,
Lisa Chen 
,
Dan Shallman ,
Daniel Bookin ,
Darin Snyder ,
Sharon Bunzel and
Mark Racanelli
On April 26, 2010, the Justice Department announced that it is devoting significant new resources to its ongoing initiative to combat domestic and international intellectual property crimes, including theft of trade secrets, computer hacking, digital piracy, and counterfeit goods.1
The Department is creating 15 new AUSA positions in the Computer Hacking and Intellectual Property (CHIP) program. They will work closely with the Criminal Division's Computer Crime and Intellectual Property Section (CCIPS) to aggressively pursue high-tech crimes. The new AUSA positions will be located in California, the District of Columbia, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Texas, Virginia, and Washington.
Twenty new FBI Special Agents will be stationed in New York, San Francisco, Los Angeles and D.C., four areas with intellectual property squads. These 20 new agents are in addition to the 31 agents already devoted to investigating IP crimes.
In an op-ed piece in The National Law Journal, Acting Deputy Attorney General Gary Grindler explained that aggressive intellectual law enforcement is a top priority for the DOJ.2 "Businesses that create and rely upon intellectual property, from large entertainment conglomerates to small biotech firms, make up among the fastest-growing sectors of the U.S. economy. These industries also represent a significant portion of U.S. exports, with intellectual property now comprising a significant — and growing — share of the value of world trade." Grindler warned that "these unprecedented opportunities for American businesses and entrepreneurs are put at risk by criminals and criminal organizations that seek unlawfully to profit by stealing from the hard work of American artists, authors and inventors. . . . Criminals are responding to American innovation with their own creative methods of committing intellectual property crimes — from widespread online piracy to well-funded corporate espionage to increased trade in counterfeit pharmaceuticals and other goods." In recognition of these threats, the DOJ has redoubled its commitment to "aggressive criminal and civil enforcement of our nation's intellectual property laws."
In addition to the creation of these 35 new positions, the DOJ has recently demonstrated its commitment to combat IP crimes in other ways. In February, Attorney General Eric Holder established the DOJ's Task Force on Intellectual Property to coordinate the Department's efforts on IP crimes. The Task Force is also charged with coordinating IP law enforcement with federal, state and local law enforcement as well as the DOJ's international counterparts. It works with the Office of the Intellectual Property Enforcement Coordinator (IPEC), housed in the President's Executive Office, to implement an administration-wide strategic plan on intellectual property. Soon after the creation of the Task Force, Holder announced, during a trip to Brazil, that preventing IP theft is a "priority concern" for the Attorney General and President Barack Obama. In addition, the DOJ's Intellectual Property Enforcement Program is planning on awarding $4 million in competitive grants to fund state, local and tribal criminal investigations, prosecutions, and prevention and education efforts related to IP enforcement.
The DOJ Task Force was set up to address problems identified in a recently released GAO report on intellectual property theft. The report revealed that the U.S. seized over $73 billion in counterfeit goods from 2004 to 2009.3 This seizure data does not include piracy of digital copyrighted products, which has significantly increased with the rapid growth of Internet use. Sectors threatened by digital piracy include the music, motion picture, television, publishing, and software industries. Piracy of these products over the Internet can occur through peer-to-peer networks, streaming sites and one-click hosting services. Currently, there is no government agency that systematically tracks data on the extent of digital copyright piracy.
The GAO report further revealed that intellectual property theft negatively affects industry through loss of IP rights, lost sales and revenues, forced reductions in the price of genuine goods, adjusted marketing strategies, dilution of brand value, damage to reputation and public image, increased spending on IP protection, as well as decline in innovation and production of new goods. A recently completed global survey commissioned by the RSA (the Security Division of EMC) and Microsoft, entitled "The Value of Corporate Secrets: How Compliance and Collaboration Affect Enterprise Perceptions of Risk," showed that companies are under-investing in protection against theft of corporate secrets.4 Although companies are investing heavily in compliance and protection against accidental leaks of custodial data, employee theft of sensitive information is 10 times more costly than accidental loss on a per-incident basis. Theft of intellectual property also has wide-ranging negative effects on U.S. consumers, government, and the economy.
In recognition of the serious consequences of IP theft, the DOJ has been active in prosecuting IP crimes. In 2010 alone, the Department has obtained a number of convictions, many involving criminal copyright infringement and theft of trade secrets. Below are brief descriptions of recent enforcement actions:
- On April 20, 2010, Richard Humphrey was sentenced to 29 months in prison for selling counterfeit copies of copyrighted movies through the Internet.5 He pleaded guilty to one count of criminal copyright infringement for selling pirated movies prior to their commercial release through an Internet website. Humphrey operated a subscription-based website where he distributed copies of hundreds of copyrighted movies, computer games, and software products. He offered paid subscription services for access to pirated materials, and solicited donations for the operation of his website.
- On April 19, 2010, Samarth Agrawal was arrested and charged with theft of trade secrets for stealing the proprietary computer code used in the high-frequency trading system of his former employer, Société Générale.6 Agrawal worked at the company as a quantitative analyst, then trader. Société Générale spent millions of dollars developing a computer system and code that allows it to engage in sophisticated high-speed trading in various securities markets. Agrawal allegedly copied, printed, and removed portions of the code without authorization. He has been charged with one count of theft of trade secrets and faces a maximum sentence of 10 years. The case echoes the charges filed against Sergey Aleynikov, a former Goldman Sachs computer programmer, who was indicted in February for stealing the company's proprietary computer code for its trading platform.7 Goldman Sachs has generated millions of dollars per year in profits from its high-frequency trading program and has taken several measures to protect the source code. Aleynikov has been charged with one count each of theft of trade secrets, transportation of stolen property in foreign commerce, and unauthorized computer access. If convicted, he faces up to 25 years in prison.
- In March 2010, Robert D. Cook and Todd A. Cook pleaded guilty to criminal copyright infringement and conspiracy to commit criminal copyright infringement.8 From July 2006 through May 2008, the Cooks operated several websites that sold large volumes of counterfeit software. Both defendants face up to five years in prison and a fine of $250,000. The case is part of the DOJ's ongoing initiative to combat online auction piracy. DOJ has obtained 46 convictions involving online auction and commercial distribution of counterfeit software.
- In February 2010, Shalin Jhaveri was arrested and charged with stealing trade secrets and proprietary information from his employer, Bristol-Meyers-Squibb.9 Jhaveri, a Technical Operations Associate, allegedly stole numerous trade secrets as part of a plan to establish a rival pharmaceutical firm in India. If convicted, Jhaveri faces up to 10 years in prison and a $250,000 fine.
- In February 2010, Dongfan "Greg" Chung, an aerospace engineer, was sentenced to 188 months in prison for conspiracy to commit economic espionage, economic espionage to benefit a foreign country, acting as an agent for the People's Republic of China, and making false statements to the FBI.10 Chung held a "secret" security clearance during his three decades of employment with Rockwell International and Boeing. He stole restricted technology and trade secrets relating to the Space Shuttle program and the Delta IV rocket for the benefit of the PRC.
- In January 2010, Kyle J. Tschiegg was sentenced to 90 months in prison for making email and telephone threats to over 50 individuals and businesses, including threats intended to cause a state legislator to withdraw from an election, as well as hacking into e-mail accounts, and using stolen identity information to commit computer crimes.11 He was also sentenced to three years of supervised release following his prison term, and ordered to pay restitution to victims. He pleaded guilty to one count each of interstate transmission of threatening communications, interstate extortion, computer fraud, and identity theft.
- In January 2010, Brian Thomas Mettenbrink agreed to plead guilty to a misdemeanor charge of unauthorized access to a protected computer and to serve a one-year prison sentence.12 He participated in a distributed denial of service (DDOS) attack on Church of Scientology websites in January 2008 that shut down the group's websites. A DDOS attack occurs when a large amount of malicious Internet traffic is directed at a website, creating such a high volume of Internet traffic that legitimate users are unavailable to reach the site. The case is part of an ongoing investigation by the United States Secret Service Electronic Crimes Task Force in Los Angeles.
The appointment of 15 new Assistant U.S. Attorneys and 20 FBI Special Agents will strengthen the DOJ's capacities and likely lead to more prosecutions of high-tech crimes.
About O'Melveny's Trade Secrets and IP Criminal Enforcement Practice
The lawyers in O'Melveny's Trade Secrets and IP Criminal Enforcement Practice approach matters with a unique, cross-disciplinary method that spans white-collar criminal law, employment, intellectual property, and other legal disciplines. This method produces results; recently, we defeated a multi-billion-dollar claim against NDS Group PLC involving alleged satellite television piracy; we secured a multi-million-dollar verdict for Contessa Premium Foods, Inc. in a six-week unfair-competition and theft-of-trade-secrets jury trial; and we overturned on appeal a $40 million trade-secret verdict for the famous model-train company, Lionel LLC.
Our trade-secrets experience extends well beyond these courtroom victories. We regularly represent public companies and individuals, particularly those in the high-tech industry, in parallel criminal and civil investigations and prosecutions by government enforcement agencies. On behalf of numerous clients, we have conducted large-scale internal investigations of trade-secret misappropriations and computer hacking, and negotiated with government officials who have declined to prosecute clients on the basis of their proactive efforts. We have successfully marshaled evidence of trade-secret misappropriation by former employees and competitors, and have prepared comprehensive referrals to the DOJ, leading to successful enforcement actions. We educate employers about what trade secrets are and are not, provide comprehensive training on best practices for protecting proprietary information as companies deal with arriving and departing employees, and provide counsel and advice on restrictive covenants and non-disclosure agreements. We review, draft, and help clients audit and update confidential trade secrets, noncompetition and nonsolicitation policies, procedures, and agreements. We also have extensive experience assisting and advising on mergers, acquisitions, and the formation of business entities with regard to negotiating and drafting post-employment restrictive covenants in noncompetition, nonsolicitation, nondisclosure, and stock option agreements.
Footnotes
1. Press Release, Department of Justice, Department of Justice Announces New Assistant United States Attorneys and FBI Agents to Combat Intellectual Property Crimes (Apr. 26, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-dag-480.html.
2. Gary G. Grindler, Aggressive IP Enforcement is a Must, THE NAT'L L.J., Apr. 26, 2010, available at http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202453202819&hbxlogin=1.
3. U.S. GEN. ACCOUNTING OFFICE, GAO-10-423, INTELLECTUAL PROPERTY: OBSERVATIONS ON EFFORTS TO QUANTIFY THE ECONOMIC EFFECTS OF COUNTERFEIT AND PIRATED GOODS (Apr. 12, 2010), available at http://www.gao.gov/new.items/d10423.pdf.
4. Press Release, RSA, New Independent Study Reveals Enterprises are Under-Investing in the Protection of Corporate Secrets (Apr. 5, 2010), available at http://www.rsa.com/press_release.aspx?id=10852.
5. Press Release, Department of Justice, Ohio Man Sentenced to 29 Months in Prison for Selling Pirated Copies of Movies (Apr. 20, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-crm-447.html.
6. Press Release, United States Attorney Southern District of New York, Manhattan U.S. Attorney Charges Former Societe Generale Trader with Stealing High-Frequency Trading System Code (Apr. 19, 2010), available at http://www.justice.gov/usao/nys/pressreleases/April10/agrawalsamartharrestpr.pdf.
7. Press Release, United States Attorney Southern District of New York, Manhattan U.S. Attorney Charges Former Goldman Sachs Computer Programmer for Theft of Trade Secrets (Feb. 11, 2010), available at http://www.justice.gov/usao/nys/pressreleases/February10/aleynikovsergeyindictmentpr.pdf.
8. Press Release, Department of Justice, Father and Son Plead Guilty to Selling Counterfeit Software Worth $1 Million (Mar. 12, 2010), available at http://www.justice.gov/opa/pr/2010/March/10-crm-257.html.
9. Press Release, The United States Attorney's Office Northern District of New York, Syracuse Man Charged with Stealing Trade Secrets (Feb. 3, 2010), available at http://www.justice.gov/usao/nyn/NewsReleases/Attachments/1043-2037-896212608.pdf.
10. Press Release, United States Attorney's Office Central District of California, Former Boeing Engineer Sentenced to Nearly 16 Years in Prison for Stealing Aerospace Secrets for China (Feb. 8, 2010), available at http://www.justice.gov/usao/cac/pressroom/pr2010/027.html.
11. Press Release, Department of Justice, Florida Man Sentenced to 90 Months in Prison for Extortion, Making Interstate Threats, Computer Fraud and Identity Theft, (Jan. 11, 2010), available at http://www.justice.gov/opa/pr/2010/January/10-crm-017.html.
12. Press Release, United States Attorney's Office Central District of California, Nebraska Man Agrees to Plead Guilty in Attack of Scientology Websites Orchestrated by "Anonymous" (Jan. 25, 2010), available at http://www.justice.gov/usao/cac/pressroom/pr2010/015.html.
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