I.          Introduction

Two recent pieces of legislation—S. 3642 and H.R. 6029—have increased the scope and power of federal protection of trade secrets under the Economic Espionage Act (EEA) and may suggest additional federal trade secret legislation in the near future. On December 28, 2012, President Obama signed S. 3642, which expands the Economic Espionage Act to cover not only products that companies actually sell or use in interstate commerce, but also products and services that companies use internally or that are “intended for use” in interstate commerce.[1] On January 1, 2013, the House of Representatives passed H.R. 6029, The Foreign and Economic Espionage Penalty Enhancement Act of 2012, which significantly increases the maximum penalty for a violation of the EEA.[2] The two bills should immediately increase criminal trade secret prosecutions. Also, the strong, bipartisan majorities supporting both bills may suggest support for creating a federal civil cause of action for trade secret violations under the EEA.

II.         Background

A.         S. 3642

S. 3642 amends 18 U.S.C. § 1832(a) of the EEA. 18 U.S.C. § 1832(a) originally imposed criminal sanctions on whoever intentionally steals a trade secret “that is related to or included in a product that is produced for or placed in foreign commerce.”[3] S. 3642 amends the EEA to extend criminal sanctions to whoever intentionally steals a trade secret “that is related to a product or service used in or intended for use in interstate or foreign commerce. . . .”[4]

Congress passed S. 3642 in direct response to the Second Circuit Court of Appeal’s decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012). In Aleynikov, the Second Circuit overturned the defendant’s conviction for stealing proprietary source code from his employer, Goldman Sachs. Notably, this software was used by Goldman Sachs’ employees for high frequency trading (HFT).[5] The Second Circuit found that, although the Goldman HFT system generated enormous profits, because Goldman did not intend to sell or license the HFT system, “the system was neither ‘produced for’ nor ‘placed in’ interstate or foreign commerce.”[6] The amendment extends trade secret protection to the factual circumstances in the Aleynikov case and closes a significant loophole that had prevented application of the EEA to the services industry. Now, important trade secrets that are used internally to help provide a competitive edge for a company may be protected under the EEA. As a result, prosecutors should use this broader language to enforce EEA violations more aggressively.

B.         H.R. 6029

H.R. 6029, which passed in the Senate unanimously and in the House of Representatives by voice vote, significantly increases the penalties for a violation of the EEA.[7] The bill increases the maximum penalty for trade secret misappropriation for the benefit of a foreign government from $500,000 to $5 million for individuals. In addition, Congress increased the penalty for organizations who misappropriate trade secrets to a foreign government from a maximum of $10 million to a maximum of either $10 million or “3 times the value of the trade secret to the organization.”[8] Given the significant value of trade secrets, the increased penalty more adequately takes into account the value of a stolen trade secret to organizations and should incentivize increased prosecutorial attention to violations of the EEA.

III.        Implications

The two bills show strong support for and attention on trade secret violations. In the short term, the expanded scope and increased penalty will provide prosecutors both the ability and the incentive to respond aggressively to trade secret violations. In the long run, the bipartisan support could signal momentum for passage of an act to create a federal civil cause of action for trade secret misappropriation. In July 2012, the Protecting American Trade Secrets and Innovation Act of 2012, S. 3389, which sought to federalize civil trade secret misappropriation, was introduced in Congress, but the Senate Judiciary Committee ultimately did not act on the bill.

Although many believe that a federal statutory scheme for civil claims would strengthen and standardize protection of trade secrets, it will still be some time before any such legislation is passed. The recent legislation signed by President Obama will increase enforcement of trade secrets by federal authorities and demonstrates that there is strong support for strengthening protection of trade secrets under federal law.

[1] Theft of Trade Secrets Clarification Act of 2012, Pub. L. No.112-236, 2012 S. 3642, 126 Stat. 1627 (2012).

[2] The Foreign and Economic Espionage Penalty Enhancement Act of 2012, H.R. 6029 (2013).

[3] 18 U.S.C. § 1832(a).

[4] S. 3642.

[5] Aleynikov, 676 F.3d at 75.

[6] Id. at 82.

[7] H.R. 6029.

[8] Id.

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