Transcripts For CSPAN Economic Espionage 20140519

The the hearing will come to order. Im expecting that my Ranking Member will be here shortly. I just saw him on the cspan screen, so i know he is on the floor, and not here. I have permission from his staff to proceed. He will join us as soon as your schedule permits. I will recognize in the audience pagano. Ano ed we are having hearing today that 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 better protect american businesses from those who try to steal their valuable intellectual property. American companies are renowned as being the most innovative in the world. Companies of every size and every industry, from manufacturing to software to biotechnology to aerospace own large portfolios of legally theycted trade secrets have developed and innovated. In some cases, the secret sauce may be the 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. Trade secret theft has been around as long as there have been secrets to protect. There is a reason why cocacola has kept its formula locked away in a vault for decades. In recent years, the methods haveto steal trade secrets 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 been hacked that have been hacked and those that do not know they have been hacked. Today, a criminal can steal all the trade secrets a company owns from thousands of miles away without the company ever noticing. Are of the cyberattacks we seeing are the work of foreign governments. China and other nations now routinely steal from american businesses. They give the secrets to their own companies. Their version of competition. Clear, we do not do the same to them. Were now going through a healthy debate in america about the scope of government surveillance, but there is no. Ispute about one thing our spy agencies do not steal from foreign businesses to help american industry. While cyberattacks 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 in to a factory or office building. It is impossible to determine the full extent of the loss to american businesses. Of the theft of trade secrets and other intellectual property. Our nation may lose anywhere from one to three percent of her gross to mystic product through tape through trade secret theft alone. The Defense Department has said amount of year an 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 ip stolen by foreign actors are as. Igh as 300 billion general keith alexander, until recently the head of nsa and Cyber Command at the pentagon, has characterized these that the divers have the cyber theft as the greatest transfer of wealth in history. Of course, we are on the losing end of it. But no estimate can fully capture an the real impact of trade secret theft. When other countries and foreign businesses dealer trade secrets, theyre stealing our ideas. Theyre stealing our innovation. Most importantly, theyre 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 properties, and were letting that innovation going to waste, and were 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 thread. Threat. I want to thank the representatives who are appearing before us today in the second panel as well as many withs who work closely other senators on this issue. That theraged ministers lester released a blueprints for a strategy to trade secrecy theft. An agency of the government is increasing efforts to address this problem. The Administration Must recognize that the theft of intellectual property is one of the most important foreignpolicy challenges we face. It must communicate to china and other nations that stealing from our businesses to help their businesses is unacceptable. E in Congress Must do our part we need to make sure that our criminal laws are adequate and uptodate. Last fall, senator graham and i released a discussion draft of legislation designed to clarify that statesponsored overseas hacking could be prosecuted as , and to espionage strengthen criminal protection of trade secrets. Able commentsll and suggestions about this legislation. 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. Also need civil remedies for those who steal from them. There is currently no federal law that allows companies themselves to seek civil remedies against those who steal from them. Haveors kunz and hatch 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 both legs toward that goal. Colleagues toward that goal. What hope will be clear by the end of this hearing is that we to thisall in approach hearing. We must strengthen our criminal and our Law Enforcement agencies must prioritize trade secret that before it occurs. Investigating and prosecuting 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. Is randall cness coleman, the assistant director of the tanner Intelligence Division at the federal bureau of investigation. 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 previously served as assistant special agent in charge of the san antonio division, chief of the counterespionage section and special agent in charge of the little rock division. Ride to his appointment to the fbi, mr. Coleman served as an officer in the United States army for nine years. We are delighted that he could themus today, and we ask to proceed with his testimony. Proceed, sir. Pleased to be here with you today to combat economic espionage and theft of trade secrets. The object considers investigation of theft of trade and and is it economic espionage a top priority. In 2012 alone, the National Counterintelligence executive a lossed estimated approaching 400 billion. To foreign adversaries and competitors who, by legally obtaining a broad range of trade secrets, degraded our nations advantage in Innovative Research and development in the global market. This immense loss threatens the security of our economy in preventing and preventing such loss prevents vigilance. The fbi is diligently working to apprehend targets against u. S. Businesses, academic institutions, clear defense contractors and government agencies. It has made significant progress including some of the most egregious offenders behind bars. Economic espionage and trade secrets and theft of trade secrets are growing trend of cyber enabled trade secret theft. The Insider Threat employee may be stealing information for personal gain or serving as a spy to benefit other oranizations are country country. Fbi, however, cannot protect a nations economy by acting alone. The counterIntelligence Division oversees a network of more than 80 special agents that are serving a Strategic Program workinators who handinhand with industry and academic institutions across country. Partnership cornet is conducted in person classified and unclassified threat presentations and briefings. It serves as an early referral mechanism for reports of possible economic espionage, and theft and trade secrets and cyber intrusions. Working through the more than 15,000 contacts nationwide, this Program Helps companies detect, deter, and defend against attacks. Takes seriously its role to investigate and apprehend targets pursuing economic espionage. By forming close partnerships with local, logical businesses and act yet get wishes to have a greater impact on preventing and deterring the loss of trade secrets before any loss can actually occur. For theu again opportunity to testify. I look forward to answering any of your questions, sir. I 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 . Legislation that allows fbi to have a better advantage at going after our foreign adversary adversaries as relates to economic espionage, the fbi is in favor of it. Click reasonably, the people we working with the department of justice, the support the arguments and points are making . Yes sir, absolutely. One of the things that i have observed, having watches for a while, is that whenever you hear about the case is brought foreign intellectual property theft, in every case that i have found, so far there has been some nexus to oldfashioned intellectual property theft. Somebody taking the dvd home, somebody taking the patented item out of the factory. We have seen an explosion in pure cyber intrusions. Extraction through the Cyber Network of intellectual property with no other technique involved. To my knowledge, there have been no charges brought ever against anyone for that kind of activity. I do stand that these cases are very complicated very to understand that they have huge forensic issues, that there is an overlay with National Security with the intelligence requires a lot of effort. I understand that some of the targets are overseas, that creates a whole other array of legal issues. Trust me, having served as a United States attorney, i can see how very challenging these cases are to make. Whenever general alexander saying that we are on the loses on the losing end of one of the biggest transfers of wealth in human history, we would like to see a little more actual heart prosecution activity. What you think is behind that difficulty and is anything we can do . Is adjusted resource question. What can we do in congress to put some points on the board against these people, and criminal law courts . Chairman, i think you. Escribed it to a t obviously, when he got the borders of the United States, and many of these investigations have a four 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 iscribe, in fact, the fbi has actually play cyber assets and resources working with the counterintelligence Resources International Cyber Intrusion Task force working hand in hand and shoulder to shoulder on these specific investigations. So, i think technology plays a Critical Role in the advancement makes the threat that much more complicated. I think there has been tremendous progress made by the fbi along with their partners at investigating these type of crimes. Andopeful as we go forward we will be a will to demonstrate that we have an effective and will be effective in this arena. I would want to suggest that the fbi have not been effect if. Ive been out to the mci gtf and have seen what you do out there. And had to take my concern turn it into a single phrase, it wouldnt be the fbi is not effective. It would be the guy so busy trend keep track of whos coming through the doors and windows and trying to warn other companies that their hacking into, that there simply is a resource constrained in terms of taking all that effort which could be devoted to tracking all these attacks and trying to help our businesses. There just isnt the capability or enough capability to sit down and go through putting a prosecution practice together, working up to the intelligence agencies and doing all the steps that need to be done. In many ways, im trying to enjoy a friendly question, saying let us help you do what needs be done in terms of the resources. I would want to take anybody off of what theyre doing that mci gtf to put a prosecution practice together. At some point, we have to have a robust enough responses a country that we are starting to, for want of a better example, indict chinese colonels and generals who are behind pulling this kind of thievery off. Of whatnk another part is important is, and you describe it as a threat is so immense, that that is what makes his outreach efforts are important what we are doing. In the private sector and academic institutions to work handinhand with us so we can actually try to get out in front of this threat. Youre absolutely right. The threat is so immense that the fbi cannot take this on alone. Whatever necessary help we can get in those other industries and sectors is of great help to us. In the lastrovision appropriations bill that requires the department of us. Ice to do a report for looking forward, looking out a couple years and thinking about what the structure should be like for dressing this particular threat. It has exploded, as you know. Expose even further every year it explodes even further every year at massive levels. This pointvinced at that the present set up makes sense. If you look at another area that whatded, if you look at happened when aviation began and what its effect was on the conduct of warfare, you started effort as subair heart of the signal corps. Then it became a subpart of the really untilasnt after world war ii that your article on u. S. Air force. A veryhen, we have been successful leader in that theater of military operations. Until then, we really werent set up right. Im not convinced that we are set up right. I would invite you to comment on this, but let me also ask this question for the record that you can take back to headquarters. How does it make sense to have these kinds of cases, perhaps in your counterintelligence perhaps in the cyber division, perhaps in the criminal division, how do you sort amongst those three divisions to have this the efficient and smooth flowing . As a understand it, each of those different sections has a piece of this. I think the first part of your comment is, are we structured right . Basis. At this on a daily it is certainly a priority for our director as to look at our we efficiently and effectively addressing the threats. Ill tell you, the counterIntelligence Division, espionage is a priority. We are always looking for better ways to address this. Some of the more significant effort we have made is to really have an outreach. I cant stress how important that is to this process and what benefits we have seen from that. We have expanded our contacts across the country to 15,000 contacts. The conduct of over 7800 presentations and briefings a year. See thetarting to majority of these relationships is starting to pay off. The fact that companies are starting to come to us, academic institutions are actually coming to us early on and calling that context we can get engaged in the problem at the very early. Hasus after a bad actor left the company with your two terabytes of information. That is a victory for us in the process, but theres a lot of room for improvement that we will continue to do. We are always looking at ways to improve that. If you can take is a question for the record and get an official response from your organization, im interested in whether you think five years out or 10 years out that similar division across all the separate parts of the bureau will continue to be a wise allocation or whether we are in a sort of a transient step towards what ultimately will be the way we address is. Thank you for your service. I know this is an immensely challenging area that calls on all sorts of different resources. Im proud of the way a guy conducts itself in this area and i appreciate your service to our country. Mr. Chairman, thank you for having us today. Will take a twominute recess while the next panel gets itself sorted out. We will come back into action then. [indiscernible] all rise, the hearing will come back to order. Forank the witnesses attending and participating in this hearing. We have a terrific panel of witnesses. I am delighted that you are all here. This is very promising. Is a Vice President of intellectual Property Management for the boeing company, which is plenty of intellectual property to manage. He has worked there since 1984 in his current role he manages companies patent portfolio, protection of its trade secrets, and licensing of technical data images, consumerproducts trademarks and patents. To hiso being appointed current position, mr. Hoffman served as the director of Global Research and Development Strategy for boeing research and technology. Is the companys advanced research organization. E welcome him why dont you get your statement and i will produce and take the statement of each witness. We will open up for questions after that. Proceed, mr. Hoffman. Good afternoon, chairman white house. On behalf of the boeing company, i thank you for convening this hearing grateful for your leadership on the efforts to improve trade secret laws. Bowling first began making while much as changed since we first started, our company is unique in that we sample tests and deliver most of our highly competitive products right here in the United States. The final Assembly Facilities for commercial products are located in the states of washington and South Carolina come but we have facilities for engineering and manufacturing major components in multiple states, including oregon, florida, california, montana and utah. Our defense and space related production is prelim is primarily located in california texas arizona florida missouri and florida. 100 thousandees people in the United States. We have crated more than 50,000 new highpaying jobs driven by her new backlog of over 5000 commercial airplanes. Last year, we paid 48 billion to more than 15,600 years businesses. For the past 100 years, is a result of the ingenuity of our highly skilled employees. Innovating each step of the way, they developed the most soughtafter boeings intellectual property. It doesnt have one recipe for its secret sauce, thousands of trade secrets are critical to maintaining unparalleled success. Boeings valuable engineering and Business Information is a significant risk. Once publicly disclosed, rights and trade secrets may be lost forever. 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 but today companies cannot lock their trade secrets in a safe. The vast majority of business and engineering information is stored electronically. The digital age has brought great gains and productivity but also has increased risk. At the moment we could lose a trade secret through a breach in the network and disclosure from one of employees or partners or through an escape that one of the many suppliers facilities. Fear of trade secret threat is not a threat just for boeing. Particularly in their survive depends on a specific service. More needs to be done to deter thieves from stealing trade satisfy krets. This theft is a crime and we must send a clear message we wont stand by as thieves hurt our economy and steal our jobs. We strongly support your efforts, chairman white house, and also the efforts of Ranking Member graham to call attention to the issue and to provide Law Enforcement with additional tools to deter trade secret theft. The uniform trade secrets act provides a framework for trade secret protections but standards and procedures adopted can variousry from state to state and as such it is a real concern of u. S. Companies that state action under the uniform trade seekers act may not in some cases be need enough to perfect vent the loss of a trade secret. To take immediate action of our own in federal court to prevent loss of valuable trade secrets and federal Law Enforcement cannot act quickly enough. Therefore we would also like to thank senator kuhns and hatch for introducing the trade secrets act and your efforts to establish the right for a company to file an application in Federal District court in order to seize property contained in trade secrets stolen from a company. We look forward to working with the senators on the bill and supporting your efforts to encourage congress to work quickly to pass this important legislation. Were also encouraged that the new laws under the discussion if passed strengthen overseas trade secret enforcement by raising awareness of the issue and promoting cooperation between u. S. And Law Enforcement and empowering trade negotiations to similarly raise the bar. In conclusion we applaud your efforts to highlight this issue and strengthen u. S. Trade secret laws and there by help protect assets. Thank you for your time. Tha thank you, mr. Hoffman. Youre next witness is pamela passman, president and ceo of the center for responsible enterprise and trade, also known as create. Org. Create a global Nongovernmental Organization dedicated to helping companies and supply chain members implement leading practices for preventing corruption and protecting intellectual property. Prior to founding create in october of 2011, miss passman was the corporate Vice President and deputy general counsel for Regulatory Affairs at microsoft where she worked since 1996. I have to say, i have as a lawyer, im impressed by microsofts legal shop, particularly the really path breaking work they did to go after spammers and people coming after them on the net with civil theories that dated back to probably 15th century English Common law. It is quite impressive to see such ancient doctrines in light of such a new problem. The microsoft complaints in that area have really set a model not only for the rest of the corporate sector and that area of law but even for government enforcement in that area of law. You come from a good place. Welcome. Thank you very much, chairman whitehouse. Im the ceo of the center for responsible enterprise and trade, create. Org. I appreciate the opportunity to testify. We provide resources to companies, large and small that help them assess their risks and develop strategies to protect their trade secrets and other ip assets. Both within their organizations and in their supply chains. In todays integrated Global Economy, companies that succeed in turning their knowledge and knowhow 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 also makes them prime targets for theft. Recently teamed up with Price Waterhouse coopers to assess the Economic Impact of trade secret theft and device a framework for companies to mitigate threats the report makes clear that the trade secret theft amessage, 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 incentivize companies to take pro active measures and implement best practices to secure trade secrets on the front end, both within their own organizations and in their supply chains. Second, we need a consistent predictable and harmonnized legal system to provide effective remedies when a trade secret theft has occurred. Trade secret theft occurs through many avenues and Companies Need different tools and strategies to protect against each type of threat. Businesses need to be cognizant of risks that arise in supply chains. The growth of extended xpli chains comprising hundreds or thousands of suppliers has brought tremendous benefits and given many firms an enormous competitive edge. But Companies Using extending supply chains often must share confidential and 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 fouruals but when suppliers as well. In the create report, we recommend a fivestep approach for safeguarding trade secrets and mitigating potential threats. We suggest that companies one, identify and categorize their trade secrets and two, conduct a Risk Assessment. Three, identify the most valuable trade secrets to their operations. And four, assess the Economic Impact of losing those secrets and five, use the Data Collected to allocate resources and strengthen existing processes for protection. Create recently created a Pilot Program with 60 companies and countries around the world that help them assess vulnerabilities and implement procedures to mitigate threats. Based on that Pilot Program, we Just Launched create leading practices, a Service Design to help companies img prove and mature the Management Systems for ip protection and for anticorruption. Unfortunately no amount of protection can completely safeguard all trade secrets from theft. Companies need a legal system that provides predictable enforcement and meaningful remedies against bad actors, recent actions are promising and i applaud you chairman whitehouse and Ranking Member graham for your focus on Law Enforcement and kuhns and hatch to create a harm niesed system that will serve as a model around the world. The problem with theft that happens entirely overseas highlighted by senator flakes legislation is worthy of further study. Governments and companies both play a role in improving protection for trade secrets. In our view, companies would again fit from taking a more proakive role in assessing vulnerabilities and employing best practices to manage risks and need an effective legal system which to enforce their rights when their now knowhow has been miss appropriated. I look look forward to your questions. Our next question is drew greenblat, the president of mar lixt n Steel Wire Products in baltimore, the company has been recognized as one of the 5,000 Fastest Growing companies in the United States for each of the last two years. Mr. Greenblat served as executive board member of the National Association of manufacturers and chairman of the boards of both national for jobs and innovation and Regional Manufacturing institute of maryland. Hes also a member of the Maryland Commission on manufacturing competitiveness as well as the governs International Advisory council and we welcome you here. Please proceed. Thank you, chairman whitehouse and senator hatch, members of the subcommittee on crime and terrorism. Thank you for this the focus on this critical challenge of trade secret theft and the opportunity to testify today. As you mentioned, my name is drew greenblatt, the president of marlin steel, were a leading manufacturer of wire forms and sheet mellal fabrications and make everything in the usa. Im proud to report we also export to 36 countries and my favorite country we export to is china. We cater to the automotive and medical and pharmaceutical industries. Im here for three reasons. Noub one, trade secrets are important not just for manufacturers that are big but also 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. Number three, manufacturers needs your help to effectively and efficiently protect and enforce trade secrets. We need to secure strong commitments in our trade agreements. Like so many other manufacturers, marlin steel competes on a Global Economy and succeed through investing in ideas and innovations and hard work of dedicated employees. When i bought marlin in 1998 we made baskets and 800,000 a year in sales. Last year we almost hit 5 million in sales and have 24 employees. Were a proud member of the National Association of manufacturers and we average about 40 members 40 employees in the National Association of manufacturers and have 12,000 members. Im also the cofounder and chairman of the National Alliance for jobs and innovation, 380 members. Working hard to strengthen and protection of 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, pry prit and software and formulas and 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, 20 of them degreed mechanical engineers and come up with specific client performance characteristics for our baskets that make us unique and different than our chinese competitors. Some people think that almost 3 of our gdp is lost to these trade secrets being stolen. In our grandparents day, trade secrets were stolen by individuals who were across town. Now it can be done on a thumb drive and it can be sold to governments or Chinese Companies across the world. These cyber inkurgss are very threatening to us. We have lasers in our factory and robots. If they can hack into our system, they can manipulate our economy and hurt our employees, that would be devastating to us. The thing im most proud about, weve gone without a safety incident. If some kmchinese hacker could manipulate our system, they could hurt our team. We spend so much money hardening our network that we could hire another unemployed steel worker to fill that job rather than spending all of this money on these activities. The good news is washington is starting to recognize this problem. We need washington to do three things, first of all, we need Strong Operational collaboration between the federal agencies and cannot have the silo approach we have right now. We need the fbi cooperating with customs and tsa. We need access to federal Civil Enforcement for trade secrets theft and well conceived legislation like the act recently introduced by senator kuhn and hatch. This will give us the ability to pursue people in the federal level and not on a state level. Finally, we need to meet the Global Challenge of trade secret theft with Global Solutions and good trade agreements to stop these thefts. In conclusion, chairman whitehouse and senator hatch, trade secrets are vital for manufacturers small and large of the americas trade secret laws and policies 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 collaboration between federal agencies and government and business and with the improvements to these u. S. Laws including federal Civil Enforcement, we could 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. Thank you. Thank you, mr. Greenblatt, our final witness is douglas norm an, the general counsel for eli lilly and company and serves as intellectual Owners Association and manufacturers subcommittee for intellectual committee. He served as 2002 cochair of the intellectual property and antitrust task force for the United States council for international business. Welcome, please proceed. Good afternoon, chairman, mr. Hatch and other members of the subcommittee. Thank you for the opportunity to testify today. On an issue of great importance not only to my company and my industry, but to all segments of the american economy, eli lilly and company was founded and head quartered in indianapolis, indiana on may 10th, just last saturday, lilly celebrated its 138th birthday as a u. S. Company. Our mission at lilly is to discover and develop medicines that help people live longer and healthier and more active lives. Our major areas of innovation include therapies for cancer and diabetes and mental illnesses. To fulfill this vision, lilly must rely upon intellectual Property Protection that includes patent and trademarks and trade secrets. Unfortunately, like too many of americas leading innovator firms, lilly has recently been the victim of trade secret theft. A Cross Sector Group of companies supports a harmonnized remedy for trade secret misappropriation. Were pleased to introduce the act that would accomplish this objective. We thank senators kuhns and hatch for their leadership and were also encouraged by your work, chairman whitehouse and Ranking Member graham to ensure Law Enforcement has the tools it needs to prosecute trade secret theft. We appreciate the efforts by senator flake to highlight the continued problem of trade secret theft that occurs abroad. The bipartisan interest evidence the by this committees work is important to our shared objective of the effectiveness and efficiency for remedies against trade secret misappropriation. Trade secrets are an essential form of intellectual property and part of the back bone of our information based economy, whether youre a major pharmaceutical firm or Startup Software company, your trade secrets are a big part of what sets you apart in the marketplace and protection is vitally important to maintaining a cutting eblg and keep workers on the job. Increasingly the target of efforts to steal propriety information harming global competitiveness. Trade secrets are particularly vulnerable to theft given the rise in Global Supply chains and ram pant tech no logical advances that resulted in greater connectivity. A theft can come through cyber attack, voluntary or involuntary disclosure by an employee or joint venture partner. The act makes a trade secret a crime and the tools thieves use in their attempt to steal trade secrets are growing more sophisticated by the day, however. Our laws must keep pace. The eea as a criminal statute necessarily has limitations and what were very much appreciating the cooperation we get from federal Law Enforcement and fbi and department of justice have limited resources at the time and never be in a position to bring charges in all cases of trade secret theft. State laws provide an important right for trade secret owners to give a civil action for relief. State trade secret laws develop and make sense at a time when misappropriation was largely a local matter. For companies that operate across state lines and have trade secrets threatened by competitors across the globe, the state laws are inefficient and often inadequate and consistent with how other forms are protected. Trade secret theft is likely to involve the secret across state lines and swift action to protect the trade secret from being divulged. This is true when the theft is by an individual looking to flee the country. Once the trade secret has been divulged, it may be lost forever and the harm from disclosure is very often ir rep perable. Were pleased that the act would address these limitations and provide trade secret oerns with the same ability to enforce rights in federal court as owners have. The breadth of support fort legislation from companies focused on diverse areas such as software, biotechnology and semiconductors and medical devices and agriculture and apparel demonstrates the importance of a harmonnized civil remedy. The companies have already indicated support often disagree on other areas of intellectual property and protect but were united on this front. We also look foerrward to worki with Ranking Member graham, for the tools necessary for trade secret theft. We look forward to working with senator flake and agree its important to study ways for overseas theft. American companies are competing globally and the knowhow is subject to theft everywhere. The National Solution that provides predictable trade secret is therefore essential to our global competitiveness. The act will establish the Gold Standard for National Trade secret laws globally and serve as an important base for International Harm onization efforts. We urge the committee to consider the legislation and for all senators to support it. Thank you again for the opportunity to testify today and i look forward to your questions. Thank you. Let me welcome senator hatch and kuhns for the hearing. Let me ask unanimous consent that senator leahys statements be put into the record, which it will be without objection. 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 ly as an industry. Because of so much of our intellectual property is protected as trade secrets. And right now a lot of those are considering the changing landscape and sophistication of the means of which our intellectual property and trade secrets can be obtained. That helps to improve Law Enforcements ability to protect our trade secrets and allows us to be more secure in keeping those secrets so they are still valuable is very much appreciated by boeing. From your experience, the scope of the problem . With companies having almost 75 of their value and tangible assets, including trade secrets, the problem is quite significant. In the create pwc report we attempted to put a figure to the magnitude of a problem looking at the different threat actors that are involved and looking at the fact that u. S. Companies other advanced economies rely on distributed supply chains increasingly and looked at other Economic Activity as a proxy for this. Since its a figure that is very difficult to get ones arms around because companies itself dont know the magnitude of the trade secrets they have and as well as when there is a trade secret theft. We looked at other examples of illicit activity, corruption and Money Laundering and similar threat actors and came of a figure of 1 to 3 of gdp, quite significant. Thank you. Mr. Greenblatt . This problem is out of control. We need your help. Being attacked daily. What this will have if we can get this legislation enacted, this will save jobs. In Baltimore City unemployed Steel Workers will be employed. We are getting things stolen left and right and need your help. Mr. Norman . Top that for clarity by the way. Ill try to add clarity myself. The issue is enormous. I can speak on behalf of form pharmaceutical firms that spend billions every year doing research and development. As we move forward and try to develop new lifesaving medicines, we continually build kmem cal platforms and pharmaceutical platforms in hopes of reaching a site where we can apply for patents. What were seeing are numerous instances where interlopers are stepping in and trying to steal our trade secrets on our formula prior to the time we can reduce those into a patent application. Very often may take two or three or perhaps longer two or three or longer years to do enough research to get to the single molecule that well be able to carry on into clinical trials. If we lose the trade secrets, and all of that formula, prior to the time we can reduce that to a patent application, the loss is ir revokable. We may spend 10, 20, 30 Million Building a chemical platform, rich diversity of a number of compounds and if any one of those is stolen from us prior to the time that we can obtain a patent on it, then it is lost forever. Therefore the public and those citizens gets to enjoy the fruits of this research once its gone. Thank you very much. Senator hatch. Thank you, mr. Chairman. I should say before you got here, your names were sung with praise over and over again for the legislation, almost as if you were summoned here by those voices. Thats always unusual. Were happy to have all of you here and youre also experts in your field. Let me ask mr. Norman to respond to this one. Under u. S. Law, protections for trade secrets are some of the most robust in the world. Were hoping to make those protections even stronger. But protecting trade secrets in numerous countries is a challenge it seems to me. Facing many Trans National companies, something im very concerned about. But 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 in 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 that you have introduced. We greatly appreciate it. Greatly appreciate your leadership. The instances of what it would do on a positive standpoint is that we believe that the legislation to obtain a federal trade secret remedy, particularly the ability to seek an exparte 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 harm onization and trade secret laws around the world with our Major Trading partners. Its important i believe 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. With a federal stand dard, with the appropriate type of control, i believe we can show the rest of the world what the goal stand dard would look like as far as giving us the rights on our own to take a private civil action and protect our trade secrets. Thank you. Thank you. Care to add anything . I totally agree with my colleague. Any opportunity for our trade negotiationers to be able to point to improvements in trade secret law enprotection in the United States and thus strengthen the laws outside of our borders with Global Companies such as ours will be very helpful to protecting our trade secrets. Let me ask a question for the whole panel. Trade secrets also seem to be a lot more difficult to protect than patents. I understand there may be industry best practices and model policies but i imagine these vary widely based on information 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, we actually base that upon the reverse engineering capability of the innovation but once we decide to go the tad secret route, we have to have the processes and systems in place in order to assure that those trade secrets are secure. As mentioned previously, 60 of what we sell we buy from others as a company. So the sharing of our intellectual property across our supply chain domesticically and internationally is an area we have to be careful they have the same type of procedures in place and protect our intellectual property at the same level. Yes. In our work with companies around the world, we found this is something thats not very mature. We laid out a fivestep framework for companies to begin to get their arms around how to best handle their intellectual property. First being able to categorize what you have and where it is in this is critical. A Small Company or Large Company with Global Operations and also recommend that companies conduct a Risk Assessment and identify who are the primary threat actors and whos interested in their trade secrets and intellectual property and potential vulnerabilities in their policies and procedures and internal controls really looking inside of their company and in their supply chain and identify the trade secrets with the greatest impact on the companys operations and business. Also looking at the Economic Impact of a loss of a trade secret, understanding the magnitude that will have on their business. 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, thank you for chairing this hearing and for the great work that you and senator graham have done to make sure that we protect americas intellectual property. We have heard from an array of Witnesses Today, the compelling picture of whats at stake here of the 5 trillion of value, held in americas intellectual property and particularly in the form of trade secrets. We have criminal law, prosecutions for the protection of trade secret theft, economic espionage act is a good beginning but as weve heard from you today as witnesses there are significant gaps and i applaud the chair today senator whitehouse and graham for their hard work in improving efforts to deal with that. The department of justice has many priorities and limited resources so its unsurprising to me that they were just 25 trade secret cases brought last year before he leaves, i need to say my profound personal thanks to senator hatch for being a great partner and good leader on this issue. Same here, this young man has really done a really great job. Even got a young man out of that. As a former intern, i remember i look forward to passing a bill with this nice young man, when i was mostly passing cups of coffee. It is a tremendous sense of satisfaction that ive got through working with senator hatch and with eli lilly and number of other Companies Represented here today and im grateful to the National Association of manufacturers and the coalition for the protection of trade secrets and protect trade Secrets Coalition for their very able and valued input as we 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 we really vigorously defend trade secrets. Let me ask some questions of the panel if i might. First, if i might mr. Hoffman, boeg does business, most of the threats original nat from other countries around the world. Can you speak to how respect for trade secret theft varies around the world and how our laws domestically and what we might enact could influence the protection . I would be glad to. Thank you for the question, senator coons. When you look at trade secret theft, it hurts boeing and other companies. But i think the best thing we can do is set the standard and provide the tools necessary for efficient and effective protection of trade secrets and get those standards to our trade negotiators to press the issue with their counterparts. I couldnt agree more and appreciate that response. If i might, mr. Greenblatt, from marlin steel, a Small Manufacturer that has grown significantly. Trade secret threat can pose a existent shal theft in a thief succeeds in stealing your secret sauce, it could mean the end of the business, but for a firm like marlin steel, it could mean the end. Securing your trade secrets and asserting your rights in court can also be significantly expensive relative to the size of your business. I saw this in my own experience. Can you speak to how existence of a federal private right of action would reduce the cost of protecting trade secrets and have woun uniform standard might threat then your ability to go after those that steal your trade secrets. The defend trade secrets act is well drafted and will help us go around the state system, which is very inefficient and very slow and its very expensive. Lit companies cant afford having lawyers in five different states on retainers trying to go after a bad actor. It would be much more elegant if we could have a federal jurisdiction on this matter, and much more efficient. The coon hatch bill would tremendously accelerate our ability to stop bad actors and get good results. Thank you, if i might mr. Chairman, one last question of mr. Norman. Thank you again for your hard work and leadership and in particular one of the sections we worked on was the exparte injunkive relief. Can you explain why it is important to eli lilly or others . 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 finds out something such that in once they turn in their lilly issued computer that theres been a download of a number of documents which contain highly confidential lilly trade secrets. These occurrences almost always happen on a late friday afternoon. And therefore, the best part i believe about the exparte 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 about a pound of cure a week or two later when we can get the indiana state courts involved or new jersey state courts involved or perhaps both indiana and new jersey state courts involved, leading to a whole lot more expense and 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 before we can go to a single court and institute the 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, mr. Norman and miss passman, its 150 to 450 billion a year trade secret theft is a big deal. Your leadership is strengthening the criminal law protections for american countries is adds mirable and i very much look forward to working with you to pass the two bills in tandem in a way that can strengthen for millions of americans and thousands of companies. Thank you. Now lindsey graham. Protecting the nation what i think is an inevitable cyber attack on a large scale, will we do something in time to diminish the effect . Thats one problem the nation faces from criminal terrorist enterprises and potentially nation states and the other is the private seng tore trying to do business in an inner connected and complicated world. One of the things that america has had going for her is that were pretty innovative and always thinking outside the box. And other people pretty good at copying. From a criminal point of view, were trying to put teeth into this area of the law. Mr. Hoffman, when youre overseas representing boeing on trying to do a joint venture, what do you worry about the most . If youre going some countries require you to have a 51 partner. Is that correct . It varies by country. But in some cases you can have a majority share and some cases you can have a minority share. But youll have a forced Partnership Based on the host countrys laws. Whatever the laws are, typically it is some type of partnership, yes. These partnerships are created by the host country, not of your own choosing, to do business you have to have a local partner for lack of a better term. In general, yes, sir. How does the private sector and the government interact when theres a trade secret theft or intellectual property theft in a foreign country . What more can we do and how does that system work . Im not an expert in those areas but i can tell you that we are very globally spread company and when we make the 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 different environment than we have here at home in some cases. Mr. Norman, when you do business overseas and have a local partner, what is your biggest concern . The biggest concern of course is losing our trade secrets and losing the value of all of the investment that we put in having a company across the street from where youre located doing exactly the same thing youre doing . Right. Thats always an issue and therefore were quite sir couple inspect about the type of research and development or disclosure we make in many of the partnered institutions where we do business outside the United States. If we had laws on our books that would hold a country or individual acting on behalf of af nation state liable for engaging in that theft, do you think it would make business easier for doing overseas . I believe it would if we can use that by the standard in which we could get other countries to change laws and harmonnize them with the way we would like trade secrets protected, yes. Is it fair to say in the international arena, when it comes to protecting trade secrets, many in countries its a wild, wild west. Theres definitely a different threat levels out there and i agree with my colleague that we choose carefully what type of work and intellectual property we do outside of the United States. The more we can get this right, the more opportunity to create jobs here at home and abroad. Is this an i am pediment to job creation . I believe any time we lose the fruits and labors that our scientists and engineers put into developing drug products it is a huge jobs issue. We employ thousands of scientists and engineers who work years trying to develop a drug product and if a competitor can take that away from us right before we cross the finish line its devastating. I want to thank chairman whitehouse, never known any one more knowledgeable. I look forward to see if we can get our bill finished. Pleasure working with senator graham on a variety of issue and thank him for his leadership. Senator flake . Thank you for being here. I apologize for not being here earlier. I hope im not plowing old ground here. But im concerned about the rate at which trade secrets are being stolen internationally as opposed to domestically and trying to get some sense of that. Ive introduced legislation and future of america innovation and research act which allows the owner of trade secret to bring action if the bad actor is located abroad or acting on behalf of an enty. Miss passman, there was a recent rereport that cited a survey that was asked to comment on attempts to compromise trade secrets information or the nationality of the primary beneficiary of the theft was known 70 , foreign individuals firms or government that were those beneficiaries. Do you see this as a growing problem that the foreign nature ever the threat . Certainly in an integrated economy, were going to increasingly see the challenge for trade secrets. You know, American Companies benefit from having participate in these Global Supply chains and as they move their business overseas, whether its a supplier overseas or a customer overseas, they need to understand the Global Environment in which they are working. Were working with companies around the world, including with companies in china and other emerging markets that also want to mature their systems and better protect intellectual property. But we advise companies to understand the environment that they are entering and to put business processes in place to better protects and manage intellectual property inside of their business as well as with their supply chain. Thank you, mr. Hoffman, your testimony you note that one of the fi cases doj prosecuted under section 1831 was against the defendant who stole trade secrets from boeing related to the Space Shuttle and the delta 4 rocket to benefit a foreign entity. You also seen an uptick in this foreign activity . Well, 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, of course the damage has been done. I might defer to our department of justice colleagues regarding those issues. All right. What is boeing specifically doing to combat this . What measures have you taken sorry if im plowing old ground here. In terms of our overseas presence . Yes. We hold our subsidiaries and our relationships with partners to the same level we have in the United States. The complexities are that were in a different country and we have to adhere to their laws and they may not be as harmonized and effective as ours. Do you think its important to have legislation that protects both domestic and Foreign Trade secret theft, do all of you agree with that . Good. Well proceed with the legislation. I appreciate everybody nodded for the record. Okay, good. If you can do that more awedably next time that would be great. Thank you for your testimony. Let me ask one last maybe two last questions of everybody. Theres been some reluctance on the part of corporate victims of trade secret theft to engage in the criminal Law Enforcement process, one of the things that weve heard has been that taking that step rather than simply trying to bury things could actually make matters worse as the trade secret rattled around through the case and became mor secrecy and its advantage. Is that something that is a real concern . Are there any 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 advantage of that means of redress . Mr. Norman . Yes, chairman whitehouse, that is very much a deep concern we have as we look at the ken of criminal prosecution arising from the disclosure of trade secrets outside the bounds of our corporate entity. And i applaud you particularly for the language that you have in your legislation concerning the ability to protect the trade secret, even during the time that the court is reviewing. Because 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 its way into open court, it is no longer a trade secret, and you lose it anyway. And so, many of the mechanisms that have been proposed and the mechanism in particular that i have seen 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. Final question for mr mr. Greenblat. 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, for instance, leads one, and homeland security, and theyve got all the agencies there, theyve got everybody represented, thats 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 problems of coordination . So, for example, if we identify if the fbi identifies a bad actor, we would like that that company cant import things into america and the customs, you know, agency halts their products from coming into america. The only way were going to 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. Okay. So youre not your experience wasnt that on the investigative side there was discoordination. Rather that, when a case is done, you should be able to have as a remedy that the company doesnt get to import goods . Thats an additional penalty for them . Precisely. We just want everybody to Work Together and quickly resolve these top ticks, 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. All right. Well, 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 thing, its a real issue. Its 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 move it forward. But i hope very much that well be able to make progress, and the advice and the counsel of all of you who are here some of whom have been very helpful in the preparation of the legislation as well as in testimony about it is something that were all very grateful for. I think senator flake, senator hatch, senator kuehne, senator graham and myself have put effort into addressing aspects of this problem, and im confident well Work Together to solve this problem so that you have one less thing to worry about, and you can focus your considerable skills on making the best products in the world and expanding 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. Next, q and a with ralph nader. Live at 7 00, there calls and comments on the washington journal. U. S. House gavels in the four speeches. The legislation gens at 2 00. Today, mike pence will speak at an event hosted by the American Enterprise institute. Cspan watch it live on two. Cspans latest book is a collection of our best storytellers very the the french engineer and architect. Symbolic work of sculpture that is the great way york, thentry in new statue of liberty. Rivers and towns and universities and colleges all over the country have french names. We dont pronounce some of the way that they do. The influence of france on this country is far greater than most people appreciate. Published by Public Affairs books and now available at your favorite bookseller. This week on q and a, our guest is ralph nader, who discusses his career in political activism and his new theunstoppable emerging alliance to derail the corporate stay. They would end up in my dads restaurant. It is a big sprawling restaurant. It wasnt just food, people talk. They talked about sports. ,ocal factory situations politics in general. I realized that even though they , whetherays answer theyre republican, democrat or neither, it is in the way they talk, they talked in terms of what people react to when they work and live in a community. It wasnt ideological. That they realize didnt come in with labels or red state eludes statement how the, they came in talking about things on the ground. When you down to the people are on the ground, it is a different type of conversation. How long did you work for your dad in the restaurant and what was your age . I was in high school. Princeton. From in summers from Harvard Law School until a great flood destroyed the main street in 1955, and my dads restaurant. Is the town in connecticut where you grew up, is it still there . It is pretty much closed. It is a Bedroom Community to hartford and water barrier for jobs. It has a Nice Community college, which my revered big brother started. It was the second smallest town in america with a community college. It is expanding. Can you remember who first influenced you to think about issues, think about government . My father and mother. I was so impressed, i put it in a book called 17 traditions, how they raised four children in a factory town in new england. Around theersation dinner table. There was no looking at tv or listening to radio or looking like this. We talked. They challenged us in a nice way. They asked those questions and needleless and joked with us. Bottom line the was, freedom requires civic responsibility. Cant just say, i want freedom. Most people think they want free because he are personally free, they can buy their own