Economic Espionage Act of 1996
Encyclopedia
The Economic Espionage Act of 1996 was a 6 title Act
of Congress
dealing with a wide range of issues, including not only industrial espionage
(e.g., the theft
or misappropriation
of a trade secret
and the National Information Infrastructure Protection Act
), but the insanity defense, the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United States Sentencing Commission
reports regarding encryption or scrambling technology, and other technical and minor amendments.
, which is governed by Title 18 U.S. Code Sections 792 - 799, the offense involves commercial information, not classified or national defense information.
This law contains two sections criminalizing two sorts of activity. The first, , criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign power. Penalties for violation are fines of up to US$500,000 per offense and imprisonment of up to 15 years for individuals, and fines of up to US$10 million for organizations,
The second section, , criminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to US$5 million for organizations.
In addition to these specific penalties, section 1834 of the EEA also requires criminal forfeiture of (1) any proceeds of the crime and property derived from proceeds of the crime and (2) any property used, or intended to be used, in commission of the crime.
The Act authorizes civil proceedings by the Department of Justice to enjoin violations of the Act, but does not create a private cause of action. Thus, victims or putative victims must work with the U.S. Attorney in order to obtain an injunction.
The Economic Espionage Act, 1996 has extraterritorial jurisdiction where:
"Trade secrets" are defined in the act consistent with generally accepted legal definitions such as those used in the Uniform Trade Secrets Act
and state laws based on the UTSA, to refer broadly to information, whether in tangible or intangible form, that:
This legislation has created much debate within the business intelligence
community regarding the legality and ethics of various forms of information gathering designed to provide business decision-makers with competitive advantages in areas such as strategy, marketing, research and development, or negotiations. Most business intelligence (also known as competitive intelligence
practitioners) rely largely on the collection and analysis of open source information from which they identify events, patterns, and trends of actionable interest. However, some techniques focus on the collection of publicly available information that is in limited circulation. This may be obtained through a number of direct and indirect techniques that share common origins in the national intelligence community. The use of these techniques is often debated from legal and ethical standpoints based on this Act.
One such example is the collection and analysis of gray literature
. The techniques for developing actionable intelligence from limited circulation / limited availability documents such as selected corporate publications can raise difficult legal and ethical questions under both intellectual property laws and the Economic Espionage Act.
The Society for Competitive Intelligence Professionals provides training and publications which outline a series of guidelines designed to support business intelligence professionals seeking to comply with both the legal restrictions of the EEA as well as the ethical considerations involved. In 1999, the Society of Competitive Intelligence Professionals published its Policy Analysis on Competitive Intelligence and the Economic Espionage Act which explained how the Economic Espionage Act will not affect legitimate competitive intelligence. The National Law Journal of March 29, 2000, reviewed the Policy Analysis and reported that the Policy Analysis' conclusion was that the EEA's "impact on legitimate competitive intelligence would be negligible" and that "nearly four years" after the EEA's passage, "it appears that the [Policy Analysis'] predictions were on target."
The EEA was developed on the basis of a national philosophy that emphasizes a "level playing field" for all business competitors that arose in no small part due to the size and diversity of the American private sector
. Many other nations not only lack such legislation, but actively support industrial espionage
using both their national intelligence services as well as less formal mechanisms including bribery
and corruption. The United States Office of the National Counterintelligence Executive
publishes an annual report on Foreign Economic Collection and Industrial Espionage mandated by the U.S. Congress which outlines these espionage activities of many foreign nations.
The United States does not engage in state-sanctioned industrial espionage. In 2000, in response to European concerns, a former U.S. Director of Central Intelligence, James Woolsy, said (in the March 17, 2000 Wall Street Journal editorial) that if there is collection, it's usually focused on bribery
by European companies, not on access to technologies. Woolsey said "most European technology just isn’t worth our stealing." As DCI, Woolsey testified before Congress that he was reluctant to engage in economic espionage as the endeavor is "fraught with complexities, legal difficulties (and) foreign policy difficulties."
In 2000, the European Parliament
voted to carry out an investigation into the international surveillance project ECHELON
. That same year the French government also began an official investigation into allegations that several collaborating nations may be using the program for illegal purposes. U.S. Central Intelligence Agency
documents had been revealed to the British press, showing that the U.S. has been using the technology to monitor European business communications. The French and European allegations centered on the suspicion that such information was being passed to U.S. firms. The U.S. stated that monitoring was focused on the participation of European firms in supplying foreign WMD (weapons of mass destruction) programs, such as the Iran nuclear program, on evading sanctions in Iran and Libya, and on the bribery of foreign officials, such as French payments to Saudi Defense officials.
engineer Dongfan "Greg" Chung was sentenced to 16 years in prison, following the first ever trial conviction under the 1996 Economic Espionage Act. Chung, a native of China, was convicted by the US District Court for the Central District of California
of stealing Boeing trade secrets related to the US Space Shuttle program
and the Delta IV rocket. He spent over 30 years providing U.S. aerospace technologies to China. Chung was convicted on charges related to more than 350,000 sensitive documents that were found concealed in crawl spaces underneath his home, including conspiracy to commit economic espionage, six counts of economic espionage to benefit a foreign country, one count of acting as an agent of the People’s Republic of China, and one count of making false statements to the FBI. The 15-year sentence is viewed as a life sentence for Chung who is 74 years old.
Chung was arrested by special agents from the FBI's Los Angeles Field Office in February 2008. He worked for Rockwell International
from 1973 until its defense and space unit was acquired by Boeing in 1996, and he continued to work for Boeing as an employee and then as a contractor through 2006. Chung's arrest resulted from an investigation into the case of Chi Mak
, a Chinese-American engineer convicted in 2007 of conspiring to export sensitive naval technologies to China and sentenced to more than 24 years in prison.
At Chung's sentencing, presiding judge, Cormac Carney, said that he could not “put a price tag” on national security, and that with the long sentence for Chung he wanted to send a signal to China to “stop sending your spies here.”
After an August, 2007 plea of guilt for (one count) of violating the Economic Espionage Act and one count of violating the Arms Export Control Act, San Jose
U.S. District Court Judge
Jeremy Fogel sentenced Canadian citizen Xiaodong Sheldon Meng, 44, to 24 months in federal prison
, 3 years of parole
and a $10,000 fine, with forfeiture of computer equipment seized. Meng was indicted in December 2006, with 36 counts, "for stealing military software from a Silicon Valley
defense contractor and trying to sell it to the Chinese military." The first to be convicted of Economic Espionage (Section 1831), Meng admitted "illegally obtaining a program used for military training from Quantum3D
and later using the program in a demonstration to the Chinese Navy
after he no longer worked for the firm; he attempted to sell the fighter-pilot training software programs to the Royal Thai Air Force
, the Royal Malaysian Air Force and the Navy Research Center in China." He paid $500,000 bond, for temporary liberty, until August 18 when he begins serving sentence.
On June 18, 2008, Meng was the first individual sentenced under the Economic Espionage statute. Meng was the first person convicted of both the Economic Espionage Act of 1996 and the Arms Export Control Act
. He received a 24-month sentence and $10,000 fine, which included a sentencing departure for cooperation, according to news reports.
Act of Congress
An Act of Congress is a statute enacted by government with a legislature named "Congress," such as the United States Congress or the Congress of the Philippines....
of Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
dealing with a wide range of issues, including not only industrial espionage
Industrial espionage
Industrial espionage, economic espionage or corporate espionage is a form of espionage conducted for commercial purposes instead of purely national security purposes...
(e.g., the theft
Theft
In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...
or misappropriation
Misappropriation
In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility...
of a trade secret
Trade secret
A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers...
and the National Information Infrastructure Protection Act
National Information Infrastructure Protection Act
The National Information Infrastructure Protection Act was Title II of the Economic Espionage Act of 1996, as an amendment to the Computer Fraud and Abuse Act.-The Act:...
), but the insanity defense, the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United States Sentencing Commission
United States Sentencing Commission
The United States Sentencing Commission is an independent agency of the judicial branch of the federal government of the United States. It is responsible for articulating the sentencing guidelines for the United States federal courts...
reports regarding encryption or scrambling technology, and other technical and minor amendments.
Trade secrets
The act makes the theft or misappropriation of a trade secret a federal crime. Unlike the Espionage Act of 1917Espionage Act of 1917
The Espionage Act of 1917 is a United States federal law passed on June 15, 1917, shortly after the U.S. entry into World War I. It has been amended numerous times over the years. It was originally found in Title 50 of the U.S. Code but is now found under Title 18, Crime...
, which is governed by Title 18 U.S. Code Sections 792 - 799, the offense involves commercial information, not classified or national defense information.
This law contains two sections criminalizing two sorts of activity. The first, , criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign power. Penalties for violation are fines of up to US$500,000 per offense and imprisonment of up to 15 years for individuals, and fines of up to US$10 million for organizations,
The second section, , criminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to US$5 million for organizations.
In addition to these specific penalties, section 1834 of the EEA also requires criminal forfeiture of (1) any proceeds of the crime and property derived from proceeds of the crime and (2) any property used, or intended to be used, in commission of the crime.
The Act authorizes civil proceedings by the Department of Justice to enjoin violations of the Act, but does not create a private cause of action. Thus, victims or putative victims must work with the U.S. Attorney in order to obtain an injunction.
The Economic Espionage Act, 1996 has extraterritorial jurisdiction where:
- The offender is a U.S. citizen or permanent resident; or
- The offender is an organization organized under the laws of the United States or any State or political subdivision thereof; or
- An act in furtherance of the offense was committed in the United States
"Trade secrets" are defined in the act consistent with generally accepted legal definitions such as those used in the Uniform Trade Secrets Act
Uniform Trade Secrets Act
The Uniform Trade Secrets Act , published by the Uniform Law Commission 1979 and amended in 1985, was a uniform act promulgated in an effort to provide legal framework for improved trade secret protection for industry in all 50 states within the United States of America. The U.T.S.A...
and state laws based on the UTSA, to refer broadly to information, whether in tangible or intangible form, that:
- is subject to reasonable measures to preserve its secrecy; and
- derives independent economic value from its not being generally known to or ascertainable by the public.
This legislation has created much debate within the business intelligence
Business intelligence
Business intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....
community regarding the legality and ethics of various forms of information gathering designed to provide business decision-makers with competitive advantages in areas such as strategy, marketing, research and development, or negotiations. Most business intelligence (also known as competitive intelligence
Competitive intelligence
A broad definition of competitive intelligence is the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization.Key...
practitioners) rely largely on the collection and analysis of open source information from which they identify events, patterns, and trends of actionable interest. However, some techniques focus on the collection of publicly available information that is in limited circulation. This may be obtained through a number of direct and indirect techniques that share common origins in the national intelligence community. The use of these techniques is often debated from legal and ethical standpoints based on this Act.
One such example is the collection and analysis of gray literature
Gray literature
Gray literature is a field in library and information science. The term is used variably by the intellectual community, librarians, and medical and research professionals to refer to a body of materials that cannot be found easily through conventional channels such as publishers, "but which is...
. The techniques for developing actionable intelligence from limited circulation / limited availability documents such as selected corporate publications can raise difficult legal and ethical questions under both intellectual property laws and the Economic Espionage Act.
The Society for Competitive Intelligence Professionals provides training and publications which outline a series of guidelines designed to support business intelligence professionals seeking to comply with both the legal restrictions of the EEA as well as the ethical considerations involved. In 1999, the Society of Competitive Intelligence Professionals published its Policy Analysis on Competitive Intelligence and the Economic Espionage Act which explained how the Economic Espionage Act will not affect legitimate competitive intelligence. The National Law Journal of March 29, 2000, reviewed the Policy Analysis and reported that the Policy Analysis' conclusion was that the EEA's "impact on legitimate competitive intelligence would be negligible" and that "nearly four years" after the EEA's passage, "it appears that the [Policy Analysis'] predictions were on target."
The EEA was developed on the basis of a national philosophy that emphasizes a "level playing field" for all business competitors that arose in no small part due to the size and diversity of the American private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
. Many other nations not only lack such legislation, but actively support industrial espionage
Industrial espionage
Industrial espionage, economic espionage or corporate espionage is a form of espionage conducted for commercial purposes instead of purely national security purposes...
using both their national intelligence services as well as less formal mechanisms including bribery
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
and corruption. The United States Office of the National Counterintelligence Executive
Office of the National Counterintelligence Executive
The Office of the National Counterintelligence Executive directs national counter-intelligence for the United States government and is responsible to the Director of National Intelligence. The Office was established on January 5, 2001 by a directive from President Bill Clinton which also...
publishes an annual report on Foreign Economic Collection and Industrial Espionage mandated by the U.S. Congress which outlines these espionage activities of many foreign nations.
The United States does not engage in state-sanctioned industrial espionage. In 2000, in response to European concerns, a former U.S. Director of Central Intelligence, James Woolsy, said (in the March 17, 2000 Wall Street Journal editorial) that if there is collection, it's usually focused on bribery
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
by European companies, not on access to technologies. Woolsey said "most European technology just isn’t worth our stealing." As DCI, Woolsey testified before Congress that he was reluctant to engage in economic espionage as the endeavor is "fraught with complexities, legal difficulties (and) foreign policy difficulties."
In 2000, the European Parliament
European Parliament
The European Parliament is the directly elected parliamentary institution of the European Union . Together with the Council of the European Union and the Commission, it exercises the legislative function of the EU and it has been described as one of the most powerful legislatures in the world...
voted to carry out an investigation into the international surveillance project ECHELON
ECHELON
ECHELON is a name used in global media and in popular culture to describe a signals intelligence collection and analysis network operated on behalf of the five signatory states to the UK–USA Security Agreement...
. That same year the French government also began an official investigation into allegations that several collaborating nations may be using the program for illegal purposes. U.S. Central Intelligence Agency
Central Intelligence Agency
The Central Intelligence Agency is a civilian intelligence agency of the United States government. It is an executive agency and reports directly to the Director of National Intelligence, responsible for providing national security intelligence assessment to senior United States policymakers...
documents had been revealed to the British press, showing that the U.S. has been using the technology to monitor European business communications. The French and European allegations centered on the suspicion that such information was being passed to U.S. firms. The U.S. stated that monitoring was focused on the participation of European firms in supplying foreign WMD (weapons of mass destruction) programs, such as the Iran nuclear program, on evading sanctions in Iran and Libya, and on the bribery of foreign officials, such as French payments to Saudi Defense officials.
First trial conviction and sentence
In February 2010, former BoeingBoeing
The Boeing Company is an American multinational aerospace and defense corporation, founded in 1916 by William E. Boeing in Seattle, Washington. Boeing has expanded over the years, merging with McDonnell Douglas in 1997. Boeing Corporate headquarters has been in Chicago, Illinois since 2001...
engineer Dongfan "Greg" Chung was sentenced to 16 years in prison, following the first ever trial conviction under the 1996 Economic Espionage Act. Chung, a native of China, was convicted by the US District Court for the Central District of California
United States District Court for the Central District of California
The United States District Court for the Central District of California serves over 18 million people in southern and central California, making it the largest federal judicial district by population...
of stealing Boeing trade secrets related to the US Space Shuttle program
Space Shuttle program
NASA's Space Shuttle program, officially called Space Transportation System , was the United States government's manned launch vehicle program from 1981 to 2011...
and the Delta IV rocket. He spent over 30 years providing U.S. aerospace technologies to China. Chung was convicted on charges related to more than 350,000 sensitive documents that were found concealed in crawl spaces underneath his home, including conspiracy to commit economic espionage, six counts of economic espionage to benefit a foreign country, one count of acting as an agent of the People’s Republic of China, and one count of making false statements to the FBI. The 15-year sentence is viewed as a life sentence for Chung who is 74 years old.
Chung was arrested by special agents from the FBI's Los Angeles Field Office in February 2008. He worked for Rockwell International
Rockwell International
Rockwell International was a major American manufacturing conglomerate in the latter half of the 20th century, involved in aircraft, the space industry, both defense-oriented and commercial electronics, automotive and truck components, printing presses, valves and meters, and industrial automation....
from 1973 until its defense and space unit was acquired by Boeing in 1996, and he continued to work for Boeing as an employee and then as a contractor through 2006. Chung's arrest resulted from an investigation into the case of Chi Mak
Chi Mak
Chi Mak is a naturalized American citizen who worked as an engineer for California-based defense contractor Power Paragon, a part of L-3 Communications. In 2007, Mak was found guilty of conspiring to export sensitive defense technology to China.Mak's defense was that he thought there was nothing...
, a Chinese-American engineer convicted in 2007 of conspiring to export sensitive naval technologies to China and sentenced to more than 24 years in prison.
At Chung's sentencing, presiding judge, Cormac Carney, said that he could not “put a price tag” on national security, and that with the long sentence for Chung he wanted to send a signal to China to “stop sending your spies here.”
First conviction and sentence
Most prosecutions under the Economic Espionage Act have been for violation of Section 1832, Trade Secret Theft. The first such prosecution was of Daniel and Patrick Worthing, maintenance workers at PPG Industries in Pennsylvania who stole blueprints and diskettes. Both plead guilty in early 1997. For another example, see the first conviction in California, that of David Brian Kern.After an August, 2007 plea of guilt for (one count) of violating the Economic Espionage Act and one count of violating the Arms Export Control Act, San Jose
San Jose, California
San Jose is the third-largest city in California, the tenth-largest in the U.S., and the county seat of Santa Clara County which is located at the southern end of San Francisco Bay...
U.S. District Court Judge
Judge
A judge is a person who presides over court proceedings, either alone or as part of a panel of judges. The powers, functions, method of appointment, discipline, and training of judges vary widely across different jurisdictions. The judge is supposed to conduct the trial impartially and in an open...
Jeremy Fogel sentenced Canadian citizen Xiaodong Sheldon Meng, 44, to 24 months in federal prison
Federal prison
Federal prisons are run by national governments in countries where subdivisions of the country also operate prisons.In the United States federal prisons are operated by the Federal Bureau of Prisons. In Canada the Correctional Service of Canada operates federal prisons. Prison sentences in these...
, 3 years of parole
Parole
Parole may have different meanings depending on the field and judiciary system. All of the meanings originated from the French parole . Following its use in late-resurrected Anglo-French chivalric practice, the term became associated with the release of prisoners based on prisoners giving their...
and a $10,000 fine, with forfeiture of computer equipment seized. Meng was indicted in December 2006, with 36 counts, "for stealing military software from a Silicon Valley
Silicon Valley
Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
defense contractor and trying to sell it to the Chinese military." The first to be convicted of Economic Espionage (Section 1831), Meng admitted "illegally obtaining a program used for military training from Quantum3D
Quantum3D
Quantum3D was founded in March 31, 1997 as a spin-off from 3dfx that was created to bring 3dfx's scalable graphics technologies to the game enthusiast, coin-op/arcade/LBE and visual simulation and training market....
and later using the program in a demonstration to the Chinese Navy
Chinese Navy
Two modern navies have been known in English as the Chinese Navy:* People's Liberation Army Navy* Republic of China NavyFor Chinese navies before 1912, see:*Imperial Chinese Navy*Naval history of China...
after he no longer worked for the firm; he attempted to sell the fighter-pilot training software programs to the Royal Thai Air Force
Royal Thai Air Force
The Royal Thai Air Force or RTAF is the air force of the Kingdom of Thailand. Since its establishment in 1913, as one of the earliest air forces of Asia, the Royal Thai Air Force had engaged in many major and minor battles. During the Vietnam war era, the air force has been developed with USAF-aid...
, the Royal Malaysian Air Force and the Navy Research Center in China." He paid $500,000 bond, for temporary liberty, until August 18 when he begins serving sentence.
On June 18, 2008, Meng was the first individual sentenced under the Economic Espionage statute. Meng was the first person convicted of both the Economic Espionage Act of 1996 and the Arms Export Control Act
Arms Export Control Act
The Arms Export Control Act of 1976 gives the President of the United States the authority to control the import and export of defense articles and defense services. It requires governments that receive weapons from the United States to use them for legitimate self-defense...
. He received a 24-month sentence and $10,000 fine, which included a sentencing departure for cooperation, according to news reports.