[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
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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
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           Responses of Pamela Passman to Questions Submitted
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