The Economic Espionage Act of 1996 () was a 6 title Act of Congress dealing with a wide range of issues, including not only industrial espionage (e.g., the theft or misappropriation of a trade secret and the National Information Infrastructure Protection Act), but the insanity defense, matters regarding the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United States Sentencing Commission reports regarding encryption or scrambling technology, and other technical and minor amendments.
Structure of the Act
Title Name DescriptionIProtection of trade secretsInserts as Chapter 90 of Title 18 of the United States CodeIINational Information Infrastructure Protection Act of 1996Amends regarding fraud and related activity in connection with computers.IIITransfer of persons found not guilty by reason of insanityAmends with regard to such persons being transferred to the custody of the United States Attorney GeneralIVEstablishment of Boys and Girls ClubsAuthorizes grants by the United States Department of Justice to the Boys and Girls Clubs of AmericaVUse of certain technology to facilitate criminal conductRequiring the United States Sentencing Commission to provide certain information in its reportsVITechnical and minor amendmentsVarious
Protection of trade secrets The act makes the theft or misappropriation of a trade secret a federal crime. Unlike the Espionage Act of 1917 (found at ), the offense involves commercial information, not classified or national defense information.
Section Name DescriptionEconomic espionageCriminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign government or entity. Penalties for violation are fines of up to US$500,000 per offense and imprisonment of up to 15 years for individuals, and fines of up to US$10 million for organizations.Theft of trade secretsCriminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to US$5 million for organizations. Exceptions to prohibitionsProvisions do not apply to lawful activity by government entities, or to the reporting of any suspected violation of law to any such entity.Criminal forfeitureRequires criminal forfeiture of any proceeds of the crime and property derived from proceeds of the crime, and any property used, or intended to be used, in commission of the crime.Orders to preserve confidentialityThe court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, subject to certain specified provisions of law.Civil proceedings to enjoin violationsAuthorizes civil proceedings by the Department of Justice to enjoin violations of the Act, but does not create a private cause of action. Thus, victims or putative victims must work with the U.S. Attorney in order to obtain an injunction.Conduct outside the United StatesThere is extraterritorial jurisdiction where: The offender is a U.S. citizen or permanent resident; or The offender is an organization organized under the laws of the United States or any State or political subdivision thereof; or An act in furtherance of the offense was committed in the United StatesConstruction with other lawsDoes not affect any other civil or criminal laws with respect to misappropriation of trade secrets.Definitions
"Trade secrets" are defined in the act consistent with generally accepted legal definitions such as those used in the Uniform Trade Secrets Act and state laws based on the UTSA. Specifically it declares:
Enforcement
Department of Justice policy
The United States Department of Justice Criminal Division has issued a prosecution policy relating to enforcement of the Act. In general, it states:
Use of EEA
The Act can be employed to accomplish several purposes:
It can be used to protect a company's valuable intellectual property by prosecuting dishonest competitors who steal a company's trade secrets, but it can also be used against a company that finds itself with trade secrets belonging to a competitor.
In United States v. Lange, the EEA was used to protect a victim company that had learned that Lange, a disgruntled former employee, had been offering to sell its secret manufacturing processes to third parties. The company reported Lange to the FBI, and Lange was arrested and subsequently convicted and sentenced to 30 months in prison. The case was successful in large part because the company undertook reasonable measures to keep its information secret, including:
physically securing the trade secrets in question limiting the distribution of documentation describing the trade secret limiting the number of employees with access to the trade secret notifying such employees that they were working with confidential information, and placing warnings on trade secret information providing vendors with only partial information of the trade secret, so that it could not be replicated
The EEA has also been used to prosecute a Boeing manager, together with an employee he hired from Lockheed Martin with the offer of a higher salary in return for his inside information on Lockheed Martin's pricing.US v. Branch and Erskine, Criminal case 2:03-CR-00715-RSWL-1 (Central District of California, filed July 17, 2003) Although the EEA charges were later dropped, the matter resulted in Boeing being denied $1 billion in contracts from the United States Air Force, as well as it paying a $615 million settlement to the US Government.
§ 1831 - First conviction and sentence
In February 2010, former Boeing engineer Dongfan "Greg" Chung was sentenced to 16 years in prison, following the first ever trial conviction under the 1996 Economic Espionage Act. Chung, a native of China, was convicted by the US District Court for the Central District of California of stealing Boeing trade secrets related to the US Space Shuttle program and the Delta IV rocket. He spent over 30 years providing U.S. aerospace technologies to China. Chung was convicted on charges related to 350,000 pages of sensitive documents and Chinese Intelligence Service tasking letters found concealed in crawl spaces underneath and inside his home. The trade secrets misappropriated by Chung for China were valued over $2 billion.
The investigation, led by Special Agent Kevin Moberly of the FBI's Los Angeles Field Office, resulted in Chung's arrest in February 2008. Charges included conspiracy to commit economic espionage, six counts of economic espionage to benefit a foreign country, one count of acting as an agent of the People's Republic of China, and one count of making false statements to the FBI. The 16-year sentence was viewed as a life sentence for Chung who was 74 years old. Chung subsequently died in 2020 at age 84 from coronavirus-related complications while incarcerated at the Federal Correctional Complex, Butner.
Chung worked for Rockwell International from 1973 until its defense and space unit was acquired by Boeing in 1996, and he continued to work for Boeing as an employee and then as a contractor through 2006. Chung's investigation was initially predicated on evidence discovered during an investigation into Chi Mak, a Chinese-American engineer convicted in 2007 of conspiring to export sensitive naval technologies to China and sentenced to more than 24 years in prison.
At Chung's sentencing, presiding judge, Cormac Carney, said that he could not "put a price tag" on national security, and that with the long sentence for Chung he wanted to send a signal to China to "stop sending your spies here."
In April 2012, Chung's conviction was upheld by the United States Court of Appeals for the Ninth Circuit.United States v. Chung, 659 F.3d 815 (9th Cir. 2011), cert. denied, No. 11-1141, 2012 WL 929750 (U.S. Apr. 16, 2012).
§ 1832 - First conviction and sentence
Most prosecutions under the Economic Espionage Act have been for violation of Section 1832 (Trade Secret Theft). The first such prosecution was of Daniel and Patrick Worthing, maintenance workers at PPG Industries in Pennsylvania who stole blueprints and diskettes. Both pleaded guilty in early 1997. For another example, see the first conviction in California, that of David Brian Kern.
After an August, 2007 plea of guilt for (one count) of violating the Economic Espionage Act and one count of violating the Arms Export Control Act, San Jose U.S. District Court Judge Jeremy Fogel sentenced Canadian citizen Xiaodong Sheldon Meng, 44, to 24 months in federal prison, 3 years of parole and a $10,000 fine, with forfeiture of computer equipment seized. Meng was indicted in December 2006, with 36 counts, "for stealing military software from a Silicon Valley defense contractor and trying to sell it to the Chinese military." The first to be convicted of Economic Espionage (Section 1831), Meng admitted "illegally obtaining a program used for military training from Quantum3D and later using the program in a demonstration to the People's Liberation Army Navy after he no longer worked for the firm; he attempted to sell the fighter-pilot training software programs to the Royal Thai Air Force, the Royal Malaysian Air Force and the Navy Research Center in China." He paid $500,000 bond, for temporary liberty, until August 18 when he begins serving sentence.
On June 18, 2008, Meng was the first individual sentenced under the Economic Espionage statute. Meng was the first person convicted of both the Economic Espionage Act of 1996 and the Arms Export Control Act. He received a 24-month sentence and $10,000 fine, which included a sentencing departure for cooperation, according to news reports.United States v. Meng, No. CR 04-20216 JF (U.S.D.C. N.D. Calif.)
Further developments
Intersection with trade law
The International Trade Commission has used the EEA's definition of misappropriation to support its enforcement of US trade laws that prohibit "unfair methods of competition and unfair acts in the importation of articles ... in the United States." In Tianrui Group Company Limited LLC v International Trade Commission, the United States Court of Appeals for the Federal Circuit held that the manufacture abroad of products using a process that was developed in the United States, protected under domestic trade secret law, and misappropriated abroad, violated section 337 of the Tariff Act of 1930, . The ITC therefore had the authority to bar the importation of such products into the United States.
Scope of trade secrets
The extent to which trade secrets are covered under § 1832 was expanded in 2012, following the reversal of a conviction in April 2012 by the United States Court of Appeals for the Second Circuit in United States v. Aleynikov. In that case, it was held that the theft of the source code for a proprietary system at Goldman Sachs was never intended to be placed in interstate or foreign commerce. As Goldman had no intention of selling or licensing its system, § 1832 (as it was written at that time) did not apply. The provision was promptly amended on December 28, 2012 with the passage of the Theft of Trade Secrets Clarification Act of 2012, so that it now applies to products or services that are used or intended for use in interstate or foreign commerce.Theft of Trade Secrets Clarification Act of 2012, The amendment led to a conviction in United States v. Agrawal.
Expansion of penalties
On January 24, 2013, § 1831 was amended to increase the maximum fines:
in the case of individuals, from $500,000 to $5,000,000, and