Intellectual property.

• Author: Gessesse, Henock
• Position: Eleventh Survey of White Collar Crime

1. INTRODUCTION II. THEFT OF TRADE SECRETS

   1. National Stolen Property Act

      1. Transported in Interstate Commerce.

      2. Goods, Wares or Merchandise

      3. Minimum Value of $5,000.

      4. Stolen, Converted or Taken by Fraud

      5. Knowledge that Items Were Stolen

   2. Trade Secrets Act

   3. Mail and Wire Fraud

   4. Racketeer Influenced and Corrupt Organizations Act

   5. State Law Provisions III. TRADEMARK COUNTERFEITING IV. COPYRIGHT

   1. Copyright Act

      1. Elements of the Offense

      2. Defenses

   2. National Stolen Property Act

   3. Mail Fraud and Wire Fraud

   4. Racketeering Influenced Corrupt Organizations Act V. PATENT

   1. False Marking

   2. Counterfeiting or Forging Letters Patent

   3. National Stolen Property Act VI. ART CRIMES

   1. Federal Statutes

      1. Mail Fraud and Wire Fraud

      2. Copyright

      3. Federal Trade Commission Enforcement

   2. State Approaches VII. SENTENCING

   1. National Stolen Property Act

   2. Mail and Wire Fraud

   3. Trade Secrets Act

   4. Racketeer Influenced and Corrupt Organizations Act

   5. Trademark Counterfeiting Act and Copyright Act

   6. False Marking and Counterfeiting or Forging Letters Patent

1. INTRODUCTION

   Owners of intellectual property have great incentives to protect their rights in such property by pursuing civil remedies. Yet the possibility of civil sanctions alone is insufficient to deter violators who would steal a trade secret or infringe on another's trademark, copyright or patent. Indeed, some entrepreneurs view civil damage actions as just another cost of doing business. This void in the enforcement mechanisms of intellectual property rights is filled by various federal and state criminal provisions. These provisions are often general statutes which are interpreted to offer protection to the intellectual property at issue. Other statutes are specifically tailored to the type of intellectual property sought to be protected. These provisions are used with varying frequency to augment deterrence and punish perpetrators.

   This article examines several areas of intellectual property under which criminal prosecutions are brought: theft of trade secrets; trademark, copyright, and patent infringement; and art crimes. The final section of the article discusses penalties under acts used to prosecute intellectual property crimes.

2. THEFT OF TRADE SECRETS

   1. National Stolen Property Act

      The National Stolen Property Act ("Act")(1) provides for criminal sanctions for any person who "transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud ..."(2) The federal courts have held that the Act is applicable to the theft of tangible property containing trade secrets under certain circumstances.(3)

      In order to obtain a conviction under the Act, the government must prove five elements: (1) that the items were transported or transferred in interstate or foreign commerce; (2) that the items are goods, wares or merchandise within the meaning of the statute; (3) that the total value of the items equals or exceeds $5,000; (4) that the items were stolen, converted or taken by fraud; and (5) that the defendant knew the items were stolen.(4) The following paragraphs discuss these elements as applied to the theft of trade secrets.(5)

      1. Transported in Interstate Commerce

         In order to fall within the scope of the Act, allegedly stolen trade secrets must be transported or transferred in interstate or foreign commerce.(6) The prosecution must also prove that the stolen item was physically transported; it is not enough for the prosecution to establish the presence of a stolen trade secret in a state or country other than its original location.(7)

      2. Goods, Wares or Merchandise

         In United States v. Seagraves,(8) the Third Circuit defined "goods, wares or merchandise" broadly as "such items of personal property or chattels as are ordinarily a subject of commerce."(9) Accordingly, the Seagraves court held that stolen maps were the subjects of commerce, albeit of a specialized nature, and were therefore "goods, wares or merchandise" within the terms of the Act.(10) Courts have also held that trade secrets must be stolen while in a tangible form or in conjunction with tangible goods;(11) so a violation cannot be established if, for example, a thief memorizes a secret formula and then writes it down after crossing some boundary.(12)

      3. Minimum Value of $5,000

         The intent of the Act is to address only the theft of items having substantial market value.(13) Courts have taken a variety of approaches in determining the "value" of trade secrets. Some courts have looked for an actual market for the products embodying the stolen trade secrets to determine their value.(14) Absent a market, courts have looked for "any reasonable method" of valuation.(15) The amount of time and money defendants invested in the misappropriation scheme is one alternative to market value.(16) Another alternative is looking to a thieves' or black market price.(17)

      4. Stolen, Converted or Taken by Fraud

         Finally, the Act requires a physical theft. In other words, the "goods, wares or merchandise" must be physically "stolen, converted or taken by fraud."(18) Technological advances have blurred the distinction between physical and non-physical thefts leading to contradictory rulings among the federal courts.

         In United States u Brown,(19) the Tenth Circuit considered a prosecution under the National Stolen Property Act arising out of the alleged theft of a computer program and its source code. Although the stolen program was located at the defendant's residence, the prosecution could not prove that the software had been physically removed from plaintiff's place of business.(20) The intangible properties of computer programs led the court to state "for [sections] 2314 to apply there must be some tangible item taken, however insignificant or valueless it may be, absent the intangible component."(21) Accordingly, the Tenth Circuit held that the "essential ingredient of the statute [[sections] 2314]--the involvement of physical `goods, wares, [or] merchandise' that were themselves 'stolen, converted or taken by fraud'--was missing."(22)

         One district court has taken a different view, stating: "this court is not entireLy convinced that tangibility is an absolute requirement of 'goods, wares, or merchandise' under [sections] 2314.-23 Additionally, the court found that seven if tangibility is a requirement [under [sections] 2314,] computer-stored business information in this case satisfies that requirement."(24)

      5. Knowledge that Items Were Stolen

         Possession of stolen trade secrets by a defendant is not sufficient to place a potential transgressor of [sections] 2314 within the boundaries of the Act. The government must introduce evidence establishing that the defendant knew the items were stolen.(25) The defendant's knowledge of the illegal origin of the trade secret may be extrapolated from the defendant's behavior.(26)

   2. Trade Secrets Act

      The Trade Secrets Act(27) prohibits the disclosure of confidential information by public officers and public employees.(28)

   3. Mail and Wire Fraud

      The mail fraud(29) and wire fraud(30) statutes provide criminal sanctions for using or attempting to use the United States mail and wire services to perpetrate fraud.(31) Unlike the National Stolen Property Act, these statutes may be applied to the theft of intangible rights,(32) such as trade secrets.(33)

      Violation of these statutes requires neither proof that the scheme's victims were in fact defrauded(34) nor proof that the defendant gained anything through the scheme.(35) Rather, violations turn on actual intent.(36)

   4. Racketeer Influenced and Corrupt Organizations Act

      Criminal sanctions for theft of trade secrets are also available under the Racketeer Influenced and Corrupt Organizations Act ("RICO").(37) Although most cases brought under RICO are civil actions,(38) the predicate acts necessary to sustain a RICO claim are violations of criminal law.(39) Consequently, the elements of civil and criminal RICO actions are similar. The definition of racketeering activity includes mail fraud,(40) wire fraud,(41) activity prohibited by the National Stolen Property Act,(42) and the receipt of stolen property.(43)

      If the other elements of a RICO claim are satisfied,(44) the statute can be used to prosecute for the theft of intellectual property in contravention of the statutory prohibitions mentioned above.(45) This is an attractive option for the government because it offers more stringent penalties than the other federal statutes.

      Courts have wrestled with the definition of a "pattern of racketeering activity" within the meaning of the RICO statute,(46) and have arrived at different conclusions. One district court held that the definition is met by a single scheme of trade secrets misappropriation if there are sufficient allegations of concerted activity directed toward a goal of injuring the plaintiff.(47) In this case, the plaintiff alleged that the defendant's scheme to misappropriate the plaintiff's trade secrets included multiple mailings and telephone conversations, in violation of the mail fraud and wire fraud statutes.(48) The court held this scheme established a pattern of racketeering activity.(49)

      Addressing the issue of employer liability under [sections] 1962(c), one district court held that where wrongdoers, although employees of a corporation, act outside the corporation in performing the predicate acts necessary to sustain a RICO violation, the corporation could not be held liable.(50) The court reasoned that the corporation could not be held liable for RICO violations unless it was associated with or used by the wrongdoers and was engaged in a pattern of racketeering activity.(51) Furthermore, the court held the corporation could not be liable under RICO for the racketeering activity of its employees on the basis of respondeat superior.(52)

   5. State Law Provisions

      In...