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APPENDIX O: LEGISLATIVE HISTORY - ECONOMIC ESPIONAGE ACT OF 1996
Congressional Record --- Senate
Proceedings and Debates of the 104th Congress, Second Session
Wednesday, October 2, 1996
*S12201 ECONOMIC ESPIONAGE ACT OF 1996
Mr. NICKLES.
Mr. President, I ask the Chair to lay before the Senate a message from the House of Representatives on (H.R. 3723) the bill to amend title 18, United States Code, to protect proprietary economic information, and for other purposes.
The PRESIDING OFFICER laid before the Senate the following message from the House of Representatives:
Resolved, That the House agree to the amendment of the Senate to the bill (H.R. 3723) entitled "An Act to amend title 18, United States Code, to protect proprietary economic information, and for other purposes", with the following House amendment to senate amendment:
In lieu of the matter proposed to be inserted by the Senate amendment to the text of the bill, insert:
SECTION 1. SHORT TITLE.
This Act may be cited as the "Economic Espionage Act of 1996".
TITLE I-PROTECTION OF TRADE SECRETS
SEC. 101. PROTECTION OF TRADE SECRETS.
(a) IN GENERAL.-Title 18, United States Code, is amended by inserting after chapter 89 the following:
"CHAPTER 90-PROTECTION OF TRADE SECRETS
"Sec.
"1831. Economic espionage.
"1832. Theft of trade secrets.
"1833. Exceptions to prohibitions.
"1834. Criminal forfeiture.
"1835. Orders to preserve confidentiality.
"1836. Civil proceedings to enjoin violations.
"1837. Conduct outside the United States.
"1838. Construction with other laws.
"1839. Definitions.
"§ 1831. Economic espionage
"(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 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.
"s1832. Theft of trade secrets
"(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, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.
"(b) Any organization that commits any offense described in subsection (a) shall be fined not more than $5,000,000.
"§ 1833. Exceptions to prohibitions
"This chapter does not prohibit-
"(1) any otherwise lawful activity conducted by a governmental entity of the United States, a State, or a political subdivision of a State; or
"(2) the reporting of a suspected violation of law to any governmental entity of the United States, a State, or a political subdivision of a State, if such entity has lawful authority with respect to that violation.
"§ 1834. Criminal forfeiture
"(a) The court, in imposing sentence on a person for a violation of this chapter, shall order, in addition to any other sentence imposed, that the person forfeit to the United States-
"(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; and
"(2) any of the person's property used, or intended to be used, in any manner or part, to commit or facilitate the commission of such violation, if the court in its discretion so determines, taking into consideration the nature, scope, and proportionality of the use of the property in the offense.
"(b) Property subject to forfeiture under this section, any seizure and disposition thereof, and any administrative or judicial proceeding in relation thereto, shall be governed by section 413 of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853), except for subsections (d) and (j) of such section, which shall not apply to forfeitures under this section.
"§ 1835. Orders to preserve confidentiality
"In any prosecution or other proceeding under this chapter, the court shall enter such orders and take such other 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. An interlocutory appeal by the United States shall lie from a decision or order of a district court authorizing or directing the disclosure of any trade secret.
"§ 1836. Civil proceedings to enjoin violations
"(a) The Attorney General may, in a civil action, obtain appropriate injunctive relief against any violation of this section.
"(b) The district courts of the United States shall have exclusive original jurisdiction of civil actions under this subsection.
"§ 1837. Applicability to conduct outside the United States
"This chapter also applies to conduct occurring outside the United States if-
"(1) the offender is a natural person who 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
*S12202 "(2) an act in furtherance of the offense was committed in the
United States.
"§ 1838. Construction with other laws
"This chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5 (commonly known as the Freedom of Information Act).
"§ 1839. Definitions
"As used in this chapter-
"(1) the term 'foreign instrumentality' means any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization, corporation, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government;
"(2) the term 'foreign agent' means any officer, employee, proxy, servant, delegate, or representative of a foreign government;
"(3) the term 'trade secret' means 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; and
"(4) the term 'owner', with respect to a trade secret, means the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed.".
(b) CLERICAL AMENDMENT.-The table of chapters at the beginning part I of title 18, United States Code, is amended by inserting after the item relating to chapter 89 the following:
(c) REPORTS.-Not later than 2 years and 4 years after the date of the enactment of this Act, the Attorney General shall report to Congress on the amounts received and distributed from fines for offenses under this chapter deposited in the Crime Victims Fund established by section 1402 of the Victims of Crime Act of 1984 (42 U.S.C. 10601).
"90. Protection of trade secrets1831
Mr. SPECTER.
Mr. President, I am pleased that the Senate is acting today to pass the Economic Espionage Act of 1996, legislation Senator KOHL and I introduced earlier this year to combat economic espionage. This bill addresses an issue of critical importance to our Nation's economic well-being. It is a testament to the importance of the issue that we are able to act in a bipartisan fashion on the eve of national elections.
As chairman of both the Select Committee on Intelligence and the Judiciary Committee's Subcommittee on Terrorism, Technology and Government Information, with jurisdiction over legal matters involving technology, I have been concerned with the threat posed to American economic competitiveness in a global economy by the theft of intellectual property and trade secrets.
In an increasingly 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 businesses 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 nation's 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 (*S12207) billions on research and development. The benefits reaped from these expenditures can easily come to nothing, however, if a competitor can simply steal *S12208 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 our economy strong.
For years now, there has been mounting evidence that many foreign nations and their corporations have been seeking to gain competitive advantage by stealing the trade secrets, the intangible intellectual property of inventors in this country. The Intelligence Committee has been aware that since the end of the cold war, foreign nations have increasingly put their espionage resources to work trying to steal American economic secrets. Estimates of the loss to U.S. business from the theft of intangible intellectual property exceed $100 billion. The loss in U.S. jobs is incalculable.
For the benefit of my colleagues who wish more detail about the nature and scope of the problem of economic espionage, I ask unanimous consent that a copy of the article "The Lure of the Steal" from the March 4, 1996, U.S. News & World Report, and an article by Peter Schweizer, "The Growth of Economic Espionage-America if Target Number One" from the January-February 1996 edition of Foreign Affairs be printed at the end of my remarks.
The PRESIDING OFFICER.
Without objection, it is so ordered.
(See exhibit 1.)
Mr. SPECTER.
Mr. President, a major problem for law enforcement in responding to the increase in such thefts has been a glaring gap in Federal law. For many years, the United States has had a variety of theft statutes in the United States Code. These laws are derived primarily from the common law of theft. For example, it violates Federal law to move stolen property across State lines. In order to violate such laws, however, the courts have held that the property stolen cannot be intangible property, such as trade secrets or intellectual property. In addition, theft usually requires that the thief take the property with the intention of depriving the lawful owner of its use. But such a test if useless when a person copies software and leaves the original software with the lawful owner, taking only the secrets on the software but leaving the physical property. The lawful owner still has full use of the property, but its value is significantly reduced.
In order to update Federal law to address the technological and economic realities of the end of the 20th century, I began working earlier this year with Senator KOHL and officials from the Department of Justice and the Federal Bureau of Investigation on developing legislation. We developed two separate bills, that were introduced as S. 1556 and S. 1557. The former bill broadly prohibited the theft of proprietary economic information by any person. The latter bill was more narrowly drawn to proscribe such thefts by foreign nations and those working on behalf of foreign nations.
At the end of February, I chaired a joint hearing of the Intelligence Committee and the Judiciary Subcommittee on Terrorism, Technology, and Government Information on the issue of economic espionage. Continuing to work closely with members of the Judiciary and Intelligence Committees, the administration, and various industry groups, Senator KOHL and I were able to produce the bill the Senate is today considering.
The Senate adopted S. 1556 with an amendment I offered, based on S. 1557, to bring together into a single vehicle the prohibition on the theft of trade secrets and proprietary information by both private individuals and corporations and by foreign governments and those acting on their behalf, and passed them using H.R. 3723, the House companion bill, as the vehicle. The language of my amendment dealing with foreign-government-sponsored economic espionage was, with minor changes, unanimously reported to the Senate by the Intelligence Committee earlier this year as part of the Intelligence Authorization Act. We have now reconciled the Senateand House-passed bills in this agreement, which also incorporates several unrelated provisions. Senator KOHL and I are inserting into the RECORD a managers' statement which reflects the understanding of the bill's sponsors on the intent behind and meaning of the economic espionage bill.
Adoption of this bill will not be a panacea, but it is a start. Congress has started moving to protect U.S. economic interests. For example, earlier this year we enacted strong anticounterfeiting legislation, S. 1136, to protect American business from counterfeit goods. This bill addresses cognate problems. Both are only a start. Corporations must exercise vigilance over their trade secrets and proprietary information. Contract law may provide civil remedies. In addition, some States have adopted legislation to allow the owners of trade secrets to use civil process to protect their ownership rights. We have been made aware that available civil remedies may not be adequate to the task and that a Federal civil cause of action is needed. This is an issue we need to study carefully, and will do so next year.
For helping to make sure that this legislation was passed this year, I want to thank Senator KOHL for his leadership, and acknowledge the work of his excellent staff, Jon Leibowitz and Victoria Bassetti. I also want to thank the chairman of the Judiciary Committee, Senator HATCH, and his staff, especially Paul Larkin and Pat Murphy, for their valuable contributions to this legislation. I would also be remiss if I did not also thank Chairman MCCOLLUM of the House Crime Subcommittee, and Representative SCHUMER, ranking member of that Subcommittee, and their staff, Glenn Schmitt and Bill McGeveran, for their hard work. Finally, we worked closely with the Justice Department and the Federal Bureau of Investigation in developing this legislation, and I want to thank Alan Hoffman of the Justice Department and Pat Kelly of the FBI for their hard work on this bill.
*S12211
Mr. KOHL.
Mr. President, today, we pass the Economic Espionage Act, which is based upon legislation drafted by Senator SPECTER and me and, on the House side, by Representatives MCCOLLUM and SCHUMER. In a Congress marked by so much partisanship, this legislation marks a significant bipartisan accomplishment. With this new law, we penalize the theft of vital economic information.
Since the end of the cold war, our old enemies and our traditional allies have been shifting the focus of their spy apparatus. Alarmingly, the new target of foreign espionage is our industrial base. But for too many years, we were complacent and did not heed these warnings. And we left ourselves vulnerable to the ruthless plundering of our country's vital information. We did not address this new form of espionage-a version of spying as dangerous to our national well-being as any form of classic espionage. Today, that complacency ends.
Mr. President, this legislation is crucial. Most Americans probably do not realize that anyone with the wherewithal to do it can walk out of a company with a computer disk full of its most important manufacturing information and sell that information to the highest bidder with virtual impunity-and no criminal penalties.
This problem is even worse when foreign governments have specifically focussed on American companies in order to steal information from them. American companies are not prepared or equipped to fight off this kind of systematic targeting.
The executive vice president of Corning, James Riesbeck, has said that:
It is important to understand that State-sponsored industrial espionage is occurring in the international business community. It is very difficult for an individual corporation to counteract this activity. The resources of any corporation are no match for industrial espionage that is sanctioned and supported by foreign governments.
A report of the National Counterintelligence Center <NCIC> in 1995 indicated that biotechnology, aerospace, telecommunications, computer software, transportation, advanced materials, energy research, defense, and semiconductor companies are all top targets for foreign economic espionage. These sectors are aggressively targeted according to the report. That report identified 20 different methods used to conduct industrial espionage. The traditional methods include recruiting an agent and then inserting the agent into the target company, or breaking into an office to take equipment and information. According to the report, computer intrusions, telecommunications targeting and intercept, and private-sector encryption weaknesses account for the largest portion of economic and *S12212 industrial information lost by U.S. corporations.
But even as American companies are attempting to respond to foreign espionage, they also have to address theft by insiders. A survey by the American Society for Industrial Security <ASIS> of 325 companies in 1995 found that almost half of them had experienced trade secret theft of some sort during the previous 2 years. They also reported a 323-percent increase in the number of incidents of intellectual property loss. A 1988 National Institute of Justice study of trade secret theft in high-technology industries found that 48 percent of 150 research and development companies surveyed had been the victims of trade secrets theft. Almost half of the time the target was research and development data while 38 percent of the time the target was new technology. Forty percent of the victims found out about the theft from their competitors.
Norman Augustine, the president of Lockheed Martin Corp., told us at our February hearings that a recent survey of aerospace companies revealed that 100 percent of them believe that a competitor, either domestic or international, has used intelligence techniques against them.
And, Mr. President, make no mistake about it, economic espionage costs our country dearly. In 1992, when a representative of IBM testified at a House hearing on this issue, he told us that economic espionage had cost his company billions of dollars. The NCIC report concluded that industry victims have reported the loss of hundreds of millions of dollars, lost jobs, and lost market share. The ASIS survey concluded that the potential losses could total $63 billion a year.
Because of the gap in our laws, Senator SPECTER and I introduced two companion measures that became the Economic Espionage Act earlier this year. This legislation will be used to go after the foreign intelligence services that take aim at American companies and at the people who walk out of businesses with millions of dollars worth of information.
I will only briefly explain what we have done here because the managers' statement and the House and Senate committee reports fully and completely describe this act. This legislation makes it illegal to steal trade secrets from companies. It enhances the penalties when the theft is at the behest of a foreign government. With the help of Senator HATCH and Representatives MCCOLLUM and SCHUMER, we have carefully drafted these measures to ensure that they can only be used in flagrant and egregious cases of information theft. Moreover, trade secrets are carefully defined so that the general knowledge and experience that a person gains from working at a job is not covered.
Mr. President, we do not want this law used to stifle the free flow of information or of people from job to job. But we built in a number of safeguards to prevent exactly these problems. They are elaborated on in the managers' statement and our committee reports.
Mr. President, I ask unanimous consent that a copy of the managers' statement be printed in the RECORD. It reflects our understanding on this measure.
There being no objection, the managers' statement was ordered to be printed in the RECORD, as follows:
MANAGERS' STATEMENT FOR H.R. 3723, THE ECONOMIC ESPIONAGE BILL
This legislation is based upon two bills, S. 1556, "The Industrial Espionage Act of 1996," and S. 1557, "The Economic Security Act of 1996," which were introduced by Senators SPECTER and KOHL. This Managers' Statement is intended to clarify portions of the legislation and to supplement the Committee reports already issued on these two measures. It also explains how the House and Senate version of the legislation were reconciled.
DIFFERENCE BETWEEN SECTIONS 1831 AND 1832
This legislation includes a provision penalizing the theft trade secrets (Sec. 1832) and a second provision penalizing that theft when it is done to benefit a foreign government, instrumentality, or agent (Sec. 1831). The principle purpose of this second (foreign government) provision is not to punish conventional commercial theft and misappropriation of trade secrets
(which is covered by the first provision). Thus, to make out an offense under the economic espionage section, the prosecution must show in each instance that the perpetrator intended to or knew that his or her actions would aid a foreign government, instrumentality, or agent. Enforcement agencies should administer this section with its principle purpose in mind and therefore should not apply section 1831 to foreign corporations when there is no evidence of foreign government sponsored or coordinated intelligence activity.
This particular concern is borne out in our understanding of the definition of "foreign instrumentality" which indicates that a foreign organization must be "substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government or subdivision thereof." Although the term "substantially" is not specifically defined, it is a relative term that connotes less than total or complete ownership, control, sponsorship, command, management, or domination. 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.
To make out a case under these two provisions (sections 1831 and 1832), the prosecution would have to show that the accused knew or had reason to know that a trade secret had been stolen or appropriated without authorization. This threshold separates conduct that is criminal from that which is innocent. Thus, for example, these sections would not give rise to a prosecution for legitimate economic collection or reporting by personnel of foreign governments or international financial institutions, such as the World Bank, because such legitimate collection or reporting would not include the collection or reporting of trade secrets that had been stolen, misappropriated or converted without authorization.
WITHOUT AUTHORIZATION
Several federal statutes already include the requirement that information be taken "without authorization." The most notable is 18 U.S.C. s1030, which is amended in this measure by the National Information Infrastructure Protection Act introduced by Senators Leahy, Kyl and Grassley. That provision essentially deals with authorization in relation to computer systems. However, in this legislation the nature of authorization may be slightly different since this measure involves information "whether or how stored." But the principle remains the same: authorization is the permission, approval, consent, or sanction of the owner.
PARALLEL DEVELOPMENT NOT COVERED
It is important to note that a person who develops a trade secret is not given an absolute monopoly on the information or data that comprises a trade secret. For example, if a company discovers that a particular manufacturing process must be conducted at a certain ambient temperature and that a more than 10 percent deviation from that temperature will compromise the process, that company does not have the exclusive right to manufacture the product at the key temperature (assuming that this is not otherwise patented or protected by law). Other companies can and must have the ability to determine the elements of a trade secret through their own inventiveness, creativity and hard work. As the Supreme Court noted in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (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 this known to be possible." Id. at 490-91.
This legislation does not in any way prohibit companies, manufacturers, or inventors from using their skills, knowledge and experience to solve a problem or invent a product that they know someone else is also working on. Thus, parallel development of a trade secret cannot and should not constitute a violation of this statute. This includes the situation in which an individual inventor, unsolicited, sends his or her material to a manufacturer even as the company itself is in the midst of its own parallel development. In the first place, this wholesale disclosure of material likely breaches the requirement that a trade secret owner take reasonable measures to protect the information's confidentiality. But more importantly, many companies regularly
receive such ideas and inventions and do not use them. Some of these unsolicited ideas and inventions may overlap with work being done within the company already. Both the individual inventor and the company are conducting parallel work, pursuing the same line of inquiry. Neither can be subject to penalty under this law.
REVERSE ENGINEERING
Some people have asked how this legislation might affect reverse engineering. Reverse engineering is a broad term that encompasses a variety of actions. The important thing is to focus on whether the accused has committed one of the prohibited acts of *S12213 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. For example, if a person can drink Coca-Cola and, because he happens to have highly refined taste buds, can figure out what the formula is, then this legislation cannot be used against him. Likewise, if a person can look at a product and, by using their own general skills and expertise, dissect the necessary attributes of the product, then that person should be free from any threat of prosecution.
DEFINITION OF TRADE SECRETS
Unlike patented material, something does not have to be novel or inventive, in the patent law sense, in order to be a trade secret. Of course, often it will be because an owner will have a patented invention that he or she has chosen to maintain the material as a trade secret rather than reveal it through the patent process. Even if the material is not novel in the patent law sense, some form of novelty is probably inevitable since "that which does not possess novelty is usually known; secrecy, in the context of trade secrets implies at least minimal novelty." Kewanee Oil Co., 416 U.S. at 476. While 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.
Although we do not require novelty or inventiveness, the definition of a trade secret includes the provision that an owner have taken reasonable measures under the circumstances to keep the information confidential. We do not with this definition impose any requirements on companies or owners. Each owner must assess the value of the material it seeks to protect, the extent of a threat of theft, and the ease of theft in determining how extensive their protective measures should be. We anticipate that what constitutes reasonable measures in one particular field of knowledge or industry may vary significantly from what is reasonable in another field or industry. However, some common sense measures are likely to be common across the board. For example, it is only natural that an owner would restrict access to a trade secret to the people who actually need to use the information. It is only natural also that an owner clearly indicate in some form or another that the information is proprietary. However, owners need not take heroic or extreme measures in order for their efforts to be reasonable.
GENERAL KNOWLEDGE NOT COVERED BY DEFINITION OF TRADE SECRETS
In the course of reconciling the Senate and House versions of this legislation, we eliminated the portion of the definition of trade secret that indicated that general knowledge, skills and experience were not included in the meaning of that term. Its elimination from the statutory language does not mean that general knowledge can be a trade secret. Rather, we believed that the definition of trade secrets in itself cannot include general knowledge. Thus, it was unnecessary and redundant to both define what does and what does not constitute a trade secret.
Our reason initially for putting the exception in was to state are clearly as possible that this legislation does not apply to innocent innovators or 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 should be able to apply their talents without fear of prosecution because two safeguards against overreaching are built into the law.
First, protection is provided by the definition of "trade secret" itself. The definition requires that an owner take objectively reasonable, proactive measures, under the circumstances, to protect the information. If, consequently, an owner fails to safeguard his or her trade secret, then no one could be rightfully accused of misappropriating it. Most owners do take reasonable measures to protect their trade secrets, thereby placing employees and others on clear notice of the discreet, proprietary nature of the information.
In addition, a prosecution under this statute must establish a particular piece of information that a person has stolen or misappropriated. It is not enough to say that a person has accumulated experience and knowledge during the course of his or her employ. Nor can a person be prosecuted on the basis of an assertion that he or she was merely exposed to a trade secret while employed. A prosecution that attempts to tie skill and experience to a particular trade secret should not succeed unless it can show that the particular material was stolen or misappropriated. Thus, the government cannot 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.
As the Pennsylvania Supreme Court noted in Spring Steels v. Molloy, 400 Pa.
354, 363 (1960):
"It is not a phenomenal thing in American business life to see an employee, after a long period of service, leave his employment and start a business of his own or in association with others. And it is inevitable in such a situation, where the former employee has dealt with customers on a personal basis that some of those customers will want to continue to deal with him in < that> new association. This is . . . natural, logical and part of human fellowship . . ."
This legislation does not criminalize or in any way hamper these natural incidents of employment. The free and unfettered flow of individuals from one job to another, the ability of a person to start a new business based upon his or her experience and expertise, should not be injured or chilled in any way by this legislation. Individuals must have the opportunity to take advantage of their talents and seeks and accepts other employments that enables them to profit from their abilities and experience. And companies must have the opportunity to employ these people. This measure attempts to safeguard an individual's career mobility and at the same time to preserve the trade secrets that underpin the economic viability of the very company that would offer a person a new job.
The second safeguard is provided by the bill's use of the term "knowingly." For a person to be prosecuted, the person must know or have a firm belief that the information he or she is taking is in fact proprietary. Under theft statutes dealing with tangible property, normally, the thief knows that the object he has stolen is indeed a piece of property that he has no lawful right to convert for his personal use. The same principle applies to this measure-for someone to be convicted under this statute he must be aware or substantially certain that he is misappropriating a trade secret (although a defense should succeed if it is proven that he actually believed that the information was not proprietary after taking reasonable steps to warrant such belief). A person who takes a trade secret because of ignorance, mistake or accident cannot be prosecuted under the Act.
This requirement should not prove 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.
MAINTAINING CONFIDENTIALITY
We have been deeply concerned about the efforts taken by courts to protect the confidentiality of a trade secret. It is important that in the early stages of a prosecution the issue whether material is a trade secret not be litigated. Rather, courts should, when entering these orders, always assume that the material at issue is in fact a trade secret.
VICTIM COMPENSATION
We are also concerned that victims of economic espionage receive compensation for their losses. This legislation incorporates through reference existing law to provide procedures to be used in the detention, seizure, forfeiture, and ultimate disposition of property forfeited under the section. Under these procedures, the Attorney General is authorized to grant petitions for mitigation or remission of forfeiture and for the restoration of forfeited property to the victims of an offense. The Attorney General may also take any other necessary or proper action to protect the rights of innocent people in the interest of justice. In practice, under the forfeiture laws, victims are afforded priority in the disposition of forfeited property since it is the policy of the Department of Justice to provide restitution to the victims of criminal acts whenever permitted to do so by the law. Procedures for victims to obtain restitution may be found at Section 9 of Title 28, Code of Federal Regulations.
In addition to requesting redress from the Attorney General, any person-including a victim-asserting an interest in property ordered forfeited may petition for a judicial hearings to adjudicate the validity of the alleged interest and to revise the order of forfeiture. Additionally, forfeitures are subject to a requirement of proportionality under the Eighth Amendment; that is, the value of the property forfeited must not be excessively disproportionate to the crimes in question.
Finally, we have required that the Attorney General report back to us on victim restitution two and four years after the enactment of this legislation. We have heard from some companies that they only rarely obtain restitution awards despite their eligibility. We wish to carefully monitor restitution to ensure that the current system is working well and make any changes that may be necessary.
FINES PROVISION
In the original Senate version of this measure, we included a provision allowing courts to impose fines of up to twice the value of the trade secret that was stolen. This specific provision was eliminated because it was unnecessary in light of 18 U.S.C. s3571(d). We have not used the specific exemption available under 18 U.S.C. s3571(e). We, therefore, fully expect that courts will take full advantage of the provision in 18 U.S.C. s3571(d) allowing for fines of up to twice the gain or loss resulting from the theft of trade secrets and that courts will opt for the larger of the fines available under 18 U.S.C. s3571(d) or the fines provisions of this statute.
*S12214 DEPARTMENT OF JUSTICE OVERSIGHT
The Senate version of this measure included a requirement that all prosecutions brought under the statute receive the prior approval of the Attorney General, the Deputy Attorney General or the head of the Department of Justice's Criminal Division. That provision was eliminated in the measure that the House returned to us. We have not reinserted it based on the assurances of the Department of Justice. The Department of Justice will insert a requirement in the U.S. Attorney's Manual that prosecutions continue to be approved and strictly supervised by the Executive Office of the United States Attorney. The Attorney General has written a letter to us to that effect which we will insert into the record. We expect to review all cases brought under this Act in several years to ensure that the requirement is being enforced and to determine if it needs to remain in place.
Mr. HATCH.
Mr. President, I rise in support of H.R. 3723, the Economic Espionage Act of 1996. This bill makes the theft or unlawful appropriation and conversion of " proprietary economic information" a Federal felony. It is an important bill to all of Federal law enforcement, and I encourage my colleagues to support it. In today's technology revolution, the Congress has recognized the need to develop meaningful legislation that has real teeth to stop a burgeoning criminal enterprise. Such enterprise targets the cutting edge research and development of our Nation's industries, often on behalf of a competitor or foreign state. Until now, there has been no meaningful deterrent to such activity. Victims were often forced to resort to State civil remedies as their only redress. I am confident that all of my colleagues will agree that H.R. 3723, a bill which we have crafted and has undergone minor House modification, is a strong and meaningful deterrent to criminals considering engaging in economic espionage.
There is one provision in the bill originally passed by the Senate but deleted from the House which requires clarification. The original bill passed by the Senate contained a provision that required Attorney General approval prior to the initiation of a prosecution under this legislation. The bill returned to the Senate by the House deleted this requirement. It was my intent to attach an amendment to this bill, reinserting the prior authorization requirement. After numerous discussions with administration and industry officials, a compromise has been reached which will allow this bill to be passed by the full Senate as approved by the House.
We have a letter from the Attorney General which memorializes an agreement we have made concerning this prior authorization requirement.
This agreement provides that the Department of Justice shall implement regulations that require that an indictment can be pursued under this legislation only upon the express prior approval of the Attorney General, Deputy Attorney General, or Assistant Attorney General-Criminal Division. This agreement shall remain in effect for a period of 5 years from enactment. During that timeframe, the Attorney General will be required to report to the Senate or House Judiciary Committees, any prosecutions carried out under this bill which did not receive such prior authorization. It shall also subject the U.S. Attorney or Justice Department official authorizing such prosecution, to appropriate disciplinary sanctions.
I am confident that the Department of Justice will act in good faith and carry out its terms.
I would like to mention three other provisions included in this bill. The first, included as a floor amendment by myself and Senator KOHL, authorizes $100 million in grants to the Boys and Girls Clubs of America to establish clubs in public housing and other distressed areas across the country. The Boys and Girls Clubs have an outstanding track record of reducing crime and drug use in the communities they serve, and this legislation will help them extend their reach into the communities that need them most.
Second, I am pleased that this bill included another amendment I offered during Senate consideration, transferring to the Attorney General custody of certain Federal inmates hospitalized at St. Elizabeth's hospital. This provision will ensure that these persons, hospitalized because of not guilty by reason on insanity verdicts in Federal courts, receive appropriate care in safe, secure facilities.
Finally, I would like to note that this legislation includes an amended version of technical corrections legislation to fix errors that have, over time, crept into the Federal criminal code. The continued integrity of the criminal laws depends on making these corrections from time to time, and I am pleased that we have addressed this matter here.
For these reasons, I strongly urge all of my colleagues to fully support H.R. 3723.
I ask unanimous consent that the letter I referenced earlier from the Attorney General be printed in the RECORD.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
DEPARTMENT OF JUSTICE,
OFFICE OF THE ATTORNEY GENERAL,
Washington, DC, October 1, 1996.
Hon. ORRIN G. HATCH,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
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 the 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.
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