While national attention was focused on the House of Representatives’ struggle to name a speaker, President Biden signed the Protecting American Intellectual Property Act of 2022 ("PAIP Act") into law. The law is designed to protect American businesses from trade secret theft by foreign actors.
In particular, the law requires the White House to periodically identify and report to Congress any non-U.S. "person" who:
- has knowingly engaged in, or benefitted from, significant theft of trade secrets of a U.S. person that creates a "significant threat to the national security, foreign policy, or economic health or financial stability of the United States;"
- has provided significant financial, material, or technological support for, or goods or services in support of, such trade secrets theft; or
- is an entity owned or controlled by a foreign person identified under (i) or (ii). PAIP Act § 2(a)(1)(A).
The White House must also report foreign individuals who are the CEO or board member of any foreign entity engaging in trade secret theft identified by the report. Id. Along with providing a list of non-U.S. entities and individuals, the "nature, objective, and outcome of the theft of trade secrets" for each listed company or person must be described. PAIP Act § 2(a)(1)(B).
Following the report, the White House must impose a number of sanctions on those entities and individuals. PAIP Act § 2(b). Applicable sanctions can include property-blocking sanctions, export-import prohibitions, the prohibition of loans from U.S. and international financial institutions, procurement sanctions, and the prohibition of banking transactions. PAIP Act § 2(b)(1). For individuals, the White House must impose property-blocking sanctions and take steps to block the individual from entering the U.S. PAIP Act § 2(b)(2).
Notably, however, the determination of who will be included in the list is an executive decision left to the President, without clear guidance on how to make the determinations provided in the PAIP Act. And, although the law requires the imposition of sanctions, the President has the ability to waive the sanctions if the waiver is in the national interest of the U.S. and if Congress is notified of the reasons for the waiver within 15 days.
Given the breadth of the law, the considerable amount of discretion given to the President, and the potential impact on U.S. businesses as a result of the sanctions that can be imposed on their foreign business partners without the need for evidence or the ability to present a defense, how can businesses (both foreign and domestic) be prepared?
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Clearly and contemporaneously document trade secrets. Many companies may be familiar with the documentation process commonly associated with applying for a patent but do not have a formal process in place for adequately documenting proprietary technology and information. Calfee attorneys have extensive experience working with companies to document their trade secrets in a manner that is clear and establishes the timing and sourcing of the trade secrets. This can help disprove allegations that company technology was the result of trade secret misappropriation while memorializing what the company considers to be some of its key innovations for safekeeping.
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Take allegations of trade secret issues seriously. Any allegations involving trade secrets should be promptly addressed. An internal investigation should be conducted to fully understand and respond to issues early on in an attempt to avoid them being brought to the attention of the government. Since the PAIP Act does not describe a process for appealing inclusion in the President’s report or having sanctions lifted, non-U.S. entities should attempt to quickly address any issues and reach a resolution outside of the courts, if possible, to reduce the likelihood of being included in the report.
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Stay diligent as you add partners. To avoid potential indirect impact, U.S. companies should ensure that non-U.S. companies with whom they partner understand the scope and importance of their trade secrets. The last thing a company wants to encounter is having one of its largest suppliers or customers sanctioned and prevented from doing business with the company. When adding new partners, U.S. companies should conduct due diligence on the potential partner and its principals, and consider how the potential partner treats trade secrets within its own organization. When something feels "off," trust your instinct and ask additional questions. Calfee attorneys can assist with diligence, act as a second check on your instincts, or provide additional questions to ask potential
partners to ensure that your company remains protected.
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