SISTEMA DE EVALUACIÓN Y PROMOCIÓN DE LOS ESTUDIANTES DE LA

In October 1996, U.S. President Bill Clinton signed the Economic Espionage Act (EEA) into law. The EEA makes it a federal crime to take, download, receive, or pos- sess trade secret data without consent.

The following is a summary of the bill’s criminal provisions:

(a) Imposes up to a $500,000 fine and a 15-year prison sentence on any per- son that steals or misappropriates a trade secret in order to advantage a for- eign government, instrumentality, or agent.

(b) Imposes up to a $10 million fine on any organization that commits an offense described in (a).

(c) Imposes a fine and up to a 10-year prison sentence on any person who steals a trade secret in order to benefit any party, including a foreign corpora- tion, other than the owner.

(d) Imposes up to a $5 million fine on any organization that commits an offense described in (c).

(See Appendix A for the full text of the EEA.)

As of the end of 1998, five cases had been prosecuted under the Economic Espionage Act (EEA) of 1996. Three cases involved domestic espionage activity: For example, two brothers were arrested for trying to sell information on Pittsburgh Plate Glass to an FBI agent posing as a representative of Dow Corning. The two cases in which foreign inter- ests were revealed involved an attempt to steal an anti-cancer drug formula from Bristol- Myers Squibb and theft of proprietary manufacturing information from Avery Dennison Corp. Taiwanese companies were implicated in both cases. The Avery Dennison case alone is estimated to have resulted in economic losses of $50–60 million.

As of the end of 1999, 18 cases had been engaged in under the EEA. Let’s take a closer look at a few of these cases.

In April 1998, Steven L. Davis, 47, was sentenced to 27 months in prison for five counts of trade secret theft under the EEA. He was also ordered to pay $1,271,171.00

to Gillette and Wright Industries, a subcontractor of Gillette. (The loss figure was stip- ulated in the plea agreement to be between $1 million and $5 million.)

Davis was employed as a process controls engineer for Wright Industries, Inc., a Tennessee designer of fabrication equipment, which had been hired by Gillette to assist in the development of a new shaving system.

In February and March 1997, Davis made technical drawings of the new system avail- able to Gillette’s competitors in the razor market, Warner-Lambert Co., Bic, and American Safety Razor Company. He delivered the drawings to Gillette’s competitors by fax and e-mail.

In January 2000, a Youngstown, Ohio, federal judge sentenced P. Y. Yang, chief exec- utive of the Taiwan-based Four Pillars Ltd., to two-years probation along with six months of home detention for violating the 1996 Economic Espionage Act. Mr. Yang’s daughter, Hwei Chang Yang, was sentenced to one-year probation on the same charge. The Yangs each faced a maximum penalty of 10 years in prison and $250,000 in fines for violating the espionage law.

In April 1999, the Yangs were convicted of paying Ten Hong Lee, a senior research engineer at Avery Dennison, $160,000 over an eight-year period to obtain adhesive formulas and other innovations developed by the company, which is based in Pasadena, California. Four Pillars and Avery Dennison compete in the Asian adhesive- label market.

Four Pillars itself also was convicted on the espionage charges and fined $5 million by a U.S. District Judge for accepting the pilfered secrets. According to the court papers, Avery Dennison estimates a loss of at least $30 million because of the theft. The Yangs’ lawyers countered that Four Pillars never used any of the information it obtained from Avery Dennison to gain a competitive advantage and that the execu- tives have already served two years home detention waiting for a trial.

In February 2000, in a separate trial, a federal jury in Cleveland, Ohio, awarded Avery Dennison $40 million in damages from Four Pillars for stealing Avery’s trade secrets by bribing a senior Avery Dennison engineer to get access to confidential information about adhesive formulas and label technology.

Lee supplied Four Pillars with some of Avery’s most closely held secrets, prosecutors said, including chemical formulations for Avery’s diaper tape and a battery-label lam- inate the company was developing for Duracell’s PowerCheck battery. Payment for Lee’s services was allegedly laundered through members of his family in Taiwan. Avery first learned of a possible leak when the company tried to hire a Four Pillars sci- entist. The scientist turned down the job but allegedly told Avery officials that some- one was leaking secrets to Four Pillars.

Avery hired a private investigator and in October 1996 went to the FBI.

In January 1997, Lee and other Avery officials were invited to a meeting and told of a file containing secret details of the company’s business plans in Asia. A video camera later captured Lee going through the file.

In March 1997, FBI agents confronted Lee, and he subsequently pleaded guilty to one count of wire fraud and agreed to cooperate with federal investigators.

In September 1997, with Lee’s cooperation, the FBI set up a second sting at a hotel near Cleveland. There, Lee met with the Yangs in a room monitored by a concealed video camera and provided them with a secret Avery patent application and other proprietary documents. The video recorded the Yangs using a knife to slice out por- tions of the documents, reportedly portions that contained the Avery logo and word- ing that indicated the documents were privileged and confidential. The Yangs were arrested several hours later at the Cleveland airport as they were about to leave the country.

In 1999, 53% of CSI/FBI respondents considered their U.S. corporate competitors as a likely source of attack. In 2000, the number of respondents who viewed their com- petitors as a likely source of attack dropped to 44%. Could the increase in EEA cases be a contributing factor? Hopefully, and quite possibly.

Naomi Fine of Pro-Tec Data (www.pro-tecdata.com), one of the world’s leading authorities on economic espionage and how to thwart it, explains, “There has been a greater perception of the value of proprietary information over the last few years. Look at some of the indictments under the Economic Espionage Act. You can see that there are greater claims for the cost of the trade secret, greater claims for the value of the trade secret and for the consequences of the loss. This heightened awareness of value may contribute to the increase in size of the losses that the survey results reflect.

“In the hyper-competitive business environment,” she says, “there is a perceived increase in the value of information in general. People have a better understanding of how much information is needed in order to compete effectively. People are real- izing, ‘We own it. We have every right to protect it. We are not out there just trying to be litigious. This is serious business.’

“The whole environment has changed,” she continues, “and because it has changed, people are more inclined to report to legal counsel and law enforcement. They don’t just slough it off. They don’t see it as ‘just information,’ they see it as the life-blood of what they’re doing.”

Fine feels that the EEA has not only contributed to respondents’ ability to quantify their financial losses, but also to their willingness to report such incidents to both legal counsel and law enforcement.

“The EEA actually has benefited the business community both because it provides heightened visibility and awareness and because it demonstrates that law enforce- ment is serious and that there are Federal resources available to help U.S. companies to combat such activity.”

The stakes are getting very high in EEA-related criminal investigations.

In March 2000, a federal grand jury in San Jose, California indicted a former engi- neer at Intel Corp., Say Lye Ow, a 29-year-old Malaysian, under the Economic Espionage Act.

Investigators accuse Ow of stealing Intel secrets before he left the company in 1998, and particularly documents concerning a microprocessor twice as powerful as those developed up to now. The new microprocessor, which Intel has been developing for the past six years under the name Itanium, is due to be released summer 2000. The indictment says that Intel’s information was found during a search of Ow’s office in May 1998 after he had taken a job at Sun Microsystems.

Intel isn’t accusing Sun itself of unfair practices…yet.