Stealing trade secrets will U.S. crack down? (Global Competition).

It's tough on a company when well-kept trade secrets suddenly migrate to foreign lands, to emerge in the products of competitors. Mischief that has splashed across newspaper pages this year includes accusations of Chinese citizens trying to float out trade secrets from former U.S. employers or of shipping restricted technologies to China. The affair of an FBI agent with a Chinese woman -- allegedly a double agent -- is no doubt keeping TV movie scriptwriters up late at night.

Presumably, the Department of Justice is loading both barrels of the Economic Espionage Act (EEA), enacted in 1996 to criminalize the theft of trade secrets, and firing indictments left and right. Right?

Not exactly. The EEA hasn't been comatose, but since March 2000, EEA activity has publicly surfaced in only a couple of dozen cases. Most accused perpetrators are either company insiders or ex-employees. Stolen secrets are often customer information or computer source codes and software, though sometimes it's as exotic as genetic screening discoveries or a DNA cell line. Only twice have prosecutors filed indictments under the EEA alleging state-sponsored activity.

The value of stolen secrets is really anyone's guess, but estimates are periodically made by the American Society for Industrial Security. The latest survey, done in cooperation with PricewaterhouseCoopers and the U.S. Chamber of Commerce, pulled data from July 2000 through June 2001 from Fortune 1000 as well as small and mid-sized companies. The survey team put the value of U.S. company losses in proprietary information and intellectual property during that period at $53 billion-$59 billion, though by no means is all that attributable to foreign activity. R&D and financial departments racked up the greatest losses per incident.

Peter J. Toren, a partner in the New York office of Sidley, Austin, Brown & Wood and a former federal prosecutor who helped draft the EEA, expects more indictments. "Since 9/11, Justice has been rightly focused on more important issues," Toren says. "That will soon change. Because of the economic downturn, foreign countries and companies are more focused than ever on obtaining trade secrets."

Business as Usual?

Toren contends that illegal activity will be deterred only if the government pursues enough cases to create the impression foreign companies will be prosecuted if they steal trade secrets. "Right now, I don't think most companies regard this as a real risk," he says. "Until they do, it will be business as usual."

There are practical problems, however, with using a criminal statute to crack down on trade-secret theft. Jack Hanly, a prosecutor in the U.S. Attorney's Cybercrime Unit in Vienna, Va., acknowledges that EEA cases are tough to win. Prosecutors must prove beyond a reasonable doubt that a defendant intended to personally benefit from the theft, and knew of the of harm to the owner. As a result, Hanly says, prosecutors often file alternative charges, such as wire fraud, interstate transportation of stolen property or computer hacking.

An example of such efforts is Cisco Systems Inc.'s suit against China's Huawei Technologies Co., filed in January. The suit alleges Huawei copied Cisco's software and violated its patents. Evan A. Raynes, Price's colleague at Finnegan Henderson, says he's been part of a team exploring a civil version of the EEA to make such actions easier. "The main advantage of a civil version is that it would be more widely used than the criminal statute," Raynes says. "It would also free up government resources and let companies better act to protect themselves."

"There's no question that the government's ability to prosecute criminal actions in the trade secret/computer crimes area has increased significantly," says Griffith B. Price, a partner in the Washington, D.C., office of Finnegan, Henderson, Farabow, Garrett & Dunner. "But inevitably, the government is most interested in the big cases that implicate national security concerns" -- meaning that lesser victims must be prepared to protect their interests through civil actions.

Skip Kaltenheuser ([e-mail]) is a freelance writer in Washington, D.C., who writes frequently about security and trade topics.