[House Report 104-788]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-788
_______________________________________________________________________


 
                     ECONOMIC ESPIONAGE ACT OF 1996


 September 16, 1996.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed


   Mr. McCollum, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3723]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 3723) to amend title 18, United States Code, to protect 
proprietary economic information, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     4
Hearings.........................................................     8
Committee Consideration..........................................     8
Committee Oversight Findings.....................................     8
Committee on Government Reform and Oversight Findings............     8
New Budget Authority and Tax Expenditures........................     8
Congressional Budget Office Estimate.............................     9
Inflationary Impact Statement....................................    10
Section-by-Section Analysis and Discussion.......................    10
Agency Views.....................................................    14
Changes in Existing Law Made by the Bill, as Reported............    15

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Economic Espionage Act of 1996''.

SEC. 2. PROTECTION OF TRADE SECRETS.

  (a) In General.--Chapter 31 of title 18, United States Code, is 
amended by adding at the end the following:

``Sec. 670. Protection of trade secrets

  ``(a) Offense.--Whoever--
          ``(1) with the intent to, or with reason to believe that the 
        offense will, benefit any foreign government, foreign 
        instrumentality, or foreign agent; or
          ``(2) with the intent to divert a trade secret, that is 
        related to or is included in a product that is produced for or 
        placed in interstate or foreign commerce, to the economic 
        benefit of anyone other than the owner thereof, and with the 
        intent to, or with reason to believe that the offense will, 
        disadvantage any owner of that trade secret;
wrongfully copies or otherwise controls a trade secret, or attempts or 
conspires to do so shall be punished as provided in subsection (b).
  ``(b) Punishment.--
          ``(1) Generally.--The punishment for an offense under this 
        section is--
                  ``(A) in the case of an offense under subsection 
                (a)(1), a fine under this title or imprisonment for not 
                more than 25 years, or both; and
                  ``(B) in the case of an offense under subsection 
                (a)(2), a fine under this title or imprisonment for not 
                more than 15 years.
          ``(2) Increased maximum fine for organizations.--If an 
        organization commits an offense--
                  ``(A) under subsection (a)(1), the maximum fine, if 
                not otherwise larger, that may be imposed is 
                $10,000,000; and
                  ``(B) under subsection (a)(2), the maximum fine, if 
                not otherwise larger, that may be imposed is 
                $5,000,000.
  ``(c) Definitions.--As used in this section--
          ``(1) the term `foreign instrumentality' means any agency, 
        bureau, ministry, component, institution, association, or any 
        legal, commercial, or business organization, corporation, firm, 
        or entity that is substantially owned, controlled, sponsored, 
        commanded, managed, or dominated by a foreign government;
          ``(2) the term `foreign agent' means any officer, employee, 
        proxy, servant, delegate, or representative of a foreign 
        government;
          ``(3) the term `trade secret' means all forms and types of 
        financial, business, scientific, technical, economic, or 
        engineering information, including patterns, plans, 
        compilations, program devices, formulas, designs, prototypes, 
        methods, techniques, processes, procedures, programs, or codes, 
        whether tangible or intangible, and whether or how stored, 
        compiled, or memorialized physically, electronically, 
        graphically, photographically, or in writing if--
                  ``(A) the owner thereof has taken reasonable measures 
                to keep such information secret; and
                  ``(B) the information derives independent economic 
                value, actual or potential, from not being generally 
                known to, and not being readily ascertainable through 
                proper means by, the public; and
          ``(4) the term `owner', with respect to a trade secret, means 
        the person or entity in whom or in which rightful legal or 
        equitable title to, or license in, the trade secret is reposed.
  ``(d) Criminal Forfeiture.--
          ``(1) Notwithstanding any other provision of State law, any 
        person convicted of a violation under this section shall 
        forfeit to the United States--
                  ``(A) any property constituting, or derived from, any 
                proceeds the person obtained, directly or indirectly, 
                as the result of such violation; and
                  ``(B) any of the person's property used, or intended 
                to be used, in any manner or part, to commit or 
                facilitate the commission of such violation, if the 
                court in its discretion so determines, taking into 
                consideration the nature, scope, and proportionality of 
                the use of the property in the offense.
          ``(2) The court, in imposing sentence on such person, shall 
        order, in addition to any other sentence imposed pursuant to 
        this section, that the person forfeit to the United States all 
        property described in this section.
          ``(3) Property subject to forfeiture under this section, any 
        seizure and disposition thereof, and any administrative or 
        judicial proceeding in relation thereto, shall be governed by 
        the provisions of section 413 of the Comprehensive Drug Abuse 
        Prevention and Control Act of 1970 (21 U.S.C. 853), except for 
        subsections (d) and (j) of such section, which shall not apply 
        to forfeitures under this section.
  ``(e) Orders To Preserve Confidentiality.--In any prosecution or 
other proceeding under this section, the court shall enter such orders 
and take such other action as may be necessary and appropriate to 
preserve the confidentiality of trade secrets, consistent with the 
requirements of the Federal Rules of Criminal and Civil Procedure, the 
Federal Rules of Evidence, and all other applicable laws. An 
interlocutory appeal by the United States shall lie from a decision or 
order of a district court authorizing or directing the disclosure of 
any trade secret.
  ``(f) Civil Proceedings to Enjoin Violations.--
          ``(1) Generally.--The Attorney General may, in a civil 
        action, obtain appropriate injunctive relief against any 
        violation of this section.
          ``(2) Exclusive Jurisdiction.--The district courts of the 
        United States shall have exclusive original jurisdiction of 
        civil actions under this subsection.
  ``(g) Territorial Application.--
          ``(1) This section applies to conduct occurring within the 
        United States.
          ``(2) This section also applies to conduct occurring outside 
        the United States if--
                  ``(A) the offender is--
                          ``(i) a United States citizen or permanent 
                        resident alien; or
                          ``(ii) an organization substantially owned or 
                        controlled by United States citizens or 
                        permanent resident aliens, or incorporated in 
                        the United States; or
                  ``(B) an act in furtherance of the offense was 
                committed in the United States.
  ``(h) Nonpreemption of Other Remedies.--This section shall not be 
construed to preempt or displace any other remedies, whether civil or 
criminal, provided by United States Federal, State, commonwealth, 
possession, or territory law for the misappropriation of a trade secret
  ``(i) Exceptions to Prohibition.--
          ``(1) This section does not prohibit and shall not impair any 
        otherwise lawful activity conducted by an agency or 
        instrumentality of the United States, a State, or a political 
        subdivision of a State.
          ``(2) This section does not prohibit the reporting of any 
        suspected criminal activity to any law enforcement agency or 
        instrumentality of the United States, a State, or a political 
        subdivision of a State, to any intelligence agency of the 
        United States, or to Congress.''.
  (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 31, United States Code, is amended by adding at the end the 
following new item:

``670. Protection of trade secrets.''.

SEC. 3. WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND 
                    INTERCEPTION OF ORAL COMMUNICATIONS.

  Section 2516(1)(c) of title 18, United States Code, is amended by 
inserting ``section 670 (relating to economic espionage),'' after 
``(bribery in sporting contests),''.

                          Purpose and Summary

    H.R. 3723, the Economic Espionage Act of l996, creates a 
new crime of wrongfully copying or otherwise controlling trade 
secrets, if done with the intent either to (1) benefit a 
foreign government, instrumentality, or agent, or (2) 
disadvantage the rightful owner of the trade secret and for the 
purpose of benefitting another person. The term ``trade 
secret'' is defined in the bill to include all types of 
financial, business, scientific, technical, economic, or 
engineering information, whether tangible or intangible, and 
regardless of the means by which the information is stored, 
compiled, or memorialized. The definition of the term trade 
secret also requires both that the owner of the information 
have taken some reasonable measures to keep the information 
secret and that the information derives independent economic 
value from not being generally known to the public and not 
being readily ascertainable through legal means. This new crime 
applies to conduct occurring in the United States and also to 
conduct occurring outside the United States provided, in the 
latter instance, that the offender is either a United States 
person or resident alien, an organization substantially owned 
or controlled by a United States citizen or permanent resident, 
or an organization incorporated in the United States; or that 
an act in furtherance of the offense was committed in the 
United States.
    The bill provides for punishments consisting of a fine, 
imprisonment, or both. The maximum term of imprisonment is 25 
years if the criminal act was done with the intent to benefit a 
foreign government and 15 years in all other cases. The bill 
also provides for a significantly increased maximum fine if the 
crime is committed by an organization. If the intent of the 
organization was to benefit a foreign government, the maximum 
fine that may be imposed under the bill is $10 million. In all 
other cases the maximum fine that may be imposed on an 
organization committing this crime is $5 million.
    The bill requires courts hearing cases brought under the 
statute to enter such orders as may be necessary to protect the 
confidentiality of the information involved in the case. The 
bill also empowers the Attorney General to file a civil action, 
in advance of the commencement of the criminal case, in order 
to obtain appropriate injunctive relief against a violation of 
the new criminal section. The bill provides for criminal 
forfeiture of the proceeds of the crime and limited forfeiture 
of the property used to commit the crime. Finally, the bill 
amends the wiretap statute to authorize the interception of 
communications in furtherance of the new crime when such 
interceptions are approved by a federal court.

                Background and Need for the Legislation

                              Introduction

    For many years federal law has protected intellectual 
property through the patent and copyright laws. With this 
legislation, Congress will extend vital federal protection to 
another form of proprietary economic information--trade 
secrets. There can be no question that the development of 
proprietary economic information is an integral part of 
America's economic well-being. Moreover, the nation's economic 
interests are a part of its national security interests. Thus, 
threats to the nation's economic interest are threats to the 
nation's vital security interests.

         Growing Importance of Proprietary Economic Information

    The United States produces the vast majority of the 
intellectual property in the world. This category of property 
includes patented inventions, copyrighted material, and 
proprietary economic information. Trade secrets, in contrast 
with copyrighted material and patented inventions, are 
information as to which owners take steps to keep confidential. 
The value of the information is almost entirely dependent on it 
being closely held. It includes, but is not limited to, 
information such as production processes, bid estimates, 
production schedules, computer software, and technology 
schematics. For many companies this information is the keystone 
to their economic competitiveness. They spend many millions of 
dollars developing the information, take great pains and invest 
enormous resources to keep it secret, and expect to reap 
rewards from their investment.
    In the last few decades, intangible assets have become more 
and more important to the prosperity of companies. A recent 
analysis by the Brookings Institute indicates that in 1982, the 
tangible assets of mining and manufacturing companies accounted 
for 62 percent of their market value. By l992, they represented 
only 38 percent of the market value. As the nation moves into 
the high-technology, information age, the value of these 
intangible assets will only continue to grow. Ironically, the 
very conditions that make this proprietary information so much 
more valuable make it easier to steal. Computer technology 
enables rapid and surreptitious duplications of the 
information. Hundreds of pages of information can be loaded 
onto a small computer diskette, placed into a coat pocket, and 
taken from the legal owner.
    This material is a prime target for theft precisely because 
it costs so much to develop independently, because it is so 
valuable, and because there are virtually no penalties for its 
theft. The information is pilfered by a variety of people and 
organizations for a variety of reasons. A great deal of the 
theft is committed by disgruntled individuals or employees who 
hope to harm their former companies or line their own pockets. 
In other instances, outsiders target a company, systematically 
infiltrate it, and then steal its vital information. More 
disturbingly, there is considerable evidence that foreign 
governments are using their espionage capabilities against 
American companies.
    The term economic or industrial espionage is appropriate in 
these circumstances. Espionage is typically an organized effort 
by one country's government to obtain the vital national 
security secrets of another country. Typically, espionage has 
focused on military secrets. But as the cold war has drawn to a 
close, this classic form of espionage has evolved. Economic 
superiority is increasingly as important as military 
superiority. And the espionage industry is being retooled with 
this in mind.
    It is important, however, to remember that the nature and 
purpose of industrial espionage are sharply different from 
those of classic political or military espionage. The phrase 
industrial espionage includes a variety of behavior--from the 
foreign government that uses its classic espionage apparatus to 
spy on a company, to the two American companies that are 
attempting to uncover each other's bid proposals, or to the 
disgruntled former employee who walks out of his former company 
with a computer diskette full of engineering schematics. All of 
these forms of industrial espionage are problems. Each will be 
punished under this bill.
    At hearings before the Subcommittee, Louis Freeh, the 
Director of the Federal Bureau of Investigation, testified that 
the FBI is currently investigating reports and allegations of 
economic espionage activities conducted against the United 
States by individuals or organizations from 23 different 
countries. Some of these governments are ideological and 
military adversaries which continue to target U.S. economic and 
technological information as an extension of the concerted 
intelligence assault on the United States conducted throughout 
the cold war. Other governments targeting U.S. economic and 
technological information are long time political and military 
allies of the United States or have been traditionally neutral. 
These countries target the United States despite their friendly 
relations with our government and, in some cases, take 
advantage of their considerable legitimate access to U.S. 
information to collect sensitive information more easily than 
our traditional adversaries. Some of these countries find no 
contradiction in maintaining a military alliance with the 
United States while at the same time using their intelligence 
services to target U.S. technologies.
    Incidents of economic espionage are not limited to foreign 
governments or foreign companies. A recent survey by the 
American Society for Industrial Security International noted 
that foreign nationals had been identified in 21% of incidents 
involving intellectual property loss where the nationality of 
the perpetrators was known. In cases not involving a foreign 
government or a company, the perpetrator of the theft of 
intellectual property was an individual with a trusted 
relationship with the company, often an employee or former 
employee, retiree, contractor, vendor supplier, consultant or 
business partner. The survey noted that there has been a 323% 
increase in reported incidents since a survey four years ago. 
That study estimates the potential losses for all American 
industry could amount to $63 billion annually.

                          Need for Legislation

    At the hearing before the Subcommittee, Director Freeh 
testified that the FBI has experienced difficulties in 
prosecuting cases of economic espionage. While the FBI attempts 
to use various criminal statutes currently in force to 
investigate and prosecute this crime, these laws do not 
specifically cover the theft or improper transfer of 
proprietary information and, in the opinion of Director Freeh, 
are insufficient to protect this type of information. He 
testified further that in some instances, the FBI has conducted 
investigations only to have federal prosecutors decline the 
FBI's request to use further investigative procedures or to 
actually prosecute the case itself out of a concern over the 
lack of statutory criminal authority to do so.
    The principal problem appears to be that there is no 
federal statute directly addressing economic espionage or which 
otherwise protects proprietary information in a thorough, 
systematic manner. The statute that federal prosecutors 
principally rely upon to combat this type of crime, the 
Interstate Transportation of Stolen Property Act (18 U.S.C. 
Sec. 2314), was passed in the 1930s in an effort to prevent the 
movement of stolen property across State lines by criminals 
attempting to evade the jurisdiction of State and local law 
enforcement officials. That statute relates to ``goods, wares, 
or merchandise.'' Consequently, prosecutors have found it not 
particularly well suited to deal with situations involving 
``intellectual property,'' property which by its nature is not 
physically transported from place to place. Courts have been 
reluctant to extend the reach of this law to this new type of 
property. One court has held that ``the element of physical 
`goods, wares, or merchandise' in sections 2314 and 2315 is 
critical. The limitation which this places on the reach of the 
Interstate Transportation of Stolen Property Act is imposed by 
the statute itself, and must be observed.'' United States v. 
Brown, 925 F.2d 1301 (10th Cir. 1991). Other statutes on which 
the government relies to prosecute this type of crime, such as 
the mail fraud statute or the fraud by wire statute, have also 
proved limited in their use. The mail fraud statute is only 
applicable when the mails are used to commit the criminal act 
and the fraud by wire statute requires proof that wire, radio, 
or television technology was used to commit the crime.
    State laws also do not fill the gaps left by federal law. 
While the majority of States have some form of civil remedy for 
the theft of proprietary economic information, either by 
recognizing a tort for the misappropriation of the information 
or by enforcing contracts governing the use of the information, 
these civil remedies often are insufficient. Many companies 
choose to forego civil litigation because of the difficulties 
in enforcing a monetary judgment against some defendants which 
may have few assets or foreign governments with few assets in 
the United States or because companies do not have the 
resources or time to bring the civil action. Additionally, 
private individuals and companies lack the investigative 
resources necessary to prove that a defendant has in fact 
misappropriated the proprietary economic information in 
question. Only a few States have any form of criminal law 
dealing with the theft of this type of information and most of 
those laws are misdemeanors, rarely used by State prosecutors.
    These problems underscore the importance of developing a 
systematic approach to the problem of economic espionage. The 
Committee believes that such a scheme will serve as a powerful 
deterrent to this type of crime. Additionally, a comprehensive 
federal criminal statute will better facilitate the 
investigation and prosecution of this crime.

                  General Intentions of the Committee

    This legislation is not intended to apply to innocent 
innovators or to individuals who seek to capitalize on the 
personal knowledge, skill, or abilities they may have 
developed. The statute is not intended to be used to prosecute 
employees who change employers or start their own companies 
using general knowledge and skills developed while employed. It 
is the intent of Congress, however, to make criminal the act of 
employees who leave their employment and use their knowledge 
about specific products or processes in order to duplicate them 
or develop similar goods for themselves or a new employer in 
order to compete with their prior employer.
    H.R. 3723 has been drafted so as to minimize the risk that 
the statute will be used to prosecute persons who use generic 
business knowledge to compete with former employers. For 
example, under the new offense the government is required to 
prove that the defendant has wrongfully copied or otherwise 
exerted control over a ``trade secret.'' The definition of 
trade secret requires that the owner of the information must 
have taken objectively reasonable and active measures to 
protect the information from becoming known to unauthorized 
persons. If the owner fails to attempt to safeguard his or her 
proprietary information, no one can be rightfully accused of 
misappropriating it. It is important to note, however, that an 
owner of this type of information need only take ``reasonable'' 
measures to protect this information. While it will be up to 
the court in each case to determine whether the owner's efforts 
to protect the information in question were reasonable under 
the circumstances, it is not the Committee's intent that the 
owner be required to have taken every conceivable step to 
protect the property from misappropriation.
    The new statute also requires that the government prove 
that the defendant wrongfully copied or otherwise controlled a 
trade secret. It is the Committee's intent that the phrase 
``copies or otherwise controls'' be read broadly to include 
virtually any means by which information can be recorded, 
altered, or otherwise manipulated. This phrase includes both 
the taking of physical possession of the medium on which the 
information is stored, recorded, or otherwise memorialized as 
well as situations where the information has been copied, 
duplicated, photographed, drawn, or otherwise reproduced in 
some form from the original and where the original information 
continues to remain in the possession of the owner. This 
concept of control also includes situations in which the 
information has been transmitted from one place to another 
(regardless of whether by electronic means, through the mails, 
or by person), even if in transmitting the information it 
continues to remain in the possession of its rightful owner. 
The concept of control also includes the mere possession of the 
information, regardless of the manner by which the non-owner 
gained possession of the information.

                                Hearings

    The Committee's Subcommittee on Crime held one day of 
hearings on H.R. 3723 on May 9, 1996. Testimony was received 
from Louis Freeh, Director of the Federal Bureau of 
Investigation; Tom Brunner, U.S. Chamber of Commerce; Dr. James 
P. Chandler, George Washington University; Dr. Raymond 
Damadian, President, Fonar Corp.; Richard J. Heffernan, 
American Society of Industrial Security; Pete McCloskey, 
President, Electronic Industries Association; John Melton, Vice 
President SDL, Inc.; David Shannon, Senior Counsel, Intel 
Corporation; Dan Whiteman, Director of Security, General 
Motors; with additional material submitted by Hughes 
Corporation.

                        Committee Consideration

    On July 10, 1996, the Subcommittee on Crime met in open 
session and ordered reported the bill H.R. 3723, by a voice 
vote, a quorum being present. On September 11, 1996, the 
Committee met in open session and ordered reported favorably 
the bill H.R. 3732 with one amendment in the nature of a 
substitute by voice vote, a quorum being present.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 2(l)(C)(3) of rule XI of the 
Rules of the House of Representatives, the Committee sets 
forth, with respect to the bill, H.R. 3723, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 16, 1996.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 3723, the Economic Espionage Act of 1996, as 
ordered reported by the House Committee on the Judiciary on 
September 11, 1996. CBO estimates that enacting the bill would 
result in additional discretionary spending of about $3 million 
over the 1997-2002 period, subject to the availability of 
appropriated funds. Enacting H.R. 3723 would affect direct 
spending and receipts by increasing the amount of forfeiture 
receipts and penalties collected and spent by the government. 
We estimate that the collection of such receipts would total 
about $10 million through fiscal year 1998 and the spending of 
such receipts would total about $5 million over the same 
period. Because enacting the bill would affect direct spending 
and receipts, it would be subject to pay-as-you-go procedures. 
However, we expect that the forfeiture and penalty provisions 
would have no significant net effect over time because receipts 
from criminal fines and the sale of forfeited property would be 
spent, generally within one year of receipt.
    Bill Purpose.--Enacting H.R. 3723 would make the 
misappropriation of a trade secret a federal crime. Under 
current law, cases involving the theft of trade secrets are 
prosecuted under various statutes; however, none is broad 
enough to accommodate most cases involving the unauthorized use 
of such material. Under this bill, trade secrets would include 
intellectual property as well as physical property, and 
violations would include duplication of information as well as 
physical theft. Violators would be subject to imprisonment, 
criminal fines, and forfeiture of the property involved in the 
crime. In addition, this bill would enable the Attorney General 
to obtain court injunctions as relief against any violations of 
this bill and would enable the federal government to 
investigate offenses under this bill through the use of 
authorized wire, oral, or electronic intercepts.
    Federal Budgetary Impact.--Based on information from the 
Federal Bureau of Investigation (FBI), CBO expects that the 
agency's caseload would increase as a result of enacting H.R. 
3723. We estimate that, over the next six years, the government 
would most likely investigate and prosecute a total of about 50 
cases covered by this legislation. While pursuing 
investigations would consume staff time and other resources of 
the federal government, CBO estimates that the Department of 
Justice and the FBI would not need significant additional 
resources to enforce the provisions of the bill over the next 
two years. However, after fiscal year 1999, resource needs 
could exceed $1 million each year to support the increasing 
caseload. CBO estimates that resource needs could total about 
$3 million from fiscal year 1999 through fiscal year 2002. Any 
such additional resources would be subject to the availability 
of appropriated funds.
    This bill also would establish penalties--including fines, 
imprisonment, and the forfeiture of property involved in the 
crime--for violations of its provisions. Criminal fines and 
receipts from the sale of forfeited property would be deposited 
in the Crime Victims Fund and spent in the following year. CBO 
estimates that the government would collect additional fines 
and receipts from the sale of forfeited property of about $10 
million through fiscal year 1998. Based on information from the 
FBI, we estimate that additional receipts paid into the Crime 
Victims Fund after fiscal year 1998 could exceed $10 million a 
year. Spending from the fund would increase by the same 
amounts, but with a one-year lag. CBO does not expect any 
significant increase in prison costs as a result of this bill. 
The following table summarizes the pay-as-you-go effects of 
enacting this bill.

                [By fiscal year, in millions of dollars]                
------------------------------------------------------------------------
                                            1996       1997       1998  
------------------------------------------------------------------------
Change in outlays......................          0          0          5
Change in receipts.....................          0          5          5
------------------------------------------------------------------------

    Mandate Statement.--H.R. 3723 contains no private-sector or 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act of 1995 (Public Law 104-4), and would have no impact 
on the budgets of state, local, or tribal governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman.
            Sincerely,
                                         June E. O'Neill, Director.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee estimates that H.R. 
3723 will have no significant inflationary impact on prices and 
costs in the national economy.

                      Section-by-Section Analysis

    Section 1. Title.--Section 1 states the short title of the 
bill as the ``Economic Espionage Act of 1996.''
    Section 2. Protection of Trade Secrets. This section adds a 
new section to Chapter 31 of Title 18 of the United States 
Code. The new section, section 670, creates the crime of 
wrongfully copying or otherwise controlling a trade secret.
    Section 670(a)--Offense.--Subsection (a) of new section 670 
creates the criminal offense involving the misappropriation of 
trade secrets. The offense provides that anyone who 
``wrongfully copies or otherwise controls'' a trade secret, or 
attempts or conspires to do so, shall be punished in accordance 
with subsection (b) of that section. In order for a violation 
of the statute to be proven, the government must also prove 
that the defendant committed the offense either (1) with the 
intent to, or with reason to believe that the offense would, 
benefit any foreign government, foreign instrumentality, or 
foreign agent, or (2) with the intent to divert a trade secret 
related to, or included in, a product that is produced for, or 
placed in, interstate or foreign commerce, to the use or 
benefit of anyone other than the owner of the trade secret and 
with the further intent to, or with reason to believe that the 
offense would, disadvantage the owner of that trade secret.
    This section punishes the theft, unauthorized appropriation 
or conversion, duplication, alteration, or destruction of a 
trade secret. This section is intended to cover both 
traditional instances of theft, where the object of the crime 
is removed from the rightful owner's control, as well as non-
traditional methods of misappropriation or destruction that 
involve duplication or alteration. When these non-traditional 
methods are used the original property never leaves the control 
of the rightful owner, but the unauthorized duplication or 
misappropriation effectively destroys the value of what is left 
with the rightful owner. Given the increased use of electronic 
information systems, information can now be stolen without 
asportation and the original usually remains intact. The intent 
of this statute, therefore, is to ensure that the theft of 
intangible information is prohibited in the same way that the 
theft of physical items is punished.
    This section requires that the government prove that the 
person charged with the crime acted with the intent to 
accomplish one of two goals. One, a person will be guilty under 
this section if they wrongfully copied or otherwise controlled 
a trade secret with the intent to benefit any foreign 
government, foreign instrumentality or foreign agent. In this 
instance, ``benefit'' is intended to be interpreted broadly. 
The defendant did not have to intend to confer an economic 
benefit to the foreign government, instrumentality, or agent, 
to himself, or to any third person. Rather, the government need 
only prove that the actor intended that his actions in copying 
or otherwise controlling the trade secret would benefit the 
foreign government, instrumentality, or agent in any way. 
Therefore, in this circumstance, benefit means not only an 
economic benefit but also reputational, strategic, or tactical 
benefit.
    Alternatively, the government may prove that the defendant 
intended the misappropriated trade secret to be used for the 
economic benefit of a person other than the rightful owner 
(which can be the defendant or some other person or entity). In 
this situation (i.e., when the defendant does not act with the 
intent to benefit a foreign government, instrumentality, or 
agent) the government must prove that the defendant intended to 
confer an economic benefit, not an abstract benefit or 
reputational enhancement, through his actions. Therefore, a 
person who discloses a trade secret but who does not intend to 
gain economically from it, or intends that some other person 
economically gain from trade secret, cannot be prosecuted under 
this section. Additionally, when the defendant does not act 
with the intent to benefit a foreign government, 
instrumentality, or agent, the government must also show that 
the defendant intended to disadvantage the rightful owner of 
the information. This additional provision does not require the 
government to prove malice or evil intent, but merely that the 
actor knew or was aware to a practical certainty that his 
conduct would cause some disadvantage to the rightful owner.
    While the term ``wrongfully'' is not defined in the statute 
specifically, the use of the term in this section involves the 
defendant's knowledge that his or her actions in copying or 
otherwise exerting control over the information in question was 
inappropriate. It is not necessary that the government prove 
that the defendant knew his or her actions were illegal, rather 
the government must prove that the defendant's actions were not 
authorized by the nature of his or her relationship to the 
owner of the property and that the defendant knew or should 
have known that fact.
    Section 670(b)--Punishment.--The bill provides for several 
types of punishment, including fines, imprisonment, or both. 
The maximum term of incarceration varies depending upon the 
intent of the person convicted of the crime. If the defendant's 
intent was to benefit a foreign government, foreign 
instrumentality, or foreign agent the maximum term of 
imprisonment is 25 years. In all other cases, the maximum term 
of imprisonment is 15 years.
    If an organization commits an offense under the section, 
the maximum fine amount is substantially increased from that 
otherwise provided under title 18. If an organization commits 
an offense involving an intent to benefit a foreign government, 
foreign instrumentality, or foreign agent the maximum fine 
which may be imposed is $10 million. In all other 
circumstances, the maximum fine which may be imposed on an 
organization violating section 670 is $5 million.
    Subsection (c)--Definitions.--Subsection (c) of new section 
670 provides for definitions of some of the key terms used in 
the section. The definition of the term ``trade secret'' is 
based largely on the definition of that term in the Uniform 
Trade Secrets Act. As defined in H.R. 3723, ``trade secret'' 
means all forms and types of financial, business, scientific, 
technical, economic, or engineering information'' if certain 
conditions exist, as discussed below. This information includes 
patterns, plans, compilations, program devices, formulas, 
designs, prototypes, methods, techniques, processes, 
procedures, programs, or codes, whether such properties are 
tangible or intangible, and regardless of the means by which 
such property is stored or compiled, or memorialized 
physically, electronically, graphically, photographically, or 
in writing. These general categories of information are 
included in the definition of trade secret for illustrative 
purposes and should not be read to limit the definition of 
trade secret. It is the Committee's intent that this definition 
be read broadly.
    As defined in the bill, however, in order for information 
to meet the definition of trade secret, two conditions must be 
proven to have existed at the time the defendant copied or 
otherwise exerted control over the information. First, the 
owner of the information must have taken reasonable measures to 
keep such information secret. Secret in this context means that 
the information was not generally known to the public or to the 
business, scientific, or educational community in which the 
owner might seek to use the information. The bill requires the 
owner to take only ``reasonable measures'' to keep such 
information secret. The fact that the owner did not exhaust 
every conceivable means by which the information could be kept 
secure does not mean that the information does not satisfy this 
requirement. Rather, a determination of the ``reasonableness'' 
of the steps taken by the owner to keep the information secret 
will vary from case to case and be dependent upon the nature of 
the information in question.
    The definition of trade secret also requires that the 
information in question derive independent economic value, 
whether actual or potential, from the fact that the information 
is not generally known to, and not readily ascertainable 
through proper means by, the public. Therefore, information 
which is generally known to the public, or which the public can 
readily ascertain through proper means, does not satisfy the 
definition of trade secret under this section.
    The term ``owner'' is defined to include the person or 
entity in whom or in which rightful legal or equitable title 
to, or license in, the trade secret in reposed. In this case, 
owner includes both natural persons as well as organizations 
(such as corporations and partnerships) entitled to own 
property. It also includes federal, state, and local government 
organizations, as well as foreign government organizations.
    Subsection (d)--Criminal Forfeiture.--This section is 
designed to permit forfeiture of both the proceeds and assets 
used to facilitate the commission of the offense described in 
the bill. This section requires that any person convicted of a 
violation of section 670 shall forfeit all property 
constituting, or derived from, any proceeds the person obtained 
as the result of such violation, regardless of whether the 
proceeds were obtained directly or indirectly from the criminal 
conduct. This section also requires that the person convicted 
of violating section 670 forfeit any of the person's property 
used, or intended to be used, to commit or facilitate the 
crime. But this section further provides, however, that in 
determining the extent of the property to be forfeited, the 
court may take into consideration the nature, scope, and 
proportionality of the use of the property in the offense. The 
intent of this proviso is to minimize the number of instances 
in which the property forfeited is disproportionate to the harm 
caused by the defendant's conduct.
    The forfeiture provision supplements, and is in addition 
to, the authorized punishments in the bill. The subsection 
incorporates existing law that sets forth procedures to be used 
in the detention, seizure, forfeiture, and ultimate disposition 
of property forfeited under this subsection.
    Subsection (e)--Orders to Preserve Confidentiality.--This 
subsection authorizes the court to preserve the confidentiality 
of alleged trade secrets during legal proceedings consistent 
with existing rules of criminal procedure, civil procedure, and 
evidence, and other applicable laws. The intent of this section 
is to preserve the confidential nature of the information and, 
hence, its value. Without such a provision, owners may be 
reluctant to cooperate in prosecutions for fear of further 
exposing their trade secrets to public view, thus further 
devaluing or even destroying their worth.
    Subsection (f)--Civil Proceedings to Enjoin Violations.--
This section empowers the Attorney General to commence a civil 
action in the United States District Courts to obtain 
injunctive relief against a violation of new section 670. The 
standards for obtaining such injunctive relief are to be those 
provided for under the Federal Rules of Civil Procedure. The 
district courts shall have exclusive jurisdiction over actions 
brought under this subsection. This subsection is neither 
intended to create a general civil cause of action nor does it 
authorize persons other than the Attorney General to commence a 
civil action to enjoin a violation of section 670.
    Subsection (g)--Territorial Application.--To rebut the 
general presumption against the extraterritoriality of U.S. 
criminal laws, this subsection makes it clear that the Act is 
meant to apply to the specified conduct occurring beyond U.S. 
borders. To ensure that there is some nexus between the 
ascertaining of such jurisdiction and the offense, however, 
extraterritorial jurisdiction exists only if the offender is a 
United States citizen or permanent resident alien, an 
organization substantially owned or controlled by United States 
citizens or permanent resident aliens, or is incorporated in 
the United States. Alternatively, extraterritorial jurisdiction 
will exist if an act in furtherance of the offense was 
committed in the United States.
    Subsection (h)--Non-Preemption of Other Remedies.--This 
subsection makes it clear that the act does not preempt non-
federal remedies, whether civil or criminal, for dealing with 
the theft or misapplication of trade secrets. In particular, 
the fact that the Attorney General is authorized (under 
subsection (f) of section 670) to commence civil proceedings in 
order to enjoin further conduct which would violate section 670 
is not to be interpreted to mean that other persons and 
entities may not also seek injunctive relief that may be 
available in other civil actions (using state law tort or 
contract claims) in order to prevent the further misuse of a 
trade secret.
    Subsection (i)--Exceptions to Prohibition.--The Act does 
not prohibit, and is not to be deemed to impair, any otherwise 
lawful activity conducted by an agency or instrumentality of 
the United States, a State, or political subdivision of a 
State. This subsection is intended to make it clear that the 
act does not prohibit any lawfully authorized investigative, 
protective, or intelligence activity by one of those government 
entities. This subsection also makes it clear that it is not a 
violation of section 670 to report suspected criminal activity 
to a law enforcement agency or instrumentality of the United 
States, a State, or political subdivision of a State, to any 
intelligence agency of the United States, or to Congress.
    Section 3. Wire and Electronic Communications Interception 
and Interception of Oral Communications.--This section adds new 
section 670 to the list of offenses which may be investigated 
through the use of authorized, wire, oral, or electronic 
intercepts. This section does not alter the existing standard 
or procedures for obtaining the authorization to conduct such 
intercepts.

                              Agency Views

    Agency views were submitted to the Committee with respect 
to H.R. 3723.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                      TITLE 18, UNITED STATES CODE

                             PART I--CRIMES

          * * * * * * *

                   CHAPTER 31--EMBEZZLEMENT AND THEFT

Sec.
641.  Public money, property or records.
     * * * * * * *
670. Protection of trade secrets.
          * * * * * * *

Sec. 670. Protection of trade secrets

  (a) Offense.--Whoever--
          (1) with the intent to, or with reason to believe 
        that the offense will, benefit any foreign government, 
        foreign instrumentality, or foreign agent; or
          (2) with the intent to divert a trade secret, that is 
        related to or is included in a product that is produced 
        for or placed in interstate or foreign commerce, to the 
        economic benefit of anyone other than the owner 
        thereof, and with the intent to, or with reason to 
        believe that the offense will, disadvantage any owner 
        of that trade secret;
wrongfully copies or otherwise controls a trade secret, or 
attempts or conspires to do so shall be punished as provided in 
subsection (b).
  (b) Punishment.--
          (1) Generally.--The punishment for an offense under 
        this section is--
                  (A) in the case of an offense under 
                subsection (a)(1), a fine under this title or 
                imprisonment for not more than 25 years, or 
                both; and
                  (B) in the case of an offense under 
                subsection (a)(2), a fine under this title or 
                imprisonment for not more than 15 years.
          (2) Increased maximum fine for organizations.--If an 
        organization commits an offense--
                  (A) under subsection (a)(1), the maximum 
                fine, if not otherwise larger, that may be 
                imposed is $10,000,000; and
                  (B) under subsection (a)(2), the maximum 
                fine, if not otherwise larger, that may be 
                imposed is $5,000,000.
  (c) Definitions.--As used in this section--
          (1) the term ``foreign instrumentality'' means any 
        agency, bureau, ministry, component, institution, 
        association, or any legal, commercial, or business 
        organization, corporation, firm, or entity that is 
        substantially owned, controlled, sponsored, commanded, 
        managed, or dominated by a foreign government;
          (2) the term ``foreign agent'' means any officer, 
        employee, proxy, servant, delegate, or representative 
        of a foreign government;
          (3) the term ``trade secret'' means all forms and 
        types of financial, business, scientific, technical, 
        economic, or engineering information, including 
        patterns, plans, compilations, program devices, 
        formulas, designs, prototypes, methods, techniques, 
        processes, procedures, programs, or codes, whether 
        tangible or intangible, and whether or how stored, 
        compiled, or memorialized physically, electronically, 
        graphically, photographically, or in writing if--
                  (A) the owner thereof has taken reasonable 
                measures to keep such information secret; and
                  (B) the information derives independent 
                economic value, actual or potential, from not 
                being generally known to, and not being readily 
                ascertainable through proper means by, the 
                public; and
          (4) the term ``owner'', with respect to a trade 
        secret, means the person or entity in whom or in which 
        rightful legal or equitable title to, or license in, 
        the trade secret is reposed.
  (d) Criminal Forfeiture.--
          (1) Notwithstanding any other provision of State law, 
        any person convicted of a violation under this section 
        shall forfeit to the United States--
                  (A) any property constituting, or derived 
                from, any proceeds the person obtained, 
                directly or indirectly, as the result of such 
                violation; and
                  (B) any of the person's property used, or 
                intended to be used, in any manner or part, to 
                commit or facilitate the commission of such 
                violation, if the court in its discretion so 
                determines, taking into consideration the 
                nature, scope, and proportionality of the use 
                of the property in the offense.
          (2) The court, in imposing sentence on such person, 
        shall order, in addition to any other sentence imposed 
        pursuant to this section, that the person forfeit to 
        the United States all property described in this 
        section.
          (3) Property subject to forfeiture under this 
        section, any seizure and disposition thereof, and any 
        administrative or judicial proceeding in relation 
        thereto, shall be governed by the provisions of section 
        413 of the Comprehensive Drug Abuse Prevention and 
        Control Act of 1970 (21 U.S.C. 853), except for 
        subsections (d) and (j) of such section, which shall 
        not apply to forfeitures under this section.
  (e) Orders To Preserve Confidentiality.--In any prosecution 
or other proceeding under this section, the court shall enter 
such orders and take such other action as may be necessary and 
appropriate to preserve the confidentiality of trade secrets, 
consistent with the requirements of the Federal Rules of 
Criminal and Civil Procedure, the Federal Rules of Evidence, 
and all other applicable laws. An interlocutory appeal by the 
United States shall lie from a decision or order of a district 
court authorizing or directing the disclosure of any trade 
secret.
  (f) Civil Proceedings to Enjoin Violations.--
          (1) Generally.--The Attorney General may, in a civil 
        action, obtain appropriate injunctive relief against 
        any violation of this section.
          (2) Exclusive jurisdiction.--The district courts of 
        the United States shall have exclusive original 
        jurisdiction of civil actions under this subsection.
  (g) Territorial Application.--
          (1) This section applies to conduct occurring within 
        the United States.
          (2) This section also applies to conduct occurring 
        outside the United States if--
                  (A) the offender is--
                          (i) a United States citizen or 
                        permanent resident alien; or
                          (ii) an organization substantially 
                        owned or controlled by United States 
                        citizens or permanent resident aliens, 
                        or incorporated in the United States; 
                        or
                  (B) an act in furtherance of the offense was 
                committed in the United States.
  (h) Nonpreemption of Other Remedies.--This section shall not 
be construed to preempt or displace any other remedies, whether 
civil or criminal, provided by United States Federal, State, 
commonwealth, possession, or territory law for the 
misappropriation of a trade secret
  (i) Exceptions to Prohibition.--
          (1) This section does not prohibit and shall not 
        impair any otherwise lawful activity conducted by an 
        agency or instrumentality of the United States, a 
        State, or a political subdivision of a State.
          (2) This section does not prohibit the reporting of 
        any suspected criminal activity to any law enforcement 
        agency or instrumentality of the United States, a 
        State, or a political subdivision of a State, to any 
        intelligence agency of the United States, or to 
        Congress.
          * * * * * * *

   CHAPTER 119--WIRE AND ELECTRONIC COMMUNICATIONS INTERCEPTION AND 
                  INTERCEPTION OF ORAL COMMUNICATIONS

Sec. 2516. Authorization for interception of wire, oral, or electronic 
                    communications

  (1) The Attorney General, Deputy Attorney General, Associate 
Attorney General, or any Assistant Attorney General, any acting 
Assistant Attorney General, or any Deputy Assistant Attorney 
General or acting Deputy Assistant Attorney General in the 
Criminal Division specially designated by the Attorney General, 
may authorize an application to a Federal judge of competent 
jurisdiction for, and such judge may grant in conformity with 
section 2518 of this chapter an order authorizing or approving 
the interception of wire or oral communications by the Federal 
Bureau of Investigation, or a Federal agency having 
responsibility for the investigation of the offense as to which 
the application is made, when such interception may provide or 
has provided evidence of--
          (a) * * *
          * * * * * * *
          (c) any offense which is punishable under the 
        following sections of this title: section 201 (bribery 
        of public officials and witnesses), section 215 
        (relating to bribery of bank officials), section 224 
        (bribery in sporting contests), section 670 (relating 
        to economic espionage), subsection (d), (e), (f), (g), 
        (h), or (i) of section 844 (unlawful use of 
        explosives), section 1032 (relating to concealment of 
        assets), section 1084 (transmission of wagering 
        information), section 751 (relating to escape), section 
        1014 (relating to loans and credit applications 
        generally; renewals and discounts), sections 1503, 
        1512, and 1513 (influencing or injuring an officer, 
        juror, or witness generally), section 1510 (obstruction 
        of criminal investigations), section 1511 (obstruction 
        of State or local law enforcement), section 1751 
        (Presidential and Presidential staff assassination, 
        kidnapping, and assault), section 1951 (interference 
        with commerce by threats or violence), section 1952 
        (interstate and foreign travel or transportation in aid 
        of racketeering enterprises), section 1958 (relating to 
        use of interstate commerce facilities in the commission 
        of murder for hire), section 1959 (relating to violent 
        crimes in aid of racketeering activity), section 1954 
        (offer, acceptance, or solicitation to influence 
        operations of employee benefit plan), section 1955 
        (prohibition of business enterprises of gambling), 
        section 1956 (laundering of monetary instruments), 
        section 1957 (relating to engaging in monetary 
        transactions in property derived from specified 
        unlawful activity), section 659 (theft from interstate 
        shipment), section 664 (embezzlement from pension and 
        welfare funds), section 1343 (fraud by wire, radio, or 
        television), section 1344 (relating to bank fraud), 
        sections 2251 and 2252 (sexual exploitation of 
        children), sections 2312, 2313, 2314, and 2315 
        (interstate transportation of stolen property), section 
        2321 (relating to trafficking in certain motor vehicles 
        or motor vehicle parts), section 1203 (relating to 
        hostage taking), section 1029 (relating to fraud and 
        related activity in connection with access devices), 
        section 3146 (relating to penalty for failure to 
        appear), section 3521(b)(3) (relating to witness 
        relocation and assistance), section 32 (relating to 
        destruction of aircraft or aircraft facilities), 
        section 1963 (violations with respect to racketeer 
        influenced and corrupt organizations), section 115 
        (relating to threatening or retaliating against a 
        Federal official), and section 1341 (relating to mail 
        fraud), section 351 (violations with respect to 
        congressional, Cabinet, or Supreme Court 
        assassinations, kidnapping, and assault), section 831 
        (relating to prohibited transactions involving nuclear 
        materials), section 33 (relating to destruction of 
        motor vehicles or motor vehicle facilities), section 
        175 (relating to biological weapons), or section 1992 
        (relating to wrecking trains);
          * * * * * * *

                                
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