[Senate Hearing 113-780]
[From the U.S. Government Publishing Office]
S. Hrg. 113-780
ECONOMIC ESPIONAGE AND TRADE SECRET THEFT: ARE OUR LAWS ADEQUATE FOR
TODAY'S THREATS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIME AND TERRORISM
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MAY 13, 2014
__________
Serial No. J-113-59
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking
CHUCK SCHUMER, New York Member
DICK DURBIN, Illinois ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona
Kristine Lucius, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
------
Subcommittee on Crime and Terrorism
SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California LINDSEY GRAHAM, South Carolina,
CHUCK SCHUMER, New York Ranking Member
DICK DURBIN, Illinois TED CRUZ, Texas
AMY KLOBUCHAR, Minnesota JEFF SESSIONS, Alabama
MICHAEL S. LEE, Utah
Ayo Griffin, Democratic Chief Counsel
David Glaccum, Republican Chief Counsel
C O N T E N T S
----------
MAY 13, 2014, 2:34 P.M.
STATEMENTS OF COMMITTEE MEMBERS
Page
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
...............................................................
prepared statement........................................... 28
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 1
prepared statement........................................... 29
WITNESSES
Witness List..................................................... 27
Coleman, Randall C., Assistant Director, Counterintelligence
Division,
Federal Bureau of Investigation, Washington, D.C............... 4
prepared statement........................................... 31
Greenblatt, Drew, President and Owner, Marlin Steel Wire
Products,
Baltimore, Maryland............................................ 12
prepared statement........................................... 87
Hoffman, Peter L., Vice President, Intellectual Property
Management, The Boeing Company, Chicago, Illinois.............. 8
prepared statement........................................... 38
Norman, Douglas K., Vice President and General Patent Counsel,
Eli Lilly and Company, Indianapolis, Indiana................... 14
prepared statement........................................... 94
Passman, Pamela, President and Chief Executive Officer, Center
for Responsible Enterprise & Trade (CREATe.org), Washington,
D.C............................................................ 10
prepared statement........................................... 47
QUESTIONS
Questions submitted to Randall C. Coleman by Senator Whitehouse.. 99
Questions submitted to Peter L. Hoffman by Senator Flake......... 100
Questions submitted to Douglas K. Norman by Senator Flake........ 101
Questions submitted to Pamela Passman by Senator Flake........... 102
ANSWERS
Responses of Randall C. Coleman to questions submitted by Senator
Whitehouse..................................................... 103
Responses of Peter L. Hoffman to questions submitted by Senator
Flake.......................................................... 105
Responses of Douglas K. Norman to questions submitted by Senator
Flake.......................................................... 106
Responses of Pamela Passman to questions submitted by Senator
Flake.......................................................... 107
ECONOMIC ESPIONAGE AND TRADE SECRET THEFT: ARE OUR LAWS ADEQUATE FOR
TODAY'S THREATS?
----------
TUESDAY, MAY 13, 2014
United States Senate,
Subcommittee on Crime and Terrorism,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:34 p.m., in
Room SD-226, Dirksen Senate Office Building, Hon. Sheldon
Whitehouse, Chairman of the Subcommittee, presiding.
Present: Senators Whitehouse, Coons, Graham, Hatch, and
Flake.
OPENING STATEMENT OF HON. SHELDON WHITEHOUSE,
A U.S. SENATOR FROM THE STATE OF RHODE ISLAND
Chairman Whitehouse. The hearing of the Senate Judiciary
Subcommittee on Crime and Terrorism will come to order. I am
expecting that my Ranking Member, Senator Lindsey Graham, will
be here shortly, but I just saw him on the C-SPAN screen, so I
know that he is on the floor and not here. But I have
permission from his staff to proceed, and he will join us as
soon as his schedule permits.
I also want to recognize in the audience Ed Pagano, who has
spent many a happy hour in here when he was working for
Chairman Leahy. It is good to have him back in a different
capacity.
We are having a hearing today that is entitled ``Economic
Espionage and Trade Secret Theft: Are Our Laws Adequate for
Today's Threats?'' Today the Subcommittee is going to explore
how we can better protect American businesses from those who
try to steal their valuable intellectual property.
American companies are renowned as being the most
innovative in the world. Companies of every size and in every
industry, from manufacturing to software to biotechnology to
aerospace, own large portfolios of legally protected trade
secrets they have developed and innovated. In some cases, the
``secret sauce'' may be a company's most valuable asset. The
theft of these secrets can lead to devastating consequences.
For small businesses it can be a matter of life and death.
The risk of trade secret theft has been around as long as
there have been secrets to protect. There is a reason why Coca-
Cola has kept its formula locked away in a vault for decades.
But in recent years, the methods used to steal trade secrets
have become more sophisticated. Companies now must confront the
reality that they are being attacked on a daily basis by cyber
criminals who are determined to steal their intellectual
property.
As Attorney General Holder has observed, there are two
kinds of companies in America: Those that have been hacked and
those that do not know that they have been hacked.
Today a criminal can steal all of the trade secrets a
company owns from thousands of miles away without the company
ever noticing. Many of the cyber attacks we are seeing are the
work of foreign governments. China and other nations now
routinely steal from American businesses and give the secrets
to their own companies--their version of competition.
And let us be clear. We do not do the same to them. We are
now going through a healthy debate in America about the scope
of government surveillance, but there is no dispute about one
thing: Our spy agencies do not steal from foreign businesses to
help American industry.
While cyber attacks are increasing, traditional threats
remain. Company insiders can still walk off with trade secrets
to sell to the highest bidder. Competitors still steal secrets
through trickery or by simply breaking into a factory or office
building.
It is impossible to determine the full extent of the loss
to American businesses as a result of the theft of trade
secrets and other intellectual property. There have been
estimates that our Nation may lose anywhere from one to three
percent of our gross domestic product through trade secret
theft alone.
The Defense Department has said that every year an amount
of intellectual property larger than that contained in the
Library of Congress is stolen from computer networks belonging
to American businesses and government. And estimates of the
value of IP stolen by foreign actors are as high as $300
billion.
General Keith Alexander, until recently the head of NSA and
of Cyber Command at the Pentagon, has characterized the cyber
theft of American intellectual property as, I will quote, ``the
greatest transfer of wealth in history.'' And, of course, we
are on the losing end of it.
But no estimate can fully capture the real impact of trade
secret theft because when other countries and foreign
businesses steal our trade secrets, they are stealing our
ideas. They are stealing our innovation. Most importantly, they
are stealing our jobs.
In my own State of Rhode Island, we continue to face
unacceptably high unemployment, despite having some of the most
innovative businesses in the country. If we do not protect our
businesses from those who steal their intellectual property,
then we are letting that innovation go to waste, and we are
letting American jobs go overseas.
In the past, some companies were reluctant to talk about
this issue because no one likes to admit that they have been
victimized. But many are now coming forward to speak out
because they recognize how important it is that we work
together to address this common threat.
I particularly want to thank the company representatives
who are appearing before us today in the second panel as well
as many, many others who have worked closely with me and with
other Senators on this issue.
I am encouraged that the administration last year released
a blueprint for a strategy to combat trade secret theft, and
agencies across the government are increasing efforts to
address this problem. The administration must recognize that
the theft of intellectual property is one of the most important
foreign policy challenges we face, and it must communicate to
China and other nations that stealing from our businesses to
help their businesses is unacceptable.
We in Congress must do our part. We need to make sure that
our criminal laws in this area are adequate and up to date.
Last fall, Senator Graham and I released a discussion draft of
legislation designed to clarify that state-sponsored overseas
hacking could be prosecuted as economic espionage and to
strengthen criminal protection of trade secrets.
We received valuable comments and suggestions about this
legislation, and we look forward to hearing from our witnesses
today about how to improve our laws and what we can do to help
defend our industries. And we hope to introduce our legislation
in the coming weeks.
Companies also need civil remedies against those who steal
from them. While State law has traditionally provided companies
with remedies for misappropriation of trade secrets, there is
currently no Federal law that allows companies themselves to
seek civil remedies against those who steal from them. Senators
Coons and Hatch have recently introduced legislation to give
victims of trade secret theft the option of pursuing thieves in
Federal court. Senator Flake has also introduced legislation to
give companies a Federal civil remedy for trade secret theft. I
hope that the Judiciary Committee will act soon on legislation
to strengthen both the criminal and civil protections against
trade secret theft, and I look forward to working with those
colleagues toward that goal.
Today we will hear from witnesses in government, industry,
and the nonprofit sector who confront the threat of trade
secret theft on a daily basis. What I hope will be clear by the
end of this hearing is that we need an all-in approach to this
hearing. We must strengthen our criminal laws, and our law
enforcement agencies must prioritize stopping trade secret
theft before it occurs, and investigate it and prosecute it
when it does occur.
I will add that there remains an urgent need for us to pass
broader cybersecurity legislation, and I appreciate working
with Senator Graham on that effort.
I look forward to hearing from our witnesses today and to
working with my colleagues on both sides of the aisle to
address this critical issue.
Our first witness is Randall C. Coleman, the Assistant
Director of the Counterintelligence Division at the Federal
Bureau of Investigation. Mr. Coleman is responsible for
ensuring that the FBI carries out its mission to defeat foreign
intelligence threats. Mr. Coleman began his career as a special
agent with the FBI in 1997 and has previously served as
assistant special agent in charge of the San Antonio Division,
chief of the Counterespionage Section, and special agent in
charge of the Little Rock Division. Prior to his appointment to
the FBI, Mr. Coleman served as an officer in the United States
Army for nine years. We are delighted that he could join us
today, and we ask him to proceed with his testimony.
[The prepared statement of Senator Whitehouse appears as a
submission for the record.]
Proceed, sir.
STATEMENT OF RANDALL C. COLEMAN, ASSISTANT DIRECTOR,
COUNTERINTELLIGENCE DIVISION, FEDERAL BUREAU OF INVESTIGATION,
WASHINGTON, DC
Mr. Coleman. Good afternoon, Chairman Whitehouse. I am
pleased to be here today with you to discuss the FBI's efforts
to combat economic espionage and theft of trade secrets.
The FBI considers the investigation of theft of trade
secrets and economic espionage a top priority. In 2012 alone,
the National Counterintelligence Executive estimated a range of
loss to the U.S. economy approaching $400 billion to foreign
adversaries and competitors who, by illegally obtaining a broad
range of trade secrets, degraded our Nation's advantage and
innovative research and development in the global market. This
immense loss threatens the security of our economy, and
preventing such loss requires constant vigilance and aggressive
mitigation.
The FBI is diligently working to investigate and apprehend
targets pursuing economic espionage against U.S.-based
businesses, academic institutions, cleared defense contractors,
and government agencies, and has made significant progress in
putting some of the most egregious offenders behind bars.
Economic espionage and theft of trade secrets are
increasingly linked to the insider threat and the growing trend
of cyber-enabled trade secret theft. The insider threat
employee may be stealing information for personal gain or may
be serving as a spy to benefit other organizations or country.
Foreign competitors aggressively target and recruit insiders to
aid the transmittal of a company's most valued proprietary
information.
The FBI, however, cannot protect the Nation's economy by
acting alone. The FBI Counterintelligence Division's Strategic
Partnership Program oversees a network of more than 80 special
agents that are serving as strategic program coordinators who
work hand in hand with industry and academic institutions
across the country. These strategic partnership coordinators
conduct in-person classified and unclassified threat
presentations and briefings, and it serves as an early referral
mechanism for reports of possible economic espionage, theft of
trade secrets, and cyber intrusions.
Working through the more than 15,000 contacts nationwide,
this program helps companies detect, deter, and defend against
attacks of sensitive proprietary information from our foreign
adversaries.
The FBI takes seriously its role to investigate and
apprehend targets pursuing economic espionage, and by forming
close partnerships with local, logical businesses and academic
and government institutions, the FBI wishes to have a greater
impact on preventing and deterring the loss of trade secrets
before any loss can actually occur.
Thank you again for the opportunity to testify, and I look
forward to answering any of your questions, sir.
[The prepared statement of Mr. Coleman appears as a
submission for the record.]
Chairman Whitehouse. I would like to talk with you about a
couple of things.
First of all, have you any specific reaction to the draft
legislation that Senator Graham and I circulated for discussion
purposes?
Mr. Coleman. Sir, I will stand on this: That any
legislation that allows the FBI to have a better advantage at
going after our foreign adversaries as it relates to economic
espionage and theft of proprietary information, the FBI is in
favor of.
Chairman Whitehouse. And presumably the people we are
working with at the Department of Justice, do you support the--
--
Mr. Coleman. Yes, sir.
Chairman Whitehouse [continuing]. Arguments and points that
they are making?
Mr. Coleman. Absolutely.
Chairman Whitehouse. One of the things that I have
observed, having watched this for a while, is that whenever I
hear about a case that is brought for intellectual property
theft, in every case that I have found so far there has been
some nexus to old-fashioned type intellectual property theft--
somebody taking the DVD home, somebody taking the patented item
out of the factory.
We have seen an explosion in pure cyber intrusions and
extraction through the cyber network of intellectual property
with no other technique involved. And to my knowledge, there
have been no charges brought ever against anyone for that kind
of activity.
I understand that these cases are very complicated. I
understand that they have huge forensic issues, that there is
an overlay with national security and with the intelligence
services that requires a lot of effort. I understand that some
of the targets are overseas, and that creates a whole other
array of legal and other issues.
Trust me, having served as a United States Attorney, I can
see how very challenging these cases are to make. But when you
have General Alexander saying that we are on the losing end of
the biggest transfer of wealth in human history, you would like
to see a little bit more actual hard prosecution activity.
Can you tell me what you think is behind that difficulty?
And is there anything that we can do? Is it just a resource
question? What can we do in Congress to start putting some
points on the board against these people in criminal law
courts?
Mr. Coleman. Chairman, I think you described it to a T.
Obviously when you get outside of the borders of the United
States, in many of these investigations where there is a
foreign nexus, our ability to conduct effective investigations
is diminished greatly.
I will tell you that we do have ongoing investigations that
I would foresee as having a logical conclusion that I think you
would agree that are as you described. In fact, the FBI has
actually placed cyber assets and resources working with the
counterintelligence resources at our National Cyber Intrusion
Task Force that are working hand in hand and shoulder to
shoulder on these specific investigations.
So I think technology plays a critical role, and the
advancement of technology makes the threat that much more
complicated. But I think there has been tremendous progress
made by the FBI along with our partners at investigating these
type of crimes, and so I am hopeful as we go forward that we
will be able to demonstrate that we have been effective and
will be effective in this arena.
Chairman Whitehouse. I would not want to suggest that the
FBI has not been effective. I have been out to the NCIJTF. I
have seen what you guys do out there. If I had to take my
concern and turn it into just a single phrase, it would not be
the FBI is not effective. It would be: The FBI is so busy
trying to keep track of who is coming through the doors and
coming through the windows and trying to warn all the companies
that they are hacking into that there simply is a resource
constraint in terms of taking all that effort, which could be
devoted to tracking all these attacks and trying to help our
businesses, there just is not the capability or enough
capability to sit down and go through putting a prosecution
package together, working it through the intelligence agencies,
and doing all the other steps that need to be done.
So in many ways, I am trying to throw you a friendly
question saying let us help you do what needs to be done in
terms of the resources. I would not want to take anybody off of
what they are doing out at NCIJTF in order to put a prosecution
package together. But at some point, we have to have a robust
enough response to this problem as a country that we are
starting to, for want of a better example, indict Chinese
colonels and generals who are behind pulling this kind of
thievery off.
Mr. Coleman. I think another part of what I think is
important--and you described it--is the threat is so immense
that that is what makes this outreach effort so important to
what we are doing and bringing in the private sector and the
academic institutions to work hand in hand with us so we can
actually try to get out in front of this threat.
But you are absolutely right. The threat is so immense that
the FBI cannot take this on alone, and whatever necessary help
that we can get in those other industries and sectors is of
great help to us.
Chairman Whitehouse. There is a provision in the last
appropriations bill that requires the Department of Justice to
do a report for us, looking forward, looking out a couple
years, and thinking about what the structure should be like for
addressing this particular threat. It has exploded, as you
know. And it explodes even further every year. It grows just at
massive levels.
I am not convinced at this point that the present set-up
makes sense. And if you look at another area that exploded, if
you look at what happened when aviation began and what its
effect was on the conduct of warfare, you started with the Army
air effort as a subpart of the Signal Corps. And then it became
a subpart of the Army, and it was not really until after World
War II that you had a full-on U.S. Air Force. And since then we
have been a very successful leader in that theater of military
operations. But until then we really were not set up right.
I am not convinced that we are set up right, and I would
invite you to comment on this. But let me also ask it as a
question for the record that you can take back to headquarters.
How does it make sense to have these kind of cases, perhaps in
your Counterintelligence Division, perhaps in the Cyber
Division, perhaps in the Criminal Division, how do you sort
amongst those three Divisions to have this be efficient and
smooth flowing? Because I understand that each of those
different sections has a piece of this.
Mr. Coleman. I think the first part of your comment is: Are
we structured right? And I will tell you that I look at this on
a daily basis. It is certainly a priority for our Director to
look at are we efficiently and effectively addressing the
threats. And I will tell you in the Counterintelligence
Division, economic espionage has become a priority because of
the expansion of the threat.
So there are always ways that we are looking to better
address this, and some of the more significant efforts that we
have made is to really have outreach, and I cannot stress how
important that is to this process and what benefits we have
seen from that.
We have expanded our contacts across the country to 15,000
contacts. We are conducting over 7,800 presentations and
briefings a year. And we are starting to see--the maturity of
these relationships is starting to pay off in the fact that
companies are starting to come to us, academic institutions are
actually coming to us early on and calling that contact so we
can get engaged in the problem at the very early period, versus
after a bad actor has left the company with two or three
terabytes of information has already left.
So that is absolutely a victory for us in this process, but
we have a lot of room for improvement that we will continue to
do. And we are always looking at ways to improve that.
Chairman Whitehouse. Well, in the context of that, if you
could take it as a question for the record and get an official
response from your organization, I am interested in whether you
think, you know, five years out, 10 years out, that similar
division across all those separate parts of the Bureau will
continue to be a wise allocation or whether we are in sort of a
transient step toward what ultimately will be the way we
address this.
Mr. Coleman. Yes, Mr. Chairman, I understand.
Chairman Whitehouse. Terrific.
[The information referred to appears in Answers as a
submission for the record.]
Chairman Whitehouse. Thank you for your service. I know
that this is an immensely challenging area that calls on all
sorts of different resources, and I am proud of the way the FBI
conducts itself in this area, and I appreciate your service to
our country.
Mr. Coleman. Mr. Chairman, thank you very much for having
me today.
Chairman Whitehouse. We will take a two-minute recess while
the next panel gets itself sorted out and come back into action
then.
[Pause.]
Chairman Whitehouse. All right. The hearing will come back
to order, and I thank the witnesses for attending and
participating in this hearing. We have a terrific panel of
witnesses, and I am delighted that you are all here. This is
very promising.
Peter Hoffman is the Vice President of Intellectual
Property Management for The Boeing Company, which has plenty of
intellectual property to manage. He has worked there since
1984. In his current role, he manages the company's patent
portfolio, protection of its trade secrets, and licensing of
technical data images, consumer products trademarks, and
patents. Prior to being appointed to his current position, Mr.
Hoffman served as the Director of Global Research and
Development Strategy for Boeing Research and Technology, which
is the company's advanced research organization. We welcome
him, and why don't you give your statement, and I will
introduce and take the statement of each witness, and we will
open it for questions after that.
Please proceed, Mr. Hoffman.
STATEMENT OF PETER L. HOFFMAN, VICE PRESIDENT, INTELLECTUAL
PROPERTY MANAGEMENT, THE BOEING COMPANY, CHICAGO, ILLINOIS
Mr. Hoffman. Good afternoon, Chairman Whitehouse. On behalf
of The Boeing Company, I thank you for convening this hearing,
and I am grateful for your leadership on efforts to improve
trade secrets laws. It is a privilege to be a participant on
this panel and provide Boeing's view on the challenges faced by
America's innovators.
Boeing first began making twin-float airplanes in 1915 from
a small red boathouse in Seattle, and while much has changed
since then, our company remains unique in that we assemble,
test, and deliver most of our highly competitive products right
here in the United States. The final assembly facilities for
our commercial products are located in the States of Washington
and South Carolina, but we have facilities for engineering and
manufacturing of major components in multiple States, including
Oregon, Florida, California, Montana, and Utah. Our defense and
space-related production is primarily located in the States of
California, Missouri, Pennsylvania, Texas, Arizona, Florida,
and Alabama.
Today, Boeing employs 160,000 people across the United
States. Since 2005, we have created more than 15,000 new, high-
paying jobs driven by our record backlog of over 5,000
commercial airplanes. Last year we paid $48 billion to more
than 15,600 U.S. businesses, which collectively support an
additional 1.5 million jobs across the country.
Boeing's significant contribution to the U.S. economy
today, and for the past 100 years, is the result of the
ingenuity of our highly skilled employees. Innovating each step
of the way, they develop the most sought-after products and
technologies in the world. Boeing's cutting-edge technologies
take years to develop at an enormous expense, approximately $3
billion of research and development spent per year, and the
bulk of our innovations are protected as trade secrets.
Because of this, trade secret protections are vital to
securing Boeing's intellectual property. Boeing does not simply
have one recipe for its secret sauce; we have thousands of
trade secrets that are critical to maintaining our unparalleled
success. Unfortunately, Boeing's valuable engineering and
business information is at significant risk. Once publicly
disclosed, rights in trade secrets may be lost forever, the
investments wiped out in an instant along with the competitive
advantage those trade secrets provided.
Of course, Boeing is on constant guard to prevent the theft
of our trade secrets, but today companies cannot simply lock
their trade secrets in a safe. The vast majority of our
business and engineering information is stored electronically.
The digital age has brought great gains in productivity but
also has increased risk. At any moment we could lose a trade
secret, through a breach in our network, through disclosure by
one of our employees or partners, or through an escape at one
of our many suppliers' facilities.
Fear of trade secret theft is not a concern just for
Boeing. Middle- and small-size companies that rely on trade
secrets have as much or more to fear as big companies,
particularly if their survival depends on a single product or
service.
Given the risk U.S. companies face every day, more needs to
be done to deter thieves from stealing our trade secrets. This
theft is a crime, and we must send a clear message that we will
not stand by as thieves harm our businesses, hurt our economy,
and steal our jobs. Thus, we strongly support your efforts,
Chairman Whitehouse, and also the efforts of Ranking Member
Graham to call attention to the issue and to provide law
enforcement with additional tools to deter trade secret theft.
The Uniform Trade Secrets Act provides a general framework
for State legislatures to adopt trade secret protections, but
the standards and procedures adopted can vary from State to
State, and jurisdictional issues may complicate matters
further. As such, it is a real concern of U.S. companies that
State action under the Uniform Trade Secrets Act may not, in
some cases, be immediate enough to prevent the loss of a trade
secret.
So we also acknowledge the need for companies to have the
ability to take immediate action of our own in Federal court to
prevent the loss of our valuable trade secrets when State
courts and Federal law enforcement cannot act quickly enough.
Therefore, we would also like to thank Senator Coons and
Senator Hatch for introducing the Defend Trade Secrets Act and
your efforts to establish the right for a company to file an
application in a Federal district court in order to seize
property containing trade secrets stolen from a company. We
look forward to working with Senator Coons and Senator Hatch on
this bill and supporting your efforts to encourage the Congress
to act quickly to pass this important legislation.
We are also encouraged that the new laws under discussion,
if passed, will strengthen overseas trade secret enforcement by
raising awareness of the issue, promoting cooperation between
U.S. and foreign law enforcement, and empowering our trade
negotiators to encourage our trading partners to similarly
raise the bar.
In conclusion, we applaud your efforts to highlight this
issue and to strengthen U.S. trade secret laws, and thereby
help protect our valuable assets.
Thank you for your time in hearing our concerns.
[The prepared statement of Mr. Hoffman appears as a
submission for the record.]
Chairman Whitehouse. Thank you, Mr. Hoffman. I appreciate
your testimony.
Our next witness is Pamela Passman, the president and CEO
of the Center for Responsible Enterprise & Trade, also known as
CREATe.org. CREATe is a global nongovernmental organization
dedicated to helping companies and supply-chain members
implement leading practices for preventing corruption and
protecting intellectual property.
Prior to founding CREATe in October 2011, Ms. Passman was
the corporate vice president and deputy general counsel for
global, corporate, and regulatory affairs at Microsoft, where
she had worked since 1996. And I have to say as a lawyer I am
impressed by Microsoft's legal shop, particularly the really
path-breaking work that they did to go after spammers and
people who are coming after them on the Net with civil theories
that dated back to probably 15th century English common law. It
was quite impressive to see such ancient doctrines applied to
such a new problem, and I think the Microsoft complaints in
that area have really set a model not only for the rest of the
corporate sector in that area of law but even for government
enforcement in that area of law. So you come from a good place,
and welcome.
STATEMENT OF PAMELA PASSMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CENTER FOR RESPONSIBLE ENTERPRISE & TRADE
(CREATE.ORG), WASHINGTON, DC
Ms. Passman. Thank you very much, Chairman Whitehouse.
Again, my name is Pamela Passman, and I am the CEO of the
Center for Responsible Enterprise & Trade, CREATe.org. I
appreciate the opportunity to testify.
CREATe is a nonprofit dedicated to helping companies reduce
corruption and intellectual property theft, including trade
secret theft. We provide resources to companies large and small
that help them assess their risks and develop strategies to
protect their trade secrets and other IP assets, both within
their organizations and in their supply chains.
In today's integrated, global economy, companies that
succeed in turning their knowledge and know-how into
competitive advantage are the ones that will create new jobs
and drive economic growth.
Increasingly, companies rely on trade secret laws to
protect this knowledge. Yet the tremendous value of trade
secrets also makes them prime targets for theft.
CREATe recently teamed up with PricewaterhouseCoopers to
assess the economic impact of trade secret theft and devise a
framework for companies to mitigate threats. A copy of the
CREATe-PwC report is attached to my written testimony.
The report makes clear that the problem of trade secret
theft is massive and inflicts material damage on the U.S. and
other economies. If we are to energize our economy by enabling
innovative companies to protect their trade secrets, we need to
focus on two key goals.
First, we need to incentivize companies to take proactive
measures and implement best practices to secure their trade
secrets on the front end, both within their own organizations
and in their supply chains.
Second, we need a consistent, predictable, and harmonized
legal system to provide effective remedies when a trade secret
theft has occurred. Trade secret theft occurs through many
avenues, and companies need different tools and strategies to
protect against each type of threat actor.
Businesses need to be particularly cognizant of risks that
arise in their supply chains. The growth in recent years of
extended global supply chains, comprising hundreds or even
thousands of suppliers, has brought tremendous benefits and
given many firms an enormous competitive edge. But companies
using extended supply chains often must share confidential and
highly valuable business information with their suppliers,
which may be located in a different country with different laws
and different corporate norms.
In the face of this reality, it is absolutely essential
that companies implement effective strategies to protect trade
secrets not just within their own four walls, but with their
suppliers as well. In the CREATe-PwC report, we recommend a
five-step approach for safeguarding trade secrets and
mitigating potential threats.
We suggest that companies, one, identify and categorize
their trade secrets; two, conduct a risk assessment; three,
identify the most valuable trade secrets to their operations;
four, assess the economic impact of losing those secrets; and,
five, use the data collected to allocate resources and
strengthen existing processes for protection.
CREATe recently completed a pilot program with more than 60
companies in countries around the world that helped them assess
vulnerabilities and implement procedures to mitigate threats.
Based on that pilot program, we just launched ``CREATe
Leading Practices,'' a service designed to help companies
improve and mature their management systems for IP protection
and for anticorruption.
Unfortunately, no amount of protection can completely
safeguard all trade secrets from theft. Companies also need a
legal system that provides predictable enforcement and
meaningful remedies against bad actors.
Recent high-profile criminal enforcement actions are
promising, and I applaud you, Chairman Whitehouse and Ranking
Member Graham, for your focus on law enforcement. I am also
encouraged by the efforts of Senators Coons and Hatch to create
a harmonized system for owners of trade secrets that will serve
as a model around the world.
The problem of theft that happens entirely overseas,
highlighted by Senator Flake's legislation, is worthy of
further study. Governments and companies both play a role in
improving protection for trade secrets. In our view, companies
would benefit from taking a more proactive role in assessing
vulnerabilities and employing best practices to manage their
risks. They also need an effective legal system through which
to enforce their rights when their know-how has been
misappropriated.
Thank you for holding this hearing and for giving me the
opportunity to testify. I look forward to your questions. Thank
you.
[The prepared statement of Ms. Passman appears as a
submission for the record.]
Chairman Whitehouse. Thank you, Ms. Passman.
Our next witness is Drew Greenblatt, who is the president
of Marlin Steel Wire Products in Baltimore. He has owned it
since 1998. The company exports baskets and sheet metal
fabrications to 36 countries and has been recognized as one of
the 5,000 fastest-growing companies in the United States for
each of the last two years. Mr. Greenblatt serves as an
executive board member of the National Association of
Manufacturers and as chairman of the boards of both the
National Alliance for Jobs and Innovation and of the Regional
Manufacturing Institute of Maryland. He is also a member of the
Maryland Commission on Manufacturing Competitiveness as well as
the Governor's International Advisory Council.
We welcome you here, Mr. Greenblatt. Please proceed.
STATEMENT OF DREW GREENBLATT, PRESIDENT AND OWNER, MARLIN STEEL
WIRE PRODUCTS, BALTIMORE, MARYLAND
Mr. Greenblatt. Thank you, Chairman Whitehouse, Senator
Hatch, Members of the Subcommittee on Crime and Terrorism.
Thank you for the focus on this critical challenge of trade
secret theft and the opportunity to testify today.
As you mentioned, my name is Drew Greenblatt. I am the
president of Marlin Steel. We are based in Baltimore City. We
are a leading manufacturer of custom wire baskets, wire forms,
and precision sheet metal fabrications. We make everything in
the USA. I am very proud to report that we also export to 36
countries, and my favorite country that we export to is China.
We cater to the automotive, the medical, and pharmaceutical
industries.
I am here for three reasons.
Number one, trade secrets are important not just for
manufacturers that are big but also for small manufacturers
like myself.
Number two, America's trade secret laws and policies must
keep pace with today's threats, which increasingly are not only
interstate but are international threats.
Number three, manufacturers need your help to effectively
and efficiently protect and enforce trade secrets. We need to
secure strong commitments in our trade agreements.
Like so many other manufacturers, Marlin Steel competes in
a global economy. We succeed through investing in ideas and
innovations and the hard work of our dedicated employees. When
I bought Marlin in 1998, we were a local business, and we made
commodity bagel baskets--18 employees, $800,000 a year in
sales. Last year we almost hit $5 million in sales, and we now
have over 24 employees.
We are a proud member of the National Association of
Manufacturers. We average about 40 employees in the National
Association of Manufacturers, and we have 12,000 members. I am
also the co-founder and chairman of the National Alliance for
Jobs and Innovation. We have 380 members.
Both NAM and NAJI are working hard to strengthen protection
of trade secrets and intellectual property rights. We want to
level the playing field for manufacturers and businesses
throughout the United States.
Trade secrets are more important than ever. They include
things like drawings, proprietary manufacturing processes,
software, formulas. All of these things are very valuable to
the Nation--$5 trillion for public companies and even more when
you include small companies.
Small companies, our secret sauce is those trade secrets.
That is our intellectual property. We leverage the expertise of
our employees. At Marlin 20 percent of them are degreed
mechanical engineers. They come up with specific client
performance characteristics for our baskets that make us unique
and different than our Chinese competitors.
Some people think that almost three percent of our GDP is
lost to these trade secrets being stolen. In our grandparents'
day, trade secrets were stolen by individuals who were across
town that would steal some of the customer lists. Now it could
be done on a thumb drive, and it could be sold to governments
or Chinese companies across the world.
These cyber incursions are very threatening to us. We have
lasers in our factory, robots. If they could hack into our
system, they could manipulate our equipment possibly and hurt
our employees. That would be devastating to us. The thing I am
most proud about is we have gone over 1,981 days without a
safety incident. If some Chinese hacker or some foreign
national were to be able to break into our system and
manipulate our system, they could hurt our team.
We are doing everything we can to harden our network. We
spent so much money hardening our network that we could hire
another unemployed steel worker to fill that job rather than
spending all this money on these activities.
The good news is Washington is starting to recognize this
problem. We need Washington to do three things.
First of all, we need you to have strong operational
collaboration between the Federal agencies. We cannot have the
silo approach we have right now. We need the FBI cooperating
with the Justice Department, cooperating with Customs,
cooperating with TSA. We all have to work together.
Number two, we need access to Federal civil enforcement for
trade secrets theft, well-conceived legislation like the Defend
Trade Secrets Act recently introduced by Senator Coons and
Senator Hatch. This is going to give us the ability to pursue
people on the Federal level, not on the State level.
Finally, we need to meet the global challenge of trade
secret theft with global solutions, good trade agreements to
stop these thefts.
In conclusion, Chairman Whitehouse, Senator Hatch, trade
secrets are vital for manufacturers small and large. America's
trade secret laws and policies much keep pace with today's
threats. Manufacturers need your help to ensure that they can
effectively and efficiently protect and enforce their trade
secrets.
I applaud your attention to this critical challenge and
your focus on solutions. With strong global partnerships and
closer collaboration between Federal agencies and between
government and business, and with the improvements to these
U.S. laws, including Federal civil enforcement, we can have a
real impact. We desperately need it now.
Thank you for the opportunity to testify this afternoon. I
look forward to answering your questions. Thank you.
[The prepared statement of Mr. Greenblatt appears as a
submission for the record.]
Chairman Whitehouse. Thank you, Mr. Greenblatt.
Our final witness is Douglas Norman, the vice president and
general patent counsel for Eli Lilly and Company. He serves as
a member of the Board of Intellectual Property Owners
Association and as Chair of the National Association of
Manufacturers' Subcommittee for Intellectual Property. Mr.
Norman has previously served as the 2002 co-chair of the
Intellectual Property and Antitrust Task Force for the United
States Council for International Business.
Welcome, Mr. Norman. Please proceed.
STATEMENT OF DOUGLAS K. NORMAN, VICE PRESIDENT AND GENERAL
PATENT COUNSEL, ELI LILLY AND COMPANY, INDIANAPOLIS, INDIANA
Mr. Norman. Good afternoon, Chairman Whitehouse, Mr. Hatch,
and other Members of the Subcommittee. Thank you for the
opportunity to testify today on an issue of great importance
not only to my company--and not only to my industry--but to all
segments of the American economy.
Eli Lilly and Company was founded and is headquartered in
Indianapolis, Indiana. On May 10th, just last Saturday, Lilly
celebrated its 138th birthday as a U.S. company. Our mission at
Lilly is to discover and develop medicines that help people
live longer, healthier, and more active lives. Our major areas
of innovation include therapies for cancer, diabetes, and
mental illnesses. To fulfill this vision, Lilly must rely upon
intellectual property protection that includes patents,
trademarks, and trade secrets. Unfortunately, like too many of
America's leading innovator firms, Lilly has recently been the
victim of trade secret theft.
Lilly is a member of the Protect Trade Secrets Coalition, a
cross-sector group of companies that supports a harmonized
Federal civil remedy for trade secret misappropriation. We are
pleased to support the Defend Trade Secrets Act, S. 2267, which
would accomplish this objective. We thank Senators Coons and
Hatch for their leadership. And we are also encouraged by your
work, Chairman Whitehouse and Ranking Member Graham, to ensure
law enforcement has the tools it needs to prosecute trade
secret theft. And we appreciate the effort by Senator Flake to
highlight the continued problem of trade secret theft that
occurs abroad.
The bipartisan interest in trade secret protection
evidenced by this Committee's work is important to our shared
objective of improving the effectiveness and efficiency of
remedies against trade secret misappropriation.
Trade secrets are an essential form of intellectual
property and part of the backbone of our information-based
economy. Whether you are a major pharmaceutical firm like Eli
Lilly or a startup software company, your trade secrets are a
big part of what sets you apart in the marketplace, and their
protection is vitally important to maintaining a competitive
edge and keeping workers on the job.
Unfortunately, companies that are creating jobs in America
are increasingly the targets of sophisticated efforts to steal
proprietary information, harming our global competitiveness.
Trade secrets are particularly vulnerable to theft given
the rise in global supply chains and the rapid technological
advances that have resulted in greater connectivity. A theft
can come through cyber attack, voluntary or involuntary
disclosure by an employee or by a joint venture partner.
The Economic Espionage Act makes the theft of trade secrets
a Federal crime, and an array of State laws provide civil
relief. The tools thieves use in their attempts to steal
American trade secrets are growing more sophisticated by the
day, however. Our laws must keep pace.
The EEA as a criminal statute necessarily has limitations,
but we very much appreciate the cooperation we get from Federal
law enforcement. The FBI and the Department of Justice have
limited resources at the time and would never be in a position
to bring charges in all cases of interstate trade secret theft.
State laws provide an important right for trade secret owners
to bring a civil action for relief.
State trade secret laws developed and made sense at a time
when misappropriation was largely a local matter. But for
companies that operate across State lines and have their trade
secrets threatened by competitors around the globe, the array
of State laws is inefficient and often inadequate.
It is also inconsistent with how other forms of
intellectual property are protected. Trade secret theft today
is increasingly likely to involve the movement of the secret
across State lines and require swift action by courts to
preserve evidence that protect the trade secret from being
divulged. This is particularly true when the theft is by an
individual looking to flee the country.
Once the trade secret has been divulged or is made known to
a competitor, trade secret protection may be lost forever, and
the harm from disclosure is very often irreparable.
We are pleased that the Defend Trade Secrets Act would
address these limitations and provide trade secret owners with
the same ability to enforce their rights in Federal court as
owners of other forms of intellectual property have.
The breadth of support for the legislation--from companies
focused on diverse areas such as software, biotechnology,
semiconductors, medical devices, agriculture, and apparel--
demonstrates the importance of a harmonized, Federal civil
remedy. The companies that have already indicated their support
for S. 2267 often disagree on other areas of intellectual
property protection, but we are united on this front.
We also look forward to working with Chairman Whitehouse
and Ranking Member Graham on ensuring law enforcement has the
tools it needs to prosecute trade secret theft. Similarly, we
look forward to working with Senator Flake and agree that it is
important to study ways in which we can address overseas theft
effectively.
In conclusion, American companies are competing globally,
and our know-how is subject to theft everywhere. A national
solution that provides consistent and predictable trade secret
protection and enforcement is, therefore, essential to our
global competitiveness. The Defend Trade Secrets Act will
establish the gold standard for national trade secret laws
globally and serve as an important base for international
harmonization efforts. We urge the Committee to consider this
legislation and for all Senators to support it.
Thank you again for the opportunity to testify today. I
look forward to your questions.
[The prepared statement of Mr. Norman appears as a
submission for the record.]
Chairman Whitehouse. Thank you, Mr. Norman.
Let me welcome Senator Hatch and Senator Coons to the
hearing, and before I turn to them for their questions, let me
ask unanimous consent that Chairman Leahy's statement be put
into the record, which it will be without objection.
[The prepared statement of Chairman Leahy appears as a
submission for the record.]
Chairman Whitehouse. Let me ask each of you just very
simply and quickly, using your own words and your own
experience, explain what you think the scope is of this problem
for our country and its industries, starting with Mr. Hoffman.
Mr. Hoffman. It is a tremendously big problem for us as a
company, and, I think, more broadly as an industry because so
much of our intellectual property is protected as trade
secrets. And right now, a lot of those are very vulnerable
considering the changing landscape, the sophistication of the
means by which our intellectual property and trade secrets can
be obtained. So anything that helps to improve law
enforcement's ability to protect our trade secrets and allows
us to be more secure in keeping those secrets so they are still
valuable is very much appreciated by Boeing.
Chairman Whitehouse. Ms. Passman, from your experience the
scope of the problem.
Ms. Passman. Well, with companies having almost 75 percent
of their value in intangible assets like intellectual property,
including trade secrets, the problem is quite significant. In
the CREATe-PwC report, we attempted to put a figure to the
magnitude of the problem, looking at the different threat
actors that are involved, looking at the fact that U.S.
companies, other advanced economies rely on distributed supply
chains increasingly, and we looked at other illicit economic
activity as a proxy for this, since it is a figure that is very
difficult to get one's arms around because companies themselves
do not know the magnitude of the trade secrets they have as
well as when there is a trade secret theft.
We looked at other examples of illicit activity--
corruption, money laundering, similar kinds of threat actors--
and came to a figure of one to three percent of GDP. Quite
significant.
Chairman Whitehouse. Thank you.
Mr. Greenblatt, in your experience.
Mr. Greenblatt. This problem is out of control. We need
your help. We are being attacked daily. What this will have, if
we can get this legislation enacted, this will save jobs. In
Baltimore City, unemployed steel workers will be employed. We
are getting things stolen left and right. We need your help.
Chairman Whitehouse. And, Mr. Norman? Top that for clarity,
by the way.
[Laughter.]
Mr. Norman. I will try to add some clarity myself.
The issue is enormous. I could speak on behalf of
pharmaceutical firms that spend billions of dollars every year
doing research and development. As we move forward and try to
develop new life-saving medicines, we continually build
chemical platforms and pharmaceutical platforms in hopes of
reaching a point where we can apply for patents.
What we are seeing are numerous instances where interlopers
are stepping in and trying to steal our trade secrets on our
formula prior to the time we can reduce those into a patent
application. It very often may take two or three years or
longer to do enough research to get to the single molecule that
we think will be able to be carried on into clinical trials.
If we lose the trade secrets and all of that formula prior
to the time we can reduce that to a patent application, the
loss is irrevocable. So we may spent $10, $20, $30 million
building a chemical platform, a rich diversity of a number of
compounds, and if any one of those is stolen from us prior to
the time that we can obtain a patent on it, then it is lost
forever. And, therefore, the public--no citizen gets the
ability to enjoy the fruits of that research once it is gone.
Chairman Whitehouse. Thank you very much.
Senator Hatch.
Senator Hatch. Thank you, Mr. Chairman.
Chairman Whitehouse. And I should say both to you and
Senator Coons that before you got here, your names were sung
with praise over and over again for the legislation. It was
almost as if you were summoned here by those voices.
Senator Hatch. That is always unusual.
[Laughter.]
Senator Hatch. We are happy to have all of you here. You
are all experts in your field, and let me just ask Mr. Norman
and Mr. Hoffman to respond to this one. Under U.S. law,
protections for trade secrets are already some of the most
robust in the world, and we are hoping to make those
protections even stronger. But protecting trade secrets in
numerous countries is a challenge, it seems to me, facing many
transnational companies, something I am very concerned about.
Now, Mr. Norman and Mr. Hoffman, how will changes we make
to U.S. law have an impact, either positive or negative, on
what other countries are doing in this area? And do we need to
be careful here? Mr. Norman, you can go first.
Mr. Norman. Sure. Thank you again, Senator Hatch, for the
legislation that you have introduced. We greatly appreciate it.
We greatly appreciate your leadership.
The instances of what it would do on a positive standpoint
is that we believe the legislation to obtain a Federal trade
secret remedy, particularly the ability to seek an ex parte
seizure of stolen materials and prevent further disclosure or
divestment of that information broadly, would be a very
positive gold standard for future discussions on harmonization
of trade secret laws around the world with our major trading
partners.
It is important, I believe, to get beyond the State trade
secrets laws, which are often a bit unwieldy and difficult to
enforce across State lines simply because the procedures are
not always set up to work very well along those lines. But with
a Federal standard, with the appropriate kind of ex parte
control, I believe we can show the rest of the world what the
gold standard would look like as far as giving us the rights on
our own to take a private civil action and protect our trade
secrets.
Senator Hatch. Well, thank you.
Mr. Norman. Thank you.
Senator Hatch. Mr. Hoffman, do you care to add anything?
Mr. Hoffman. Yes. I fully agree with my colleague. Any
opportunity for our trade negotiators to be able to point to
improvements in trade secret laws in the United States to help
strengthen the laws outside of our borders, for global
companies such as ours, will be very helpful to protecting our
trade secrets.
Senator Hatch. Okay. Let me ask a question for the whole
panel, and that is, trade secrets also seem to be a lot more
difficult to protect than patents. I understand that there may
be industry best practices and model policies, but I imagine
that these vary widely based on the industry and type of
process or information that you are trying to protect. So I am
very interested in, as a practical matter, how do you determine
what measures are reasonable to protect your trade secrets. Mr.
Hoffman.
Mr. Hoffman. Well, when it comes to trade secret versus
patent, we actually base that decision upon the reverse
engineering ability of the innovation. But once we decide to go
the trade secret route, we have to have the processes and the
systems in place in order to assure that those trade secrets
are secure. And as mentioned previously, 60 percent of what we
sell we buy from others, so the sharing of our intellectual
property across our supply chain domestically and
internationally is an area we are going to have to be very
careful that they have the same type of procedures in place
that will protect our intellectual property at the same level.
Senator Hatch. Okay. Yes.
Ms. Passman. In our work with companies around the world,
we have found that this is something that is not very mature
inside their businesses or with their supply-chain partners. So
in the CREATe work with PwC, we laid out a five-step framework
for companies to begin to get their arms around how to best
manage their intellectual property. And, really, first being
able to identify and categorize what you have and where it is
in a company is critical, whether you are a small company or a
large company that has global operations.
We also recommend that companies conduct a risk assessment
and identify who are the primary threat actors, who is
interested in their trade secrets, in their intellectual
property, and their potential vulnerabilities in their
policies, in their procedures, in their internal controls,
really looking inside of their company and in their supply
chain; and also identify those trade secrets that would have
the greatest impact on the company's operations and business;
also looking at the economic impact of a loss of a trade
secret, understanding the magnitude that that will have on
their business; and, finally, taking all of this information
and allocating resources to better protect your trade secrets,
thinking of it as an investment, not just a cost.
Senator Hatch. My time is up, Mr. Chairman.
Chairman Whitehouse. Senator Coons.
Senator Coons. Thank you, Senator Whitehouse. I would like
to thank you for chairing this hearing and for the great work
that you and Senator Graham have done to make sure that we
protect America's intellectual property.
We have heard from an array of witnesses today the
compelling picture of what is really at stake here: Up to $5
trillion of value held in America's intellectual property and,
in particular, in the form of trade secrets. We have criminal
law prosecutions for the protection of trade secret theft. The
Economic Espionage Act is a good platform, a good beginning.
But as we have heard from you today as witnesses, there are
significant gaps, and I applaud the Chair today, Senator
Whitehouse, and Senator Graham for their hard work in improving
efforts to deal with that.
The Department of Justice has many priorities and limited
resources, and so it is unsurprising to me that there were just
25 trade secret cases brought last year. Before he leaves, I
need to say my profound personal thanks to Senator Hatch for
being a great partner and a good leader on this issue.
Senator Hatch. Well, same here. This young man has really
done a very good job on this, and we hope we can get this
through for you.
Chairman Whitehouse. You even got a ``young man'' out of
it.
[Laughter.]
Senator Hatch. I should refer to you as one, too.
Senator Coons. As a former intern for this Committee, I
will say that I never imagined there would be a day when
Senator Hatch would be patting me on the shoulder and saying,
``I look forward to passing a bill with this nice young man.''
[Laughter.]
Senator Coons. When at the time I was mostly passing cups
of coffee.
It is a tremendous sense of satisfaction that I have gotten
through working with Senator Hatch and with Eli Lilly and a
number of other companies represented here today, and I am
grateful to the National Association of Manufacturers and the
Coalition for the Protection of Trade Secrets, and the Protect
Trade Secrets Coalition for their very able and valued input as
we have crafted this bill and tried to get to a place that
makes sense, and that can help stem the gap in U.S. law to
ensure that we really vigorously defend trade secrets.
Let me ask a series of questions quickly of the panel, if I
might, before I run out of time. First, if I might, Mr.
Hoffman, Boeing does business globally, as your testimony
thoroughly demonstrates. Most of the significant threats to
U.S. trade secrets today originate from other countries around
the world. Can you speak to how respect for trade secret theft
varies around the world and how our laws domestically and what
we might enact in terms of measures to strengthen our domestic
laws could then influence the protection of U.S. IP
internationally?
Mr. Hoffman. I would be glad to, and thank you for the
question, Senator Coons.
When you look at trade secret theft, regardless of whether
it is coming from domestic or international threats, it hurts
Boeing and it hurts other companies. But I think the best thing
we can do as a country is to set the standard and provide the
tools necessary for efficient and effective protection of our
trade secrets and give those standards to our trade negotiators
to press the issue with our counterparts.
Senator Coons. I could not agree more, and I appreciate
that response.
If I might, Mr. Greenblatt, for Marlin Steel, an admirable
small manufacturer that has grown significantly under your
leadership, trade secret theft can impose an existential
threat. If a thief succeeds in stealing, as you put it, your
secret sauce, it can literally mean the end of the business in
your case, very harmful to Eli Lilly or Boeing or Microsoft or
others, but for a firm like Marlin Steel, a loss of trade
secrets could literally mean the end. And securing your trade
secrets and then asserting your rights in court can also be
significantly expensive relative to the size of your business,
and I saw this in my own experience as in-house counsel for a
manufacturing firm.
Can you speak to how the existence of a Federal private
right of action would reduce the cost of protecting your trade
secrets and how having one uniform Federal standard might
strengthen your ability to go after those who would steal your
trade secrets?
Mr. Greenblatt. The Defend Trade Secrets Act is very well
crafted. It is going to help us go around the State system,
which is very inefficient, it is very slow, and it is very
expensive. Little companies cannot afford having lawyers in
five different States on retainers trying to go after a bad
actor. It would be much more elegant if we could have a Federal
jurisdiction on this matter. It would be much more efficient.
The Coons-Hatch bill, your bill, would tremendously accelerate
our ability to stop bad actors and get good results.
Senator Coons. Thank you. If I might, Mr. Chairman, one
last question of Mr. Norman.
Mr. Norman, just thank you again for your hard work and
leadership, and in particular, one of the sections we worked on
was the ex parte injunctive relief. If you would, explain why
an authority like that is particularly important to Eli Lilly
or to other companies facing trade secret theft.
Mr. Norman. Yes, sir. We often run into situations where we
find that an ex-employee has left and is going to work for a
competitor, and we find out something such that once they turn
in their Lilly-issued computer, there has been a download of a
number of documents which contain highly confidential Lilly
trade secrets. These occurrences almost always happen on a late
Friday afternoon, and, therefore, the best part, I believe,
about the ex parte seizure aspect of the bill that is currently
pending is the fact that we could go to Federal court and in
one action kick out an ounce of prevention rather than worrying
about a pound of cure a week or two later, when we can get the
Indiana State courts involved or the New Jersey State courts
involved or perhaps both the Indiana and New Jersey State
courts involved, leading to a whole lot more expense if we have
to go through State court, a whole lot more risk because we may
not be able to isolate and seize the stolen materials as
quickly; and, therefore, a Federal cause of action where we can
go to a single court and institute the power of the Federal
court system to seize stolen materials would be extraordinarily
helpful in those situations. And I thank you for your
leadership on this bill.
Senator Coons. Well, thank you, Mr. Norman. And, Ms.
Passman, for your estimate, if my math is right, that is $150
to $450 billion a year, trade secret theft is a big deal.
Senator Whitehouse, Senator Graham, your leadership in
strengthening the criminal law protections for American
companies is admirable, and I very much look forward to working
with you to pass these two bills in tandem in a way that can
strengthen the differences for the inventions and innovations
of millions of Americans and thousands of companies.
Thank you, Senator.
Chairman Whitehouse. Thank you.
And now our distinguished Ranking Member, Lindsey Graham.
Senator Graham. Thank you, Mr. Chairman.
We seem to have two challenges: Protecting the Nation
against what I think is an inevitable cyber attack on a large
scale that is coming. The question is: Will we do something
about it in time to diminish the effect? That is one problem
the Nation faces from criminal terrorist enterprises and
potentially nation states.
The other is the private sector trying to do business in a
very interconnected, complicated world, and one of the things
that America always has had going for her is that we are pretty
innovative and we are always thinking outside the box, and
other people are pretty good at copying.
From a criminal point of view, we are trying to put teeth
into this area of the law. Mr. Hoffman, when you are overseas
representing Boeing or trying to do a joint venture, what do
you worry about the most? Some countries require you to have a
51-percent partner. Is that correct?
Mr. Hoffman. It varies by country, but in some cases you
can have a majority share--in some cases you can have a
minority share.
Senator Graham. But you will have a forced partnership
based on the host country's laws.
Mr. Hoffman. Whatever the laws are, it typically is some
type of partnership, yes.
Senator Graham. Okay. Well, these partnerships are created
by the host country, not at your own choosing. I guess you can
choose who to partner with, but to do business in that country,
you have got to have a local partner, for lack of a better
term.
Mr. Hoffman. In general, yes, sir.
Senator Graham. How does the private sector and the
Government interact when there is a trade secret theft or
intellectual property theft in a foreign country? What more can
we do? And how does that system work?
Mr. Hoffman. I am not an expert in those areas, but I can
tell you that we are a very globally spread company, and when
we make the decision to go into a country and do business, we
study the laws and how we need to establish ourselves as a
business and are prepared to defend our trade secrets as best
we can, knowing that it is going to be a very different
environment than we have here at home, in some cases.
Senator Graham. Mr. Norman, when you do business overseas
and you have a local partner, what is your biggest concern?
Mr. Norman. The biggest concern, of course, is losing our
trade secrets, losing the value of all the investment that we
put in----
Senator Graham. Having a company across the street from
where you locate doing exactly the same thing you are doing?
Mr. Norman. Right. That is always an issue, and, therefore,
we are quite circumspect about the type of research,
development, or disclosure that we make in many of the
partnered institutions where we do business outside the United
States.
Senator Graham. And if we had laws on our books that would
hold a country or an individual acting on behalf of a nation
state liable for engaging in that kind of theft, do you think
it would make doing business easier overseas?
Mr. Norman. I believe it would, if we can use that as the
standard by which we can get other countries to change their
laws and more harmonize them with the appropriate way that we
would like to see trade secrets protected, yes.
Senator Graham. Mr. Hoffman, is it fair to say that in the
international arena, when it comes to protecting intellectual
property, trade secrets, in many countries it is the ``Wild,
Wild West''?
Mr. Hoffman. There is definitely different threat levels
out there, and I agree with my colleagues that we choose
carefully about what type of work and what type of intellectual
property we do outside the United States.
Senator Graham. And the more we could get this right, the
more opportunity to create jobs here at home and abroad. Is
this an impediment to job creation?
Mr. Norman. I believe any time we lose the fruits of the
labors that our scientists and engineers put into developing
drug products, it is a huge jobs issue. We employ thousands of
scientists and engineers who will work years trying to develop
a drug product, and if a competitor can step in and take that
away from us right before we cross the finish line, it is
devastating.
Senator Graham. Well, I just want to thank Chairman
Whitehouse. I have never known anyone more knowledgeable about
the subject matter and who had a real zeal to do something
about it, so I look forward to seeing if we can get our bill
over the finish line here.
Chairman Whitehouse. It has been a pleasure working with
Senator Graham on a variety of cyber issues, and I thank him
for his leadership.
Senator Flake, the floor is yours.
Senator Flake. Thank you, Mr. Chairman. And thank you for
being here. I apologize for not being here earlier, and I hope
I am not plowing old ground here.
But I am concerned about the rate at which trade secrets
are being stolen, internationally on a foreign basis as opposed
to domestically, and let me get some sense of that. I have
introduced legislation, the Future of America Innovation and
Research Act, the FAIR Act, which allows the owner of a trade
secret to bring civil action in Federal court against the
person who stole the trade secret if the bad actor is located
abroad or acting on behalf of a foreign entity.
Ms. Passman, there was a recent report by CREATe.org that
cited a survey of U.S. firms that were asked to report on
suspected successful or unsuccessful attempts to compromise
trade secrets information. Of the incidents where the
nationality of the primary beneficiary of the theft was known,
70 percent of the time it was foreign individuals, firms, or
governments that were those beneficiaries.
Do you see this as a growing problem, the foreign nature of
the threat?
Ms. Passman. Well, certainly in an integrated economy with
very distributed global supply chains, we are going to
increasingly see the challenge with the trade secrets. You
know, American companies benefit from having participated in
these global supply chains, and as they move their business
overseas, whether it is a supplier overseas or a customer
overseas, they need to understand the global environment in
which they are working.
We are working with companies around the world, including
with companies in China and other emerging markets, that also
want to mature their systems and better protect intellectual
property.
But, you know, we advise companies to understand the
environment that they are entering and to put business
processes in place to better protect and manage their
intellectual property inside of their business as well as with
their supply chain.
Senator Flake. Well, thank you.
Mr. Hoffman, in your testimony you note that one of the few
cases DOJ has prosecuted under Section 1831 was against a
defendant who stole trade secrets from Boeing related to the
Space Shuttle and the Delta IV rocket to benefit a foreign
entity. Are you are also seeing an uptick in this foreign
activity?
Mr. Hoffman. With that particular case, the gentleman was
charged with stealing our trade secrets. There was no
particular focus on what happened to those secrets. In fact,
once a secret escapes, of course, the damage has been done. I
might defer to our Department of Justice colleagues regarding
those issues.
Senator Flake. All right. What is Boeing specifically doing
to combat this? What measures have you taken? Sorry, again, if
I am plowing old ground here.
Mr. Hoffman. In terms of our overseas presence, we hold our
subsidiaries and our relationships with partners to the same
level we have in the United States. The complexities are that
we are in a different country and we have to adhere to their
laws, and they may not be as harmonized with ours and as
effective as ours.
Senator Flake. Do you think it is important to have
legislation that protects companies against domestic and
foreign trade secret theft? Do all of you agree with that? All
right. Good. We will proceed with the legislation. I
appreciate----
Chairman Whitehouse. Everybody nodded, let the record
reflect.
Senator Flake. Okay. If you could do that more audibly next
time, that would be great.
Thank you for your testimony.
Chairman Whitehouse. Let me ask one last, or maybe two
last, questions of everybody.
There has been some reluctance on the part of corporate
victims of trade secret theft to engage in the criminal law
enforcement process, and one of the things that we have heard
has been that taking that step rather than just simply trying
to bury things could actually make matters worse as the trade
secret rattled around through the case and became more public
and further compromised the company's secrecy and its
advantage.
Is that something that is a real concern? Are there any
other concerns that we should be looking at in terms of things
having to do with the process of a criminal case that are
deterring criminal victims from taking advantage of that means
of redress? Mr. Norman.
Mr. Norman. Yes, Chairman Whitehouse, that is very much a
deep concern that we have as we look at the question of
criminal prosecution arising from a disclosure of trade secrets
outside the bounds of our corporate entity. And I applaud you
particularly for the language that you have in your legislation
concerning the ability to protect a trade secret even during
the time that the court is reviewing, because it is often
difficult to question witnesses, it is very difficult to come
forward with documentation, it is very difficult to seek expert
testimony that can help prove that a theft has occurred if you
cannot talk about specifically in open court what the means of
the disclosure was or what the subject matter of the disclosure
was. Because once it has made its way into open court, it is no
longer a trade secret and you lose it anyway.
And so many of the mechanisms that have been proposed--and
the mechanism in particular that I have seen in your
legislation, I believe, is a great leap forward in helping us
move into an arena where we could help prosecute these cases
much more readily than we have been able to in the past, and I
thank you for that.
Chairman Whitehouse. A final question for Mr. Greenblatt.
You indicated earlier that one of the things that we as
Senators should focus on is improving coordination among the
agencies. You used the term ``silos.'' When I go out to the
unofficially termed ``fusion centers,'' if you will, where the
FBI, for instance, leads one, or Homeland Security, they have
got all the agencies there. They have got everybody
represented. It is all up on screens. It looks like a model of
interagency cooperation, at least at that level. Obviously, you
had a different experience down at the level of the attacks on
your company and the experience that you had. Could you
articulate more specifically exactly what your concerns were
about the silo problem and the problems of coordination?
Mr. Greenblatt. So, for example, if we identify, if the FBI
identifies a bad actor, we would like that that company cannot
import things into America and the Customs agency halts their
products from coming into America. The only way we are going to
get their attention is by the wallet, and if we could stop them
from shipping into the greatest, biggest economy in the world,
we will get their attention.
Chairman Whitehouse. Okay. So your experience was not that
on the investigative side there was discoordination; rather,
that when a case is done, you should be able to have as a
remedy that the company does not get to import goods, it is an
additional penalty for them?
Mr. Greenblatt. Precisely. And we just want everybody to
work together and quickly resolve these topics, and we just
cannot have each agency in their own little zone. We have to
have everybody working together and collaborate as much as
possible. And then we have to stop these bad actors from
bringing their parts into America.
Chairman Whitehouse. All right. Well, let me thank all of
the witnesses for coming in. This is a very helpful process for
us. We have a lot of things going for us with this legislation.
For one thing, it is a real issue that is causing Americans to
be hurt in very concrete and meaningful ways.
Second, as you have seen today, it could not be more
bipartisan, so I do not see us getting dragged into the
partisan turmoil. We are following regular order and having
proper hearings and so forth so that we can pull this together
and move it forward. But I hope very much that we will be able
to make progress. And the advice and the counsel of all of you
who are here, some of whom have been very helpful in the
preparation of the legislation as well as in testimony about
it, is something that we are all very grateful for. I think
Senator Flake, Senator Hatch, Senator Coons, Senator Graham,
and myself have all put considerable effort into trying to
address different aspects of this problem, and I am confident
that we will all continue to work together to try to solve this
problem so that you have one less thing to worry about and you
can focus your considerable skills on making the best products
in the world and expanding your businesses.
Thank you very much. The hearing record will stay open for
an additional week for anybody who wishes to add anything, but
subject to that, we are adjourned.
[Whereupon, at 3:56 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Additional Material Submitted for the Record
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Prepared Statement of Chairman Patrick Leahy
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Prepared Statement of Chairman Sheldon Whitehouse
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Prepared Statement of Randall C. Coleman
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Prepared Statement of Peter L. Hoffman
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Prepared Statement of Pamela Passman
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Prepared Statement of Drew Greenblatt
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Prepared Statement of Douglas K. Norman
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Questions Submitted to Randall C. Coleman
by Senator Whitehouse
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Questions Submitted to Peter L. Hoffman by Senator Flake
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Questions Submitted to Douglas K. Norman
by Senator Flake
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Questions Submitted to Pamela Passman by Senator Flake
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Responses of Randall C. Coleman to Questions Submitted
by Senator Whitehouse
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Responses of Peter L. Hoffman to Questions Submitted
by Senator Flake
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Responses of Douglas K. Norman to Questions Submitted
by Senator Flake
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Responses of Pamela Passman to Questions Submitted
by Senator Flake
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