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 1