On January 5, 2023, President Biden signed into law the  Protecting American Intellectual Property Act of 2022 (the Act). The Act requires periodic reports to Congress identifying any “foreign persons” who are found to have engaged in significant theft of trade secrets of U.S. persons. The Act also requires menu-based sanctions against such persons, which may include blocking sanctions.

Although the Act does not specifically target any country, the press statement from Sen. Chris Van Hollen (D-Md.), the sponsor of the Act, clearly indicates that China is a primary intended target of the legislation.1

Below is a detailed summary of the relevant provisions of the Act:

Reporting Requirements

As noted above, the Act requires periodic reports to Congress identifying any “foreign persons,” i.e., non-U.S. persons, determined to:

(i) have “knowingly”2 engaged in, or benefited from, significant theft of trade secrets of “U.S. persons,”3 if the theft of such “trade secrets”4 occurred on or after such date of enactment and is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States;

(ii) have provided significant financial, material, or technological support for, or goods or services in support of, or to benefit significantly from, such theft;

(iii) be an entity that is owned or controlled by, or that has acted or purported to act for or on behalf of, directly or indirectly, any foreign person identified under clause (i) or (ii); or

(iv) be a chief executive officer or member of the board of directors of any foreign entity identified under clause (i) or (ii).

The first report to Congress is due within 180 days of enactment of the Act and subsequent reports are due at least annually thereafter.

Menu-Based Sanctions on Entities

The Act states that the President “shall” impose five or more of the menu-based sanctions against foreign entities identified in the report to Congress unless a national interest waiver applies.

The menu of sanctions that can be imposed on entities consists of the following:

  1. Blocking of property within U.S. jurisdiction, tantamount to inclusion on the Specially Designated Nationals and Blocked Persons List (SDN List) administered by the Treasury Department's Office of Foreign Assets Control (OFAC).
  2. Inclusion on the Entity List, administered by the Department of Commerce's Bureau of Industry and Security (BIS).
  3. Restrictions on U.S. Export-Import (EXIM) Bank assistance.
  4. Restrictions on loans from U.S. financial institutions.
  5. U.S. opposition to loans from international financial institutions.
  6. If the sanctioned entity is a financial institution: (a) prohibition on designation as a primary dealer in U.S. government debt instruments; and/or (b) prohibition on service as a repository of U.S. government funds.
  7. U.S. government procurement sanctions.
  8. Prohibition on any foreign exchange transactions that are subject to U.S. jurisdiction.
  9. Prohibition on certain banking transactions.
  10. Prohibition on U.S. persons investing in or purchasing significant amounts of debt or equity of the sanctioned entity.
  11. U.S. entry visa ban on key persons of the sanctioned entity (i.e., corporate officers, shareholders, principals). 
  12. Any of the above sanctions on the entity's “principal executive officers.”

Sanctions on Individuals

The Act states that the following sanctions “shall” apply to individuals identified in the report to Congress, unless a national interest waiver applies:

  1. Blocking of property within U.S. jurisdiction.
  2. U.S. visa and entry restrictions.

Implementation and Penalties

The Act authorizes the implementation of IEEPA penalties on any person that violates, attempts to violate, conspires to violate, or causes a violation of any of the sanctions imposed pursuant to the Act. It remains to be seen whether an Executive Order or OFAC regulations will be issued to implement the Act; there is precedent for the implementation of similar sanctions authorities through listings on OFAC's Non-SDN Menu-Based Sanctions (NS-MBS) List.

Exceptions

The Act includes certain exceptions to the imposition of sanctions, such as for U.S. intelligence activities, law enforcement activities, and compliance with certain international agreements. There is also an exception related to the importation of goods into the United States.

Sunset Provision

The sunset period is seven years after the date of enactment.

Implications for Non-U.S. Companies

The Act provides a basis for the U.S. government to investigate non-U.S. companies for alleged thefts of significant trade secrets from the United States, and to impose potentially serious consequences on the non-U.S. companies that are found to have done so. As with other conduct-based sanctions authorities, the Act also reflects an attempt to deter the theft of trade secrets in the first place.

With the authority to impose these sanctions now established, members of Congress (and the public more generally) also now have a basis to press for the U.S. government to act against the non-U.S. companies that steal U.S. trade secrets.

Footnotes

1 “In China and other countries across the globe, foreign corporations are working – often in coordination with authoritarian regimes – to steal our cutting edge technologies to gain unfair advantages at America's expense. This also results in the off-shoring of American jobs and causes harm to our economy and our national security. We must act to deter these predatory practices by imposing high costs. That's why I worked with Senator Sasse to write bipartisan legislation that creates clear consequences for the theft of U.S. intellectual property. With President Biden's signature of our bill today, those who seek to steal American technology are officially on notice.” See President Biden Signs Van Hollen Legislation to Curb IP Theft (Jan. 5, 2023),  https://www.vanhollen.senate.gov/news/press-releases/president-biden-signs-van-hollen-legislation-to-curb-ip-theft.  

2 The term “knowingly” means that the person had actual knowledge of or should have known of the conduct, circumstances, or the result.

3 This is the same definition as under the International Emergency Economic Powers Act (IEEPA). The term “U.S. person” means: “(A) a United States citizen or an alien lawfully admitted for permanent residence to the United States; (B) an entity organized under the laws of the United States or of any jurisdiction within the United States, including a foreign branch of such an entity; or (C) any person in the United States.”

4 The term “trade secret” has the same definition as under 18 U.S.C. §1839. It 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, another person who can obtain economic value from the disclosure or use of the information.”

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