“There is no evidence to suggest that government enforcement of the EEA has stifled technological innovation. Since the EEA was enacted in 1996, the Silicon Valley has created more wealth than previously created in human history.”
In August, the United States Attorney’s Office (USAO) for the Northern District of California charged a pioneer of self-driving car technology, Anthony Levandowski, with 33 counts of theft and attempted theft of trade secrets from Google under 18 U.S.C. § 1832 of the Economic Espionage Act (EEA). According to the indictment, Levandowski downloaded more than 14,000 files containing critical information about Google’s autonomous-vehicle research before leaving the company in 2016. The indictment alleged that Levandowski then made an unauthorized transfer of the files to his personal laptop. Some of the files that Levandowski allegedly took from Google included private schematics for proprietary circuit boards and designs for light sensor technology, known as Lidar, which are used in self-driving cars. Levandowski joined Uber in 2016 after leaving Google when Uber bought his new self-driving trucking start-up, “Otto.” Levandowski has repeatedly asserted that he never disclosed the download, nor made use of the information while he was at Uber.
Misinformation Around the Economic Espionage Act
There has been much misinformation and many misstatements have appeared in the mainstream press since the indictment that should be addressed and corrected. Suggestions in certain articles that the government should not be pursuing cases like this one and that prosecutions such as this are antithetical to technological innovation are of particular concern. These articles, in general, claim that theft of intellectual property actually benefits technological innovation and that the government shouldn’t be involved in doing the biding of enforcing the intellectual property rights of large technology companies. As least one article has gone so far as to suggest that “[t]he reason the technology industry has flourished in Silicon Valley … is that California makes it so easy to betray, cheat and steal.” See How the Anthony Levandowski Indictment Helps Big Tech Stifle Innovation in Silicon Valley, The New Yorker, August 28, 2019
The EEA was enacted in 1996 to promote and protect the national and economic security of the United States. The EEA extended federal criminal protection to trade secrets as a fourth type of intellectual property after copyrights, trademarks, and patents. In 2016, Congress enacted the Defend Trade Secrets Act, which extended the coverage of the EEA to civil litigation. The 1996 legislative history of the EEA extensively described the increasing importance of trade secrets to the U.S. economy noting, “a piece of information can be as valuable as a factory is to business. The theft of that information can do more harm than if an arsonist torched that factory.” S. Rep. No. 359, 104th Cong., 2d Sess., at 11 (Aug. 27, 1996).
At the time of the EEA’s passage in 1996, many commentators were concerned that the government would prosecute garden variety trade secret cases that were better left to be litigated civilly. However, this has not proven to be the case: Since 1996, the United States has brought approximately only 200 cases for violations of the EEA. Until approximately 2010, almost all of the prosecutions involved serious domestic matters without a foreign connection. Nearly all of these prosecutions resulted in a conviction. Since then, the vast majority of the EEA investigations and prosecutions have involved defendants with a “Chinese connection.” Based on this, there is no evidence to suggest that government enforcement of the EEA has stifled technological innovation. Indeed, the opposite seems to be accurate; since the EEA was enacted in 1996, the Silicon Valley has created more wealth than previously created in human history.
The Levandowski Example
The Levandowski case appears to fit this mold and does not appear to be simply a garden variety trade secret case that the government should not have brought. The charges in this case stem from civil litigation in which Waymo sued Uber for the same incidents that are alleged in the criminal case. Four days into trial, Google and Waymo settled with Uber, with Uber apparently agreeing to provide 0.34% of its stock to Alphabet, which at the time was valued at about $250 million. However, prior to this settlement, the presiding judge, Judge Alsup, referred allegations involving Anthony Levandowski to the United States Attorney’s Office for possible further investigation. While Judge Alsup made this referral before having heard even the limited evidence presented at the trial prior to the case being settled, he did apparently determine that there was enough evidence against Levandowski to warrant further investigation, and potentially prosecution—a view that would have been taken very seriously by the USAO.
The fact that Levandowski claims that he did not make use of the information will not necessarily be a successful defense because the EEA does not require that the defendant actually make use of the trade secret. The EEA focuses, in part, on whether the trade secret was misappropriated “without authorization” and not on whether the defendant made use of the information. For example, the Sixth Circuit found that there was sufficient evidence to support a conviction that defendant “appropriated, obtained or converted without authorization” certain trade secrets. United States v. Du, 570 Fed. Appx. 490, 501 (6th Cir. 2014). The Court rejected the defendant’s argument that she had established that she had authorization to dig through [the victim’s] files.” According to the Court, “even if [defendant] had been authorized to review these documents, it is undisputed that she was not authorized to keep any GM information contained in the documents after termination in 2005.” Id. Thus, even if the evidence establishes that Levandowksi did not make use of the information, the jury could still find him guilty for theft of trade secrets under the EEA if it determined that he “download[ed]” the trade secrets “without authorization” from Alphabet. 18 U.S.C. § 1832(a)(2).
Assessing the Damage
Another overlooked or misunderstood factor that supports the government’s decision to seek an indictment in this case is the value of the matter. United States Attorney’s Offices have a great deal of prosecutorial discretion as to whether to pursue a matter. One of the factors involved in making a determination as to whether to seek prosecution for an EEA violation is the amount of financial harm to the victim. The amount of actual financial damage to a victim or a plaintiff can be very difficult to determine in a trade secret case, especially where the defendant did not make use of the trade secret. However, while Alphabet initially claimed $1.85 billion in damages and settled with Uber for approximately just $250 million, this is not an insignificant amount for damages in a trade secret case. Many cases that the government has pursued under the EEA involve amounts of far less than that.
Most of the articles about Levandowski’s indictment have also exhibited a lack of understanding about the punishment that he may be facing should he plead guilty or be found guilty at trial. The press reports that Levandowski faces “a maximum sentence of 10 years in prison on each of the 33 counts,” suggesting that he faces 330 years in prison. This suggestion is misleading at best and exhibits a lack of understanding as to how defendants convicted of federal crimes are actually sentenced in federal court. The statutory maximum for each violation of the EEA is 10 years imprisonment, which may set a cap on what a defendant may be facing. However, in reality, the actual sentence that a district court may impose has little or nothing to do with the statutory maximum. While no longer mandatory, nearly all defendants in the federal system are sentenced pursuant to the United States Sentencing Guidelines (“The USSG”) which were created by Congress in 1994 in an attempt to ensure uniformity of sentences across the 94 judicial districts.
The critical factor in determining a sentence for a violation of the EEA is the amount of loss caused to the victim. The USSG defines “loss,” in general, “as the greater of actual loss or intended loss.” USSG § 2B1.1. Courts “need only make a reasonable estimate of the loss” since according to the Sentencing Guidelines, “[t]he sentencing judge is in a unique position to assess the evidence and estimate the loss based upon that evidence.” Id. §?2B1.1, Application Note 3(C). The Guidelines list a number of factors relating to the theft of trade secrets but indicate that the focus for determining “loss” should be on defining the fair market value of the particular property at issue. While determining the amount of damages in a civil trade secret litigation and the amount of loss in a criminal EEA matter are not necessarily identical and may involve different considerations, they are similar enough so that with regard to the Levandowski case, a good starting place to determine the actual sentence that Levandowski may be facing based on “loss” would be the civil settlement amount, which arguably reflects the fair market value of the trade secrets at-issue. Assuming that the jury convicts Levandowski and the Court determines that the amount of loss for the purpose of sentencing is $250 million, the Sentencing Guidelines would call for a sentence of 235-293 months imprisonment. In contrast, assuming that the loss was “only” $25 million, Levandowski still could be facing 97-121 months. While there are other sentencing factors that the Court would consider that could result in either a lengthier or a shorter sentence, or the Court could depart upward or downward from the recommended sentence, Levandowski is facing a lengthy prison sentence in the event he is found guilty.
More, Not Less, Government Intervention is Needed
There is simply no evidence that the government’s prosecution of cases such as this has stifled innovation, limited the mobility of employees to change jobs, or that that theft of intellectual property helps to create “the next new thing.” Over the past decade, small entities or individual inventors have found it increasingly difficult and expensive to enforce their patent rights. Large technology companies can afford to steal intellectual property from smaller entities with little or no chance of having to face the consequences of their actions. Given the cost of patent and trade secret litigation can easily run into many millions of dollars, the victim of such theft or patent infringement often does not have the financial wherewithal to litigate. Moreover, in the unlikely event that a large company has to pay damages, such companies simply write off these damages as the cost of doing business, which does nothing to deter future theft or infringement. In order to better protect the intellectual rights of small entities and individuals, who have been responsible for much of the scientific and technological progress in the United States over the past 240 years, the government should bring more enforcement actions similar to Levandowski and not fewer.
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