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Sanctions for Trade Secret Thieves Part of Senate-Passed Bill

June 9, 2021, 3:07 PM

A bill aimed at boosting U.S. competition with China that the Senate passed overwhelmingly includes a requirement for the president to sanction foreign trade secrets thieves.

Every six months, the president must report to Congress foreign companies or individuals engaged in trade secrets theft likely to cause “significant threat to the national security, foreign policy, or economic health or financial stability of the United States.”

The president must then impose at least five sanctions on those entities from a list of 12, including freezing U.S.-based assets, barring transactions with U.S. banks, and securing U.S. government contracts.

The provision aims to create meaningful consequences for trade secret theft from foreign entities from China and elsewhere, Sen. Chris Van Hollen (D-Md.), a cosponsor of an original stand-alone bill, said. Sen. Ben Sasse (R-Neb.) was also a cosponsor.

The Senate rolled the provision and various other bills and amendments into the U.S. Innovation and Competition Act (S.1260), which passed on a vote of 68-32 on Tuesday. The 1,400-page bill would establish a new Directorate for Technology and Innovation at the National Science Foundation and substantially boost NSF funding.

The legislation’s prospects in the House are uncertain, even though it has support from the Biden administration. House leaders haven’t set a course of action on it.

Sanctions

Under the trade secrets and sanctions provision, entities identified by the president as “engaged in or benefiting from” trade secrets can include chief executives and board members of any foreign company identified. The bill bars any individuals identified on the sanctions list from entering the U.S. while revoking visas for any already in the U.S.

The president can waive imposition of sanctions if it’s “in the national interests of the U.S.” The president can terminate sanctions by certifying to the proper congressional committees that the person is no longer engaged in trade secrets theft.

Other parts of the bill also empower the president to impose sanctions on China’s government and its companies for intellectual property theft and corporate espionage, among other behaviors.

The bill’s broad language codifies the delegation of substantial power in the hands of the president, intellectual property law professor Sean A. Pager of Michigan State University said. He acknowledged the president already has broad sanctioning powers, and already could declare a trade secrets threat an emergency to invoke his International Emergency Economic Powers Act authority.

“When you grant that much power without due process, judicial supervision, judicial review, proportionality, you allow politics to come in, you allow lobbying. People being sanctioned become political pawns in broader geopolitical and domestic struggle,” Pager said.

The International Trade Commission and the Federal Trade Commission already have authority to block goods tied to trade secret theft, he said.

Sasse in a statement said the mandatory sanctions for trade secrets theft would be consistent with the Countering America’s Adversaries Through Sanctions Act. The 2017 law imposed new sanctions on Iran, Russia, and North Korea.

“As a China hawk and a fiscal hawk, I would have liked for this bill to take a more focused and aggressive approach to the China threat—but this is a strong start,” Sasse said. “The Chinese Communist Party is working overtime on cyber, AI, and machine learning so that they can become the world’s preeminent super power. We can’t let our foot off the gas.”

—With assistance from Daniel Flatley.

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Kibkabe Araya at karaya@bloombergindustry.com

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