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Article Excerpt
I. INTRODUCTION
II. THEFT OF TRADE SECRETS A. Economic Espionage Act of 1996 1. Definition of Trade Secret 2. Elements of the Criminal Offenses a. Economic Espionage b. Theft of Trade Secrets 3. Applicability to Conduct Abroad 4. Prosecutions Under the EEA 5. Defenses a. Independent Development b. Reverse Engineering c. Lack of Secrecy B. National Stolen Property Act 1. Transported in Interstate or Foreign Commerce 2. Goods, Wares, or Merchandise 3. Minimum Value of $5,000 4. Knowledge of the Same 5. Stolen, Converted, or Taken by Fraud C. Trade Secrets Act D. Mail and Wire Fraud Statutes E. Racketeer Influenced and Corrupt Organizations Act F. Computer Fraud and Abuse Act G. State Law Provisions III. TRADEMARK COUNTERFEITING A. Trademark Counterfeiting Act 1. Relation to the Lanham Act 2. The 2006 Amendment 3. The PRO-IP Act of 2008 4. Elements of Criminal Offense 5. Defenses 6. Other Federal Statutes B. RICO and Money Laundering Acts IV. COPYRIGHT A. Copyright Act 1. Elements of the Offense a. Existence of a Valid Copyright b. Infringement c. Willfulness d. Financial Gain or Threshold Violation 2. Defenses 3. Penalties 4. Reverse Engineering B. National Stolen Property Act C. Mail and Wire Fraud Statutes D. Racketeer Influenced and Corrupt Organizations Act E. Money Laundering Act F. Database Protection G. State Law Provisions V. ONLINE SERVERS: CRIMINAL VIOLATIONS OF THE COPYRIGHT FELONY ACT A. Individual Criminal Liability 1. Infringement via the Internet 2. The Financial Gain Requirement or Threshold Violation 3. The Internet and the First Sale Doctrine B. Internet Service Provider Liability VI. PATENT A. False Marking B. Counterfeiting or Forging Letters Patent C. National Stolen Property Act VII. CABLE TELEVISION AND SATELLITE DESCRAMBLING VIII. SENTENCING A. Economic Espionage Act of 1996 B. National Stolen Property Act C. Trade Secrets Act D. Mail and Wire Fraud Statutes E. Racketeer Influenced and Corrupt Organizations Act F. Trademark Counterfeiting Act and Copyright Felony Act G. False Marking and Counterfeiting or Forging Letters Patent H. Cable Television and Satellite Descrambling
I. INTRODUCTION
Intellectual property accounts for a large part of today's economy. (1) Protecting the rights of intellectual property owners is, therefore, a critical task of the federal government in the current environment where the distribution of illegitimate goods can be achieved on scales like never before. (2) While owners of intellectual property can protect their rights by pursuing civil remedies, the threat of civil sanctions is often insufficient to deter infringing activities. (3) Some intellectual property thieves simply view civil damages as another cost of doing business. (4) Moreover, because the theft of intellectual property does not involve tangible goods, and in most cases does not require direct contact with the rights holder, many victims are unaware of the damages they sustain until an investigation is undertaken. (5) By 2000, U.S. companies had lost over $1 trillion from intellectual property theft, (6) and that number is reportedly growing by $250 billion every year. (7) In addition to monetary damages, intellectual property theft may also compromise the safety of the general public due to the use of counterfeit materials in pharmaceuticals, auto parts and other such goods. (8)
The marked increase in intellectual property theft, combined with the ineffective deterrence provided by civil remedies, has led the federal as well as state and local governments to enact criminal statutes to protect intellectual property. (9) Examples of the government's continuing commitment to prosecute intellectual property crimes include Operation Buccaneer," (10) a collaborative effort by the U.S. Customs Service and the Department of Justice ("DOJ"), the Joint Anti-Piracy Initiative, (11) which involves the FBI, and Operation Site Down, (12) a global campaign against organized piracy. (13) Enforcement efforts are also getting more sophisticated and aggressive. The DOJ launched Operation D-Elite, in May 2005 to crack down on peer-to-peer (P2P) piracy networks. (14) In October 2006, the DOJ completed its first successful "criminal
enforcement action against copyright infringement on a P2P network using BitTorrent technology." (15) Over the past few years, the federal government has steadily increased the number of criminal prosecutions of intellectual property crimes. (16)
This Article examines several areas of intellectual property law that provide the bases for criminal prosecutions. Section II examines the theft of trade secrets; Section III discusses trademark counterfeiting; Section IV addresses copyright infringement; Section V examines the problems raised by online servers; Section VI looks at patent violations; Section VII discusses cable television and satellite descrambling; and Section VIII discusses sentencing for intellectual property crimes.
II. THEFT OF TRADE SECRETS
Although trade secret theft may be the largest obstacle faced by U.S. corporations in their global business, (17) no federal criminal statute dealt directly with the theft of commercial trade secrets until the enactment of the Economic Espionage Act in 1996 ("EEA"). (18) Part A of this Section discusses the EEA. Parts B through F discuss other federal statutes that have been used by prosecutors--with limited success--to penalize the misappropriation of trade secrets. These include the National Stolen Property Act, the Trade Secrets Act, the Mail and Wire Fraud statutes, and the Racketeer Influenced and Corrupt Organizations Act. Finally, Part G describes various state attempts to combat trade secret theft.
A. Economic Espionage Act of 1996
In response to the growing efforts by foreign governments to misappropriate the trade secrets of U.S. companies, Congress enacted the EEA in October 1996 that provided for criminal as well as civil penalties against the theft of trade secrets. (19) The statute, however, is not limited to prosecuting the theft of trade secrets by foreign governments or foreign companies. (20) The EEA established two prosecutable offenses regarding the theft of trade secrets. The first offense, "economic espionage" ("[section] 1831"), arises only when the theft benefits a foreign government. (21) This offense carries higher penalties than the second offense, "theft of trade secrets" ("[section] 1832"), which concerns theft benefiting any person but the true owner. (22) The second offense is more general and applicable to both foreign and domestic trade secret disputes. (23)
1. Definition of Trade Secret
The EEA protects "all forms and types of financial, business, scientific, technical, economic, or engineering information ... whether tangible or intangible, and whether[,] or [no matter] how[,] stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." (24) The EEA imposes two requirements for such information to be considered a trade secret: (i) the owner of the property must take reasonable measures to keep the property secret; (25) and (ii) the information must derive an "independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public." (26)
The EEA's broad definition of trade secrets (27) allows for far-reaching protection since no additional requirements, such as wire or mail transmission, is necessary to bring a conduct within the scope of the statute. (28) The scope, however, is not without limitation. While the LEA covers information stolen in electronic form or merely memorized, (29) it is not intended to cover the transfer of general knowledge or skills learned on a job when an employee leaves one company and moves to another in the same or similar field. (30)
2. Elements of the Criminal Offenses
a. Economic Espionage
Section 1831, "economic espionage," requires that the theft of trade secrets benefits a foreign government, instrumentality, or agent in some manner. (31) This type of misappropriation of trade secrets not only covers outright theft (32) or unauthorized duplication, (33) but also includes trafficking in stolen trade secrets, (34) as well as the attempt (35) and conspiracy (36) to commit these offenses. Section 1831 also includes an intent component requiring that the misappropriation be "knowingly" committed. (37)
b. Theft of Trade Secrets
Section 1832, "theft of trade secrets," applies to the misappropriation of trade secrets for the economic benefit of anyone other than the true owner. (38) Unlike [section] 1831, offenses are not limited to activities that benefit a foreign government. However, three prosecutorial limitations exist that are not present in the "economic espionage" offense: (39) (i) the intended benefit realized must be economic in nature; (40) (ii) the thief must intend or know that the offense will injure the rightful owner; (41) and (iii) the stolen information must be "related to or included in a product produced for or placed in interstate or foreign commerce." (42) Like [section] 1831, [section] 1832 also contains an intent component requiring that the misappropriation be "knowingly" committed. As interpreted by some federal circuits, the attempt and conspiracy provisions of [section] 1832 do not require the existence of an actual trade secret. (43)
3. Applicability to Conduct Abroad
Section 1837 makes the EEA applicable to the theft of trade secrets or economic espionage that occurs overseas under two circumstances: (i) if the offender is under the jurisdiction of the United States or (ii) an "act in furtherance of the offense was committed in the United States." (44) The first provision of [section] 1837 extends the jurisdictional reach of the federal government to U.S. citizens, permanent residents and corporations for conduct abroad even when there is no other connection with the United States. (45) The second provision enables the federal government to pursue trade secret theft outside of the country, regardless of the status of the defendant, if some part of the activity is connected to the United States. (46)
4. Prosecutions Under the EEA
Most criminal actions brought under the EEA have involved domestic theft of trade secrets. (47) While there have been several actions involving foreign defendants, (48) all actions under the EEA prior to 2001 were filed under [section] 1832. (49) In May 2001, the first indictment under [section] 1831 was brought, and since then, six other cases under [section] 1831 followed. (50) At least one commentator foresees more aggressive use of [section] 1831 by the government as a potential countermeasure against economic terrorism. (51)
During the EEAs first five years, all prosecutions under the EEA required the express approval of the Attorney General, the Deputy Attorney General, or the Assistant Attorney General of the Criminal Division. (52) The approval requirement for [section] 1832 prosecutions has since lapsed, and federal prosecutors can now prosecute [section] 1832 offenses without prior approval. (53) In contrast, the Attorney General renewed the prior approval requirement for prosecutions under [section] 1831. (54) Economic espionage prosecutions under [section] 1831, therefore, still require DOJ oversight.
5. Defenses
Defenses to EEA prosecutions include: (i) independent development; (ii) reverse engineering; and (iii) lack of secrecy. Though not statutorily specified in the EEA, all of these defenses are available in civil misappropriation cases and have been applied to EEA criminal prosecutions. (55)
a. Independent Development
The defense of independent development may be raised when the defendant arrives at a technique similar to the trade secret exclusive of any influence from the trade secret that the defendant is alleged to have misappropriated. (56) In the civil context, the defense of independent development is a counter to improper "use" of trade secrets; where the defendant has independently developed an idea, he cannot be said to have "used" a pre-existing idea, even if both ideas are similar. (57)
b. Reverse Engineering
Reverse engineering involves the "systematic breaking down of a completed process or good into its component parts in order to identify its properties and derive expertise that enables reproduction of the trade secret." (58) If a company or proprietor of a trade secret provides information to an individual that facilitates reverse engineering of the entity's product, the individual cannot be held liable for "cracking the code." However, in order to assert the reverse engineering defense, the defendant cannot unlawfully acquire the product nor violate a license agreement to refrain from reverse engineering. (59) Further, an individual can be held liable for posting information acquired through reverse engineering on a website or otherwise distributing it to third parties. (60)
c. Lack of Secrecy
The defense of lack of secrecy may be raised in instances where the processes purported to be secret have been widely disseminated and have become readily accessible in the public domain. (61) The defense is only applicable when, at the time of obtaining the secret, the information was widely available in the public domain. The person who misappropriates the trade secret cannot immunize himself by disclosing the information to the public domain and retroactively destroying trade secret status. (62) Once the information falls into the public domain, however, any subsequent user can invoke the lack of secrecy defense even if the information was originally obtained through improper means. (63)
B. National Stolen Property Act
The National Stolen Property Act ("NSPA") (64) provides criminal sanctions (65) for any person who "transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud." (66) In cases involving theft of confidential documents, lower federal courts have held that the NSPA can apply to the theft of tangible property containing trade secrets, (67) even though the NSPA was not designed or intended to apply to trade secret theft. (68) However, the Supreme Court has yet to rule directly on the applicability of the NSPA to trade secrets. (69)
1. Transported in Interstate or Foreign Commerce
Because the NSPA was enacted under Congress's Commerce Clause (70) authority, it applies only if the stolen trade secrets have been transported or transferred in interstate or foreign commerce. (71) The purpose of the statute was to combat theft across state and foreign boundaries, previously not actionable by individual state and foreign governments. (72) At least one circuit requires the prosecution to prove that the stolen trade secret was physically transported. (73) More recently, courts have found transportation via electronic communication to be sufficient. (74) The mere presence of a stolen trade secret in a state or country other than its original location is generally insufficient to prove transportation, though it may be convincing when combined with other circumstantial evidence. (75) The conscious placement of items in the stream of interstate commerce may be sufficient. (76)
2. Goods, Wares, or Merchandise
Courts have reached different conclusions about the scope of this section of the statute. Goods, wares or merchandise have been broadly defined as "such personal property or chattels as are ordinarily a subject of commerce." (77) Other courts have held that purely intangible items, like electronic information, cannot be considered "goods, wares or merchandise" for purposes of the NSPA. (78) However, it is well settled that the theft of a trade secret in the form of intangible information is actionable when it is connected to tangible goods. (79) The NSPA does not allow for convictions based solely on attempted theft or receipt of stolen goods. (80)
3. Minimum Value 0f $5,000
The intent of the NSPA is to address only theft of items having substantial market value. (81) Courts have taken a variety of approaches in determining the "value" of trade secrets. Some courts look for an actual market for the products embodying the stolen trade secrets to determine their value. (82) Absent a market, courts look for "any reasonable method" of valuation. (83) Another alternative is to use the black market price. (84) Courts have allowed this minimum value requirement to be assessed at the point of transportation in interstate or foreign commerce, rather than at the time of the theft. (85)
4. Knowledge of the Same
Possession of stolen trade secrets by a defendant is not sufficient to invoke the NSPA. The government must introduce evidence establishing that the defendant knew the secret was stolen. (86) The defendant's knowledge of the illegal origin of the trade secret may be inferred from the defendant's behavior. (87)
5. Stolen, Converted, or Taken by Fraud
Finally, the NSPA requires a physical theft; the "goods, wares, [or] merchandise" must actually be "stolen, converted or taken by fraud." (88)
C. Trade Secrets Act
Prior to the EEA, the only federal statute that specifically addressed theft of trade secrets was the Trade Secrets Act ("TSA"), which criminalizes the unauthorized disclosure of confidential information by government employees. (89) How ever, because the TSA does not apply to the private sector (90) and provides only for misdemeanor sanctions, (91) federal prosecutors have traditionally relied on the NSPA and the mail and wire fraud statutes (92) to pursue charges of criminal trade secret misappropriation. (93)
The TSA has been used to enjoin the government's release of technical data belonging to a government contractor. (94) However, in order for information to be considered "confidential" under the Act, the party seeking an injunction must prove that substantial competitive harm would result from disclosure of the information. (95)
D. Mail and Wire Fraud Statutes
The mail and wire fraud statutes (96) provide criminal sanctions for using or attempting to use the mail (97) and wire services to perpetrate fraud. (98) Unlike the NSPA, these statutes may be applied to theft of intangibles, (99) such as trade secrets. (100)
Violation of these statutes does not require the potential victims to be in fact defrauded, (101) the defendant to gain anything through the potentially fraudulent activity, (102) nor there to be reliance by the injured party. (103) Rather, violations turn on the intent to defraud the victim. (104)
Under the statutes' broad definition of property, (105) appellate courts have upheld convictions involving intellectual property under the mail and wire fraud statutes even when there was no violation of the NSPA. (106) However, under these statutes, the use of the mail or wires is necessary for there to be a misappropriation. (107)
Recently, the mail and wire fraud statutes have been used to give owners of intellectual property standing to bring a civil claim under the Racketeer Influenced and Corrupt Organizations Act. (108)
E. Racketeer Influenced and Corrupt Organizations Act
Criminal sanctions for theft of trade secrets are also available under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). (109) The definition of racketeering activity applicable to the theft of trade secrets includes mail fraud, (110) wire fraud, (111) activity prohibited by the NSPA, (112) and the receipt of stolen property. (113)
The RICO statute is discussed in greater detail in its own article, RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS. (114)
F. Computer Fraud and Abuse Act
Section 1030 of Title 18 of the U.S. Code, (115) commonly known as
the Computer Fraud and Abuse Act ("CFAA"), (116) provides criminal sanctions and a civil action for misappropriation of trade secrets stored on "protected computers." (117) The CFAA is not designed to deal specifically with trade secrets, but misappropriation of trade secrets may violate the statute. (118)
Three sections of the CFAA are particularly relevant to trade secrets. Section 1030(a)(2)(c) prohibits obtaining, without authorization, information from protected computers via an interstate or foreign communication. (119) Section 1030(a)(4) criminalizes accessing a protected computer, without authorization, with the intent to defraud and obtain something of value. (120) Finally, [section] 1030(a)(5) prohibits intentionally causing damage, (121) without authorization, to a protected computer. (122)
G. State Law Provisions
In addition to the various federal statutes criminalizing the misappropriation of trade secrets, all states have enacted statutes to protect against the theft, use, or disclosure of another's trade secrets. (123) These state statutes vary greatly in their scope and sanctions. Some states have criminal codes that specifically address trade secrets. (124) Others have general criminal statutes that have been interpreted to cover trade secrets despite no explicit reference to them, use civil codes such as the Uniform Trade Secrets Act to confer protection, or both. (125) However, the scope of protection afforded by some state statutes, like the scope of the NSPA, is limited to the theft of tangible items. (126)
III. TRADEMARK COUNTERFEITING
A trademark is "any distinct word, phrase, symbol, picture, or combinations thereof" that function to identify the source of a specific product and is one of the most valuable assets of a company. (127) Counterfeiting is the deliberate and authorized use of a false mark that closely resembles a registered trademark. (128) It steals the identity of trademark owners, defrauds the consumers and costs the United States approximately $200 billion annually. (129) Counterfeiting is a lucrative crime, and it is replacing illicit drugs as the primary source of funds for criminal organizations. (130)
This Section covers federal statutes that deal with the growing problem of trademark counterfeiting. Part A discusses the federal statute that criminalizes counterfeiting, the Trademark Counterfeiting Act of 1984 ("TCA"), and its amendment, Stop Counterfeiting in Manufactured Goods Act, which was signed into law in 2006. It also reviews other federal statutes that may be used in conjunction with the TCA. Part B addresses anti-counterfeiting measures related to criminal organization and covers the trademark counterfeiting provisions of RICO and the money laundering statute.
A. Trademark Counterfeiting Act
1. Relation to the Lanham Act
In 1946, Congress enacted the Lanham Act, the civil trademark statute, to provide a comprehensive scheme of trademark protection. (131) Building on the Lanham Act, Congress passed the Trademark Counterfeiting Act of 1984 to criminalize the intentional trafficking of counterfeit goods or services. (132) In drafting the TCA, Congress relied on concepts and definitions of the Lanham Act and indicated that the TCA should be interpreted against the background of the Lanham Act. (133) Only conduct that is prohibited by the Lanham Act is criminalized by the TCA. (134)
2. The 2006 Amendment
While interpreting the TCA, courts found an ambiguity in the statute. (135) Circuits split over what constituted "goods" for the purpose of the TCA. (136) The judicial split created a "loophole" as people trafficked labels and component parts, rather than the whole good, to circumvent the TCA. (137) The newly enacted amendment, Stop Counterfeiting in Manufactured Goods Act ("SCIMGA"), (138) closes the loophole by prohibiting the trafficking of counterfeit "labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, hangtags, documentations, or packaging of any type or nature," (139) even if those phony marks are not associated with any goods. SCIMGA also expands the definition of "trafficking" to include the import or export of counterfeit goods or distribution of counterfeit goods for private financial gains. (140) SCIMGA broadly defines "financial gains" to include "expected receipt" of "anything of value." (141) Thus, possession of counterfeit marks or goods, without actual sale or distribution, becomes a crime if the possessor intents to distribute the counterfeit material later or attempts to make a sale but failed.
3. The PRO-IP Act of 2008
In October 2008, the President signed into law the Prioritizing Resources and Organization for Intellectual Property Act of 2008 ("PRO-IP Act"), which amended the TCA in several key ways. (142) In addition to the changes in the scope and enforcement of intellectual property crimes, PRO-IP created the executive position of the Intellectual Property Enforcement Coordinator within the State Department. (143)
The PRO-IP Act provides for the expansion of treble damages liability to those who supply goods or services to counterfeiters with the intent to provide such assistance; (144) the doubling of all damages; (145) the prohibition of transshipment and exportation (in addition to importation) of trademark infringing goods; (146) and the expansion of the definition of "computer crime" to include "infringement of copyrighted works over the Internet." (147)
4. Elements of Criminal Offense
Prior to the enactment of SCIMGA, to prove a violation, the government had to establish that: (i) the defendant trafficked or attempted to traffic in goods or services; (ii) such trafficking or attempt was intentional; (iii) the defendant used a counterfeit mark on or in connection with such goods or services; and (iv) the defendant knew that the mark so used was counterfeit. (148) After SCIMGA, the first element of the above requirements is expanded to include any kind of "label," and the definition of "trafficking" is expanded to cover more economic activities. (149)
Congress made two exceptions to the use of a mark on allegedly counterfeit goods: (i) when the goods themselves are genuine but display a false mark; and (ii) when legitimately manufactured goods are sold beyond a licensee's license period. (150) SCIMCA also emphasizes protection for "repackaging of genuine goods or services not intended to deceive or confuse." (151)
To convict under the TCA or SCIMGA, the government does not have to prove that a defendant had criminal intent. (152) Additionally, the government may prosecute individuals for conspiracies to violate the statutes. (153)
5. Defenses
Although it is disputable how valuable Lanham Act precedent is in TCA cases, the TCA does incorporate the defenses of its civil counterpart. (154) These defenses include equitable defenses such as laches, unclean hands, estoppel, fraud in obtaining the trademark registration, use of mark in violation of antitrust laws, invalid trademark, abandonment, misrepresentation, fair use, unregistered good faith prior use, and registered prior use. (155)
Although the TCA and SCIMGA define a counterfeit mark as one "likely to cause confusion, to cause mistake, or to deceive," (156) courts have rejected the argument that the actual purchaser must not have been confused or deceived by the counterfeit mark as purchaser confusion is not a solitary consideration in trademark violation cases. (157)
6. Other Federal Statutes
Other federal crimes that can be used to prosecute trademark counterfeiting in addition to or in lieu of the TCA include: 1) conspiracy and aiding and abetting; (158) 2) mail and wire fraud; (159) 3) copyright infringement; (160) 4) trafficking in counterfeit labels, illicit labels, or counterfeit documentation or packaging; (161) 5) trafficking in misbranded food, drugs and cosmetics; (162) 6) tampering with Consumer Products; (163) and 7) trafficking in mislabeled wool, fur and textile fiber products. (164)
B. RICO and Money Laundering Acts
Like theft of trade secrets, trademark counterfeiting is also illegal under RICO and the money laundering statute. (165) In 1994, Congress added trademark counterfeiting to the list of unlawful activities under the money laundering statute. (166) Similarly, the Anticounterfeiting Consumer Protection Act of 1996 made trademark and copyright counterfeiting a predicate offense under RICO. (167) Congress determined that the TCA "has been proven to be an inadequate remedy for the explosive growth of criminal commercial counterfeiting" (168) and responded by amending the RICO statute to allow the government to prosecute organized criminal activity as a whole "rather than merely react to each crime the organization commits." (169)
Penalties for violations of the RICO and money laundering statutes are significantly more severe than those under the TCA. (170) While the more recent amendments do not expand the definition of conduct that is illegal under the TCA and do not necessarily increase penalties associated with criminal conduct, their provisions do increase penalties when used to prosecute organized crime. (171) Thus, under RICO, fines can be up to twice the gross profits...
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