint, foreign government directed.


142 Cong. Rec. S12201, S12212 (daily ed. Oct. 2, 1996).

Thus, § 1831 does not apply where a foreign corporation misappropriates the trade secret and there is no evidence of sponsorship or "coordinated intelligence activity" by a foreign government. Id. at S12213. In such an instance, however, the foreign corporation could still be properly charged under § 1832.

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4.     Additional section 1832 elements



a.     Economic benefit to a third party




Under § 1832 the government must prove that the act of misappropriating the trade secret was intended for the economic benefit of a person other than the rightful owner (which can be the defendant or some other person or entity). This differs from § 1831 where foreign governement activity is required, and the benefits may be non-economic. Therefore, a person who misappropriates a trade secret but who does not intend for anyone to gain economically from the theft cannot be prosecuted under § 1832.



b.     Intent to injure the owner of the trade secret




Beyond demonstrating that the defendant both knew the information taken was proprietary and intended that the misappropriation economically benefit someone other than the rightful owner, the government in a § 1832 case also must prove a third mens rea element: that the defendant intended to "injure" the owner of the trade secret. According to the legislative history of the EEA, this provision "does not require the government to prove malice or evil intent, but merely that the actor knew or was aware to a practical certainty that his conduct would cause some disadvantage to the rightful owner." H.R. Rep. No.788, 104th Cong., 2d Sess. 1996.

Under this standard, it is not entirely clear what the government has to prove, if anything, in addition to proving that the defendant intended to misappropriate the trade secret to benefit another. By definition, in order for a trade secret to have value, it must confer a commercial advantage to the owner. Further, the value is dependent on keeping the information a secret. Once the information is disclosed to another for the recipient's benefit, the trade secret loses its value. In this context, each time a defendant discloses a trade secret, the owner is injured to the extent that the trade secret has lost at least a portion of its value.



c.     Interstate or foreign commerce




This element requires the government to prove that the trade secret was "related to or included in a product that is produced for or placed in interstate or foreign commerce." 18 U.S.C. § 1832. In cases where the trade secret is related to a product actually being manufactured and sold, this element would be easily established by evidence of interstate sales. However, where the trade secret relates to a product in research and development, proof would be much more difficult. It is possible for a defendant to argue that products still in the research and development stage are not yet being "produced for interstate commerce" because such items are not yet being "produced" for sale. If this argument prevails, much of the protection of the EEA would be lost, because a trade secret is often most valuable during the development phase. Once the product embodying the trade secret is released to the public, the value of the trade secret is often lost because the product can be examined and the trade secret obtained, for example, through reverse engineering.

There is no evidence that Congress intended to create such a large exception to the trade secrets accorded protection under the EEA. Therefore, in cases in which the trade secret is related to a product still being developed but will ultimately be sold in interstate commerce, prosecutors should establish this fact, and argue that it sufficiently meets this element.



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5.     Defenses



a.     Parallel development




The owner of a trade secret, unlike the holder of a patent, does not have an absolute monopoly on the information or data that comprises the trade secret. Other companies and individuals have the right to discover the elements of a trade secret through their own research and hard work. As the Supreme Court stated in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490-91 (1974):

If something is to be discovered at all, very likely it will be discovered by more than one person. . . . Even were an inventor to keep his discovery completely to himself, something that neither the patent nor trade secret laws forbid, there is a high probability that it will be soon independently developed. If the invention, though still a trade secret, is put into public use, the competition is alerted to the existence of the inventor's solution to the problem and may be encouraged to make an extra effort to independently find the solution thus known to be possible.




Thus, it is a defense if the defendant demonstrates that he independently developed the trade secret.



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b.     Reverse engineering




Similarly, a person can legally discover the elements of a trade secret by "reverse engineering," the practice of taking something apart to determine how it was made or manufactured. See, e.g., Kewanee Oil Co., 416 U.S. at 476 (the law does not protect the owner of a trade secret from "discovery by fair and honest means, such as independent invention, accidental disclosure, or by so-called reverse engineering."). The EEA does not expressly address when reverse engineering would be a valid defense; however, the legislative history suggests that "the important thing is to focus on whether the accused has committed one of the prohibited acts of this statute rather than whether he or she has reverse engineered. If someone has lawfully gained access to a trade secret and can replicate it without violating copyright, patent, or this law, then that form of `reverse engineering' should be fine.'" 142 Cong. Rec. S12201, S12212 (daily ed. Oct. 2, 1996).

Therefore, to avoid a successful claim by the defendant that he discovered the trade secret by reverse engineering, prosecutors should establish the means by which the defendant misappropriated the trade secret. For example, if the prosecution could show that the defendant unlawfully obtained access to the trade secret, it would refute his claim that he learned of the trade secret through reverse engineering. Further, a defendant cannot defeat a prosecution by claiming the trade secret "could have been discovered by reverse engineering." Telerate Sys. Inc. v. Caro, 689 F. Supp. 221, 232 (S.D.N.Y. 1988) ("the proper focus of inquiry is not whether an alleged trade secret can be deduced by reverse engineering but rather, whether improper means are required to access it.").

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c.     General knowledge




The EEA does not apply to individuals who seek to capitalize on their lawfully developed knowledge, skill or abilities. Employees, for example, who change employers or start their own companies cannot be prosecuted based on an assertion that they were exposed to a trade secret while employed, unless the government can establish that they stole or misappropriated a particular trade secret. The legislative history makes clear that "[t]he government can not prosecute an individual for taking advantage of the general knowledge and skills or experience that he or she obtains or comes by during his tenure with a company. Allowing such prosecutions to go forward and allowing the risk of such charges to be brought would unduly endanger legitimate and desirable economic behavior." 142 Cong. Rec. S12201, 12213 (daily ed., Oct. 2, 1996). This does not mean, however, that employees who leave a company to start their own companies or change jobs can never be prosecuted under the EEA. Where the employees stole or without authorization appropriated a trade secret from their employer, they may be prosecuted under § 1832, assuming, of course, that the other elements can also be satisfied. (107)



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d.     The First Amendment




In most instances, if the government can establish that the defendant intended for the misappropriation to benefit economically a third party, he should not be able to claim successfully that the First Amendment of the Constitution protected the disclosure of the trade secret. In other words, if the defendant's motivation was pecuniary, he cannot very well argue that he disclosed the secret as a public service or to educate the public. Further, courts also have rejected a First Amendment defense if the speech itself is the very vehicle of the crime. See, e.g., United States v. Morrison, 844 F.2d 1057, 1068 (4th Cir.) (court rejected defendant's First Amendment defense and upheld conviction for a violation of 18 U.S.C. § 641 for stealing secret government documents, noting, "[w]e do not think that the First Amendment offers asylum . . . just because the transmittal was to a representative of the press."), cert. denied, 488 U.S. 908 (1988); United States v. Rowlee, 899 F.2d 1275 (2d Cir.), cert. denied, 498 U.S. 828 (1990). Additionally, in United States v. Riggs, 743 F. Supp 556 (N.D. Ill. 1990), the court rejected defendant's assertion that the First Amendment provides a defense to a charge under 18 U.S.C. § 2314 for the interstate transportation of stolen computer files:

In short, the court finds no support for [defendant's] argument that the criminal activities with which he is charged . . . are protected by the First Amendment. Interpreting the First Amendment as shielding [defendant] from criminal liability would open a gaping hole in criminal law; individuals could violate criminal laws with impunity simply by engaging in criminal activities which involve speech-related activity. The First Amendment does not countenance that kind of end run around criminal law.


Id. at 560-61.

Because a claim of First Amendment protection is irrelevant to defendant's illegal activities, the government should consider seeking an in limine order precluding the introduction of such evidence in appropriate cases.



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6.     Criminal Forfeiture



The EEA also provides that the court in imposing sentencing shall order the forfeiture of any proceeds or property derived from violations of the EEA, and may order the forfeiture of any property used to commit or to facilitate the commission of the crime. Note that the statutory language of the first subsection is mandatory and leaves the judge no discretion. 18 U.S.C. § 1834(a)(1). With regard to the latter provision, however, the court may in its discretion take into consideration "the nature, scope, and proportionality of the use of the property in the offense." 18 U.S.C. § 1834(a)(2). The intent of that limitation is to insure that the amount and character of the forfeited property is proportionate to the harm caused by the defendant's conduct.

As a procedural matter, indictments alleging a violation of either 18 U.S.C. § 1831 or § 1832 should contain, where appropriate, a forfeiture paragraph.



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7.     Civil Proceedings



While the EEA does not provide for civil forfeiture proceedings, it does authorize the government to file a civil action seeking injunctive relief. 18 U.S.C. § 1836(a). Prosecutors should consider seeking injunctive relief to prevent further disclosure of the trade secret while conducting a criminal investigation or in cases in which a defendant's conduct does not warrant criminal prosecution.



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8.     Confidentiality



Victims of trade secret thefts are often faced with a dilemma when deciding whether to report the matter to law enforcement authorities. Generally, victims do not want the thief to go unpunished but suspect that if they report the matter, the trade secret will be publicly aired during criminal prosecution. In drafting the EEA, Congress was clearly concerned about this issue and, to encourage reporting, sought to preserve the confidentiality of a trade secret, if possible, even after the return of the indictment. The EEA provides that the court "shall enter such orders and take such action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws." 18 U.S.C. § 1835. (108) Therefore, prosecutors are strongly encouraged to seek the entry of orders that will preserve the status of the information as a trade secret and prevent the unnecessary and harmful disclosure of such information.

Note that courts can limit the disclosure of information to the public even during the trial without necessarily violating the defendant's right to a public trial under the Sixth Amendment. While the right to a public criminal trial was incorporated into the Constitution by the Sixth Amendment, the right is not absolute and may be limited in certain circumstances. Richmond News Papers, Inc. v. Virginia, 448 U.S. 555, 599-600 (1980) (Stewart, J. concurring); see also Gannett v. Depasquale, 443 U.S. 368, 422-33 (1979) (Marshall, J., concurring in part and dissenting in part) (tracing the history of the right to a public trial and citing cases where that right has been limited); State ex rel. La Crosse Tribune v. Circuit Court, 340 N.W. 2d 460,

466-67 (Wis. 1983) (citing State ex rel. Ampco Metal, Inc. v. O'Neil, 78 N.W. 2d 921 (Wis. 1956) (both discussing inherent power of a court to limit the public nature of trials).

At least one circuit court has recognized the power of the district court to restrict, at least partially, access to that portion of the proceeding which would reveal trade secrets. In Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974), on appeal of a criminal contempt conviction, the court held that based on a compelling claim, a district court may partially limit the public's access if the court determines that (1) a party is likely to suffer irreparable injury if access to the proceedings was not limited, and (2) protection of the party's secrets can be achieved "with minimal disruption of the criminal proceedings." Id. at 540.

Prosecutors should therefore seek to limit the public disclosure of the trade secret during the trial by, for example, requesting that the court limit public access during the testimony of an expert witness who is describing the details of the trade secret. The release of the transcripts must be similarly limited.



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9.     Extraterritoriality



In order to rebut the general presumption against the extraterritoriality of U.S. criminal laws, Congress made clear that the EEA is meant to apply to specified conduct occurring outside the United States. To ensure that there is some nexus, the EEA applies to conduct occurring outside the United States if: (1) the offender is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States. 18 U.S.C. § 1837.



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10.     Statutory Penalties



A defendant convicted for violating § 1831 can be imprisoned for up to 15 years and fined $500,000 or both. 18 U.S.C. § 1831(a)(5). Corporations and other organizations can be fined up to $10,000,000. 18 U.S.C. § 1831(b). A defendant convicted for violating § 1832 can be imprisoned for up to 10 years and fined $500,000. 18 U.S.C. § 1832(a)(5). Corporations and other entities can be fined not more than $5,000,000 for violating that provision.



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11.     Department of Justice Oversight



Prior to the passage of the EEA, the Attorney General assured Congress in writing that for a period of five years, the Department of Justice will require that all prosecutions brought under the EEA must first be approved by the Attorney General, the Deputy Attorney General, or the Assistant Attorney General of the Criminal Division. (109)



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C.     OTHER POSSIBLE CHARGES



1.     Introduction



Prior to the enactment of the EEA, with one minor exception, (110) there was no federal statute that specifically protected trade secrets. Case law recognized, however, that the theft of trade secrets and proprietary information could violate a number of federal criminal statutes that generally prohibit the misappropriation and interstate transportation of property or goods, 18 U.S.C. § 2314, the disclosure of information in violation of a confidential or fiduciary relationship, 18 U.S.C. §§ 1341, 1343, or unlawfully accessing a protected computer, 18 U.S.C. § 1030(a)(4).

Although the applicability of these statutes to thefts of trade secrets is limited, prosecutors should, where appropriate, bring charges under both the EEA, §§ 1831 and 1832, and under one or more of these other statutes. (111)



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2.     18 U.S.C. § 2314



a.     Elements




The Interstate Transportation of Stolen Property Act ("ITSP") imposes criminal liability on:

Whoever transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.


Thus, in order to convict under this section, the government must prove beyond a reasonable doubt that:

(1) the defendant unlawfully transported or caused to be transported in interstate or foreign commerce goods, wares, or merchandise;

(2) the goods, wares, or merchandise were stolen, converted, or taken by fraud;

(3) the goods, wares, or merchandise have a value of $5,000 or more; and

(4) the defendant knew the same to be stolen, converted, or taken by fraud.

See U.S.A.M. 9-61.260 - 9.61.261(A-D).



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(1)     Transportation in interstate commerce




The purpose of § 2314 is to permit the federal government to come to the aid of the states "in punishing criminals whose offenses are complete under state law, but who utilize the channels of interstate commerce to make a successful getaway, and thus make the state's detecting and punitive processes impotent." United States v. Sheridan, 329 U.S. 379, 384 (1946). A prosecutor should prove this element in the same manner as with any other stolen goods, wares or other merchandise, i.e., by establishing that the good containing the trade secret was transported across state lines.



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(2)     Goods, wares, and merchandise




Section 2314 criminalizes the interstate transportation of stolen "goods, wares, or merchandise." However, the statute does not define these terms. Courts are divided on whether and under what circumstances intangible property such as trade secrets constitutes "goods, wares or merchandise." The defendant in United States v. Brown, 925 F.2d 1301 (10th Cir. 1991), was indicted for violating § 2314 by transporting the source code of a computer program from Georgia to New Mexico. Brown moved to dismiss the indictment arguing the government failed to allege that he transferred in interstate commerce "physical goods, wares [or] merchandise" within the meaning of § 2314. Id. at 1303. At an evidentiary hearing on this issue, the government admitted it could not prove either that the defendant copied the source code onto the company's diskettes or that the defendant had in his possession any tangible property belonging to the company. Id.

The Brown court, citing United States v. Dowling, 473 U.S. 207 (1985), dismissed the indictment. (112) It held that "[p]urely intellectual property," such as the source code appropriated by the defendant, is not the type of property covered by § 2314: "It can be represented physically, such as through writing on a page, but the underlying, intellectual property itself, remains intangible" and thus "cannot constitute goods, wares, merchandise which have been stolen, converted or taken within the meaning of § 2314 or 2315." 925 F.2d at 1307-08. (113)

The court in United States v. Bottone, 365 F.2d 389 (2d Cir.), cert. denied, 385 U.S. 974 (1966), which pre-dates Dowling, reached the opposite result. The defendants in Bottone removed papers describing manufacturing processes from their place of employment and made copies outside the office. They returned the originals and then transported the copies in interstate commerce. In upholding defendants' convictions under § 2314, Judge Friendly stated:

when the physical form of the stolen goods is secondary in every respect to the matter recorded in them, the transformation of the information in the stolen papers into a tangible object never possessed by the original owner should be deemed immaterial. It would offend common sense to hold that these defendants fall outside the statute simply because, in efforts to avoid detection, their confederates were at pains to restore the original papers to [their employer] and transport only copies or notes, although an oversight would have brought them within it.


365 F.2d at 394.

Similarly, in United States v. Riggs, 739 F. Supp. 414, 420 (N.D. Ill. 1990), the court rejected the defendant's "disingenuous" argument that he merely transferred electronic impulses (albeit impulses containing computerized text files belonging to Bell South) across state lines:

[i]t is well-settled that when proprietary business information is affixed to some tangible medium, such as a piece of paper, it constitutes 'goods, wares, or merchandise' within the meaning of § 2314. . . . Therefore, in the instant case, if the information in [the computerized] text file had been affixed to a floppy disk, or printed out on a computer printer, then [defendant's] transfer of that information across state lines would clearly constitute the transfer of 'goods, wares, or merchandise' within the meaning of § 2314. This court sees no reason to hold differently simply because [defendant] stored the information inside computers instead of printing it out on paper. In either case, the information is in a transferrable, accessible, even salable form.


Id. at 421. (114)

While courts are split on whether an intangible trade secret constitutes "goods, wares or merchandise" for the purposes of § 2314, (115) courts have uniformly held that transporting stolen trade secrets within a stolen tangible medium -- for example, company paper or computer diskettes -- is a violation of 18 U.S.C. § 2314. United States v. Lyons, 992 F.2d 1029, 1033 (10th Cir. 1993) ("The fact that the [defendant] stole the software in conjunction with the theft of tangible hardware distinguishes this case from Brown. Brown recognizes that the theft of intangible intellectual property in conjunction with the theft of tangible property falls within the ambit of § 2314."); United States v. Lester, 282 F.2d 750 (3d Cir.) (originals and copies of geophysical maps made by defendants on the victim's own copying equipment with the victim's supplies), cert. denied, 364 U.S. 937 (1961); United States v. Seagraves, 265 F.2d 876 (3d Cir. 1959) (same facts as Lester); United States v. Greenwald, 479 F.2d 320 (6th Cir.) (original documents containing trade secrets about fire retardation processes), cert. denied 414 U.S. 854 (1973); Hancock v. Decker, 379 F.2d 552 (5th Cir. 1967) (state conviction for theft of 59 copies of a computer program was supported by similar federal court rulings under § 2314, citing Seagraves).



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(3)     Goods must have a value of $5,000 or more




In order to fall within the scope of 18 U.S.C. § 2314, the misappropriated "goods, wares, or merchandise" must have a minimum "value" of $5,000. The government can satisfy this burden by showing that the value of the trade secret itself was worth $5,000 or more. See, e.g., United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988); United States v. Greenwald, 479 F.2d 320 (6th Cir.), cert. denied, 414 U.S. 854 (1973). In other words, once the government establishes that the defendant misappropriated a tangible item that was transported in interstate commerce, the $5,000 jurisdictional amount may be satisfied by showing that the tangible item contained information worth that much. This applies even where the tangible good transported in interstate commerce has a de minimis value. For example, this element would be satisfied if a defendant uses a computer diskette worth less than $1.00 to download a trade secret worth $5,000.

As discussed more fully above, see "Trade Secret," supra p. 74, the value of a trade secret can be established in many different ways. The most direct method, not often available in theft of trade secret cases, is to establish the value of the trade secret on the open market. United States v. Bottone, 365 F.2d 389 (2d Cir.) (value of stolen chemical formulae can be based on what drug manufacturers were willing to pay), cert. denied, 385 U.S. 974 (1966); Greenwald, 479 F.2d at 322. Further, in those matters where the value of the trade secret cannot be established through the use of a "legitimate" market, courts have approved the use of a "thieves" market as a proper means of valuing stolen goods or property under a variety of federal statutes. See e.g., United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988) (18 U.S.C. § 2314); United States v. Drebin, 557 F.2d 1316, 1328 (9th Cir. 1977) (18 U.S.C. § 2314); Churder v. United States, 387 F.2d 825, 833 (8th Cir. 1968) (18 U.S.C. § 641); United States v. Oberhardt, 887 F.2d 790, 793 (7th Cir. 1989) (18 U.S.C. § 641); and United States v. Berkwitt, 619 F.2d 649, 657 (7th Cir. 1980) (18 U.S.C. § 2311). In cases where there is no true market value, i.e., what a willing buyer would pay a willing seller in the open market, federal courts generally find that "'any reasonable method may be employed to ascribe an equivalent monetary value,'" United States v. Drebin, 557 F.2d 1316, 1331 (1972) (quoting United States v. Lester, 282 F.2d 750, 755 (3d Cir. 1960), cert. denied, 364 U.S. 937 (1961)); see also, United States v. Seagraves, 265 F.2d 876, 880 (3rd Cir. 1959). These methods include consideration of the development, research and production costs. See, e.g., United States v. Wilson, 900 F.2d 1350, 1356 (9th Cir. 1990); United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988). But see Abbott v. United States, 239 F.2d 310, 313 (5th Cir. 1956) (value for the purposes of 18 U.S.C. § 2314 is limited to market value.)



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(4)     Stolen, converted or taken by fraud.




"[T]he terms 'stolen, converted, and taken by fraud' are intended to cover all forms of theft offenses regardless of whether such "taking" was in the nature of common law larceny." U.S.A.M. 9-61.248; United States v. Lyda, 279 F.2d 461 (5th Cir. 1960); see also United States v. Turley, 352 U.S. 407, 417 (1957) (for purposes of 18 U.S.C. § 2312, "'[s]tolen' . . . includes all felonious takings . . . with intent to deprive the owner of the rights and benefits of ownership, regardless of whether or not the theft constitutes common-law larceny.") This broad definition of "stolen" appears to include almost all situations involving the theft of trade secrets. See 2 Milgrim on Trade Secrets § 12.06[2]{c} (1994).



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b.     Venue




Venue for offenses under 18 U.S.C. § 2314 is governed by the provisions of 18 U.S.C. § 3237, and the defendant may be prosecuted in any district where the interstate transportation of the stolen trade secrets was begun, continued, or was completed. See U.S.A.M. 9-61.270.



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3.     18 U.S.C. § 2315



Section 2315 addresses receiving stolen property. While § 2314 addresses the transport, transmission or transfer of "goods, wares or merchandise" having a value of $5,000 or more which have moved in interstate or foreign commerce, § 2315 punishes those who "receive, possess, conceal, store, barter, sell, or dispose" of such property. Because in all other respects § 2314 and § 2315 are substantively identical, the prior discussion on § 2314 should provide guidance on whether a defendant may be prosecuted for knowingly receiving or selling a trade secret under § 2315.



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4.     18 U.S.C. §§ 1341 and 1343



The Mail and Wire Fraud statutes can be used to prosecute misappropriation of trade secrets. A detailed discussion of these statutes is beyond the scope of this manual, but it is worthwhile to discuss those elements of §§ 1341 and 1343 that are substantively different in a trade secret case. (116)

The federal Wire and Mail Fraud statutes proscribe the use of the mails or of interstate or foreign wire transmission, in furtherance of any scheme to defraud, or any scheme for obtaining "property" by false pretenses or representations. (117) Appellate courts have upheld convictions under these statutes for the theft of trade secrets even where no violation of § 2314 was found. (118) The broader scope results from the use of the word "property" in the Mail and Wire Fraud statutes as compared to the far narrower phrase "goods, wares and merchandise" used in § 2314. Courts have held that "property" includes intangible property, (119) such as trade secrets. See "Goods, wares or merchandise," supra at p. 87. By contrast, at least one appellate court has held that intangible property does not qualify as goods, wares or merchandise for § 2314. See United States v. Brown, 925 F.2d 1301 (10th Cir. 1991), discussed supra at p. 88. Thus, these statutes provide a basis for prosecution when mails or wires are used in a misappropriation scheme. (120)

The decision in United States v. Seidlitz, 589 F.2d 152 (4th Cir.), cert. denied, 441 U.S. 922 (1979), illustrates the use of the Wire Fraud statute in this manner. The defendant used his knowledge of his former employer's computer system to enter the computer system and download computer data. The appellate court upheld the trial court's determination that the stolen data qualified as property within the meaning of the Wire Fraud statute. The court held that the data was a trade secret, even though similar information was in the public domain, because defendant's former employer had "invested substantial sums" to modify the system for its own needs. Further, the information had competitive value, and the employer took steps to prevent persons other than clients and employees from using the system. Id. at 160. Accordingly, there was sufficient evidence from which a jury could conclude that information stored in the computer system was "property" as used in § 1343.

Prosecutors also should consider the applicability of the resurrected "intangible rights theory" found in 18 U.S.C. § 1346 for charging a defendant with fraudulent misappropriation of trade secrets under §§ 1341 or 1343. (121) In such a case, the defendant is charged not with fraudulently obtaining the trade secret, but rather with breaching the fiduciary duty of loyalty he owes to his employer by misappropriating the trade secret. Under this theory, the government must prove that the defendant took steps to actively conceal the misappropriation. The United States is not, however, required to prove that the defendant realized any financial gain from the theft or attempted theft.

Illustrative of this theory is United States v. Kelly, 507 F. Supp. 495 (E.D. Pa. 1981), in which the two defendants were charged with mail fraud for unauthorized use of their company's computer time and storage facilities for the development of a private business venture. The jury found that the defendants defrauded Univac of their loyal and faithful services as employees, and used the mails in furtherance of their scheme. The court denied the defendants' post-trial motions arguing that their convictions should be overturned because the government failed to prove that the goal of the fraudulent scheme was to obtain money or some tangible property right from Univac. The court noted that a private employee may be convicted for mail fraud for failure to render honest and faithful services to his employer if he devises a scheme to deceive, mislead, or conceal material information. The evidence that the defendants violated company policy by extensively using their employer's computer facilities for their own gain, in combination with the steps they took to conceal their use from their employer, was more than sufficient to sustain the conviction.



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5.     18 U.S.C. § 1905



Section 1905 statute provides for misdemeanor penalties for government employees who, inter alia, "divulge" or "disclose" government trade secrets. In the only reported decision involving the disclosure of confidential government information, the court in United States v. Wallington, 889 F.2d 573 (5th Cir. 1989), upheld the defendant's conviction for running background checks on several people who a friend of the defendant suspected of drug dealing.



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6.     18 U.S.C. § 1030



Where the defendant acquired information by accessing a "protected computer," prosecutors should consider charging the defendant with a violation of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030(a)(2)(C) or 1030(a)(4). (122) Note that neither subsection requires that the information obtained be confidential or secret in nature.

Subsection 1030(a)(2)(C) is designed to protect against the interstate or foreign theft of information by computer. "Information" as used in this subsection is to be broadly construed and includes information stored in intangible form. Moreover, the phrase "obtaining information" includes merely reading it; i.e., there is no requirement that the information be copied or transported. This is important because, in an electronic environment, information can be "stolen" without asportation, and the original usually remains intact.

Section 1030(a)(4) punishes those who misuse computers in schemes to defraud victims of property. This crime proscribes an individual from knowingly and with intent to defraud accessing "a protected computer" without authorization, or exceeding authorized access, and by means of such conduct furthering the intended fraud and obtaining anything of value "unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any one-year period."

The term "protected computer" replaced the term "Federal interest computer" in the most current version of 18 U.S.C. § 1030 and was intended to clarify the breadth of the statute. A protected computer is a computer used exclusively by the United States or a financial institution; one used partly by the United States or a financial institution where the offense affects the government's or financial institution's use of the computer; or any computer which is used in interstate or foreign commerce or communications.



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7.     State Law



If prosecutors decide not to pursue a case federally, they should consider referring the case to state authorities for prosecution. Many states have laws which specifically address the theft of information, and even if a state does not have such a law, a defendant may often be successfully prosecuted under a more general theft statute. For a description of state laws in this area see APPENDIX M.
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----- footnotes ------

96.     18 U.S.C.§ 1905 provides, inter alia, for misdemeanor sanctions for the unauthorized disclosure of government information, including trade secrets, by a government employee.

97.     As noted by Senator Arlen Specter, a co-sponsor of the Economic Espionage Act:

In an increasing complex and competitive economic world, intellectual property forms a critical component of our economy. As traditional industries shift to low-wage producers in developing countries, our economic edge depends to an ever-increasing degree on the ability of our business and inventors to stay one step ahead of those in other countries. And American business and inventors have been extremely successful and creative in developing intellectual property and trade secrets. America leads the nations of the world in developing new products and new technologies. Millions of jobs depend on the continuation of the productive minds of Americans, both native born and immigrants who find the freedom here to try new ideas and add to our economic strength.

Inventing new and better technologies, production methods, and the like, can be expensive. American companies and the U.S. Government spend millions on research and development. The benefits reaped from these expenditures can easily come to nothing, however, if a competitor can simply steal the trade secret without expending the development costs. While prices may be reduced, ultimately the incentives for new invention disappear, along with jobs, capital investment, and everything else that keeps the economy strong.

142 Cong. Rec. S12201, 12209 (daily ed. Oct. 2, 1996) (statements of Sen. Specter).

98.     For additional discussion of the Economic Espionage Act of 1996 see James H.A. Pooley, Mark A. Lemley, and Peter J. Toren, Understanding the Economic Espionage Act of 1996, 5 Tex. Int. Prop. L.J. 177 (Winter 1997).

99.     Section 1831 provides:

(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 (4), and one or more of such person do any act to effect the object of the conspiracy, is guilty of a felony.

100.     Section 1832 provides:

(a) Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will injure any owner of that trade secret, knowingly-

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

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

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

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

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, is
guilty of a felony.

101. Prior to the passage of the EEA, the Attorney General assured Congress in writing that the Department of Justice will require that all prosecutions brought under the EEA be approved by the Attorney General, the Deputy Attorney General, or the Assistant Attorney General of the Criminal Division. See "Department of Justice Oversight," infra p. 85.

102.     18 U.S.C. § 1839 defines a "trade secret" as:

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-

(a) the owner thereof has taken reasonable measures to keep such information secret; and

(b) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.

103.     Section 1(4) of the Uniform Trade Secrets Act provides:

(4) "Trade secret" means information, including a formula pattern, compilation, program, device, method technique, or process that

(I) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

104.     For example, a defendant can be convicted for stealing a bike even if the victim failed to protect it by leaving it unlocked on his front porch.

105.     The term "foreign instrumentality" means:

any agency, bureau, component, institution, association, or any legal, commercial, or business organization, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government.


18 U.S.C. § 1839(1).

106.     The term "foreign agent" means:

any officer, employee, proxy, servant, delegate, or representative of a foreign government.


18 U.S.C. § 1839(2).

107.     Clear evidence of theft or copying is helpful in all cases to overcome the potential problem of prosecuting the defendant's "mental recollections" and a defense that "great minds think alike."

108.     This section also provides for interlocutory appeals from a decision or a court order authorizing the disclosure of any trade secret. Id.

109.     The letter states in full:
October 1, 1996    


Dear Chairman Hatch:

Thank you for your support of the Economic Espionage Act of 1996 ("Act"). The need for this law cannot be understated as it will close significant gaps in federal law, thereby protecting proprietary economic information and the health and competitiveness of the American economy.

The Department shares your concerns that the legislation be implemented in accordance with the intent of Congress and therefore will require, for a period of five years after implementation of the Act, that the United States may not file a charge under Chapter 90, or use a violation of Chapter 90 as a predicate offense under any other law, without the personal approval of the Attorney General, the Deputy Attorney General, or the Assistant Attorney General for the Criminal Division (or the Acting official in each of these positions if a position is filled by an acting official). This requirement will be implemented by published regulation.

Violations of such regulations will be appropriately sanctionable. Any such violations will be reported by the Attorney General to the Senate and House Judiciary Committees.

Once again, thank you for your leadership in this critical area.



Sincerely,

JANET RENO.

   

110.     18 U.S.C. § 1905.

111.     Charging both a violation of the Economic Espionage Act and another statute such as Interstate Transportation of Stolen Property or Wire Fraud arising from the same act or acts does not violate the Double Jeopardy Clause of the Fifth Amendment of the Constitution because "each offense contains an element not contained in the other." United States v. Dixon, 509 U.S. 688, 690 (1993) (citing Blockburger v. United States, 284 U.S. 299, 304 (1932).

112.     In Dowling, the defendant was convicted of violating § 2314 following his interstate distribution of bootleg Elvis Presley records. The Supreme Court reversed the conviction, holding that Congress did not intend that § 2314 function as a criminalization of copyright infringement. 473 U.S. at 216-18. The Court noted that its decision did not address a situation in which the initial procurement was accomplished by theft or fraud, and acknowledged that the courts have never required that the items stolen and transported remain in entirely unaltered form. The Court emphasized, however, that:

[T]hese cases and others prosecuted under § 2314 have always involved physical 'goods, wares [or] merchandise' that have themselves been 'stolen, converted or taken by fraud.' This basic element comports with the common-sense meaning of the statutory language: by requiring that the 'goods, wares [or] merchandise' be 'the same' as those 'stolen, converted or taken by fraud, the provision seems clearly to contemplate a physical identity between the items unlawfully obtained and those eventually transported, and hence some prior physical taking of the subject goods.

473 U.S. at 216.

113.     The Brown court did distinguish a situation in which the defendant illegally appropriates a tangible item containing an intangible component, such as a chemical formula written on a stolen piece of paper. The

court suggested that such an appropriation would violate § 2314, even where the value of the paper itself is insignificant and the overall value is almost wholly derived from the intangible component. 925 F.2d at 1307-08, n.14, citing United States v. Stegora, 849 F.2d 291, 292 (8th Cir. 1988).

114.     At trial the government dismissed the § 2314 count against one of the defendants because it learned that another telephone company was publicly disseminating a computerized text file containing information virtually identical to that the defendant was accused of stealing. Since the information was in the public domain, it could not be a trade secret.

115.     There are also at least two other decisions that, in general, support the position that transporting intangible property in interstate commerce violates § 2314. However, both these cases involve the interstate transportation of illegal copies of copyrighted works and their continuing viability is suspect in light of the Supreme Court's decision in United States v. Dowling. In United States v. Belmont, 715 F.2d 459 (9th Cir.), cert. denied, 465 U.S. 1022 (1984), the court held that transporting in interstate commerce illegal "off the air" videotape copies of motion pictures protected by copyright violated § 2314. The court specifically rejected defendant's argument that § 2314 distinguishes between the interstate transportation of "stolen copies" and the interstate transportation of Æff the air" copies. See also United States v. Gottesman, 724 F.2d 1517 (2d Cir. 1984). However, as noted, the Dowling Court specifically held that § 2314 does not reach the interstate transportation of unauthorized copies of copyrighted works.

116.     For a detailed discussion of 18 U.S.C. §§ 1341 and 1343, readers should refer to Chapter 43 of the U.S. Attorney's Manual and call the Fraud Section of the Criminal Division for further information and guidance.

117.     Section 1341 provides in pertinent part as follows:

Whoever, having devised or ienntding to devise any scheme or artifice to defraud or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises . . . places in any post office or authorized depository for mail any matter or thing whatever to be sent or delivered by the Post Office, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier or takes or receives therefrom any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined . . . or imprisoned not more than five years, or both.

Section 1343 provides in pertinent part as follows:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be
fined . . . or imprisoned not more than 5 years, or both.

118.     See, e.g., Abbott v. United States, 239 F.2d 310 (5th Cir. 1956).

119.     See, e.g., Carpenter v. United States, 484 U.S. 19 (1987). The defendant in Carpenter wrote the "Heard on the Street" column for The Wall Street Journal. Although these columns contained no insider information, they had the potential to affect the stock prices of companies discussed in the column because of the "quality and integrity" of the information. The defendant was charged with passing advance information on the columns to two co-conspirators who executed pre-publication trades and earned profits of $690,000.

The Supreme Court rejected defendant's arguments that he neither interfered with his employer's use of the information, nor disseminated it to the public. The Court held that the defendant had violated the wire fraud statute because the "Wall Street Journal" was the owner of the information contained in the columns and it had been deprived of its right to the exclusive use of the information. 484 U.S. at 26.

120.     The Mail and Wire Fraud statutes have been identically construed with respect to the issues discussed here. United States v. Von Barta, 635 F.2d 999, 1005 n.11 (2d Cir.), cert. denied, 450 U.S. 998 (1981) (citing United States v. Louderman, 576 F.2d 1383, 1287 n.3 (9th Cir.), cert. denied, 439 U.S. 896 (1978)).

121.     In McNally v. United States, 483 U.S. 350 (1987), the Supreme Court held that the mail fraud statute did not include schemes to defraud citizens of their intangible right to honest government, but was limited to protecting "property" rights. In response to this decision, Congress passed 18 U.S.C. § 1346, which provides:

For the purposes of this chapter, the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services.


This section "may be viewed as restoring the law to its state prior to the McNally decision." United States v. Berg, 710 F. Supp. 438, 442 (E.D.N.Y. 1989); United States v. Johns, 742 F. Supp. 196, 216 (E.D. Pa. 1990) (citing Cong. Rec. H11251 (daily ed. Oct 21. 1988)). See also United States v. Gray, 96 F.3d 769 (5th Cir. 1996). But see United States v. Brumley, 79 F.3d 1430 (5th Cir. 1996) (holding that § 1346 does not restore protection for intangible rights).

122.     The Computer Fraud and Abuse Act was amended effective October 11, 1996.