19–006 

112TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 112–610 

FOREIGN AND ECONOMIC ESPIONAGE PENALTY 

ENHANCEMENT ACT OF 2012 

JULY 19, 2012.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. SMITH of Texas, from the Committee on the Judiciary, 

submitted the following 

R E P O R T 

[To accompany H.R. 6029] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on the Judiciary, to whom was referred the bill 

(H.R. 6029) to amend title 18, United States Code, to provide for 

increased penalties for foreign and economic espionage, and for 

other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. 

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 1 

Background and Need for the Legislation ............................................................. 2 

Hearings ................................................................................................................... 6 

Committee Consideration ........................................................................................ 6 

Committee Votes ...................................................................................................... 6 

Committee Oversight Findings ............................................................................... 6 

New Budget Authority and Tax Expenditures ...................................................... 6 

Congressional Budget Office Cost Estimate .......................................................... 6 

Performance Goals and Objectives ......................................................................... 8 

Advisory on Earmarks ............................................................................................. 8 

Section-by-Section Analysis .................................................................................... 8 

Changes in Existing Law Made by the Bill, as Reported ..................................... 8 

Purpose and Summary 

H.R. 6029, the Foreign and Economic Espionage Penalty Enhancement Act of 2012, amends the Federal criminal code to combat the significant and growing threat presented by criminals who 

engage in espionage on behalf of foreign adversaries and competitors. The bill amends § 1831(a) of title 18, United States Code, to 


pwalker on DSK7TPTVN1PROD with REPORTS
2 

1Foreign Spies Stealing US Economic Secrets in Cyberspace, Report to Congress on Foreign 

Economic Collection and Industrial Espionage, 2009–2011, Office of the National Counterintelligence Executive, p. i, (October 2011). 2 Id. 

3 Id. at p. 4 4 Id. 

5 Id. at p. ii. 6 Id. at p. i. 

increase the maximum penalties for the theft of trade secrets by 

criminals who knowingly commit economic espionage to benefit a 

foreign entity. By strengthening penalties and enhancing criminal 

deterrence, the bill protects U.S. jobs and technologies while promoting investments and innovation. When enacted, H.R. 6029 will 

advance the economic and national security interests of the United 

States. 

Background and Need for the Legislation 

Foreign Economic Espionage a Persistent Threat to U.S. Businesses: 

In October 2011, the National Counterintelligence Executive 

(ONCIX) published its biennial report to Congress on Foreign Economic Collection and Industrial Espionage. The report concluded, 

‘‘Foreign economic collection and industrial espionage against the 

United States represent significant and growing threats to the nation’s prosperity and security,’’ 1 and provided further: 

Sensitive US economic information and technology are targeted by the intelligence services, private sector companies, academic and research institutions, and citizens of 

dozens of countries.2

Of particular concern, the report identified two ‘‘Intelligence Adversaries,’’ 3 noting that, ‘‘China and Russia view themselves as 

strategic competitors of the United States and are the most aggressive collectors of US economic information and technology.’’ 4 The 

report warned: 

We judge that the governments of China and Russia will 

remain aggressive and capable collectors of sensitive US 

economic information and technologies, particularly in 

cyberspace.5

And the Intelligence Community predicted: 

Because the United States is a leader in the development 

of new technologies and a central player in global financial 

and trade networks, foreign attempts to collect US technological and economic information will continue at a high 

level and will represent a growing and persistent threat to 

US economic security.6

In January 2012, the Director of National Intelligence (DNI), 

James R. Clapper, echoed the ONCIX report’s warnings when he 

delivered the Worldwide Threat Assessment of the US Intelligence 

Community. Addressing counterintelligence threats, General Clapper testified: 

We assess that foreign intelligence services (FIS) are constantly developing methods and technologies that challenge the ability of the US Government and private sector 


pwalker on DSK7TPTVN1PROD with REPORTS
3 

7 Unclassified Statement for the Record on the Worldwide Threat Assessment of the US Intelligence Community for the Senate Select Committee on Intelligence, James R. Clapper, Director 

of National Intelligence, p. 8, January 31, 2012. 8 Id. 

9 Id. 

10 Id. at p. 7 11 ‘‘A trade secret is really just a piece of information (such as a customer list, or a method 

of production, or a secret formula for a soft drink) that the holder tries to keep secret by executing confidentiality agreements with employees and others and by hiding the information from 

outsiders by means of fences, safes, encryption, and other means of concealment, so that the 

only way the secret can be unmasked is by a breach of contract or tort.’’ Confold Pac v.Polaris 

Indus., 433 F.3d 952, 959 (7th Cir. 2006). The statutory definition of a trade secret is codified 

at 18 USC § 1839(3). 12 Intellectual Property: The Law of Copyrights, Patents and Trademarks, Roger E. Schechter 

and John R. Thomas, p. 528, (2003). 13The EEA is codified at 18 USC§§ 1831–1839. 

to protect US national security and economic information, 

information systems, and infrastructure.7

And stated, ‘‘the most menacing foreign intelligence threats in 

the next two to 3 years will involve’’ the need to confront and 

counter three activities: 

1) cyber-enabled espionage; 

2) insider threats; and 

3) espionage by China, Russia and Iran.8

Elaborating on the last point, the DNI stated: 

Russia and China are aggressive and successful purveyors 

of economic espionage against the United States. . . . We 

assess that FIS from these three countries [including Iran] 

will remain the top threats to the United States in the 

coming years.9

In explaining the threat posed by cyber intrusions, the DNI referred to the ONCIX report, when he testified: 

Among state actors, China and Russia are of particular 

concern . . . entities within these countries are responsible 

for extensive illicit intrusions into US computer networks 

and theft of US intellectual property.10

Existing U.S. Legal Protections and Authority: 

In the United States, trade secret 11 law protects secret, valuable 

business information from misappropriation by others.12

To promote legitimate competition and protect the investments 

and trade secrets of U.S. companies, Congress enacted the Economic Espionage Act of 1996 (EEA)13 to provide criminal penalties 

for the theft of commercial trade secrets. 

The EEA addresses two types of trade secret misappropriation. 

Section 1831 provides penalties for the theft of a trade secret to 

benefit a foreign government, instrumentality or agent while section 1832 provides penalties for the commercial theft of a trade secret carried out for economic advantage, whether or not the theft 

is intended to benefit a foreign entity. 

Reflecting the more serious nature of economic espionage committed in furtherance of a foreign interest, the maximum sentence 

for an individual convicted is 15 years’ imprisonment or a fine of 

$500,000, or both. In contrast, the maximum sentence for an individual convicted of the theft of a trade secret under § 1832 is 10 


pwalker on DSK7TPTVN1PROD with REPORTS
4 

14 Underground Economies: Intellectual Capital and Sensitive Corporate Data Now the Latest 

Cybercrime Currency, p. 6, March 28, 2011, available at http://www.mcafee.com/us/resources/ 

reports/rp-underground-economies.pdf 15 Id. at p. 1 16FBI’s New Campaign Targets Corporate Espionage, article by Evan Perez, May 11, 2012, 

The Wall Street Journal, available at http://online.wsj.com/article/SB100014240527023045439 

04577396520137905092.html. 17 In A World of Cybertheft, U.S. Names China, Russia As Main Culprits, article by Ellen 

Nakashima, November 3, 2011, The Washington Post, available at http://www. 

washingtonpost.com/world/national-security/us-cyber-espionage-report-names-china-and-russiaas-main-culprits/2011/11/02/gIQAF5fRiMlstory.html 

years’ imprisonment or a fine of $250,000, or both. An organization 

convicted of a violation of § 1831 may be fined up to $10 million 

while an organization convicted of a violation of § 1832 is eligible 

for a fine of up to $5 million. 

Since Congress enacted the EEA nearly two decades ago, it has 

not updated the penalty structure to reflect the increasing importance and value of intellectual property to our collective economy 

or its unique role as a catalyst to the continued growth and success 

of individual enterprises. 

Foreign Economic Espionage Imposes Enormous Costs on U.S. 

Businesses, Compromises Critical Technologies and Undermines U.S. Security and Competitiveness: 

Today, U.S businesses are built on the foundation of intangible 

assets. These include trade secrets, proprietary data, marketing 

plans, business processes and source code. An estimated 81% of the 

market value of S&P 500 companies in 2009 was derived from the 

value of their intangible portfolios.14

On average, US organizations spend an estimated $1 million a 

day on information technology.15 Despite this investment, U.S. 

businesses are increasingly targeted for and vulnerable to the theft 

of their intellectual capital. In many cases, businesses aren’t aware 

of advanced persistent threats that target their valuable trade secrets. Even when detected, businesses may not discover thefts until 

well after they’ve incurred serious damage. 

In May 2012, the Federal Bureau of Investigation (FBI) reported 

U.S. companies lost more than $13 billion to trade secret theft in 

cases opened in a brief period—just over 6 months during the current fiscal year.16

Writing in the Washington Post in November 2011, Ellen 

Nakashima summarized U.S. official’s estimates of losses to specific 

U.S. companies: 

The head of the military’s U.S. Cyber Command, Gen. 

Keith Alexander, said one U.S. company recently lost $1 

billion worth of intellectual property over the course of a 

few days. 17

Continuing, the report stated: 

A senior intelligence official, briefing reporters on the condition of anonymity, noted a few cases in which estimates 

were given in economic espionage prosecutions over the 

past 6 years: $100 million worth of insecticide research 

from Dow Chemical, $400 million worth of chemical formulas from DuPont, $600 million worth of proprietary 


pwalker on DSK7TPTVN1PROD with REPORTS
5 

18 Id. 19 Ibid. 14, at 5 20 Id. at 3 21 Id. at 5 22 Ibid. 1, at 4 23 Id. 24 Ibid. 14, at p. 6 25Department of Justice Joins in Launch of Administration’s Strategic Plan on Intellectual 

Property Enforcement as Part of Ongoing IP Initiative, DEPT. OF JUSTICE (June 22, 2010), available at http://www.justice.gov/opa/pr/2010/June/10-ag-722.html. 26 Ibid. 17 27 Costs of Economic Espionage Mount, article by Dan Freedman, April 27, 2012, Houston 

Chronicle, available at http://www.chron.com/news/houston-texas/article/Costs-of-economic-espionage-mount-3517271.php 

data from Motorola, $20 million worth of paint formulas 

from Valspar.18

Private sector experts validate that extensive damages and losses 

are being sustained by U.S. and global enterprises. A 2009 report 

from McAfee, the world’s largest dedicated security technology company, found ‘‘companies worldwide lost more than an estimated $1 

trillion in 2008 due to data leaks, the cost of remediation and 

reputational damage.’’ 19

A 2011 report from McAfee and Science Applications International Corporation (SAIC), a leading scientific, engineering and 

technology applications company, concluded, ‘‘[t]he cyber underground economy has shifted its focus to the theft of corporate intellectual capital—the new currency of cybercrime’’ 20, and ‘‘[t]he target and motivation are almost always financial.’’ 21

The value of losses is difficult to establish with absolute certainty 

but the Intelligence Community has offered a proxy for ‘‘the cost 

of developing new ideas, and . . . an indicator or the value of the 

information that is most vulnerable to economic espionage’’—corporate and government spending on research and development 

(R&D).22 In 2008, the most recent year available, the National 

Science Foundation ‘‘calculated that US industry, the Federal Government, universities, and other nonprofit organizations expended 

$398 billion on R&D, or 2.8% of the US Gross Domestic Product.’’ 23

The McAfee/SAIC analysis framed the cost/benefit analysis for 

potential criminals in a succinct manner: ‘‘What is a few million 

dollars [expended to steal intellectual capital] if a competitor company can save billions in research and development by stealing 

. . . proprietary data?’’ 24

Responding to accelerating losses to American businesses and increasing threats to U.S. national and economic security, U.S. law 

enforcement are stepping up the investigation and prosecution of 

trade secret theft and economic espionage cases. In 2010, the FBI 

and the Department of Justice opened 66 such investigations.25 Of 

seven insider EEA cases prosecuted in 2010, six involved links to 

a single country—China.26 In April 2012, Dan Freedman of the 

Houston Chronicle reported that since 2010, ‘‘prosecutors brought 

at least 30 China-related cases involving economic espionage or violations of the law barring unlicensed export of militarily sensitive 

technology.’’ 27

The U.S. Intellectual Property Enforcement Coordinator recently 

recommended that Congress increase both the statutory maximum 

penalty for economic espionage cases and the U.S. Sentencing 

Guideline range for the theft of trade secrets and economic espionage, including trade secrets transferred or attempted to be transVerDate Mar 15 2010 01:41 Jul 20, 2012 Jkt 019006 PO 00000 Frm 00005 Fmt 6659 Sfmt 6601 E:\HR\OC\HR610.XXX HR610

pwalker on DSK7TPTVN1PROD with REPORTS
6 

28 Administration’s White Paper on Intellectual Property Enforcement Legislative Recommendations, p. 4, (March 2011). Available at http://www.whitehouse.gov/sites/default/files/ipl 

whitelpaper.pdf 

ferred outside the U.S., in recognition of the ‘‘severity of the conduct inherent in the offense.’’ 28

Representative Lamar Smith, the Chairman of the Judiciary 

Committee, and 11 bipartisan members of the House introduced 

H.R. 6029, the ‘‘Foreign and Economic Espionage Penalty Enhancement Act of 2012,’’ on June 27, 2012. A targeted measure, H.R. 

6029 increases the maximum penalties for those convicted of foreign economic espionage. The bill responds to the significant and 

persistent threat of foreign economic espionage by deterring criminal activity and increasing the ‘‘costs of doing business’’ for those 

who engage in criminal activity that harms the economic and national security interests of the United States. 

Hearings 

The Committee on the Judiciary held no hearings on H.R. 6029. 

Committee Consideration 

On July 10, 2012, the Committee met in open session and ordered the bill, H.R. 6029, favorably reported without amendment, 

by voice vote, a quorum being present. 

Committee Votes 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that there were 

no recorded votes during the Committee’s consideration of H.R. 

6029. 

Committee Oversight Findings 

In compliance with clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives, the Committee advises 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. 

New Budget Authority and Tax Expenditures 

Clause 3(c)(2) of rule XIII of the Rules of the House of Representatives is inapplicable because this legislation does not provide new 

budgetary authority or increased tax expenditures. 

Congressional Budget Office Cost Estimate 

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, the Committee sets forth, with respect to 

the bill, H.R. 6029, the following estimate and comparison prepared 

by the Director of the Congressional Budget Office under section 

402 of the Congressional Budget Act of 1974: 


pwalker on DSK7TPTVN1PROD with REPORTS
7 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 17, 2012. 

Hon. LAMAR SMITH, CHAIRMAN, 

Committee on the Judiciary, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 6029, the ‘‘Foreign and 

Economic Espionage Penalty Enhancement Act of 2012.’’ 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Mark Grabowicz, who 

can be reached at 226–2860. 

Sincerely, 

DOUGLAS W. ELMENDORF, 

DIRECTOR. 

Enclosure 

cc: Honorable John Conyers, Jr. 

Ranking Member 

H.R. 6029—Foreign and Economic Espionage Penalty 

Enhancement Act of 2012. 

As ordered reported by the House Committee on the Judiciary 

on July 10, 2012. 

H.R. 6029 would increase the maximum penalties, including 

fines, for revealing trade secrets to foreign entities and would direct the United States Sentencing Commission (USSC) to review 

and, if necessary, amend sentencing guidelines for economic espionage. Based on information provided by the USSC, CBO estimates 

that implementing H.R. 6029 would have no significant impact on 

the Federal budget. Enacting H.R. 6029 could affect direct spending and revenues; therefore, pay-as-you-go procedures apply. However, CBO estimates that the net effects would be insignificant for 

each year. 

Because those prosecuted and convicted under H.R. 6029 could 

be subject to criminal fines, the Federal Government might collect 

additional fines if the legislation is enacted. Criminal fines are recorded as revenues, deposited in the Crime Victims Fund, and later 

spent. CBO expects that any additional revenues and direct spending would not be significant because of the small number of cases 

likely affected. 

H.R. 6029 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of State, local, or tribal governments. 

On January 24, 2012, CBO transmitted a cost estimate for S. 

678, the ‘‘Economic Espionage Penalty Enhancement Act,’’ as reported by the Senate Committee on the Judiciary on December 8, 

2011. The two bills are similar, and the CBO cost estimates are the 

same. 

The CBO staff contact for this estimate is Mark Grabowicz. The 

estimate was approved by Theresa Gullo, Deputy Assistant Director for Budget Analysis. 


pwalker on DSK7TPTVN1PROD with REPORTS
8 

Performance Goals and Objectives 

The Committee states that pursuant to clause 3(c)(4) of rule XIII 

of the Rules of the House of Representatives, H.R. 6029, the Foreign and Economic Espionage Penalty Enhancement Act of 2012, 

will improve the U.S. Government’s ability to deter acts of foreign 

espionage and provide a more appropriate range of penalties for 

those convicted of the theft of trade secrets from U.S. companies. 

Advisory on Earmarks 

In accordance with clause 9 of rule XXI of the Rules of the House 

of Representatives, H.R. 6029 does not contain any congressional 

earmarks, limited tax benefits, or limited tariff benefits as defined 

in clause 9(e), 9(f), or 9(g) of Rule XXI. 

Section-by-Section Analysis 

The following discussion describes the bill as reported by the 

Committee. 

Sec. 1. Short title. Section 1 sets forth the short title of the bill 

as the ‘‘Foreign and Economic Espionage Penalty Enhancement Act 

of 2012.’’ 

Sec. 2. Protecting U.S. Businesses from Foreign Espionage. Section 2 increases the maximum penalty for an individual convicted 

of foreign espionage to 20 years, a fine of up to $5 million, or both 

and provides the maximum penalty for an organization convicted 

of foreign espionage shall be up to $10 million or three times the 

value of the stolen trade secret. 

Sec. 3. Review by the U.S. Sentencing Commission. Provides that 

the U.S. Sentencing Commission shall review the Federal sentencing guidelines and policy statements that apply to persons convicted of trade secret offenses to ensure they appropriately reflect 

the seriousness of the offenses, account for their actual and potential harm and provide adequate deterrence. 

Changes in Existing Law Made by the Bill, as Reported 

In compliance with clause 3(e) 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 italics, 

existing law in which no change is proposed is shown in roman): 

TITLE 18, UNITED STATES CODE 

* * * * * * * 

PART I—CRIMES 

* * * * * * * 

CHAPTER 90—PROTECTION OF TRADE SECRETS 

* * * * * * * 


pwalker on DSK7TPTVN1PROD with REPORTS
9 

§ 1831. Economic espionage 

(a) IN GENERAL.—Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, 

or foreign agent, knowingly— 

(1) * * * 

* * * * * * * 

shall, except as provided in subsection (b), be fined ønot more than 

$500,000¿ not more than $5,000,000 or imprisoned not more than 

ø15 years¿ 20 years, or both. 

(b) ORGANIZATIONS.—Any organization that commits any offense described in subsection (a) shall be fined ønot more than 

$10,000,000¿ not more than the greater of $10,000,000 or 3 times 

the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the 

trade secret that the organization has thereby avoided. 

* * * * * * * 

Æ 


pwalker on DSK7TPTVN1PROD with REPORTS