http://faircompetitionlaw.files.wordpress.com/2011/04/screen-shot-2011-04-11-at-8-45-27-am.png?w=300&h=91The Economic Espionage Act of 1996, 18 U.S.C. §§ 1831-39, creates two causes of action: (1) under section 1831, to criminalize foreign espionage; and (2) under section 1832, to criminalize the theft of trade secrets.

There is no private right of action, which, as you may recall, was the reason that Senator Kohl (Democrat, Wisconsin) and Senator Coons (Democrat, Delaware) have been working on legislation to modify the statute to great a private right of action. See John Marsh’s post, “Senators Kohl and Coons Announce the Protecting American Trade Secrets and Innovation Act of 2012: Can They Get It Done This Time?

As John notes in his post, while the bill is a significant step in the right direction, it left open the gap created (or, I supposed, simply identified) by the U.S. v. Aleynikov case, in which the United States Court of Appeals for the Second Circuit refused to extend the Economic Espionage Act to reach software stolen by a former Goldman Sachs programmer. The rationale was, essentially, that the software was not “placed in” commerce, but rather, was merely used to facilitate commerce.

Well, thanks to Senator Leahy (Democrat, Vermont) and Senator Kohl, there is now a bill (the Theft of Trade Secrets Clarification Act of 2012, S. 3642) – that just passed the Senate on November 27 – to close that gap. See Senator Leahy’s comments about the bill here.

Here is my take on the bill:

Overall, I think it’s fine and that the language is a significant step in the right direction. However, I do think that there is room for improvement.

The problem I see is its potential narrowness.

In the Aleynikov case, the Second Circuit rejected a broad interpretation of section 1832, which provides that the Act applies to a trade secret “that is related to or included in a product that is produced for or placed in interstate or foreign commerce . . . .” In that case, based on the District Court’s broad reading of section 1832, Aleynikov was convicted of (among other things) violating the Economic Espionage Act by stealing software used by Goldman Sachs for high-frequency stock trades. The Second Circuit reversed the conviction, holding that the software did not satisfy the “related to or included in a product that is produced for or placed in interstate or foreign commerce” requirement.

The Second Circuit’s rationale for rejecting the District Court’s broad interpretation is based, in part, on its analysis of the definition of “produced for”:

Since every product actually sold or licensed is by definition produced for the purpose of engaging in commerce, every product that is “placed in” commerce would necessarily also be “produced for” commerce – and the phrase “placed in” commerce would be surplusage.

While I believe that the language of the bill helps to address this interpretation, the new language still would not reach the full sweep of the Commerce Clause.

This is from the Second Circuit’s decision, page 26:

The Supreme Court observes a distinction between “legislation invoking Congress’ full power over activity substantially ‘affecting . . . commerce’” and legislation which uses more limiting language, such as activities “in commerce,” and thereby does not purport to exercise the full scope of congressional authority. Jones, 529 U.S. at 856 (quoting Russell v. United States, 471 U.S. 858, 859-60 & n.4 (1985)).

To the extent that the goal of the bill is to reach as broadly as the commerce clause, I think the language needs to be more clear.

As a related matter, by deleting the phrase “or included in” from the current statute, the bill could be viewed as attempting to somehow limit the scope. I would, at a minimum, leave “or included in” in the revised version.  (A trade secret can be included in a service to the extent that the trade secret forms the basis of advice, for example.) So, I would be concerned that, if the deletion of the “or included in” phrase was not for a specific purpose, it could be read to have purposely limited the reach of the Act in some way.

I do want to be reiterate, however, that, for what it’s worth, I think this bill is a significant improvement to the existing legislation. Please feel free to share your thoughts.