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Federal prosecutors aggressively prosecute the theft of trade secrets using the Economic Espionage Act of 1996. Penalties for violations are quite severe. This article describes the act and discusses some noteworthy local cases. Description of The Economic Espionage Act The act prohibits two types of activities. First, the act criminalizes the theft of trade secrets for the benefit of a foreign power. Second, the act criminalizes the theft of trade secrets for commercial or economic purposes. In either case, a person who knowingly steals or takes a trade secret by means of deception commits a crime. Anyone who gains possession of a trade secret, knowing it to have been misappropriated, similarly violates the act. The act broadly defines “trade secret” to include all forms of financial, business, scientific or economic information including plans, prototypes, techniques and procedures, whether tangible or intangible, provided that the owner has taken reasonable measures to keep such information secret. Where a foreign power is involved, the stolen trade secret need not be exploited commercially. In all other cases, the trade secret must be “related to or included in a product that is produced for or placed in interstate or foreign commerce.” The act applies globally. For example, the act applies whenever any act in furtherance of the offense was committed in the United States, regardless of whether the bulk of the offense was committed abroad. The act also applies where a foreign corporation sells in the U.S. a product that includes a stolen trade secret, regardless of where the product was manufactured. Additionally, the act applies to economic espionage that occurs exclusively abroad if the defendant is a U.S. citizen or resident. Penalties Under the Act In passing the act, Congress provided stiff statutory penalties. Persons convicted of violating the act on behalf of a foreign power may be fined up to $500,000 and imprisoned up to 15 years. Organizations committing such an offense face fines of up to $10 million. All other violators face fines of up to $500,000, 10 years in prison and the forfeiture of all ill-gotten gains. The U.S. Sentencing Guidelines also impose harsh penalties for corporate espionage. For example, the sentencing range for corporate espionage involving national defense information, which is broadly defined to include most defense-related or military secrets, gathered or transmitted in order to aid a foreign government, begin at 210-262 months. Just gathering national defense information without authorization, absent transmitting it to others, results in a sentence starting at 97-121 months. Guideline sentences for commercial economic espionage differ depending on the amount of loss caused to the victim. For example, the sentence for purely economic espionage that causes a loss of $120,000 begins at 21-27 months. Noteworthy Local Prosecutions In United States v. Morris(No. 1:02-cr-00120, D. Del.), John Morris attempted to sell a competitor his employer’s proprietary pricing information for waterproof fabrics that were to be sold to the Department of Defense. Morris placed a series of telephone calls to a man he believed to be an employee of the rival but who was really an undercover agent. During the calls, Morris offered to sell his employer’s trade secrets for $100,000. He ultimately was arrested and pled guilty. In United States v. Kai-Lo Hsu(No. 2:97-cr-00323, E.D. Pa.), Kai-Lo Hsu, the technical supervisor of a Taiwan paper company, and his co-defendant agreed to pay $400,000 for trade secrets concerning the manufacture of an anti-cancer drug. The person to whom Hsu offered the bribe reported it to federal authorities. Thereafter, a federal agent posing as a corrupt scientist offered to sell the information to Hsu. A dramatic arrest followed at the Four Seasons Hotel in Philadelphia. The case originated with an FBI sting operation in which agents posed as corrupt technological information brokers. Hsu ultimately pled guilty. In United States v. ComTriad(No. 2:01-cr-00365, D.N.J.), two Lucent scientists, along with others, misappropriated key elements of the source code for Lucent’s PathStar data and voice transmission system and then set up a series of straw companies to exploit the code commercially. The conspirators hoped to beat Lucent to the market with high-quality voice transmission technology. They engaged in an elaborate set of subterfuges to hide any ownership interest in their entities. Their complicated attempts to avoid revealing their interest in the phony entities ultimately fell apart. They were detected, charged and convicted. In United States v. Min(No. 1:06-cr-00121, D.Del.), Gary Min, a native of China, was a scientist for DuPont. During many years of working for DuPont, Min collected over 10,000 documents containing basic research done by DuPont in the development of cutting-edge materials. Min accepted a job at a DuPont competitor. Before departing DuPont, he accessed virtually every document that he could from DuPont’s electronic library with the intention of providing it to his new employer. Min was detected after DuPont’s librarian noticed that he had become the electronic library’s second-most active user, outstripping every other scientist employed by DuPont. DuPont estimated that Min’s actions cost it millions of dollars. Min pled guilty and was sentenced to 18 months in prison. Conclusion Companies should be mindful that the theft of their trade secrets by employees, by competitors or by anyone else is a serious crime. In addition to whatever civil remedies they might pursue, victims should report instances of corporate espionage to federal prosecutors, who are ready, willing and able to conduct criminal investigations and to prosecute. • Joseph U. Metz is a partner at Dilworth Paxson where he is a member of the corporate investigations and white-collar group. His areas of practice include white-collar criminal defense and related litigation as well as internal corporate investigations. He has defended a number of political and business figures. He can be reached at 717-236-4812 or [email protected]. David M. Laigaie , a partner at Dilworth Paxson, heads the corporate investigations and white-collar group. His areas of practice include health care fraud, securities fraud, tax fraud, export violations, pharmaceutical marketing fraud, municipal corruption, defense procurement fraud and public finance fraud. He regularly conducts internal corporate investigations. He can be reached at 215-575-7168 or [email protected].

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