Transcripts For CSPAN3 Economic Espionage 20141107

The hearing of the Senate Judiciary subcommittee on crime and terrorism will come to order. Im expecting that my Ranking Member senator Lindsey Graham will be here shortly. I just saw him on the cspan screen. I know hes on the floor and not here. But i have permission from his staff to proceed. He will join us as soon as his schedule permits. I also want to recognize in the audience ed pigano. Its good to have him back in a different capacity. We are having a hearing today that is entitled, economic espionage and trade secret theft. Are our laws adequate for todays threats . Today the subcommittee is going to explore how we can better protect american businesses from those who try to steal their valuable intellectual property. American committees are renounced as being the most innovative in the world. Companies of every size and in every industry from manufacturing to software to biotechnology to aerospace own large paortfolios of legally protected trade secrets they have developed is and innovated. In some cases, the secret sauce may be a companys most valuable asset. The theft of these secrets can lead to devastating consequences. For small businesses, it can be a matter of life and death. The risk of trade secret theft has been around as long as there have been secrets to protect. Theres a reason why coke has kept its formula locked away for decades. In recent years, the methods used to steal trade secrets have become more sophisticated. Companies now must confront the reality that they are being attacked on a daily basis by cyber criminals who are determined to steal their intellectual property. As attorney general holder has observed, there are two kinds of companies in america. Those that have been hacked and those that dont know that they have been hacked. Today, a criminal can steal all of the trade secrets a company owns from thousands of miles away without the company ever noticing. Many of the Cyber Attacks we are seeing are the work of foreign governments. China and other nations now routinely steal from american businesses and give the secrets to their own companies. Their version of competition. Lets be clear, we do not do the same to them. We are now going through a healthy debate in america about the scope of government surveillance. But is there no dispute about one thing. Our spy agencies do not steal from foreign businesses to help american industry. While Cyber Attacks are increasing traditional threats remain. Company insiders can still walk off with trade secrets to sell to the highest bidder. Competitors still steal secrets through trickery or by breaking into a factory or office building. It is impossible to determine the full extent of the loss to american businesses as a result of the theft of trade secrets and other intellectual property. There have been estimates that our nation may lose 1 to 3 of our Gross Domestic Product through trade secret theft alone. The Defense Department has said that every year an amount of intellectual property larger than that contained in the library of congress is stolen from Computer Networks belonging to american businesses and government. Estimates of the value of i. P. Stolen by foreign actors are as high as 300 billion. General keith alexander, until recently the head of the nsa and of Cyber Command at the pentagon, has characterized the cyber theft of American Intellectual property as the greatest transfer of wealth in history. Of course, we are on the losing end of it. No estimate can fully capture the real impact of trade secret theft because when other countries and foreign businesses steal our trade secrets, they are stealing our ideas. They are stealing our innovation. Most importantly, they are stealing our jobs. In my own state of rhode island, we continue to face unacceptably high unemployment. Despite having some of the most innovative businesses in the country. If we do not protect our businesses from those who steal their intellectual property, then we are letting that innovation go to waiste and we are letting american jobs go overseas. In the past, some companies were reluctant to talk about this issue. Because no one likes to admit that they have been victimized. But many are now coming forward to speak out because they recognize how important it is that we Work Together to address this common threat. I particularly want to thank the Company Representatives who are appearing before us today in the second panel. As well as many, many others who have worked closely with me and with other senators on this issue. Im encouraged that the Administration Last year released a blueprint for a strategy to combat trade secret theft. In agencies across the government are increasing to address this problem. The Administration Must recognize that the theft of intellectual property is one of the most important Foreign Policy challenges we face. And it must communicate to china and other nations that stealing from our businesses to help their businesses is unacceptable. We in Congress Must do our part. We need to make sure that our criminal laws in this area are adequate and up to date. Last fall, senator graham and i released a discussion draft of legislation designed to clarify that state sponsored overseas hacking could be prosecuted as economic espionage and to strengthen criminal protection of trade secrets. We received valuable comments and suggestions about this legislation and we look forward to hearing from our Witnesses Today about how to improve our laws and what we can do to help defend our industries. We hope to introduce our legislation in the coming weeks. Companies also need civil remedies against those who steal from them. While state law has traditionally provided company with remedies for misappropriation of trade secrets, theres no federal law that allows companies themselves to seek civil remedies against those who steal from them. Senators coons and hatch have recently introduced legislation to give victims of trade secret theft the option of pursuing thieves in federal court. Senator flake has also introduced legislation to give companies a federal civil remedy for trade secret theft. I hope that the Judiciary Committee will act soon on legislation to strengthen both the criminal and civil protections against trade secret theft. I look forward to working with those colleague toward that goal. Today, we will hear from witnesses in government, industry and the Nonprofit Sector who confront the threat of trade secret theft on a daily basis. What i hope will be clear by the end of the hearing is that be need an allin approach to this hearing. We must strengthen our criminal laws and our Law Enforcement agencies must prioritize stopping trade secret theft before it occurs and investigating and prosecute it when it does occur. I will add that there remains an urgent need for us to pass broader Cyber Security legislation. I appreciate working with senator graham on that effort. I look forward to hearing from our Witnesses Today and to working with my colleagues on both sides of the aisle to address this critical issue. Our first witness is randall c. Coleman, assistant director of the count erintelligence divisin at the fbi. Mr. Coleman is responsible for ensuring that the fbi carries out its mission to defeat foreign intelligence threats. Mr. Coleman began his career as a special agent with the fbi in 1997 and has served as assistant special agent in charge of the san antonio division, chief of the counter espionage session and special agent in charge of the little rock division. Prior to his appointment to the fbi, he served as an officer in the United States army for nine years. We are delighted that che could join us today. We ask him to proceed with his testimony. Proceed, sir. Good afternoon, chairman whitehouse. I am pleased to be here to discuss the f bis efforts to combat economic espionage and theft of trade secrets. The fbi considers this a top priori priority. In 2012, the National Counterintelligence estimated a range of loss to the u. S. Economy approaching 400foreigi our nations advantage in the market, this threatens our economy and preventing such loss requires vigilance and aggressive mitigation. The fbi is diligently working to investigate and apprehend targets pursuing economic espionage against academic institutions, defense contractors and government agencies. It has made significant progress in putting some of the most egregious offenders behind bars. Economic espionage and theft of trade secrets are increasingly linked to the growing trend of cyberenabled trade secret threat. The insider may steal for personal gain or a spy for other organizations or a country. Foreign competitors aggressively target and recruit insiders to take the most pry pry teary information. The fbi however cannot protect the nations economy by acting alone. The fbi counterintelligence oversees more than 80 special agents that are serving as Program Coordinators who work hand in hand with industry and academic institutions across the country. These Partnership Coordinators conduct classified and unclassified threat presentations and briefings. Its an early referral mechanism for reports of possible economic espionage, theft of trade secrets and cyber intrusions. Working through the more than 15,000 contacts nationwide, this Program Helps companies detect, deter and defend against attacks of sensitive proprietary information from foreigned av r adversaries. By forming close partnerships with local, logical businesses and ak deppic and government indid i stugss, the fbi wishes to have a greater impact on deferring trade secrets before any loss can actually occur. Thank you again for the opportunity to testify and i look forward to answering any of yr questions, sir. I would like to talk with you about a couple of things. First of all, have you any specific reaction to the draft legislation that senator graham and i circulated for discussion purposes . Sir, i will i will stand on this that any legislation that allows the fbi to have ray better advantage at going after our foreign adversaries as it relates to economic espionage and theft of proprietary information the fbi is in favor of. The people we are working with at the department of justice, you support that . Yes, sir. The arguments and points they are making . Absolutely. One of the things that i have observed having watched this for a while while, is that whenever hear about a case that is brought for intellectual property theft, in every case i hear, so far, there has been some nexus to oldfashioned theft. Somebody taking the dcd home, somebody taking something out of a factory. We have seen an explosion of pure cyber intrusions and theft of property with no other technique involved. And to my knowledge, there have been no charges brought ever against anyone for that type of activity. I understand that these cases are very complicated. I understand that three have huge forensic issues, that theres an overlay with National Intelligence services that requires a lot of effort. I understand that some of the targets are overseas and that creates a whole array of other issues. Trust me, having served as a United States attorney, i can see how very challenging these cases are to make. But when you have general alexander say were on the losing end of the biggest theft in history, wed like to see more prosecution activity. Can you tell me what you think is behind that difficulty, and is there anything that we can do . Is it just a resource question . What can we do in congress to start putting points on the board against these people in criminal courts . I think you described it to a t. Obviously, when you get outside the borders of the United States and where theres a foreign nexus, our ability to conduct effective investigations is diminished greatly. I will tell you that we do have ongoing investigations that i would foresee as having a logical conclusion that i think you would agree, as you described. In fact, the, the fbi has placed se cyber assets working with the counterintelligence resources at our National Cyber intrugs task force that are working hand in hand and shoulder to shoulder on these specific investigations. So i think technology plays a Critical Role in the advancement of Technology Makes the threat that much more complicated. But i think there has been tremendous progress made by the fbi, along with our partners. At investigating these type crimes. So im hopeful, as we go forward, that well be able to demonstrate that we have been effective and will be effective in this arena. I wouldnt want to suggest that the fbi has not been effective. Ive been out to the ncijtv. I ive seen what you guys do out there. If i had to take my concern and turn it into a single phrase, it would not be the fbis not effective. It would be the fbis so busy trying to keep track of whos coming through the doors and windows and trying to warn all the companies that theyre hacking into that there is a resource constraint in taking all that effort which could be devoted to tracking all these attacks and trying to help our businesses, is it the capability or enough capability to sit down and go through putting a prosecution package together, working it through the intelligence agencies and doing all the other steps that need to be done. So in many ways im trying to throw you a friendly question, saying lets let us help you do what needs to be done in terms of the resorurceresources. I wouldnt want to take anybody off to put a package together. Do we indict chinese generals who are pulling this thievery off. Another thing that is important and the threat is so i am men am, immense, that thats what make it is so important to bring in the academic institutions to work hand in hand with us to get out in front of this threat. Youre absolutely right. The threat is so immense that the fbi cannot take this on along. Whatever help we can get in those industries and sectors is of great help to us. Theres a provision in the last appropriations bill that requires the department of justice to do a report for us, looking forward, looking out a couple years. And thinking about what the structure should being, like for addressing this particular threat. Its exploded, as you know. It explodes even further every year. It grows just at massive levels. Im not convinced at this point that the present setup makes sense. And if you look at another area that exploded. If you look at what happened when aviation began and what its effect was on the conduct of warfare, you started with the army air effort as a sub part of the signal corps. And then it became a sub part of the army, and it really wasnt until after world war ii that you had a fullon u. S. Air force. And sense then, weve been a very successful leader in that theater of military operations. But until then we really werent set up right. Im not convinced that were set up right. And i would invite you to comment on this. But let me also ask it as a question for the record that you can take back to headquarters. How does it make sense to have these kind of cases, perhaps in your counter intell jns division, perhaps in the cyber division, perhaps in the criminal division. How do you sort amongst those three divisions to have this be efficient and smooth flowing . Because i understand that each of those different sections have a piece of this. I think the first part of your comment is are we structured right. And i will tell you that i, i look at this on a daily basis. It is certainly a priority for the, our director as to look at, are we efficiently and effectively addressing the threats, and i will tell you in the Counter Intelligence division, economic espionage has become a priority because of the expansion of the threat. So there are always ways that we are looking to better address this. And some of the more significant effort that weve made is to really have outreach, and i cant stress how important that is to this process and what benefits that weve seen from that. The, weve expanded our contacts across the country to 15,000 contacts. And we are starting to see the maturity of these relationships is starting to pay off, in the fact that companies are starting to come to us. Academic institutions are actually coming to us, early on, and calling that contact, so we can get engaged in the problem at the very early period, versus after a bad actor has left the company with two or three terabytes of information has already left. So thats absolutely a victory for us in this process, but we have a lot of room for impro improvement that we will continue to do. And were always looking at ways to improve that. Well, in the context of that, if you could take it as a question for the record and get an official response from your organization, im interested in whether you think five years out, ten years out, that similar division across all those separate parts of the bureau will continue to be a wise allocation or whether were in sort of a transenterstep. Thank you for your service. I know this is a challenging area that calls on all sorts of different resources, and im proud of the way the fbi conducts itself in this area, and i appreciate your service it this country. Thank you very much for having me today. Well take a twominute recess while the next panel gets itself sorted out and come back into action then. All right. The hearing will come back to order. And i thank the witnesses for attending and participating in this hearing. We have a terrific panel of witnesses, and im delighted that you all are here. This is very promising. Peter hoffman is the Vice President of intellectual Property Management for the boeing company which has plenty of intellectual property to manage. He has worked there since 1984. In his current role he manages the companys patent portfolio, protection of its trade secrets and licensing of technical data images, consumer patents. Prior to being appointed to his current position, he served as t the director of global strategy for boeing, which is the companys advanced research section. Well open up for questions after that. Please proceed, mr. Hoffman. Good afternoon. On behalf of the boeing company i thank you for convening this hearing and m grateful for your efforts to improve trade secret laws. Its a privilege to be part of this panel. Boeing first began making twin float airplanes in 1915 from a small rid boathouse in seattle. While much has changed since then, our Company Remains unique in that we assemble and test most of our products in the United States. Mostly in washington and South Carolina but we have facilities in multiple states, including organize organization, florida, california, montana and utah. Our defense and spacerelated production is primarily located in california, missouri, pennsylvania, texas, arizona, florida, and alabama. Boeing employs 160,000 people, across the United States. Since 2005, we have created more than 15,000 new highpaying jobs driven by our backlog of over 5,000 commercial airplanes. Last year we paid 48 billion to businesses which support a 1. 5 million jobs across the country. Boeings significant contribution to the economy is a result of the ingenuity of our employees. They develop the most soughtafter products and technologies in the world. Boeings Cutting Edge Technology takes years to develop at an enormous expense, approximately 3 billion in research and development spent every year. And the bulk of our operations are protected as trade secrets. Boeing does not have one recipe for its secret sauce. We have thousands. Unfortunately, boeings valuable engineering and Business Information is at significant risk. Once publicly disclosed, rights and trade secrets may be lost forever. The investments wiped out in an instant along with the competitive advantage those trade secrets provided. Of course boeing is on constant guard to prevent theft of our trade secrets, but today, companies cannot simply lock trade secrets in a safe. The vast the majority is trade electronically. It has brought productivity but risk. We could lose a trade secret through a breach in our network, through disclosure by one of our employees or partners or through an escape at one of our suppliers. Fear of trade secret theft is not just a concern for boeing but Many Small Companies have as muff or more to fear than big companies, technically if their survival depends on a single pro duct or service. More needs to be done to prevent thieves from steeling our trade secrets. We must send a clear message that we will not stand by as thieves steal or secrets and harm our economy. We support your efforts and the efforts of Ranking Member graham to call attention to the issue and provide Law Enforcement with additional tools to deter trade secret theft. The act provides protections, but the standards and procedures adapted can vary state to state. As such, it is a real concern of u. S. Companies that state action under the uniform trade secrets act may not in some cases be immediate enough to prevent the loss of a trade secret. So we also ak nobl the need for companies to have the ability to take immediate action of our own in federal court to prevent the loss of our valuable trade secrets when state courts and federal Law Enforcement cannot act quickly enough. Therefore, we would also like to thank senator kuhns and hatch and your efforts to establish the right for a company to file an application in Federal District court in order to seize property, proprietary property containing trade secrets stolen from a company. We look forward to working with senator kuhns and hatch on this bill and support your efforts for the congress to work quickly and pass this legislation. Were also encouraged that the new laws if passed would strengthen overseas trade secret enforcemen enforcement. In conclusion, we applaud your efforts to highlight this issue and to strengthen u. S. Trade secret laws and there by help protect our valuable assets. Thank you for your time in hearing our concerns. Thank you, mr. Hoffman. I appreciate your testimony. Our next witness is pamela passman, the president and ceo of the center for responsible enterprise and trade, also known as create. Org. Create is a global, Nongovernmental Organization dedicated to helping companies and supply chain members implement leading practices for preventing corruption and protecting intellectual property. Prior to finding create in october 2011, ms. Passman was the corporate Vice President and deputy general counsel for Global Corporate and Regulatory Affairs at microsoft where she had worked since 1996. And i have to say, i have, as a lawyer, i am impressed by microsofts legal shop, particularly the really pathbreaking work that they did to go after spammers and people who are coming after them on the net with civil theories that dated back to, probably 15th century English Common law. It was quite impressive to see such ancient doctrines applied to such a new problem, and i think the microsoft complaints in that area have really set a model, not only for the rest of the corporate sector in that area of law, but even for government enforcement in that area of law. So you come from a good place. And welcome. Thank you very much, chairman white house. Again, my name is pamela passman, and im the ceo for create. Org. I appreciate the opportunity to testify. Create is a nonprofit dedicated to helping companies reduce corruption and intellectual property theft, including trade secret theft. We provide resources to cops, large and small, that help them assess their risks and develop strategies to protect their trade secrets and other i. P. Assets, boast within their organizations and in their supply chains. In todays intergrated goebel economy, companies that succeed into turning their knowledge and know how into competitive advantage are the ones that will create new jobs and drive economic growth. Increasingly, companies rely on trade secret laws to protect this knowledge. Through tremendous value, it also makes them prime targets for theft. Create recently teamed up with Price Waterhouse coopers to assess the Economic Impact of theft. A copy of the create pwc report is attached to my written testimony. The report makes clear that the problem of trade secret theft is massive and inflicts material damage on the u. S. And other economies. If we are to energize our economy by enabling Innovative Companies to protect their trade secrets we need to focus on two key goals. First, we need to innocent advise companies to take proactive measures and secure their trade secrets on the front end, both within their own organizations and their supply chains. Second, we need a consistent, predictable and harm nietzed legal system to provide remedies when a trade secret theft has occurred. It occurs through many avenues, and Companies Need different tools and strategies to protect against each type of threat actor. Businesses need to be technically cognizant of risks that arise in their supply chains. Supply chains have given many firms an enormous Competitive Edge, but Companies Using chains must often share highly valuable Business Information with their suppliers, which may be located in a different country with different laws and different corporate norms. In the face of this reality, it is absolutely essential that companies implement effective strategies to protect trade secrets, not just within their own four walls, but with their suppliers as well. In the create pwc report, we recommend a 5step approach for safeguarding trade secrets and mitigating potential threats. We suggest that companies, one, identify and categorize their trade secrets. Two, conduct a Risk Assessment. Three, identify the most valuable trade secrets to their operations. Four, assess the Economic Impact of losing those secrets. And five, use the Data Collected to allocate resources and stree strengthen existing processes for protection. Create recently created a Pilot Program with more than 60 countries and countries around the world that helped them assess vulnerabilities and implement procedures to mitigate threats. Based on that Pilot Program, we Just Launched a system to help companies to manage their systems for anticorruption. Unfortunately, no amount of protection can completely safeguard all trade secrets from theft. Companies also need a system that provides support and meaningful action. I applaud you for your focus on Law Enforcement. Im also encouraged by the efforts of senators kuhns and hatch to create a model for around the world. The problem of theft that happens entirely overseas is worthy of further study. Governments and companies both play a role in improving protection for trade secrets. In our view, companies would benefit from taking a more proactive role in assessing vulnerabilities and employing best practices to manage their risks. They also need an effective legal system through which to enforce their rights when their know how has been misappropri e misappropriat misappropriated. I look forward to your questions. Thank you, ms. Passman. Our next witness is drew greenblatt. Hes owned this Company Since 1998. The company exports baskets and sheet metal fabrications to 36 countries and has been recognized as one of the 5,000 Fastest Growing companies in the United States for each of the last two years. He serves as a board member of the National Association of manufacturers. And on the Regional Manufacturing institute of maryland. Hes also a member of the Maryland Commission of manufacturing competitiveness as well as an advisory counsel. Council. Thank you. Thank you for the focus on this critical challenge of trade secret theft and the opportunity to testify today. As you mentioned, my name is drew greenblatt. Were based in Baltimore City and are the leading manufacturer for custom wire baskets and sheet metal fabrications. We make everything in the usa. Im very proud to report that we export to 36 countries, and my favorite country that we export to is china. We cater to the automotive, pharmaceutical industries. Im here for three reasons. Number one, trade secrets arent just important for manufacturers that are big but for small manufacturers like myself. Number two, americas trade secret laws and policies must keep pace with todays threats which increasingly are not only interstate but international threats. Null three, manufacturers need your help to effectively and efficiently protect and enforce trade secrets. We need to secure strong commitments in our trade agreemen agreements. Like so many other manufacturers, marlin steel competes on a global economy. We succeed through investing in ideas and innovations and the hard work of our dedicated employees. When i bought marlin in 1998, we were a local business, and we made commodity bagel baskets, 18 employees, 800,000 in sales. Last year we almost hit 5 million in sales, and we now have over 24 employees. Were proud member of the National Association of manufacturers. We average about 40 member, 40 employees in the National Association of manufacturers, and we have 12,000 members. Im also the cofounder and chairman of the National Alliance for jobs and innovation, 380 members. Both are working hard to strengthen and protect trade secret and intellectual property rights. We want to level the Playing Field for manufacturers and businesses throughout the United States. Trade secrets are more important than ever. They include things like drawings, proprietary the manufacturing processes, software, formulas. All of these things are very valuable to the nation. 5 trillion for Public Companies and even more when you include small companies. Small companies, our secret sauce is those trade secrets. Thats our intellectual property. We leverage the expertise of our employees. 27 of them are engineers. Think come up with characteristics for our baskets that make us unique and different than our chinese competitors. Some think 3 of our gdp is lost to these trade secrets being stolen. In our grandparents day, they would be stolen from across town. Now it can be done on a thumb drove and sold to can companies and governments across the world. These cyber incursions are very threatening to us. We have lasers in our company, robots. If they can hack into our system, they can manipulate our equipment and possibly hurt our employees. That would be devastating to us. The thing im most proud about, weve gone over 1,981 days without a safety incident. If they were able to hack into our systems and hurt our systems they could hurt our team. We spend so much money hardening our network that we could hire another unemployed steelworker to fill that job remember than spending money on these other activities. The good news is washington is starting to recognize this problem. We need washington to do three things. First of all, we need to you have Strong Operational collaboration between the federal agencies. We cannot have the silo approach we have right now. We need the fbi cooperating with the Justice Department cooperating with customs and tsa. Number two, we need access to federal, Civil Enforcement to trade secrets theft. Well conceived legislation recently introduced by senator kuhn and hatch. This is going to give us the ability to pursue people in the federal people, not on the state level. Finally, we need to meet the Global Challenge of trade secret theft with global solutions. Good trade agreements to stop these thefts. In conclusion, chairman white house, senator hatch, trade secrets are vital for manufacturers, small and large. Americas trade secret laws must keep pace with todays threats. Manufacturers need your help to ensure that they can effectively and efficiently protect and enforce their trade secrets. I applaud your attention to this critical challenge and your focus on solutions, with strong global partnerships and closer collaborations between agencies and government and business, including federal, Civil Enforcement, we can have a real impact, we desperately need it now. Thank you for the opportunity to testify this afternoon. I look forward to answering your questions. Our final witness is douglas norman, the Vice President for e l ely lily company. He is chair of the National Manufacturers Sub Committee for intellectual property. Mr. Norman has previously served as the 2002 cochair of the intellectual property and antitrust task force. Please proceed. Good afternoon chairman whitehouse, thank you for the opportunity to testify today on the issue of great importance not only to my company and not only to my industry, but to all segments of the american economy. Ely lily was founded and headquartered in indianapolis, indiana on may 10, last saturday, lily celebrated its 138th birthday as a u. S. Company. Our mission is to discover and develop medicines to help people live healthier, longer lives. To fulfill this vision, lily must rely on intellectual Property Protection that includes patents, trademarks and trade secrets. Unfortunately, like too many innovative firms, lily has recently been the victim of trade secret theft. Lily is part of a group that supports s 2267, which would accomplish this objective. We thanks senators kuhns and hatch for their leadership. And were also encouraged by your work, chairman whitehouse and racking member graham to ensure Law Enforcement has the tools it needs to prosecute trade secret theft. And we appreciate the efforts by senator flake to highlight the continued problem of trade secret theft that occurs abroad. The bipartisan interest in trade secret protection is important to our abilities. Trade secrets are a sanction form of property. Whether youre a major pharmaceutical firm like ely lily or Startup Software company. Your trade secrets are a big part of your Competitive Edge and part of keeping workers on the job. Firms keeping jobs in america are the targets. Trade secrets are technically vulnerable to theft given the rise of Global Supply chains and the rapid technological advances in greater connectivity. It can come through cyberattacks, voluntary or involuntary disclosure by an employee or by a joint venture partner. The act makes a theft of trade secret a federal crime. The tool thieves use in their attempts to steal american trade secrets are growing more sophisticated by the day, however. Our laws must keep pace. The eea, as a criminal statute necessarily has limitations. While were very much appreciate the cooperation we get from federal Law Enforcement agencies, the fbi and department of justice have limited resources at the time and will never be able to prosecute all cases. State trade secret laws developed and made as soon as at a time when misappropriation was largely a local matter. But for it to deal with state lines, the array of state laws is inefficient and often inadequate. Its also inconsistent with how other forms of intellectual property are protected. Trade secrets are likely to involve Movement Across state lines. This is particularly true when the theft is by an individual looking to flee the country. Once a trade secret has been divulged trade secrets may be lost forever and the harm from disclosure and is very often irreparable harm. We want to provide trade secret owners the same right to protect their rights as others have. It focuses on software, biotechnology, agricultural and apparel, demonstrates the importance of a harmonized federal civil recommend difficult. Theyve already announced their support for the bill, and we are united on this front. We look forward to working with chairman whitehouse and senator graham. Similarly, we look forward to working with senator flake and agree its important to study ways in which to address overseas theft effectively. In conclusion, companies are trading global. And this is essential it our global competitiveness. The act will establish the Gold Standard for laws globally and serve as an important base for ha harm onization. Thank you again for the opportunity to testify today. I look forward to your questions. Thank you, mr. Norman. Let me welcome senator hatch and senator kuhns to the hearing. And before i turn to them for their questions, let me askew nan muss consent that chairman leahys statement be put into the record, which it will be without objection. And let me ask each of you, just very simply and quickly, using your own words and your own experience, explain what you think the scope is of this problem for our country and its industries, starting with mr. Hoffman. It is a tremendously big problem for us as a company, and i think more broadly as an industry, because of so much of our intellectual property is protected as trade secrets. And right now a lot of those are very vulnerable, considering the changing landscape, the sophistication of the means of which our intellectual property and trade secrets can be obtained. So anything that helps to improve Law Enforcements ability to protect our trade secrets and allows us to be more secure and keeping those secrets so theyre still valuable is very much appreciated by boeing. Ms. Passman, from your experience, the scope of the problem . Well, with companies having almost 75 of their value in intangible property including trade secrets, the problem is quite significant. And in the create pwc report we attempted to put a figure to the magnitude of the problem. Looking at the different threat actors involved, looking at the fact that other advanced economies rely on supply chains, and we looked at other check activity as a proxy for this, since its a figure that is very difficult to get someones arms around because companies themselves dont know the magnitude of the strtrade secre they have. We looked at other examples of elicit activity and came to a figure of 1 to 3 of gdp. Quite significant. Thank you. Mr. Greenblatt, in your experience . This problem is out of control. We need your help. Were being attacked daily. If we can get this legislation enacted, this will save jobs. In Baltimore City, unemployed steelworkers will be employed. We are getting things stolen left and right. We need your help. And mr. Norman . Hows that for clarity, by the way. Ill try to asome clarity myself the issue is enormous. I speak on behalf of pharmaceutical firms that spend billions of dollars in research and development. As we move forward and try to develop new, lifesaving medicines, we continually build chemical platforms and pharmaceutical platforms in hopes of reaching a point where we can apply for patents. What we are seeing are numerous instances where interlopers are stepping in and trying to steal our trade secrets on our form la, prior to the form we can reduce those into a pat pt application. It very often may take two, three, perhaps longer, two or three years or longer to do enough research to get to senator hatch . Thank you, mr. Chairman. I should say, both to you and senator kuhns, that before you got here, your names were sung with praise, over and over again for the legislation. It was almost as if you were summoned here by those voices. Thats always unusual. Were happy to have you all here. Under u. S. Law, protections for trade secrets are already some of the most rebust in the world. And were hoping to make those provisions, protections even stronger. But protecting trade secrets in numerous countries is a challenging, is a challenge, it seems to me. Facing many transnational companies. Something im very concerned about. Now, mr. Norman and mr. Hoffman, how will changes we make to u. S. Law have an impact, either positive or negative on what other countries are doing this this area, and do we need to be careful here . Mr. Norman, you can go first. Sure. Thank you, again, senator hatch for the legislation youve introduced. We greatly appreciate your leadership. The instances of what it would do on a positive standpoint is that we believe the legislation to obtain a federal trade secret remedy, particularly, the ability to seek an ex parte seizure of stolen materials and prevent further disclosure or divestment of that information broadly, would be a very positive Gold Standard for future discussions on harmonization of trade secrets around the world with our trading partners. Its important to get beyond the state trade secrets laws, which are often a bit unwieldy and difficult to enforce across state lines. Simply because the procedures arent always set up to work very well along those lines, but with a federal standard, with the appropriate kind of ex parte control, i believe we can show the rest of the world what the Gold Standard would look like as far as giving us the rights, on our own, to take a private civil action and protect other trade secrets. Thank you. Yes, i fully agree with my colleague. Any opportunity for our trade negotiators to be able to point to improvements in trade secret laws in the United States and thus strength be ten the laws oe of our borders with Global Companies such as ours will be very helpful to protecting our trade secrets. A question for the whole panel. Trade secrets seem to be a lot more difficult to protect than patents. I understand that there may be industry best practices and model policies, but i imagine these vary widely, based on the industry and type of process or information that youre trying to protect. So im very interested in, as a practical matter, how do you determine what measures are reasonable to protect your trade secrets . Well, when it comes to, you know, trade secret versus patent, we actually base that upon the reverse engineering ability of the innovation, but once we decide to go the trade secret route, we have to have the processes and the systems in place in order to assure that those secrets are, those trade secrets are secure, and, as mentioned previously, 60 of what we sell we buy from others as a company. So the sharing of the intellectual property is an area where we have to be very careful that they have the same type of procedures in place, and that we protect our interlick actual property at the same level. In our work with companies around the world, weve found that this is something thats not very mature inside their businesses or with their supply chain partners. So in the create work with pwc we laid out a fivestep framework for companies to begin to get their arms around how to best manage their intellectual property and really first being able to identify and categorize where are you, whether youre a Small Company or a Large Company who has global operations. We also recommend that companies conduct a Risk Assessment and identify who are the primary threat actors, whos interested in their trade secrets and intellectual property and their vulnerabilities in their policies, in their internal control, its really looking inside their company and in their supply chain and identify those trade secrets that would have the greatest impact on the companys operations and business. Also looking at the Economic Impact of a loss of a trade secret, understand the magnitude that that would have on their business. And finally, taking all of this information and allocating resources to better protect your trade secrets. Thinking of it as an investment, not just a cost. Senator kuhns. Thank you, senator whitehouse. Id like to thank you for chairing this hearing and for the great work that you and senator graham have done to protect americas intellectual property. Weve heard from an array of Witnesses Today of whats really at stake here. Up to 5 trillion in value held in americas intellectual property. We have criminal law prosecutions. The espionage act is a good platform, a good beginning, but as weve heard from you today as witnesses, there are significant gaps, and i applaud the chair, senator whitehouse and graham for their efforts to deal with that. The department of justice has many priorities and limited resources, so its unsurprising to me that there were just 25 trade secret case brought last year. Before he leaves, i need to say my profound personal thanks to senator hatch for being a good partner and leader on this issue. Well, its the same here. This young man has really done a very good job. You even got a young man out of it. [ laughter ] i should refer to you as one, too. As a former intern for this committee, i will say that i never imagined there would be a day when senator hatch would be patting me on the shoulder and saying i look forward to passing a bill with this young man when at the time i was mostly passing cups of coffee. It is a tremendous sense of satisfaction that ive gotten through working with senator hatch and with ely lily and a number of other Companies Represented here today. And im grateful to the National Association of manufacturers and the coalition for the protection of trade secretes. The protect trade secrets coalition. As weve crafted this bill and tried to get to a place that makes sense and that can help stem the gap in u. S. Law to ensure that we really vigorously defend trade secrets. Let me ask a series of questions of the panel if i might before we run out of time. First, if i might, mr. Hoffman, boeing does business globally as your testimony thoroughly demonstrates. Most of the significant trade secrets today originate from other countries around the world. Can you respect for how respect for trade secrets vary around the world and how our laws domestically and what we might enact as far as measures to strengthen our domestic laws could strengthen our u. S. I. P. Internationally. When you look at trade secret threat, regardless of whether its coming from domestic or internationally, it hurts boeing and other companies. But the best thing we can do is to set the standard and provide the tools necessary for efficient and effective protection of our trade secrets and give those, those standards to our trade negotiators to press the issue counterpar counterparts. Mr. Greenblatt, a company that has grown under your leadership, trade secrets pose a an existential threat. In your case, very harmful to ely lily or boeing, but for a firm like marlin steel, a loss of trade secrets could literally mean the end. In asserting your rights in court can be expensive relative to the size of your business. And i saw this in my own experience as inhouse counsel for a manufacturing firm. Can you speak to how a right of action would reduce the cost of protecting your trade secrets and having one uniform standard would help going after those who steal your secrets . The act is very well crafted. Its going to help us go around the state system, which is very inefficient, its very slow and very expensive. Little companies cant afford having lawyers in five different states on retainers trying to go after a bad actor. It would be much more elegant to have a federal ability. To stop bad actors and get good results. Thank you again for your hardworking leadership and in particular one of the sections weigh worked on was the ex parte injunctive relief. If youd explain why an Authority Like that is technically important to ely lily or other Companies Facing trade secret theft. Yes, sir. We often run into situations where we find that an exemployee has left and is going to work for a competitor, and we fine out something, such that in once they turn in their lily issued computer that theres been a download of a number of documents which contain highly confidential lily trade secrets. These occurrences almost always happen on a late friday afternoon. And therefore the best part, i believe, about the ex parte seizure aspect of the bill thats currently pending is the fact that we could go to federal court, and in one action kick out an ounce of prevention rather than worrying with a pound of cure a week or two later, when we can get the indiana state courts involved or the new jersey state courts involved or perhaps both the indiana and nunl state courts involved, leading to a whole lot more expense if we have to go through state court, a whole lot more risk because we may not be able to isolate and seize the stolen materials as quickly, and therefore, a federal cause of action where we can go to a single court and Institute Power of the federal court system to seize stolen materials would be extraordinarily helpful in those situations, and i thank you for your leadership on this bill. Thank you. If my math is right, that its 450 billion in trade secret theft. Your leadership in strengthening the protections for companies is admirable and i look forward to working with you to pass these bills in tandem with you to strengthen the innovations of thousands of companies. And now Lindsey Graham. Thank you, mr. Chairman. I think we have two challenges, protecting the nation from what i think is a cyber attack on a large scale. The question is will we do something in time. Thats one problem the nation faces. The other is the private sector trying to business in a very complicated, interconnected world. And the other thing americas had going for her is were good at thinking outside the box and other people are good at copies. Were trying to put teeth in this law. Mr. Hoffman, when youre overseas representing boeing or trying to do a joint venture, what do you worry about the most . I mean, if youre going, some countries require you to have a 51 partner, is that correct . It varies by country. In some cases you can have a majority share and some cases you have a minority share. But you have a forced Partnership Based on the host countrys laws. Whatever the laws are, typically it is some type of partnership, yes. Well, these partnerships are created by the host country, not at your own choosing. I suppose you can choose who to do business with. But you have to have a local partner for lack of a better terrell. In general, yes. How does the private sector and government interact when theres a trade secret theft offer intellectual property theft in a foreign country . What more can we do . And how does that sis tell woys . Im not an expert in those area, but we a very globally spread company. And when we make a decision to go into a country and do business, we study the laws and how we need to establish ourselves as a business and are prepared to defend our trade secrets as best we can knowing its going to be a very different environment than we have here at home in some case. Mr. Norman, when you do business overseas, and you have a local partner, whats your biggest concern . The biggest concern, of course, is losing our trade secrets. Losing the value of all the investment that we put in having a company across the street from where you locate, doing exactly the same thing youre doing . Exactly. Were always careful about the type of research and disclosure that we make outside the United States. And if we had laws holding an entity liable for that kind of theft, do you think it would make business easier overseas . If we could get other countries to change their laws and more harmonizing with the way we would like to see trade secrets protected. Is it fair to say, many countries, its the wild, wild west . Theres definitely different threat levels out there, and i agree with my colleague that we choose carefully about what we do outside the United States. Is this an impedestrianment to job creation . I think anytime we lose t, i is a huge job issue. We employ thousands of scientists and engineers who will work years trying to develop a drug product. And if a competitor can step in and take that away from us right before we cross the finish line, its devastating. I want to thank chairman whitehouse. Ive never known someone to know more about the subject matter. Its been a pleasure working with senator graham on a variety of cyber issues. And i thank senator flake. Thank you for being here. I apologize for not being here earlier and hope im not plowing old ground here, but im concerned about the rate at which trade secrets are be being stolen. As opposed to domestically. I want to get some sense of that. Ive introduced legislation, the future of america innovation act, the fair act. If the bad actor is located abroad or acting on behalf of a foreign entity, and ms. Passman, there was a recent report on successful or unsuccessful attempts. The ben fishery of the theft is known 70 of the time. Do you see this as a growing problem, then, the foreign nature of the threat . Certainly in an integrated economy with very Global Supply chains were going to see the problems with the trade secrets. American Companies Benefit from having participate in these Global Supply chains, and as they move their business overseas, whether its a supplier oversaeas or a custome overseas, they need to realize the environment in which theyre working. Were working with companies in china and other emerging markets that want to mature their systems. But we advise companies to unstan the environment that theyre entering and to put business processes in place to better protect and manage their intellectual property inside of their business as well as with their supply chain. Well, thank you, mr. Hoffman, and your testimony, you note that one of the few cases d. O. J. Has prosecuted under section 1831 was against a defendant who stole trade secrets from boeing related to Space Shuttle and the delta iv rocket to benefit a foreign entity. Do you also see an uptick in this foreign activity . That particular case, the gentleman was charged with stealing our trade secrets. There was no particular focus on what happened to those. In fact, once it leaves, the damage has been done. I might defer to our department of justice colleagues regarding those issues. All right. What is boeing doing to combat this . What measures have you taken. Sorry if im plowing old ground here. In terms of our overseas presence, we hold our subsidiaries and our relationships with partners to the same level we have in the United States. The complexities are that we are in a different country and we have to adhere to their laws, and they may not be as harmonized with ours and as effective as ours. Do you think its important to have legislation that protects both, protects companies against domestic and Foreign Trade secret theft then . All of you agree with that good, well proceed with the legislation. I appreciate. Let the record reflect the nods. If you could do that more audibly next time, that would be great. Thank you for your testimony. Let he ask one last, well, maybe two last questions from everybody. Theres been some reluctance on the part of corporate victims of trade secret theft to engage in the criminal Law Enforcement process. And within of the thione of the heard is that taking that step rather than trying to bury things could actually make things worse as the trade secret rattled around through the case and became more public and further compromised the companys secrecy and its advantage. Is that something that is a real concern . Are there other concerns we should be looking at in terms of things having to do with the process of a criminal case that are deterring criminal victims from taking vac advantage of th means of redress. Mr. Norman . Yes, chairman whitehouse, that is very much a deep concern that we have as we look at the question of criminal prosecution arising from a disclosure of trade secrets outside the bounds of our corporate entity, and i applaud you, particularly, for the lang wablg that you have in your legislation, concerning the ability to protect a trade secret, even during the time that the court is reviewing, because it is, it is often difficult to question witnesses. Its very difficult to come forward with documentation. Its very difficult to seek expert testimony that can help prove that a theft has occurred if you cant talk about specifically in open court what the means of the disclosure was or what the subject matter of the disclosure was. Because once its made it its way into open court it is no longer a trade secret and you lose it anyway. So many of the mechanisms that have been proposed and the mechanism that ive seen technically in your legislation, i believe is a great leap forward in helping us move into an arena where we could help prosecute these cases much more readily than weve been able to in the past, and i thank you for that. A final question for mr. Greenblatt. You indicated earlier that one of the things that we as senators should focus on is improving coordination among the agencies. You used the term silos. When i go out to the unofficially termed fusion centers, if you will, where the fbi or homeland security, theyve got all the agencies there. Theyve got everybody represented. Its all up on screens. It looks like a model of interagency cooperation, at least at that level. Obviously, you had a different experience down at the level of the attacks on your company and the experience that you had. Could you articulate more specifically exactly what your concerns were about the silo problem and the problem of coordination. So for example, if the februafbi identifies a bad actor, we would like that that company cant import things into america, and the Customs Agency halts their products from coming into america. The only way we get their attention is by the wallet. And if we could stop them from shipping into the greatest, biggest economy in the world, well get their attention. So youre not, your experience wasnt that on the investigative side there was discoordination but youre talking about an additional penalty for them. Exactly. We want everybody to Work Together and quickly resolve these topics, and we just cant have each agency in their own little zone. We have to have everybody working together and collaborate as much as possible. And then we have to stop these bad actors from bringing their parts into america. Let me thank all of the witnesses for coming in. This is a very helpful process for us. We have a lot of things going for us with this legislation. For one thicng, its a real isse that is causing americans to be hurt in very concrete and meaningful ways. Second, as youve seen today, couldnt be more bipartisan. So i dont see us getting dragged into the partisan turmoil. Were following regular order and having proper hearings and so forth so that we can pull this together and forward and i hope that we can make progress. And the advice and the counsel of all that are here, some of whom have been very helpful in the preparation of the legislation and testimony about it is something that we are all very grateful for. I think senator flake, senator hatch, kuhn, graham, and myself have all put considerable effort into putting different aspects into this problem. And im confident that we will all Work Together to solve this problem so you have one less thing to worry about and you can focus your k. Skills on making the best products in the world and expanning your businesses. Thank you very much. The hearing will stay open for an additional week for anybody who wishes to add anything. But subject to that, we are adjourned. This weekend on the cspan networks, friday night, more reaction to the midterm elections. On saturday night at 8 00, a debate on the future of the internet. And sunday, on q a, tavis smiley on his book death of a king saturday night at 10 00, on book tv. Jeff chang on racial progress in america. S