Intellectual property crimes.

• Author: Albert, Sylvia N.
• Position: 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. Uniform Trade Secrets Act C. National Stolen Property Act 1. Transported in Interstate or Foreign Commerce 2. Goods, Wares, or Merchandise 3. Minimum Value of $5000 4. Knowledge of the Same 5. Stolen, Converted, or Taken by Fraud D. Trade Secrets Act E. Mail and Wire Fraud Statutes F. Racketeer Influenced and Corrupt Organizations Act G. State Law Provisions III. TRADEMARK COUNTERFEITING A. Trademark Counterfeiting Act 1. Defenses 2. Penalties 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 V. ONLINE SERVERS" CRIMINAL VIOLATIONS OF THE COPYRIGHT FELONY ACT A. 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. 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 I. INTRODUCTION

   State and local governments have been forced to safeguard intellectual property, (1) largely because the advent of the Internet has made rapid dissemination of information commonplace. (2) While owners of intellectual property can protect their rights by pursuing civil remedies, the threat of civil sanctions is often insufficient to deter theft of trade secrets or infringement of patents, trademarks, or copyrights. (3) Indeed, some intellectual property thieves view civil damages as simply another cost of doing business. (4) Intellectual property theft has become so common that some companies now hire "good hackers" to perform vulnerability assessments of their networks to troubleshoot potential security risks. (5) By 2000, American companies were losing in excess of $1 trillion from intellectual property theft (6) and that number is expected to continue growing.

   The marked increase in intellectual property theft, combined with the lack of deterrence provided by civil remedies, has led the federal government and most states to enact criminal statutes to prevent the theft of intellectual property and protect owners' rights. (7) The federal government has made trademark and copyright infringement a priority. (8) "Operation Buccaneer," (9) a collaborative effort by the U.S. Customs Service and the Department of Justice ("DOJ"), and the "Joint Anti-Piracy Initiative" (10) which, additionally, involves the FBI, are evidence of the government's ongoing commitment to prosecute intellectual property crimes. (11)

   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; and Section VI looks at patents. Finally, 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, (12) no federal criminal statute dealt directly with the theft of commercial trade secrets until the enactment of the Economic Espionage Act in 1996 (hereinafter "EEA"). (13) Part A of this Section discusses the EEA, Part B examines the Uniform Trade Secrets Act, a civil measure similar to the EEA, and Parts C through F discuss statutes that were previously 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 (RICO) Act. Finally, Part F describes state attempts to combat trade secret theft.

   1. Economic Espionage Act of 1996

      Congress criminalized the theft of trade secrets by enacting the EEA in October 1996. (14) The EEA established two offenses under which the government can prosecute theft of trade secrets. The first offense, "economic espionage" (hereinafter "[section] 1831"), arises only when the theft benefits a foreign government. (15) This carries higher penalties than the second offense, "theft of trade secrets" (hereinafter "[section] 1832"), which is more sweeping, and concerns theft benefiting any person but the true owner. (16)

      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." (17) For such information to be considered a trade secret, the LEA imposes two requirements: (i) the owner of the property must take reasonable measures to keep the property secret; (18) and (ii) the information must derive an "independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public." (19)

         The EEA's broad definition of trade secrets (20) represents the first time federal legislation has specifically protected intangible property without additional requirements, such as transmission of such property through the mail or through a wire transmission. (21) A notable exception under the LEA is that, while it covers information stolen in electronic form or merely memorized, (22) it is not intended to cover general knowledge or skills learned on a job when an employee leaves one company and moves to another in the same or similar field. (23)

      2. Elements of the Criminal Offenses

         1. Economic Espionage

            Section 1831, "economic espionage," requires that the theft of trade secrets benefit a foreign government, instrumentality, or agent in some manner. (24) This type of misappropriation of trade secrets not only covers outright theft (25) or unauthorized duplication, (26) but also includes trafficking in stolen trade secrets, (27) as well as the attempt (28) and conspiracy (29) to commit these offenses. Section 1831 includes an intent component requiring that the misappropriation be "knowingly" committed. (30)

         2. Theft of Trade Secrets

            Section 1832, "theft of trade secrets," is of more general application than [section] 1831, but nonetheless includes three prosecutorial limitations not present in the "economic espionage" offense: (31) (i) the intended benefit realized must be economic in nature; (32) (ii) the thief must intend or know that the offense will injure the rightful owner; (33) and (iii) the stolen information must be "related to or included in a product produced for or placed in interstate or foreign commerce." (34)

            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 existence of an actual trade secret. (35)

      3. Applicability to Conduct Abroad

         Section 1837 of the EEA reaches theft of trade secrets or economic espionage that occurs overseas, so long as federal law binds the offender or an "act in furtherance of the offense was committed in the United States." (36) The first provision of [section] 1837 extends the jurisdictional reach of the federal government to prosecute U.S. citizens and corporations for actions occurring abroad, even when there is no other connection with the United States. (37) The second provision enables the federal government to pursue trade secret theft outside of the country, so long as some part of the activity is connected to the United States. (38)

      4. Prosecutions Under the EEA

         Many criminal actions brought under the EEA stem from FBI stings and have involved domestic theft of trade secrets. (39) Indeed, while there have been several actions involving foreign defendants, (40) all actions under the EEA prior to May 2001, when the first indictment under [section] 1831 was brought, (41) were filed under [section] 1832. (42) However, at least one commentator foresees more aggressive use of [section] 1831 by the government and sees it as a potential counterterrorism measure for use in the war against terror. (43)

      5. Defenses

         Defenses to EEA prosecutions include: (i) independent development; (ii) reverse engineering; and (iii) lack of secrecy. Though not statutorily specified in the EEA, all of these defenses are also available in civil misappropriation cases. (44)

         1. Independent Development

            The defense of independent development may be raised when the defendant arrives at a technique similar to the trade secret exclusive of any influence from the trade secret that the defendant is alleged to have violated. (45) In the civil context, the defense of independent development is a counter to improper "use" of trade secrets; where the defendant has independently developed an idea, he cannot be said to have "used" a pre-existing idea, even if both ideas are similar. (46)

         2. Reverse Engineering

            Reverse engineering involves the systematic...