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
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:
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 terms “significant threat,” “economic stability,” or even “materially,” instead leaving that to executive branch implementation. The result is an executive branch with broad authority to impose sanctions and limited avenues for judicial oversight, since the PAIP Act intones presidential authority under the International Emergency Economic Powers Act (IEEPA), which further limits judicial review.
The PAIP Act also adopts the broad definition of “trade secret” contained in the section of the US criminal code protecting against misappropriation of trade secrets: virtually all types of business information the owner takes measures to keep secret and from which the owner derives independent economic value are covered. Despite including the term “Intellectual Property” in its name, the PAIP Act does not cover patent, trademark, and copyright infringement.
Like the HKAA, the PAIP Act requires regular reports to Congress, the first of which is due no later than 180 days after the enactment of the act, and at least annually thereafter. The report must identify foreign persons determined to have knowingly engaged in or benefited from thefts of US persons’ trade secrets. It must also include a description of the nature, objective, and outcome of the theft of trade secrets by each foreign person and entity identified. The report itself must be unclassified but it may contain a classified annex.
Unlike the HKAA, the PAIP mandates that the president impose sanctions on parties identified in the report.
Entities
The president must choose at least five of the following sanctions to impose upon any entity identified in the report:
For individuals named in the report, the president must block all property and interests in property of the individual, while also prohibiting all transactions in or related to that property. Further, the person immediately becomes ineligible for entry into the United States and ineligible to receive any type of visa.
The specific agency involved will turn on the specific sanction chosen by the president. For example, blocking sanctions are implemented by the Department of Treasury while designation to the Entity List is a Department of Commerce action.
While the president may waive the imposition of sanctions upon individuals and entities if he determines it is “in the national interests” of the United States, that threshold is not easily met. Since the PAIP Act can be applied to any person or entity from any country, the administration will need to consider whether to grant broader waivers than those for individual actions alone.
Alternatively, if the PAIP Act becomes law, the president may choose to issue an accompanying signing statement about how the administration intends to work around the broad impact of the statute.
While the administration has waived otherwise mandatory sanctions in the past, including those against the company owning and operating the Nord Stream 2 gas pipeline, it is more likely that the administration will seek to use inclusion in the report to Congress as a trigger point, rather than waiving sanctions on a person or entity identified as having engaged in the prohibited activity. If the statute is functionally rewritten by the executive in a manner to allow for national exemptions, it raises significant issues as to its survivability against a judicial challenge.
The PAIP Act grants the president broad authority to sanction foreign individuals and companies the administration determines have engaged in significant thefts of US trade secrets. While the PAIP Act’s sponsors state that it was introduced to counter theft by Chinese individuals and entities, the act’s language is not nearly as restrictive and in fact mandates application to any foreign person identified as having engaged in trade secret theft.
Moreover, untethering the determination of trade secret theft from the judicial system raises significant rule of law issues and may result in retaliatory actions from both allies and adversaries alike.
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