Congress Eyes Federal Criminal Code Changes

Congress Eyes Federal Criminal Code Changes

By Jonathan T. Cain
Contributing Writer

This year, Congress is expected to consider whether the federal criminal code should be further expanded to include other acts traditionally considered to be civil intellectual property wrongs.

As Congress examines the prospect of creating more federal crimes in the information technology business, it is legitimate to examine the effect, if any, that the enactment of felony criminal statutes for copyright infringement and trade secret theft has had on illegal conduct in the industry.

Indeed, 1996 was when Congress decided to get tough on intellectual property theft. In the Economic Espionage Act, lawmakers turned misappropriation of trade secrets into a federal crime punishable by large fines and jail sentences of up to 10 years. This enactment followed amendments to the criminal statutes in 1992 that added federal felony penalties to civil and misdemeanor remedies for copyright infringement.

While some state criminal statutes addressed trade secrets, prior to the enactment of the EEA, trade secret theft was rarely prosecuted as a crime, only as civil wrong that could be redressed by injunction or money damages. Federal prosecutors had dealt with trade secrets theft under wire and mail fraud statutes.

Proponents argued that federal felonization of these offenses and the threat of the imposition of substantial fines and jail time was necessary to protect the interests of America's technology and entertainment industries against, in the words of FBI lawyer Patrick Kelly, "foreign governments, organized criminal enterprises and rogue thieves." Both changes to the federal criminal law were supported by lobbyists for information technology industries.

At this time last year, Department of Justice representatives could not identify a single criminal case that brought copyright infringement under the felony statute enacted in 1992. Then, in April 1997, the department attempted a public relations splash by announcing "Operation Counter Copy," a collection of 17 criminal trademark infringement and copyright infringement cases brought by federal law enforcement officers. The arrests covered cases from flea market sales of counterfeit leather goods to sales of illegally reproduced software. The majority involved the reproduction and sale of music cassettes and motion picture videotapes.

The two software copyright cases involved the importation of infringing PC operating system and business applications software CD-ROMs from Asia for retail sale. Federal law enforcement officers have not, to date, brought criminal cases for the more complex copyright infringements involved in software development, firmware and mask works, which are the stencil design used to produce microprocessors and other semiconductors.

The Economic Espionage Act was touted by its promoters as necessary because federal law lacked a systematic, principled means to protect trade secrets from theft. State law provided for recovery of money damages and injunctions to halt the disclosure of trade secrets, but lawmakers argued that these measures were inadequate to protect U.S. businesses from frequent foreign and domestic attacks. Since its enactment in October 1996, federal prosecutors have obtained a total of four indictments for violations of the act.

Three of the four cases involved the attempted sale of trade secrets to a competitor by an employee who was working on the development of the stolen information. The information in the cases brought to date relates to research or engineering of industrial processes for manufacturing fiberglass, adhesives and razor blades. No software or other information technology trade secret thefts, one of the chief concerns identified by proponents of the act, have resulted in federal indictments.

The fourth case did not arise from an actual theft of a trade secret, but from a government "sting" operation, with FBI agents posing as "consultants." These operations attempt to lure prospective purchasers into making buys of "secret" technology. In the case announced last summer, representatives of one Taiwanese company attempting to purchase pharmaceutical information were arrested and charged.

The number of civil actions prosecuted by aggrieved private parties for civil injunctive relief and money damages during the same period dwarf the number of federal criminal prosecutions.

By comparison to the less than one dozen criminal copyright infringement cases and four criminal trade secrets cases brought by federal prosecutors in 1997, there were more than 220 civil copyright cases reported in the federal district courts and more than 150 trade secrets cases decided in the same period.

These numbers do not reflect the very large numbers of cases settled before a judgment is entered. The numbers show a slow, steady increase in the numbers of civil intellectual property infringement and theft suits for at least the past three years.

Thus, while the felonization of intellectual property theft has received significant attention from some quarters, the number of cases of such theft and infringement continues to grow unabated. The most important legal deterrents to control the problem will continue to be civil actions brought by the private parties most directly affected - at their own expense.

Jonathan T. Cain chairs the Technology Practice Group of Mays & Valentine LLP, McLean, Va. His e-mail address is jcain@maysval.com.