administration strategy on mitigating the theft of u.s. trade secrets aipla – spring meeting 2013...

PETER J. TORENWEISBROD, MATTEIS, AND COPLEY PLLC

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PETERTOREN.COMWeisbrod Matteis & Copley PLLC

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Weisbrod Matteis & Copley PLLC

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Peter Toren, Esq.Weisbrod, Matteis & Copley PLLC

• Peter J. Toren is a former partner at Sidley & Austin and a former federal prosecutor – one of the first attorneys with the Computer Crime & Intellectual Property Section or CCIPS. He specializes in patent, trademark, copyright and trade secrets cases that involve diverse technologies from computer software and hardware to light-emitting diodes, biotechnology to semiconductor manufacturing and fabrications, optics and medical devices to business methods. He is author of Intellectual Property & Computer Crime (Law Journal Press), first published in 2003. It has been described as a “must-have desk reference.” He is the winner of the 2010 Burton Award for Excellence in Legal Writing. In addition to his book, his teaching positions and numerous articles, Mr. Toren is a frequent contributor to the press and has recently appeared in The Wall Street Journal, New York Times, Forbes, CNN, Bloomberg TV and The Guardian.

Weisbrod Matteis & Copley

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Administration Strategy on Mitigating the Theft of U.S. Trade Secrets

“We are going to aggressively protect our intellectual property. Our single greatest asset is the innovation and the ingenuity and creativity of the American people. It is essential to our prosperity and it will only become more so in this century.”

President Barack Obama


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Administration Strategy on Mitigating the Theft of U.S. Trade Secrets

Why now?What is it?Existing U.S. law (Economic Espionage Act).Prosecutions to-date.New laws?


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Why Now?

Importance of IP to the U.S. economyPace of economic espionage and trade secret

theft against U.S. corporations is accelerating Foreign governments Foreign corporations Recruitment of current or former employees Cyber intrusions

Threatens the health and vitality of U.S. economy


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Cyber Intrusions

United States (2012) 621 confirmed data breaches 47,000 security incidents 37% financial firms 24% retailers/restaurants 20% manufacturing/transportation/utility 20% information/professional services firms 75% of successful breaches were for financial gain. 2nd most common was a state-affiliated attack aimed at stealing IP to

further national and economic interests Only 14% were the work of insiders. 76% of data breaches, weak or stolen user names/passwords were a cause 40% malicious software was installed 29% social engineering, spear phishing Discovery time is measured in months/years

(Source: Verizon annual report)


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Overview – Strategy Action Items

1. Focus Diplomatic Efforts to Protect Trade Secrets

2. Domestic Voluntary Best Practices by Private Industry to Protect Trade Secrets

3. Enhance Domestic Law Enforcement Operations

4. Improve Domestic Legislation5. Public Awareness and Stakeholder Outreach


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Diplomatic Efforts

Coordinated diplomatic approach “Other governments must recognize that trade secret protection is vital to the

success of our economic relationships and that they must take steps to strengthen their enforcement against trade secret theft.”

Departments of Commerce, Defense, Justice, Homeland Security, State, Treasury, and U.S. Trade Representative Deliver message Build coalitions IPR working groups

Trade policy tools e.g., cooperation with trading partners, enhanced use of Special

301 process, raise importance of trade secrets in all appropriate forums

International Law Enforcement Cooperation International Training and Capacity Building International Organizations


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Diplomatic Efforts

Important step? Rest of the world is less concerned with the protection

of IP, especially trade secrets Formalize protection Difficult to quantify


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Promote Voluntary Best Practices by Private Industry to Protect Trade Secrets

Encourage companies to share practices that can mitigate the risk of trade secret theft Efforts will be led by U.S. Intellectual Property

Enforcement Coordinator (IPEC)Suggested areas of concern

Research and development compartmentalization Information security policies Physical security policies Human resources policies


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Promote Voluntary Best Practices by Private Industry to Protect Trade Secrets

Recognizes government’s limitations/places emphasis on the private sector’s role in protecting trade secrets

Facilitate private sector efforts to develop and share voluntary best practices

Must be consistent with antitrust laws


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Enhance Domestic Law Enforcement Operations

FBI – increased the number of trade secret investigations by 29% from 2010

Trade secret theft is a top priorityLaw enforcement and intelligence information sharing

Office of the Director of National Intelligence (ODNI) – coordinate with the intelligence community to inform the private sector about ways to identify and prevent theft of trade secrets that benefit a state sponsor

DOJ Report on prosecutions/investigations Local outreach program Train prosecutors/agents

National Intellectual Rights Coordination Center – will obtain leads regarding trade secret misappropriation through its “Report IP Theft” initiative.


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Improve Domestic Legislation

IPEC 2011 White Paper recommended legislation to increase the statutory maximum for economic espionage Sentencing Commission should consider increasing the range for

theft of trade secrets.Theft of Trade Secrets Clarification Act

Closed Aleynikov loopholeForeign/Economic Espionage Penalty Act of 2012

Increased statutory penalties for economic espionage Directed Sentencing Commission to increase offense levels

IPEC to coordinate review of existing federal laws to determine if legislative changes are need to enhance enforcement against trade secret theft Will provide recommendation to Congress


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Federal Register Request for Comments

March 19, 2013 IPEC requested comments/recommendations

that would enhance enforcement against, or reduce the risk of, the misappropriation of trade secrets for the benefit of foreign competitors or foreign governments

Submissions were due by April 22, 2013


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The Economic Espionage Act

EXISTING LAW


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Economic Espionage Act

Section 1831: Economic EspionageSection 1832: Theft of Trade SecretsCommon elements

Misappropriation of information. Knowledge that the information is a trade secret. Information is in fact a trade secret.

Depends on the value of the trade secret and the industry.

Does not include general knowledge, skill or abilities. Focus is on how the defendant obtained the trade

secret. Statute reaches overseas conduct.


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An Analysis of EEA Prosecutions: What Companies Can Learn From It and What the

Government Should Be Doing About It!

1. Location of the cases2. Extent of foreign government involvement3. Defendant’s gender4. Defendant’s level of education5. Relationship of defendant to the victim6. Nationality of defendant/purpose of the theft7. Type of trade secrets stolen8. Adequacy of protective measures9. Dispositions10. Sentences


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EEA Prosecutions – Number of Cases

9 prosecutions under §1831118 under § 1832

Year 1996 97 98 99 2000 01 02 0

3

0

4

05 06 07 08 09 10 11 12 13

§ 1831 0 0 0 0 0 1 1 0 1 0 0 1 2 0 1 2 0 0 9

§ 1832 1 3 8 5 6 4 8 7 3 6 11 6 10 10 11 11 7 1 118


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Why So Few Section 1831 Prosecutions?

Foreign government operatives are likely to be more skilled in stealing trade secrets

Difficulty of proving that theft was directed by a foreign government

Sentencing Guidelines are similar for sections 1831/1832

Bureaucratic system discourages charging a violation of section 1831


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Prosecutions – Location of Cases

Top 5 Jurisdictions N.D.Cal -24 S.D. Tex. – 8 S.D.N.Y. – 7 C.D.Cal – 7 D.N.J. – 6 E.D.Mich – 6

Less than 45% of all districts have prosecuted a case under the EEA


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Prosecutions – Number/Location of Cases

Relatively small number of cases unlikely to have a deterrent effect Certainty of punishment produces a stronger

deterrent effect than increasing the severity of the punishment


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Prosecutions – Defendant’s Gender/Level of Education

Defendant is male in 93% of the prosecutionsDefendant is usually well-educated.

Includes former nominee for the Nobel Prize in Chemistry


23Prosecutions – Relationship of Defendant to Victim

90% of the prosecutions – Defendant was an insider Employee of victim, worked for a vendor or contractor

of the victimTheft was committed shortly before

defendant left company


24Prosecutions – Nationality of Defendant/Purpose of Theft

30% of the prosecutions – defendant misappropriated the trade secrets to benefit the Chinese government, an existing Chinese government or to start a company in China.

Since 2008 – over 40% of all cases indicted have a China connection

Defendants also intended to benefit government companies in India, Dominican Republic, Korea, and South Africa.


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Prosecutions – Type of Trade Secrets

Type of misappropriated trade secrets varies greatlyExamples - formula used in the

manufacture of solar cells; drug formulae; design of parts for cars; semiconductor equipment; source code for financial and other products; customer lists and marketing plans


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Prosecutions - Victims

Victim is usually a large U.S. corporation, but not always.


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Prosecutions - Dispositions

Defendant pleaded guilty 85% of the time.4% of the cases the charges were

dismissed without prejudice.5 defendants fled and are still being

sought.12 cases went to trial.

Defendant acquitted in 2 cases.


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EEA Sentences

Sentence § 1831 § 1832

Probation/Supervised Release

0 27

Home Confinement 0 4

0-6 months 1 7

6-18 months 0 13

19-36 months 1 17

37-54 months 0 3

55-95 months 1 5

96 months 1 (Chung – 188 months) 1 (Williams – 96 months)


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Notable Examples

Former Dow scientist sentenced to 5 years for stealing trade secrets relating to Dow’s CPE process and product technology and conspiring to sell the technology to various Chinese Companies. (U.S. v. Liu, No. 3:05-CR-00085 (M.D.La. 2011).

Former Boeing engineer sentenced to 188 months imprisonment for stealing trade secrets relating to the Delta IV Rocket, F-15 Fighter, and the Space Shuttle. Provided information to Chinese companies for over 15 years. (United States v. Chung, 8:08-CR-00024 N.D.Cal. 2008).


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Current Case

The government charged a Chinese company, the Panang Group, which has Chinese government ties, was behind the attempted theft of trade secrets from DuPont relating to technology to produce titanium dioxide, a white pigment used in paints and other products. (U.S. v. Walter Lian-Heen Liew, 11-CR-0573, N.D.Cal.).

1st case actually charging a Chinese company owned or controlled by the state.


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Nosal Found Guilty in Trade Secret Case

SAN FRANCISCO — Nearly eight years passed from the time FBI agents raided corporate recruiter David Nosal's office in 2005 to the start of his criminal trial this month in San Francisco federal court.After deliberating for just over two days, the jury on Wednesday found Nosal, 55, guilty of conspiracy, stealing trade secrets and violating the Computer Fraud and Abuse ActThe verdict in the case comes a year after the U.S. Court of Appeals for the Ninth Circuit sided with Nosal's defense lawyers in a pivotal en banc decision that junked six additional computer hacking charges against the former Korn/Ferry International executive.But Assistant U.S. Attorneys salvaged their case, albeit on narrower charges, persuading the jury that on at least three occasions in 2005 Nosal directed accomplices to sneak into Korn/Ferry's computer database with a borrowed password in violation of the CFAA.


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Recommendations To the Government

Increase number of cases investigated/prosecuted Overcome bureaucratic resistance Revise internal prosecution guidelines

Consolidate investigations/prosecutions under sections 1831/1832 to more accurately reflect whether the theft was sponsored by a foreign entity

Increase section 1832 penaltiesEnact Civil Trade Secret Law


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A Modest Proposal

New EEA Section – Intent to transmit a stolen trade secret to a company or entity located outside of the U.S. Provides prosecutors with the opportunity to charge a

defendant that more accurately reflects the seriousness of the crime.

Enact a civil counterpart to the EEA


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Need More Information?

Intellectual Property & Computer Crimes, (Law Journal Press)

Coverage includes detailed analysis of the EconomicEspionage Act based on the latest cases; how to calculate damages and the meaning ofunauthorized access under the Computer Fraud and Abuse Act; recent prosecutions under the Trademark Counterfeiting Act; state prosecutions for computer hacking and theft of trade secrets; and civil cases brought under the DMCA. In addition to analysis of laws aimed specifically at intellectual property violations, you'll find discussion of how general criminal laws are used to prosecute intellectual property crimes.


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administration strategy on mitigating the theft of u.s. trade secrets aipla – spring meeting 2013...

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