Intellectual property crimes.

• Author: Grimm, John R.
• Position: Twenty-Fifth Edition of the Annual Survey of White Collar Crime

1. INTRODUCTION II. THEFT OF TRADE SECRETS A. Economic Espionage Act of 1996 1. Definition of Trade Secret 2. Elements of the Criminal Offenses a. Economic Espionage b. Theft of Trade Secrets 3. Applicability to Conduct Abroad 4. Prosecutions Under the EEA 5. Defenses a. Independent Development b. Reverse Engineering c. Lack of Secrecy B. National Stolen Property Act 1. Transported in Interstate or Foreign Commerce 2. Goods, Wares, or Merchandise 3. Minimum Value of $5,000 4. Knowledge of the Same 5. Stolen, Converted, or Taken by Fraud C. Trade Secrets Act D. Mail and Wire Fraud Statutes E. Racketeer Influenced and Corrupt Organizations Act F. Computer Fraud and Abuse Act G. State Law Provisions III. TRADEMARK COUNTERFEITING A. Trademark Counterfeiting Act 1. Relation to the Lanham Act 2. The 2006 Amendment 3. The PRO-IP Act of 2008 4. Elements of Criminal Offense 5. Defenses 6. Other Federal Statutes B. RICO and Money Laundering Acts IV. COPYRIGHT A. Copyright Act 1. Elements of the Offense a. Existence of a Valid Copyright b. Infringement c. Willfulness d. Financial Gain or Threshold Violation 2. Defenses 3. Penalties 4. Reverse Engineering B. National Stolen Property Act C. Mail and Wire Fraud Statutes D. Racketeer Influenced and Corrupt Organizations Act E. Money Laundering Act F. Database Protection G. State Law Provisions V. ONLINE SERVERS: CRIMINAL VIOLATIONS OF THE COPYRIGHT FELONY ACT A. Individual Criminal Liability 1. Infringement via the Internet 2. The Financial Gain Requirement or Threshold Violation 3. The Internet and the First Sale Doctrine B. Internet Service Provider Liability VI. PATENT A. False Marking B. Counterfeiting or Forging Letters Patent C. National Stolen Property Act VII. CABLE TELEVISION AND SATELLITE DESCRAMBLING VIII. SENTENCING A. Economic Espionage Act of 1996 B. National Stolen Property Act C. Trade Secrets Act D. Mail and Wire Fraud Statutes E. Racketeer Influenced and Corrupt Organizations Act F. Trademark Counterfeiting Act and Copyright Felony Act G. False Marking and Counterfeiting or Forging Letters Patent H. Cable Television and Satellite Descrambling I. INTRODUCTION

   Intellectual property accounts for a large part of today's economy. (1) Protecting the rights of intellectual property owners is, therefore, a critical task of the federal government in the current environment in which the distribution of illegitimate goods can be achieved on scales like never before. (2) While owners of intellectual property can protect their rights by pursuing civil remedies, the threat of civil sanctions is often insufficient to deter infringing activities. (3) Some intellectual property thieves simply view civil damages as another cost of doing business. (4) Moreover, because the theft of intellectual property often does not involve tangible goods, and in most cases does not require direct contact with the rights holder, many victims are unaware of the damages they sustain until an investigation is undertaken. (5) By 2000, U.S. companies had lost over $1 trillion from intellectual property theft, (6) costing Americans approximately $250 billion every year. (7) In addition to monetary damages, intellectual property theft may also compromise the safety of the general public due to the use of counterfeit materials in pharmaceuticals, auto parts, and other such goods. (8)

   The marked increase in intellectual property theft, combined with the ineffective deterrence provided by civil remedies, has led the federal as well as state and local governments to enact criminal statutes to protect intellectual property. (9) Examples of the government's continuing commitment to prosecute intellectual property crimes include "Operation Buccaneer," (10) a collaborative effort by the U.S. Customs Service and the Department of Justice ("DOJ"); the joint anti-piracy initiative, (11) which involves the FBI; and Operation Site Down, (12) a global campaign against organized piracy. (13) Enforcement efforts are also getting more sophisticated and aggressive. The DOJ launched Operation D-Elite in May 2005 to crack down on peer-to-peer (P2P) piracy networks. (14) In October 2006, the DOJ completed its first successful "criminal enforcement action against copyright infringement on a P2P network using BitTorrent technology." (15) Over the past few years, the federal government has steadily increased the number of criminal prosecutions of intellectual property crimes. (16)

   This Article examines several areas of intellectual property law that provide the bases for criminal prosecutions. Section II examines the theft of trade secrets; Section III discusses trademark counterfeiting; Section IV addresses copyright infringement; Section V examines the problems raised by online servers; Section VI looks at patent violations; Section VII discusses cable television and satellite descrambling; and Section VIII discusses sentencing for intellectual property crimes.

2. THEFT OF TRADE SECRETS

   Although trade secret theft may be the largest obstacle faced by U.S. corporations in their global business, (17) no federal criminal statute dealt directly with the theft of commercial trade secrets until the enactment of the Economic Espionage Act in 1996 ("EEA"). (18) Part A of this Section discusses the EEA. Parts B through F discuss other federal statutes that have been used by prosecutors--with limited success--to penalize the misappropriation of trade secrets. These include the National Stolen Property Act, the Trade Secrets Act, the Mail and Wire Fraud statutes, and the Racketeer Influenced and Corrupt Organizations Act. Finally, Part G describes various state attempts to combat trade secret theft.

   1. Economic Espionage Act of 1996

      In response to the growing efforts by foreign governments to misappropriate the trade secrets of U.S. companies, Congress enacted the EEA in October 1996 to provide for criminal as well as civil penalties for the theft of trade secrets. (19) The statute, however, is not limited to prosecuting the theft of trade secrets by foreign governments or foreign companies. (20) The EEA established two prosecutable offenses regarding the theft of trade secrets. The first offense, "economic espionage" ("[section] 1831"), arises only when the theft benefits a foreign government. (21) This offense carries higher penalties than the second offense, "theft of trade secrets" ("[section] 1832"), which concerns theft benefiting any person who is not the true owner. (22) The second offense is more general and applicable to both foreign and domestic trade secret disputes. (23)

      1. Definition of Trade Secret

         The EEA protects "all forms and types of financial, business, scientific, technical, economic, or engineering information ... whether tangible or intangible, and whether[,] or [no matter] how[,] stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." (24) The EEA imposes two requirements for such information to be considered a trade secret: (i) the owner of the property must take reasonable measures to keep the property secret; (25) and (ii) the information must "derive[] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public." (26)

         The EEA's broad definition of trade secrets (27) allows for far-reaching protection since no additional requirements, such as wire or mail transmission, are necessary to bring conduct within the scope of the statute. (28) The scope, however, is not without limitation. While the EEA covers information that is stolen in electronic form or merely memorized, (29) it is not intended to cover the transfer of general knowledge or skills learned on a job when an employee leaves one company and moves to another in the same or similar field. (30)

      2. Elements of the Criminal Offenses

         1. Economic Espionage

            Section 1831, "economic espionage," requires that the theft of trade secrets benefits a foreign government, instrumentality, or agent in some manner. (31) This type of misappropriation of trade secrets not only covers outfight theft (32) or unauthorized duplication, (33) but also includes trafficking in stolen trade secrets, (34) as well as attempt (35) and conspiracy (36) to commit these offenses. Section 1831 also includes an intent component requiring that the misappropriation be "knowingly" committed. (37)

         2. Theft of Trade Secrets

            Section 1832, "theft of trade secrets," applies to the misappropriation of trade secrets for the economic benefit of anyone other than the true owner. (38) Unlike [section] 1831, offenses are not limited to activities that benefit a foreign government. However, three prosecutorial limitations exist that are not present in the "economic espionage" offense: (39) (i) the intended benefit realized must be economic in nature; (40) (ii) the thief must intend or know that the offense will injure the rightful owner; (41) and (iii) the stolen information must be "related to or included in a product produced for or placed in interstate or foreign commerce." (42) Like [section] 1831, [section] 1832 also contains an intent component requiring that the misappropriation be "knowingly" committed. As interpreted by some federal circuits, the attempt and conspiracy provisions of [section] 1832 do not require the government to prove that an actual trade secret existed. (43)

      3. Applicability to Conduct Abroad

         Section 1837 makes the EEA applicable to the theft of trade secrets or economic espionage that occurs overseas under two circumstances: (i) if the offender is under the jurisdiction of the United States or (ii) if "an act in furtherance of the offense was committed in the United States." (44) The first provision of [section] 1837 extends the jurisdictional reach of the federal government to U.S. citizens, permanent residents, and corporations for conduct abroad even when there is no other connection with the United States...