Intellectual property crimes.

AuthorHsieh, Lilli
PositionThirteenth Survey of White Collar Crime

    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.(1) Indeed, some entrepreneurs view civil damage actions as just another cost of doing business. It has been estimated that the theft of intellectual property rights in the United States cost over $300 billion dollars in 1997 alone, with high technology corporations most frequently targeted.(2)

    This void in the enforcement mechanisms of intellectual property rights is filled by various federal and state criminal statutes. These 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 for which protection is sought. These latter provisions are used with increasing frequency to facilitate deterrence and punish perpetrators.

    This article examines several areas of intellectual property law under which criminal prosecutions are brought. Section II covers the theft of trade secrets, while Section III discusses trademark counterfeiting. Next, Section IV addresses copyright infringement. Section V examines the new problems raised by online servers, while Section VI looks at patents and Section VII at art crimes. Finally, Section VIII discusses sentencing for intellectual property crimes.


    Prior to the enactment of the Economic Espionage Act, which will be addressed in Part A, there was no federal criminal statute that dealt directly with the theft of trade secrets in the form of intangible intellectual property. The remaining Parts of this Section will cover the other statutes that federal prosecutors have used in the past, with limited success, to penalize the misappropriation of trade secrets. Part B covers the National Stolen Property Act, while Part C discusses the Trade Secrets Act and Part D analyzes the Mail and Wire Fraud statutes. Part E addresses the Racketeer Influenced and Corrupt Organization Act, and finally, Part F describes state provisions.

    1. Economic Espionage Act of 1996

      In October 1996, discouraged with the failure of civil remedies in preventing trade secret theft and with the inability of prosecutors to use effectively other criminal statutes, Congress made the theft of trade secrets a federal crime with the enactment of the Economic Espionage Act ("EEA").(3) The EEA established two criminal statutes with which to prosecute theft of trade secrets. The first applies only when the theft is carried out to benefit a foreign government.(4) This carries higher penalties than the second section, which is broader and is generally applicable to all trade secret theft.(5)

      1. Definition of Trade Secret

        The EEA defines trade secrets to include "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 ..."(6) This definition is substantially similar to the one in the civil wade secret law, the Uniform Trade Secrets Act ("UTSA").(7) In order to protect property that is considered a trade secret, however, the owner of the property must take reasonable measures to keep it secret.(8)

        Additionally, the economic value of the information must be derived from the general public's lack of knowledge about it or the public's inability to readily ascertain it through proper means.(9) This provision imposes a higher standard of self-protection on the owner of a trade secret than on owners of any other type of property.(10)

      2. Intent and Method of Misappropriation

        The second component of the EEA, which is applicable to trade secret theft that does not benefit a foreign government, contains specific intent and methods of misappropriation requirements. Section 1832 states broadly that any unauthorized possession of a trade secret with intent to injure another violates the act.(11)

        The EEA intent requirements include: "knowingly" intending "to convert a trade secret," while "knowing that the offense will, injure any owner of that trade secret."(12) Consequently, the scope of the EEA is somewhat more limited than its civil counterpart, the UTSA, which does not require that the "defendant be aware of the trade secret."(13)

        On the other hand, the EEA's definition of "theft" of a trade secret is broader than the UTSA's which provides simply that misappropriation is "by improper means."(14) The EEA definition is more expansive because it includes the mere receipt of a trade secret as a violation.(15)

        Another expansive provision of the EEA is [sections] 1837, which allows the government to prosecute conduct which occurs overseas if the party involved in the activity is bound by United State federal law or if an "act in furtherance of the offense was committed in the United States."(16) The first provision in [sections] 1837 extends the reach of the federal government to penalize the actions of United States citizens and corporations abroad, presumably even when there is no other nexus with the United States.(17) The second provision enables the federal government to pursue trade secret theft outside of the country as long as some part of the activity, such as a phone call, was connected to the United States.(18)

        At the same time, [sections] 1833 narrows the scope of the act by providing two exceptions relating to law enforcement and other governmental activities.(19) The first exception allows the government to continue an otherwise lawful "investigative, protective, or intelligence activity."(20) The second exception permits the reporting of suspected criminal activity to law enforcement.(21)

      3. Tangibility

        Another important provision of the EEA is its broad definition of property: "tangible or intangible, and whether or how stored."(22) This implies that information that is taken in electronic form or merely memorized falls under the definition of trade secret theft.(23) As discussed in later sections, this is the first time that federal legislation has specifically protected intangible property without additional requirements, such as a use of the mail or a wire transmission.

        The EEA's legislative history indicates that the provision covering memorized information was not intended to include the general knowledge and skill learned on a job when an employee leaves a company and moves to another in the same or similar field.(24)

      4. Prosecutions Under the EEA

        Because the EEA is still a new law, the government has only begun to prosecute violators. Some commentators have speculated that the government will wait for cases where "the blatancy of the theft and the potential ease of conviction" are obvious.(25)

        There have been reports of at least four cases where the government used the EEA to bring charges against alleged violators. In June 1997, the FBI in Philadelphia charged two Taiwanese nationals with attempting to steal trade secrets involving Taxol, a cancer-fighting drug produced by Bristol-Myers Squibb Co.(26) According to the FBI, these are believed to be the first two arrests brought under the EEA involving an international corporation.(27)

        Two other reported cases filed under the EEA involve the theft of PPG Industries' glass-making process(28) and of a breast cancer treatment called Taximofen.(29) Lastly, in September 1997, the FBI in Cleveland arrested a Taiwanese businessman and his daughter in connection with the theft of trade secrets from the Avery Dennison Corp. relating to formulations for self-adhesive products, initially valued at $50-460 million.(30)

    2. National Stolen Property Act

      The National Stolen Property Act ("NSPA")(31) provides 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 ...."(32) The federal courts have held that the NSPA is applicable to the theft of tangible property containing trade secrets under certain circumstances.(33)

      1. Transported in Interstate Commerce

        To fall within the scope of the NSPA, allegedly stolen trade secrets must be transported or transferred in interstate or foreign commerce.(34) 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.(35)

      2. Goods, Wares or Merchandise

        In United States v. Seagraves,(36) the Third Circuit defined "goods, wares or merchandise" broadly as "such personal property or chattels as are ordinarily a subject of commerce."(37) 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 NSPA.(38) Courts have also held that trade secrets must be stolen while in a tangible form or in conjunction with tangible goods;(39) so a violation cannot be established if, for example, a thief merely memorizes a secret formula and then writes it down after crossing a state boundary.(40)

      3. Minimum Value of $5,000

        The intent of the NSPA is to address only the theft of items having substantial market value.(14) 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.(42) Absent a market, courts have looked for "any reasonable method" of valuation.(43) The amount of time and money defendants invested in the misappropriation scheme is one alternative to...

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