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
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. . .
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.
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.
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On May 5, 2016, the White House issued a report largely piggybacking on a recent U.S. Treasury Department study, on which we previously posted, with a primary focus on the purported misuse and negative impacts of non-compete agreements.
On May 11, President Obama signed the Defend Trade Secrets Act [S.1890], which for the first time creates powerful federal civil equitable and monetary remedies for trade secret misappropriation involving interstate commerce.
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