New Act Authorizes Sanctions for Trade Secret Theft

Congress recently passed and sent to the president the Protecting American Intellectual Property Act of 2022. The act mandates sanctions on entities and individuals identified by the executive branch as having committed “significant thefts of trade secrets,” including those who facilitate or provide support for such thefts, where the trade secret theft is “reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States.”

The Protecting American Intellectual Property Act of 2022 (PAIP Act) introduces a new realm of sanctions and IP protection designed to increase the punishments associated with thefts of US companies’ or individuals’ trade secret intellectual property by foreign entities and individuals.

While the co-sponsors’ statements point to the People’s Republic of China, the PAIP Act is not limited to acts by foreign nationals and entities of particular countries and applies to any trade secret thefts. As a result, the PAIP Act adds new tools to the US government’s kit to address significant IP issues first addressed in the Section 301 Report issued under former US Trade Representative Lighthizer. While export laws may also address technology and IP that is covered by those regulations, this approach expands sanctions jurisdiction and authorities to further limit access to US technology and IP if the executive branch designates parties as having committed such thefts.

The PAIP Act requires no judicial findings predicate to the exercise of this new sanctions authority. Rather, it allows for the imposition of sanctions upon a presidential determination that a theft of trade secrets has occurred. Once the president makes that determination and notifies Congress, sanctions are mandatory—they “shall” be imposed. As a result, sanctions will be imposed even if no criminal or civil charges are brought and even if a court ultimately determines that the trade secret theft either did not occur or has not been proven in a US court of law. Further, there is no requirement that the sanctions be removed if, for example, a US court determines that the theft did not occur or that there were no legally recognizable trade secrets.

Given that a trade secret case can take years to conclude, the threat of sanctions alone could force a foreign party to relinquish any judicial rights it may have. Moreover, if sanctions are in fact imposed, they will likely make settlements less desirable and less achievable, since the parties will not be able to control the lifting of those penalties and can only wait for the long and uncertain agency reconsideration process.

SCOPE AND REPORTING REQUIREMENT

Scope

Much like the process used by the Hong Kong Autonomy Act (Public Law 116-149) (HKAA), the PAIP Act requires the president to identify in a report to Congress those companies and individuals who the president determines:

• have knowingly engaged in significant theft of trade secrets of US persons;
• have provided significant support, or goods or services, to support or benefit that theft;
• are owned or controlled by, or have acted on behalf of any foreign person; or
• are the chief executive officers or board members of any foreign entities.

Persons and entities will be identified and sanctioned if the president determines that the trade secret theft is “reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic stability of the United States.”

The PAIP Act continues the recent legislative trend of including important terms without defining them. In this case, Congress chose not to define the…