[Congressional Record Volume 142, Number 129 (Wednesday, September 18, 1996)]
[Senate]
[Pages S10882-S10886]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ECONOMIC ESPIONAGE ACT

  Mr. STEVENS. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of H.R. 3723, which is now at 
the desk.
  The PRESIDING OFFICER. The clerk will report the bill.
  The assistant legislative clerk read as follows:

       A bill (H.R. 3723) to amend Title 18 U.S. Code to protect 
     proprietary economic information, and for other purposes.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill.


                           Amendment No. 5384

       (Purpose: To propose a substitute)

  Mr. STEVENS. Mr. President, I send a substitute amendment to the desk 
and ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Alaska [Mr. Stevens] for Mr. Specter, for 
     himself and Mr. Kohl, proposes an amendment numbered 5384.

  Mr. STEVENS. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')


                Amendment No. 5385 to Amendment No. 5384

       (Purpose: To amend title 18, United States Code, to 
     prohibit certain activities relating to the use of computers, 
     and for other purposes)

  Mr. STEVENS. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Alaska [Mr. Stevens], for Mr. Grassley, 
     for himself and Mr. Kyl, proposes an amendment numbered 5385 
     to Amendment No. 5384.

  Mr. STEVENS. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.

[[Page S10883]]

  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:
       At the appropriate place, add the following new section: 
     Sec. 6.
       (a) Wire and Computer Fraud.--Section 1343 of title 18, 
     United States Code, is amended----
       (1) by adding at the end the following new subsection:
       ``(b) Secret Service Jurisdiction.--``The Secretary of the 
     Treasury and the Attorney General are authorized to enter 
     into an agreement under which the United States Secret 
     Service may investigate certain offenses under this 
     section.''
       (a) Use of Certain Technology to Facilitate Criminal 
     Conduct.----
       (1) Information.--The Administrative Office of the United 
     States Courts shall establish policies and procedures for the 
     inclusion in all Presentence Reports of information that 
     specifically identifies and describes any use of encryption 
     or scrambling technology that would be relevant to an 
     enhancement under Section 3C1.1 (dealing with Obstructing or 
     Impeding the Administration of Justice) of the Sentencing 
     Guidelines or to offense conduct under the Sentencing 
     Guidelines.
       (2) Compiling and report.--The United States Sentencing 
     Commission shall----
       (A) compile and analyze any information contained in 
     documentation described in paragraph (1) relating to the use 
     of encryption or scrambling technology to facilitate or 
     conceal criminal conduct; and
       (B) based on the information compiled and analyzed under 
     subparagraph (A), annually report to the Congress on the 
     nature and extent of the use of encryption or scrambling 
     technology to facilitate or conceal criminal conduct.''
       (c) Section 1029 of Title 18, United States Code is amended 
     by--``Striking the (a)(5) in the second place it appears and 
     replacing it with (a)(8); by striking the (a)(6) the second 
     place it appears and replacing it with (a)(9); and by adding 
     the following new section:
       ``(a)(10) knowingly and with intent to defraud uses, 
     produces, traffics in, or possesses any device containing 
     electronically stored monetary value.''

  Mr. GRASSLEY. Mr. President, I'm pleased that the Senate has passed 
the eonomic espionage bill. This is an important measure that I believe 
will save American business significant amounts of money. The theft of 
confidential information from American businesses is a serious problem, 
and this bill takes important steps in the right direction.
  I am particularly pleased that the Senate has accepted the amendment 
I offered with Senator Kyl. This amendment commissions the first-ever 
study on the criminal misuse of encryption technologies. Under the 
Grassley-Kyl amendment, court officers who prepare pre-sentencing 
reports will include information on the use of encryption to conceal 
criminal conduct, obstruct investigations, and commit crimes. The 
sentencing commission will then collect and collate this information 
and include it in its annual report to congress.
  In this way, I am hopeful that Congress and executive branch will 
have reliable data on whether the criminal misuse of encryption is 
actually a problem and, if so, what response to this problem would be 
appropriate.
  As chairman of the Oversight Subcommittee on the Judiciary Committee, 
I did an informal survey of state-level law enforcement concerning the 
criminal misuse of encryption. This informal survey, while not 
scientific, provides valuable insights into the actions of the criminal 
element in our society.
  Here are just some of the responses my subcommittee received.
  In one case involving John Lucich of the New Jersey attorney 
general's office was involved, a computer was seized pursuant to a 
warrant in a serious assault case. Examination revealed that 
approximately 20 percent of the hard drive files were encrypted. 
Investigators sought the assistance of two different Federal agencies. 
Both of these agencies were unsuccessful in decrypting the files. 
Finally, a third Federal agency was successful in decrypting the files 
after expending considerable resources. The Decrypted files did not 
contain evidence of the assault but rather contained evidence of child 
pornography. The encryption type likely used was ``DES.''

  And Officer Tim O'Neill of the Roseville, California Police 
Department reported to the subcommittee that he participated in a 
search involving a complaint against a subject who was on probation for 
solicitation/annoyance of minors. The subject had a hidden encrypted 
file on his personal computer. In the ``slack'' area at the end of the 
file the officer found names, addresses, school, grade, and phone 
numbers of 4-5 young teen girls. The encryption type used was known as 
``pincrypt.''
  Officer Mike Menz of the same department advised the subcommittee 
that he was working on a joint State/Federal major check fraud case 
where part of the potential evidence was encrypted.
  Ivan Ortman, a senior prosecutor in Seattle, Washington, encountered 
some encrypted files and password protection in a cellular phone fraud 
investigation. For a number of files the popular and inexpensive 
``PGP'' type of encryption was used. Orton indicated that no effort was 
even made to examine the files as the police could not locate any 
method for ``cracking that encryption.''
  In other words, why try since such an effort is certain to be futile. 
Surely a rational society should look long and hard at this situation.
  Agent Chuck Davis of the Colorado Bureau of Investigation reported to 
the subcommittee that he has encountered encryption as well as password 
protection problems. In one embezzlement case, a computer system has 
seized. Examination revealed that files on the hard disk were 
encrypted. The software manufacturers were contacted and the technical 
personnel who wrote the program advised that, ``they had left no `back 
door' access to the product as this would adversely impact sales. The 
hallmark of the program's appeal is that it cannot be broken, even by 
those who created it.'' Agent Davis advised that his investigation was 
``halted'' due to the time and expense of a ``brute force attack''. The 
encryption program used was entitled ``watchdog.''
  Agent Davis also advised the subcommittee that password protection 
also presents problems for other types of investigators. In cases 
involving theft of drugs from an emergency room by a doctor, bribery/
extortion by a police officer, and the suicide by an 11 year-old boy 
after telling friends that he had been molested by a family friend, 
investigators encountered password protection. The first two cases were 
successfully resolved through assistance from the manufacturer of the 
software.
  The third case, however, especially illustrates the seriousness of 
decryption problems--determining the unique key or in this case, 
password from a large number of possibilities. According to Agent 
Davis, a mere 4 character password has 1.9 million possibilities due to 
the number of keyboard characters. Can you imagine how difficult it 
must be to figure a short, 4 character password. What if the password 
were 10 characters or 20 or more? It's easy to see why criminals are 
moving toward password protection for their records.
  Mr. President, I don't know what the Grassley-Kyl amendment's study 
will show. But at least anecdotally, there seems to be a serious and 
growing problem with criminals using encryption to commit crimes or 
conceal criminal conduct. I hope we can figure out what to do about the 
problem in a fair and balanced way. I yield the floor.
  Mr. KYL. Mr. President, I rise to comment on the economic espionage 
bill introduced by Senators specter and Kohl. I was pleased that the 
Senate Judiciary Committee passed this bill, which will strengthen 
current public law on crimes against our industries. It will protect 
our businesses by punishing those who steal vital proprietary 
information for the benefit of a foreign government or a corporation.
  Economic espionage is not a new crime. The success of many U.S. firms 
has made them a large target for the theft of trade secrets. It is much 
easier for a foreign firm to steal American trade secrets, with little 
or no penalty, than it is for a firm to spend a large amount of capital 
on research and development. Economic espionage may be the future of 
intelligence.
  Only recently have American firms begun to recognize the economic 
impact espionage has on U.S. firms. In 1992, a survey by the American 
society for Industrial Security discovered that American firms lost 
roughly $597 million in product development and specification data and 
$110 million in manufacturing process information, due to espionage. 
These losses are likely to continue. I am pleased that the Chairman and 
ranking member have produced a bill that will for the first time

[[Page S10884]]

penalize those who try to steal ideas that Americans have worked hard 
to develop.
  One problem not yet adequately addressed is how to collect necessary 
intelligence in an age when encryption protects computer communication. 
In order to maintain our national security interests, I support some 
measure of constitutional authority to collect intelligence even in 
situations where communications have been encrypted. To that end, Mr. 
President, I am hopeful that my colleagues will adopt an amendment to 
this bill that Senator grassley and I have sponsored. It will amend the 
federal sentencing guidelines to require that the Federal Sentencing 
Commission collect, compile, and report annually on information 
collected from pretrial sentence reports and other relevant documents 
indicating the use of encryption to further or conceal criminal 
conduct.
  Whatever one's view of export policy, it is clear that law 
enforcement must have better records of criminals who use encryption 
technology. This amendment will accomplish that.
  Mr. President, passing an economic espionage law will deter criminals 
from stealing trade secrets from American businesses. I urge my 
colleagues to adopt our amendment and pass the bill.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 5385) was agreed to.
  Mr. GRASSLEY. I am pleased that the amendment I offered with my good 
friend Senator Kyl has been accepted. This amendment requires the 
Sentencing Commission to report to Congress every year on the criminal 
misuse of encryption technologies, including to obstruct or impede the 
administration of justice. I think that this will help Congress obtain 
reliable data on the question of whether encryption is actually being 
used by criminals to commit crimes.
  The Grassley-Kyl amendment also provides the Attorney General and 
Secretary of the Treasury with the authority to enter into an agreement 
providing the United States Secret Service with concurrent jurisdiction 
to investigate certain types of wire fraud offenses. I considered 
amending 18 U.S.C. 1343 to specifically encompass computer frauds, but 
after reviewing the case law (see, E.G., U.S. v. Riggs, 967 F.2d 561 
(11th Cir. 1992)) and consulting with the Justice Department, I have 
decided that this is not necessary. My hope is that Federal law 
enforcement and the Justice Department will make more use of section 
1343 to prosecute computer crimes. Specifically, I would like this 
interpretation to be committed to writing and distributed to Federal 
prosecutors in the field.
  Mr. LEAHY. I concur in the view of the Senator from Iowa that 
amending section 1343 as he originally considered is not necessary. 
Section 1343 already encompasses frauds effected by the interstate or 
foreign transmission of wire communications involving, among other 
things, writings, signs, or signals and, consequently, would encompass 
frauds effected by means of computers in interstate or foreign 
commerce. I know the Justice Department already interprets 1343 in this 
way. I too would urge the Justice Department to ensure that Federal 
prosecutors in the field are familiar with the scope of criminal 
conduct, including fraud effected by means of computers, encompassed by 
the wire fraud statute.
  Regarding the new requirement that the Sentencing Commission report 
on the criminal misuse of encryption technologies. I caution that the 
results of this report--whatever they may be--will be necessarily 
incomplete and should not be viewed out of context. Instances in which 
encryption technologies have been used to thwart the theft of valuable 
computerized data, which has been encrypted, and to prevent crimes, 
such as economic espionage, do not usually draw the attention of law 
enforcement and therefore will not be included in the report.
  Mr. GRASSLEY. I wonder whether the chairman and ranking member of the 
Technology Subcommittee agree with this analysis of section 1343.
  Mr. SPECTER. I have listened to your exchange with Senator Leahy and 
I fully agree that section 1343 already encompasses computer fraud and 
that amending it is not necessary.
  Mr. KOHL. I too listened to your exchange with Senator Leahy, and I 
am also of the view that section 1343 covers some computer crimes and 
that no amendment was necessary.


                           Amendment No. 5386

  (Purpose: To improve the treatment and security of certain persons 
found not guilty by reason of insanity in the District of Columbia, and 
                          for other purposes)

  Mr. STEVENS. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Alaska [Mr. Stevens], for Mr. Hatch, 
     proposes an amendment numbered 5386.

  Mr. STEVENS. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:
       At the appropriate place in the bill, add the following:

     SEC.  . TRANSFER OF PERSONS FOUND NOT GUILTY BY REASON OF 
                   INSANITY.

       (a) Amendment of Section 4243 of Title 18.--Section 4243 of 
     title 18, United States Code, is amended by adding at the end 
     the following new subsection:
       ``(i) Certain Persons Found Not Guilty by Reason of 
     Insanity in the District of Columbia.--
       ``(1) Transfer to custody of the attorney general.--
     Notwithstanding section 301(h) of title 24 of the District of 
     Columbia Code, and notwithstanding subsection 4247(j) of this 
     title, all persons who have been committed to a hospital for 
     the mentally ill pursuant to section 301(d)(1) of title 24 of 
     the District of Columbia Code, and for whom the United States 
     has continuing financial responsibility, may be transferred 
     to the custody of the Attorney General, who shall hospitalize 
     the person for treatment in a suitable facility.
       ``(2) Application.--
       ``(A) In general.--The Attorney General may establish 
     custody over such persons by filing an application in the 
     United States District Court for the District of Columbia, 
     demonstrating that the person to be transferred is a person 
     described in this subsection.
       ``(B) Notice.--The Attorney General shall, by any means 
     reasonably designed to do so, provide written notice of the 
     proposed transfer of custody to such person or such person's 
     guardian, legal representative, or other lawful agent. The 
     person to be transferred shall be afforded an opportunity, 
     not to exceed 15 days, to respond to the proposed transfer of 
     custody, and may, at the court's discretion, be afforded a 
     hearing on the proposed transfer of custody. Such hearing, if 
     granted, shall be limited to a determination of whether the 
     constitutional rights of such person would be violated by the 
     proposed transfer of custody.
       ``(C) Order.--Upon application of the Attorney General, the 
     court shall order the person transferred to the custody of 
     the Attorney General, unless, pursuant to a hearing under 
     this paragraph, the court finds that the proposed transfer 
     would violate a right of such person under the United States 
     Constitution.
       ``(D) Effect.--Nothing in this paragraph shall be construed 
     to--
       ``(i) create in any person a liberty interest in being 
     granted a hearing or notice on any matter;
       ``(ii) create in favor of any person a cause of action 
     against the United States or any officer or employee of the 
     United States; or
       ``(iii) limit in any manner or degree the ability of the 
     Attorney General to move, transfer, or otherwise manage any 
     person committed to the custody of the Attorney General.
       ``(3) Construction with other sections.--Subsections (f) 
     and (g) and section 4247 shall apply to any person 
     transferred to the custody of the Attorney General pursuant 
     to this subsection.''.
       (b) Transfer of Records.--Notwithstanding any provision of 
     the District of Columbia Code or any other provision of law, 
     the District of Columbia and St. Elizabeth's Hospital--
       (1) not later than 30 days after the date of enactment of 
     this Act, shall provide to the Attorney General copies of all 
     records in the custody or control of the District or the 
     Hospital on such date of enactment pertaining to persons 
     described in section 4243(i) of title 18, United States Code 
     (as added by subsection (a));
       (2) not later than 30 days after the creation of any 
     records by employees, agents, or contractors of the District 
     of Columbia or of St. Elizabeth's Hospital pertaining to 
     persons described in section 4243(i) of title 18, United 
     States Code, provide to the Attorney General copies of all 
     such records created after the date of enactment of this Act;
       (3) shall not prevent or impede any employee, agent, or 
     contractor of the District of Columbia or of St. Elizabeth's 
     Hospital who has obtained knowledge of the persons described 
     in section 4243(i) of title 18, United States Code, in the 
     employee's professional capacity from providing that 
     knowledge to the Attorney General, nor shall civil or 
     criminal liability attach to such employees, agents, or 
     contractors who provide such knowledge; and

[[Page S10885]]

       (4) shall not prevent or impede interviews of persons 
     described in section 4243(i) of title 18, United States Code, 
     by representatives of the Attorney General, if such persons 
     voluntarily consent to such interviews.
       (c) Clarification of Effect on Certain Testimonial 
     Privileges.--The amendments made by this section shall not be 
     construed to affect in any manner any doctor-patient or 
     psychotherapist-patient testimonial privilege that may be 
     otherwise applicable to persons found not guilty by reason of 
     insanity and affected by this section.
       (d) Severability.--If any provision of this section, an 
     amendment made by this section, or the application of such 
     provision or amendment to any person or circumstance is held 
     to be unconstitutional, the remainder of this section and the 
     amendments made by this section shall not be affected 
     thereby.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 5386) was agreed to.


                Amendment No. 5387 to Amendment No. 5384

 (Purpose: To provide funding for the establishment of Boys and Girls 
 Clubs in public housing projects and other distressed areas, and for 
                            other purposes)

  Mr. STEVENS. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Alaska [Mr. Stevens], for Mr. Hatch, for 
     himself, and Mr. Kohl, proposes an amendment numbered 5387 to 
     amendment No. 5384.

  Mr. STEVENS. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:
       At the appropriate place in the bill, add the following:

     SEC. . ESTABLISHING BOYS AND GIRLS CLUBS.

       (a) Findings and Purpose.--
       (1) Findings.--The Congress finds that--
       (A) the Boys and Girls Clubs of America, chartered by an 
     Act of Congress on December 10, 1991, during its 90-year 
     history as a national organization, has proven itself as a 
     positive force in the communities it serves;
       (B) there are 1,810 Boys and Girls Clubs facilities 
     throughout the United States, Puerto Rico, and the United 
     States Virgin Islands, serving 2,420,000 youths nationwide;
       (C) 71 percent of the young people who benefit from Boys 
     and Girls Clubs programs live in our inner cities and urban 
     areas;
       (D) Boys and Girls Clubs are locally run and have been 
     exceptionally successful in balancing public funds with 
     private sector donations and maximizing community 
     involvement;
       (E) Boys and Girls Clubs are located in 289 public housing 
     sites across the Nation;
       (F) public housing projects in which there is an active 
     Boys and Girls Club have experienced a 25 percent reduction 
     in the presence of crack cocaine, a 22 percent reduction in 
     overall drug activity, and a 13 percent reduction in juvenile 
     crime;
       (G) these results have been achieved in the face of 
     national trends in which overall drug use by youth has 
     increased 105 percent since 1992 and 10.9 percent of the 
     Nation's young people use drugs on a monthly basis; and
       (H) many public housing projects and other distressed areas 
     are still underserved by Boys and Girls Clubs.
       (2) Purpose.--It is the purpose of this section to provide 
     adequate resources in the form of seed money for the Boys and 
     Girls Clubs of America to establish 1,000 additional local 
     Boys and Girls Clubs in public housing projects and other 
     distressed areas by 2001.
       (b) Definitions.--For purposes of this section--
       (1) the terms ``public housing'' and ``project'' have the 
     same meanings as in section 3(b) of the United States Housing 
     Act of 1937; and
       (2) the term ``distressed area'' means an urban, suburban, 
     or rural area with the high percentage of high risk youth as 
     defined in section 509A of the Public Health Service Act (42 
     U.S.C. 290aa-8(f)).
       (c) Establishment.--
       (1) In general.--For each of the fiscal years 1997, 1998, 
     1999, 2000, and 2001, the Director of the Bureau of Justice 
     Assistance of the Department of Justice shall provide a grant 
     to the Boys and Girls Clubs of America for the purpose of 
     establishing Boys and Girls Clubs in public housing projects 
     and other distressed areas.
       (2) Contracting authority.--Where appropriate, the 
     Secretary of Housing and Urban Development, in consultation 
     with the Attorney General, shall enter into contracts with 
     the Boys and Girls Clubs of America to establish clubs 
     pursuant to the grants under paragraph (1).
       (d) Report.--Not later than May 1 of each fiscal year for 
     which amounts are made available to carry out this Act, the 
     Attorney General shall submit to the Committees on the 
     Judiciary of the Senate and the House of Representatives a 
     report that details the progress made under this Act in 
     establishing Boys and Girls Clubs in public housing projects 
     and other distressed areas, and the effectiveness of the 
     programs in reducing drug abuse and juvenile crime.
       (e) Authorization of Appropriations.--
       (1) In general.--There are authorized to be appropriated to 
     carry out this section--
       (A) $20,000,000 for fiscal year 1997;
       (B) $20,000,000 for fiscal year 1998;
       (C) $20,000,000 for fiscal year 1999;
       (D) $20,000,000 for fiscal year 2000; and
       (E) $20,000,000 for fiscal year 2001;
       (2) Violent crime reduction trust fund.--The sums 
     authorized to be appropriated by this subsection may be made 
     from the Violent Crime Reduction Trust Fund.

  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 5387) was agreed to.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the 
substitute, as amended, be agreed to, the bill be deemed read the third 
time, and passed, the motion to reconsider be laid upon the table, and 
that any statements relating to the bill appear at this point in the 
Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The committee substitute amendment was agreed to.
  The bill (H.R. 3723), as amended, was passed.
  Mr. KOHL. Mr. President, I am pleased that today the Senate has taken 
up and passed H.R. 3723. We are sending that bill back to the House 
with substitute. This language, which I drafted with Senator Specter, 
is based on our companion measures, S. 1556 (``The Economic Espionage 
Act'') and S.1557 (``The Economic Security Act'').
  I would like to take this opportunity to point out several provisions 
of our legislation and explain their purpose and meaning.
  This legislation includes a provision penalizing the theft of 
proprietary economic information and a second provision penalizing that 
theft when it is done on behalf of or to benefit a foreign government, 
instrumentality, or agent. The principle purpose of this second 
(foreign government) provision is not to punish conventional commercial 
theft and misappropriation of trade secrets (which is covered by the 
first provision). Thus, to make out an offense under this section, the 
prosecution must show in each instance that the perpetrator intended 
to, or had reason to believe that his or her actions would aid a 
foreign government, instrumentality, or agent. Enforcement agencies 
should administer this section with its principle purpose in mind and 
therefore should not apply section 572 to foreign corporations when 
there is no evidence of foreign government sponsored or coordinated 
intelligence activity. This particular concern is borne out in our 
understanding of the definition of ``foreign instrumentality,'' which 
indicates that a foreign organization must be ``substantially owned, 
controlled, sponsored, commanded, managed, or dominated by a foreign 
government or subdivision thereof.'' We do not mean for the test of 
substantial control to be mechanistic or mathematical. The simple fact 
that the majority of the stock of a company is owned by a foreign 
government will not suffice under this definition, nor for that matter 
will the fact that a foreign government only owns 10 percent of a 
company exempt it from scrutiny. Rather the pertinent inquiry is 
whether the activities of the company are, from a practical and 
substantive standpoint, foreign government directed.
  To make out a case under these two provisions (sections 1832 and 
572), the prosecution would have to show that the accused knew or had 
reason to know that a trade secret had been stolen or appropriated 
without authorization. This threshold separates conduct that is 
criminal from that which is innocent. Thus, for example, these sections 
would not give rise to prosecution for legitimate economic collection 
or reporting by personnel of foreign governments or international 
financial institutions, such as the World Bank, because such legitimate 
collection or reporting would not include the collection or reporting 
of trade secrets that had been stolen, misappropriated or converted 
without authorization.
  In the section dealing with foreign government sponsored espionage, 
and derived from S. 1557, the definition of proprietary economic 
information is different from the definition of proprietary economic 
information in section 2. In particular, the definition contained in 
section 1831(2) indicates that ``general knowledge'' is not included in 
the term, while the definition in section 571(4) does not. We do not 
intend

[[Page S10886]]

to imply by this difference that general knowledge can or should be the 
subject of a prosecution under section 572. Of course, someone can use 
their general experience and skills and work for a foreign government. 
They cannot, however, steal a piece of proprietary economic information 
for an owner and thereby violate section 572 of this provision. Our 
point is simply that when a person is working on behalf of a foreign 
government, instrumentality or agency, that person has to be 
particularly careful to ensure that the information being used is not 
proprietary economic information.

  Some people have asked whether a piece of proprietary economic 
information has to be novel or inventive. Unlike patented material, 
something does not have to be novel, in the patent law sense, in order 
to be a piece of proprietary economic information. Of course, often it 
will be because an owner will have a patented invention that he or she 
has chosen to maintain the material as a piece of proprietary economic 
information rather than reveal it through the patent process. Even if 
the material is not novel in the patent law sense, some form of novelty 
is probably inevitable since ``that which does not possess novelty is 
usually known; secrecy, in the context of trade secrets implies at 
least minimal novelty.'' Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 
476 (1974). While we do not strictly impose a novelty or inventiveness 
requirement in order for material to be considered proprietary economic 
information, looking at the novelty or uniqueness of a piece of 
information or knowledge should inform courts in determining whether 
something is a matter of general knowledge, skill or experience.
  Although we do not require novelty or inventiveness, the definition 
of proprietary economic information includes the provision that an 
owner have taken reasonable measures under the circumstances to keep 
the information confidential. We do not with this definition impose any 
requirements on companies or owners. Each owner must assess the value 
of the material it seeks to protect, the extent of a threat of theft, 
and the ease of theft in determining how extensive their protective 
measures should be. We anticipate that what constitutes reasonable 
measures in one particular field of knowledge or industry may vary 
significantly from what is reasonable in another field or industry. 
However, some common sense measures are likely to be common across the 
board. For example, it is only natural that an owner would restrict 
access to proprietary economic information to the people who actually 
need to use the information. It is only natural also that an owner 
clearly indicate in some form or another that the information is 
proprietary. However, owners need not take heroic or extreme protective 
measures in order for their efforts to be reasonable.
  Some people have asked how this legislation might affect reverse 
engineering. Reverse engineering is a broad term that encompasses a 
variety of actions. The important thing is to focus on whether the 
accused has committed one of the prohibited acts of this statute rather 
than whether he or she has ``reverse engineered.'' If someone has 
lawfully gained access to a trade secret or a piece or proprietary 
economic information, and can replicate it without violating copyright, 
patent or this law, then that form of ``reverse engineering'' should be 
fine. For example, if a person can drink Coca-Cola and, because he 
happens to have highly refined taste buds, can figure out what the 
formula is, then this legislation cannot be used against him. Likewise, 
if a person can look at a product and, by using their own general 
skills and expertise, dissect the necessary attributes of the product, 
then that person should be free from any threat of prosecution.

  We have been deeply concerned about the efforts taken by courts to 
protect the confidentiality of proprietary economic information. It is 
important that in the early stages of a prosecution the issue whether 
material is proprietary economic information not be litigated. Rather, 
courts should, when entering these orders, always assume that the 
material at issue is in fact proprietary economic information.
  We are also concerned that victims of economic espionage receive 
compensation for their losses. This legislation incorporates through 
reference existing law to provide procedures to be used in the 
detention, seizure, forfeiture, and ultimate disposition of property 
forfeited under the section. Under these procedures, the Attorney 
General is authorized to grant petitions for mitigation or remission of 
forfeiture and for the restoration of forfeited property to the victims 
of an offense. The Attorney General may also take any other necessary 
or proper action to protect the rights of innocent people in the 
interest of justice. In practice, under the forfeiture laws, victims 
are afforded priority in the disposition of forfeited property since it 
is the policy of the Department of Justice to provide restitution to 
the victims of criminal acts whenever permitted to do so by the law. 
Procedures for victims to obtain restitution may be found at Section 9 
of Title 28, Code of Federal Regulations.
  In addition to requesting redress from the Attorney General, any 
person--including a victim--asserting an interest in property ordered 
forfeited may petition for a judicial hearings to adjudicate the 
validity of the alleged interest and to revise the order of forfeiture. 
Additionally, forfeitures are subject to a requirement of 
proportionality under the Eight Amendment; that is, the value of the 
property forfeited must not be excessively disproportionate to the 
crimes in question.
  Finally, we have required that the Attorney General report back to us 
on victim restitution two and four years after the enactment of this 
legislation. We have heard from some companies that they only rarely 
obtain restitution awards despite their eligibility. We wish to 
carefully monitor restitution to ensure that the current system is 
working well and make any changes that may be necessary.
  Mr. President, we have worked closely in cooperation with the 
Administration in drafting this legislation. It is a bipartisan 
measure, broadly supported, and necessary for our country's future 
industrial vitality.

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