Intellectual property crimes.

Author:Philips, Eleanor T.
Position:Thirtieth Annual Survey of White Collar Crime
  1. INTRODUCTION II. TRADE Secret Theft 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. Computer Fraud and Abuse Act F. 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. The Internet and the First Sale Doctrine 3. Internet Service Provider Liability V. PATENT A. False Marking B. Counterfeiting or Forging Letters Patent VI. CABLE TELEVISION AND SATELLITE DESCRAMBLING 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 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 for the federal government in an environment where 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) Conservative estimates indicate that U.S. companies lose $200 to $250 billion and 750,000 jobs each year to intellectual property theft. (6) In addition to monetary damages, intellectual property theft may also compromise the safety of the general public when counterfeit materials are used in pharmaceuticals, auto parts, and other such goods. (7)

    The marked increase in intellectual property theft--combined with the ineffective deterrence civil remedies provide--has led the federal, state, and local governments to enact criminal statutes to protect intellectual property. (8) Examples of the government's continuing commitment to enforcing intellectual property law include the president's transmission of the 2010 Joint Strategic Plan on Intellectual Property Enforcement; (9) the creation of the Intellectual Property Task Force by the Department of Justice ("DOJ"); (10) and Operation Network Raider, (11) a domestic and international enforcement initiative targeting counterfeit network hardware originating in China. (12) In recent years, the federal government has increased the number of criminal investigations of intellectual property crimes. (13) In fiscal years 2011 and 2012, the DOJ investigated 330 and 314 cases, respectively, involving 18 U.S.C. [section][section] 2318, 2319, 2319A, 2320, or 17 U.S.C. [section] 506, up from 243 such cases investigated in fiscal year 2009. (14) However, despite the increase in investigations, there has not been a similarly large increase in criminal prosecutions over the same period as the DOJ brought 150 cases during 2009 and, similarly, 152 cases in 2012. (15)

    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 looks at patent violations; Section VI discusses cable television and satellite descrambling; and Section VII discusses sentencing for intellectual property crimes.


    Although trade secret theft is one of the biggest challenges U.S. corporations face in global business, (16) no federal criminal statute directly addressed the theft of commercial trade secrets until the enactment of the Economic Espionage Act in 1996 ("EEA"). (17) Part A of this Section discusses the EEA. Parts B through E discuss other federal statutes that prosecutors have used to penalize the misappropriation of trade secrets, though they have not achieved much success. These statutes include the National Stolen Property Act, the Trade Secrets Act, the Mail and Wire Fraud statutes, and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Finally, Part F describes various state attempts to combat the theft of trade secrets.

    1. Economic Espionage Act of 1996

      Congress enacted the EEA in October 1996 in response to the growing efforts by foreign governments to misappropriate the trade secrets of U.S. companies. (18) While the EAA provides criminal and civil penalties for the theft of trade secrets, there is currently no private cause of action for such theft. (19)

      The statute 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 and carries higher penalties than the second offense. (21) The second, "theft of trade secrets" ([section] 1832), concerns theft benefiting any person who is not the true owner. (22) This offense is more general and applies 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 how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." (24) To be protected as a trade secret under the EAA, such information must meet two requirements: (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 elements, such as wire or mail transmission, are necessary to bring conduct within the scope of the statute. (28) But the statute's scope is not unlimited. While the EEA covers information that is stolen in electronic form or 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

          To constitute "economic espionage" under [section] 1831, a trade secret misappropriation must be intended to benefit a foreign government, instrumentality, or agent. (31) This type of trade secret misappropriation covers outright theft, (32) unauthorized duplication, (33) trafficking in or possessing stolen trade secrets, (34) and attempt (35) and conspiracy (36) to commit these offenses. Under [section] 1831 a defendant possesses the requisite mens rea if the misappropriation is "knowingly" committed. (37) To establish knowledge, the government must prove that the defendant is aware that the information he possesses is a trade secret. (38) The government need not show that the foreign government received an actual benefit from the trade secret. (39)

          Proof that the misappropriator intended for the trade secret to benefit the foreign government is sufficient. (40)

          The Foreign and Economic Espionage Penalty Enhancement Act of 2012 increases the maximum prison sentence for economic espionage in violation of [section] 1831(a) from fifteen to twenty years. (41) The law directed the United States Sentencing Commission to study the sufficiency of the current United States Sentencing Guidelines ("Guidelines") as they relate to economic espionage and stolen trade secrets. (42) In response to the law, the Commission amended the applicable Guidelines provision in 2013. (43)

        2. Theft of Trade Secrets

          Under [section] 1832, "theft of trade secrets" is the misappropriation of trade secrets for the economic benefit of anyone other than the owner of the trade secret. (44) However, three prosecutorial limits exist that are not present in the "economic espionage" offense: (45) (i) the intended benefit must be economic in nature; (46) (ii) the thief must intend or know that the offense will injure the rightful owner; (47) and (iii) the stolen information must be "related to or included in a product that is used in or intended for use in interstate or foreign commerce." (48) Like under [section] 1831, under [section] 1832 a defendant possesses the requisite mens rea if the misappropriation is "knowingly" committed. (49) As interpreted by some circuits, the attempt and conspiracy provisions of [section] 1832 do not require the government to prove that an actual trade secret existed. (50)

          The Theft of Trade Secrets Clarification Act of 2012 (51) was enacted in response to the Second Circuit's decision in United States v. Aleynikov. (52) In...

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