Intellectual property crimes.

AuthorBrandes, Ronnie Heather
PositionAnnual white collar crime survey
  1. INTRODUCTION

    Owners of intellectual property are able to protect their rights by pursuing civil remedies. Yet the possibility of civil sanctions alone is insufficient to deter violators who steal trade secrets or infringe on others' trademarks, copyrights, or patents.(1) Indeed, some intellectual property thieves 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)

    The lack of deterrence associated with civil mechanisms led the federal government and most states to enact statutes designed to prevent the theft of intellectual property rights. These are often general statutes which can be 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 deter 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. 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.

  2. THEFT OF TRADE SECRETS

    Prior to the enactment of the Economic Espionage Act, addressed in Part A, no federal criminal statute dealt directly with the theft of intangible trade secrets. Parts B through E of this Section will cover alternative statutes federal prosecutors have used in the past, 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 F describes state provisions used to combat trade secret theft.

    1. Economic Espionage Act of 1996

      In October 1996, discouraged by the failure of civil remedies to prevent trade secret theft, the inability of prosecutors to effectively use other criminal statutes, and the frequent efforts by foreign governments to obtain trade secrets from American companies, Congress made the theft of trade secrets a federal crime by enacting the Economic Espionage Act ("EEA").(3) The EEA established two criminal offenses under which governments can prosecute trade secret theft. The first offense, "economic espionage," arises only when the theft benefits a foreign government.(4) This carries higher penalties than the second offense, "theft of trade secrets," which is broader and generally concerns 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) Although substantially similar to the trade secret definition in the civil Uniform Trade Secrets Act ("UTSA"),(7) the definition in the EEA is broader in an effort to modernize the law and "keep pace with growing technology, especially in the computer and information storage sectors."(8)

        In order to protect property that is considered a trade secret, the owner of the property must take reasonable measures to keep it secret.(9) 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 access it through proper means.(10) This provision imposes a higher standard of self-protection on the owner of a trade secret than on owners of other types of property.(11)

      2. Tangibility

        Another important provision of the EEA is its broad definition of property: "tangible or intangible, and whether or how stored."(12) This implies that information stolen in electronic form or merely memorized falls under the definition of trade secret theft.(13) As discussed in later sections, this is the first time 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 the provision covering memorized information was not intended to include general knowledge and skill learned on a job when an employee leaves one company and moves to another in the same or a similar field.(14)

      3. Intent and Method of Misappropriation

        Under the first offense, economic espionage, the perpetrator must intend or know that the "offense will benefit any foreign government, foreign instrumentality, or foreign agent."(15)

        When trade secret theft does not benefit a foreign government, provisions of the second offense apply. Under the EEA, "theft of trade secrets" requires specific intent and methods of misappropriation. Section 1832 states broadly that any unauthorized possession of a trade secret with intent to injure another violates the act.(16)

        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."(17) 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."(18)

        On the other hand, the EEA's definition of "theft" of a trade secret is broader than the UTSA's which defines "theft" as misappropriation by improper means.(19) In contrast, the EEA definition considers the mere receipt of a trade secret a violation.(20)

      4. Applicability to Conduct Abroad

        Another expansive provision of the EEA is section 1837, which allows the government to prosecute conduct that occurs overseas if the party involved in the activity is bound by United States federal law or if an "act in furtherance of the offense was committed in the United States."(21) The first provision in section 1837 extends the jurisdictional 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.(22) 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.(23)

        At the same time, section 1833 narrows the scope of the act by providing two exceptions relating to law enforcement and other governmental activities.(24) The first exception allows the government to continue an otherwise lawful "investigative, protective, or intelligence activity."(25) The second exception permits the reporting of suspected criminal activity to law enforcement.(26)

      5. Prosecutions Under the EEA

        Because the EEA is a new law, the government has only begun to prosecute violators. Some commentators have attributed the slow enforcement to the tension between criminal law and the generally civil nature and history of intellectual property protection.(27) Commentators also speculate that the government will wait for cases where "the blatancy of the theft and the potential ease of conviction" are obvious.(28)

        The government has brought at least eleven criminal actions under the EEA.(29) All are fairly straightforward, stemming from FBI stings, and were filed under section 1832.(30) In June 1997, the FBI in Philadelphia charged two Taiwanese nationals with attempting to steal trade secrets involving Taxol, a cancer-fighting drag produced by Bristol-Myers Squibb Company.(31) According to the FBI, these arrests are believed to be the first two brought under the EEA involving an international corporation.(32) This case has led to the only judicial decision under the EEA.(33) In United States v. Hsu, the Third Circuit held in an interlocutory appeal that impossibility was not a defense to attempted trade secret theft under section 1832(a)(4) because the defendant's culpability in an attempt charge "depends only on `the circumstances as he believes them to be,' not as they really are."(34)

        Other reported cases filed under the EEA involve the theft of PPG Industries' glass-making process,(35) Intel computers,(36) a veterinary test kit owned by Idexx Laboratories of Maine,(37) a breast cancer treatment called Taximofen(38) designs for a controlling mechanism for a coal-mining machine manufactured by Joy Mining Machinery Inc.,(39) and a proprietary software program developed by Deloitte-Touche.(40) The EEA has also been used to prosecute the attempted theft of Hoffman La Roche's Hepatitis C monitoring kit,(41) future razor systems from the Gillette Company,(42) and the attempted sale of marketing plans and subscription lists to a rival newspaper.(43) 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 Corporation relating to formulations for self-adhesive products, initially valued at $50-60 million.(44)

    2. National Stolen Property Act

      The National Stolen Property Act ("NSPA")(45) 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...."(46) Although the NSPA was not designed or intended to apply to trade secret theft,(47) federal courts have held that under certain circumstances the NSPA is applicable to the theft of tangible property containing trade secrets.(48)

      1. Transported in Interstate or Foreign Commerce

        To fall...

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