at 11:15 will health and then john ross. and then anna holmes on pop-culture on c-span 2. and online are bookclub selection it calls you back, luis j rodriguez. >> you know, a lot at times you would say, look, this is not for attribution. it is for act round attributed to a white house source. you can't do that with light cameras it you can't say i am just giving you the staff of background. this is not for publication. >> did you grieve from background on the podium at the white house?

collection sure, but not a whole befriend and let me give you something on background. >> the fatal mistake that i made -- and this is in the weeds for our audience and interesting to some of you -- i did not put their distinction -- the restriction that it was not available for live. it was available for use as part of the stories that you would produce because the briefing is not a news event. it is part of the way in which people gather information, put their stories together, test other sources, get other information, together a conference of report and put it together for your consumers of news. >> i once did questions on what is universal health care? what if one person -- >> vaguely familiar --

[laughter] >> you would get 56 questions in one question. >> the life of a white house press secretary, the ups and downs of the job sunday on c-span 3. >> this is executives from those who call on congress to do more on trade secrets. we will hear from -- the senator white house from rhode island is the chairman.

>> the hearing of the senate judiciary committee will come to order. lindsey graham, will be here shortly. i just saw him on the c-span screen so i know he's on the floor and not here. 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 pagano who spent many a happy hour here when working for chairman leahy. good to have him back in a

different capacity. we are having a hearing today that's entitled economic espionage and trade secret theft. are our laws adequate for today's 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 companies are renowned 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 portfolios of legally protected trade secrets they have developed and innovated. in some cases the secret sauce may be a company's most valuable asset. the theft of the 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. there is a reason coca-cola kept its formula locked in a vault for decades. in recent years the methods used to steal trade secrets have become more sophisticated. companies now must confront the reality that her being attacked on a daily basis by cyber criminals who are determineded to steal their intellectual property. as attorney general holder observed there are two kinds of companies in america -- those that that have been hacked and those that don't know 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 secrets to their own companies. their version of competition. let's 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. there is no dispute about one thing. agencies do not steal from businesses to help american industry. while cyber attacks are increasing, traditional threats remain. company insiders can walk off with trade secrets to sell to the highest bidder. 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 anywhere from 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 linebacker arebrary 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 nsa and of cyber command at the pentagon has characterized the cyber theft of american intellectual property as i'll quote the

greatest transfer of wealth in history. of course we are on the losing end of it. no estimate can capture the real impact of trade secret theft. 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 state of rhode island we continue to face high unemployment. despite having some of the most innovative businesses in the country. if we don't protect our businesses from those who steal their intellectual property we are letting the innovation go to waste and we are letting american jobs go overseas. in the past some companies were reluctant to talk about the 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 worked closely with me and with other senators on this issue. i'm encouraged that the administration last year released a blueprint for a strategy to combat trade secret theft. agencies across the government are increasing efforts to address this problem. the administration must recognize the theft of intellectual property is one of the most important foreign policy challenges we face. it must communicate that stealing from our businesses to help their business is unacceptable. we must do our part. we need to make sure our

criminal laws in this area are adequate and up to date. last fall senator graham and i released a discussion draft of legislation designeded to clarify that state sponsored overseas hacking could be prosecuted as economic espionage. to strengthen criminal protection of trade secrets. we received valuable suggestions about this. we look forward to hearing from 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 need civil are remedies against those who steal from them. while state law has traditionally provided companies with remedies for misappropriation of trade secrets there is currently no federal law that allows companies themselves to seek civil remedies against those who

steal from them. senators kuhns and hatch have introduced legislation to give victims of trade secret theft the option of pursuing thieves in federal court. senate flake has introduced legislation to give companies a federal-civil remedy for trade secret theft. i hope 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 colleagues toward that goal. today we will hear from witnesses in government, industry who confront the threat on a daily basis. what i hope will be clear by the end of the hearing is we need an all-in approach to the hearing. we must strengthen criminal laws and the law enforcement agencies stopping trade secret theft

before it occurs. and investigate and prosecute when it does occur. i would add 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 counter intelligence division at the federal bureau of investigation. mr. coleman is responsible for ensuring the fbi carries out the mission to defeat foreign intelligence threats. mr. cole man began his career as a special agent with the fbi in 1997. he's previously served as assistant special agent in charge of the san antonio division, chief of the counter

espionage section and special agent in charge of the little rock division. prior to his appointment to the fbi mr. coleman served as an officer in the united states army for nine years. we are delighteded that he could join us today. we ask him to proceed with his testimony. proceed, sir. >> good afternoon. i'm pleased to be here with you today to discuss the fbi's efforts to combat economic espionage and theft of trade secrets. the fbi consider it is investigation of theft of trade secrets and economic espionage a top priority. in 2012 alone the national counter intelligence executive estimated a range of loss to the u.s. economy approaching $400 billion. to foreign adversaries and competitors who by illegally obtaining a broad range of trade secrets degrade our nation's advantage in innovative research and development in the global market. this loss threatens the security of our economy and preventing

such loss requires constant vigilance and aggressive. the fbi is working to apprehend those pursuing economic espionage against clear defense contractors and government agencies. it's made a significant progress in putting some of the most egregious offenders behind bars. economic espionage and theft of trade secrets are linked to the insider threat and the growing trend of cyber enabled trade secret theft. the employee may be stealing information for personal gain or serving as a spy to benefit other organizations or country. foreign competitors aggressively target and recruit insiders to aid the transmittal of a company's most valued proprietary information. the fbi, however, cannot protect the nation's economy by acting alone. the fbi counter intelligence

division's strategic partnership program oversees a network of more than 80 special agents that are serving as strategic program coordinators who work hand in hand with industry and economic institutions across the country. these coordinators conduct in person classified and unclassified briefings and it serves as an early referral system for economic espionage theft of trade secrets and cyber intrusion. working through more than 15,000 contacts nationwide this helps companies detect, deter and defend against attacks of sensitive information from a foreign adversary. the fbi takes seriously the role to investigate and apprehend targets pursuing economic espionage. by forming close partnerships with logical businesses and academic and government institutions the fbi wishes to have a greater impact on

preventing and deterring the loss of trade secrets before any loss occurs. thank you for the opportunity to testify. i look forward to answering any of your questions. >> i would like to talk with you about a couple of things of. first of all have you any specific reaction to the draft legislation that senator graham and i circulated for discussion purposes? >> sir, any legislation that allows the fbi to have a better advantage at going after our foreign add ser sars as it relates to theft of proprietary information the fbi is in favor of. >> presumably people we are working with at the department of justice, you support the -- >> yes, sir. >> -- arguments and points they are making. >> absolutely. >> one of the things that i have observed, having watchededed this

for a while, is that whenever i hear about a case that's brought for intellectual property theft in every case that i have found so far there has been some nexus to old fashioneded type 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 and extraction through the cyber network of intellectual property with no other technique involved. and, to my knowledge there have been no charges brought ever against anyone for that kind of activity. i understand that these cases are very complicated. i understand that they have huge forensic issues, that there is an overlay with national

security with the intelligence services that requires a lot of effort. i understand that some of the targets are overseas and that creates a whole other array of legat and other issues. trust me, having served as a united states attorney i can see how very challenging these cases are are to make. when you have general alexander saying we are on the losing end of the biggest transfer of wealth in human history you would like to see a little bit more actual hard prosecution activity. can you tell me what you think is behind that difficulty? is there anything 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 law courts? >> chairman, i think you described it to a tee. obviously when you get outside the borders of the united states and many of the investigations where there is 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 that as you described. in fact the fbi is actually placed cyber assets and resources working with the counter intelligence resources at our national cyber intrusion 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 and makes the threat that much more complicated. but i think there's been tremendous progress made by the fbi. along with our partners in

investigating these type of crimes, i'm hopeful as we go forward that we'll be able to demonstrate that it will be effective in this arena. >> i wouldn't want to suggest the fbi has not been effective i've seen what you guys do out there. if i had to take my concern and turn it into just a single phrase it wouldn't being the fbi is not effective. it would be the fbi is so busy trying to keep track of who's coming through the doors and windows and warn the companies they are hacking into that there is a resource constraint in terms of taking the effort that could be devoted to tracking these attacks and trying to help our businesses. there just isn't the capability or enough capability to sit down and go through putting a prosecution package together working it through the intelligence agencies and doing the other steps that need to be

done. so in many ways trying to throw you a friendly question, let us help you in terms of the resources i wouldn't want to take anybody off what they are doing in order to put a prosecution package together but at some point we have to have a robust enough response to this problem as a country that we are starting to for want of a better example, indict chinese colonels and generals involve trying to pull this off. >> i think another part of what i think is important, the threat is so immense and that makes the outreach effort so important to what we're doing in bringing out the private sector and academic institutions to work hand in hand with us so we can actually get out in front of this threat. you're absolutely right.

the threat is so immense that the fbi cannot take this on alone. whatever necessary help we can get that the other industries and sectors of great help to us. there's 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 of years. thinking about what the structure will be like for addressing this particular threat. it's exploded as you know. it explodes even further every year. it grows just massive levels. i'm not convinced that the present setup makes sense and if

you look at what happened with aviation again and what its effect was on conduct of warfare, you started with the army air effort as some part of the signal core and then it became a sub part of the army and it wasn't until after world war ii that you had a full-on u.s. air force. until then we've been very successful leader in that theater of military operations. until then we weren't set up right. i'm not convinced that we're set up right. i would invite you to comment on this but 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 counterintelligence provision, 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? i understand that each of those different sections different piece of this. >> the first part of your comment, are we structured right? i look at this on a daily basis and it is a priority for our director as to look at are we efficiently addressing the threats and i can tell you economic espionage has become a priority because of the expansion of the threat. so there are always ways we're looking to better address this. and some of the more significant effort we've made is to really have outreach and i can't stress out important that is to this process and what benefits we've seen from that. the -- we've expanded our

context across the country to 15,000 contacts. we're conducting 7,000 briefings a year and starting to see this is the maturity of these relationships starting to pay off, the fact that companies are starting to come to us the academic institutions to us early on and calling the contact so we can get engaged in the problem in the very early period. after a bad actor has left the company with two or three terabytes have already left. that is absolutely a victory for us and in this process but we have a lot of room for improvement that we'll continue to do. and we're always looking at ways to improve that. >> in the context of that, if you can take it as a question for the record and get an official response for the organization, i'm interested in whether five years out, ten years out that similar division

across all of those separate parts of the bureau will continue to be a wise allocation or whether we're in sort of a step towards ultimately will be the way we address this. >> yes mr. chairman. >> thank you for your service. i know this is an immensely challenging area that calls on all sorts of different resources and i'm proud of the way the fbi conducts itself in this area and i appreciate the service to your country. >> thank you very much for having me today. >> we'll take a two-minute recess while the next panel gets itself sorted out. and come back into action then.

the hearing will come back to order. i think the witnesses for attending and participating in the hearing. thank the witnesses for attending and participating in this hearing. we have a terrific panel of witnesses. i'm delighted that you are all here. this is very promising. pete coughman is the vice president of intellectual property management for the boeing company, which has plenty of intellectual property to manage. he has worked there since 1984 and in his current role manages the company's patent portfolio and protection of trade secrets and licensing of technical data images and consumer trademarks and patents. prior to being aappointed to his current position, mr. hoffman

served as i director of global research and development strategy for boeing research and technology. which is the company's advanced research organization. we welcome him and why don't you give your statement and i'll introduce and take the statement of each witness and we'll open it for questions after that. please proceed, mr. hoffman. >> good afternoon, chairman white house. on behalf of the boeing company, i thank you for convening this hearing and grateful for your leadership on efforts to improve trade secret laws, it's a privilege to be a participant and provide boeing's view on the challenges phased by america's innovators. boeing first began making twin float airplanes in 1915 in a small boat house in seattle. when much has changed since then, our company remains unique, we assemble and test and deliver most of our products right here in the united states. the final assembly facilities for commercial products are located in the states of

washington and south carolina. but we have facilities for engineering and manufacturing and major components in multiple states including oregon, california, montana and utah. our defense is located in the states of california, missouri and pennsylvania and texas and arizona and florida and alabama. boeing employs 165,000 people, since 2005 we created 15000 new high paying jobs driven by a record backlog of commercial airplanes and paid $48 billion to more than 14600 u.s. businesses which collectively support an additional 1.5 million jobs across the country. boeing's significant contribution to the u.s. economy today and for the past 100 years is a result of the engeneral newt of our highly skilled employees they develop the most sought after products and technologies in the world. boeing's cutting edge tk

technology takes years to develop, $3 billion of research and development per year. and the bulk of our innovations are protect d as trade secrets. because of this, trade secret protections are vital to securing boeing's intellectual property. it doesn't have one recipe for its secret sauce, thousands of trade secrets are critical to maintaining unparalleled success. boeing's 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 won't 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. we're 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. you're 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, i'm impressed by microsoft's 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. i'm 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 today's integrated global economy, companies that succeed in turning their knowledge and know-how into competitive advantage are the ones that will create new jobs and drive economic growth. increasingly companies rely on trade secret laws to protect this knowledge 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 five-step 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 anti-corruption. 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 flake's 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 know-how 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. he's also a member of the maryland commission on manufacturing competitiveness as well as the govern's 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 we're a leading manufacturer of wire forms and sheet mellal fabrications and make everything in the usa. i'm 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. i'm 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 america's trade secret laws and policies must keep pace with today's 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. we're 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. i'm also the co-founder 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. that's 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 i'm most proud about, we've gone without a safety incident. if some kminchinese 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 america's trade secret laws and policies must keep pace with today's 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 co-chair 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 america's 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. we're pleased to introduce the act that would accomplish this objective. we thank senators kuhns and hatch for their leadership and we're 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 committee's 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 you're 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 we're 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.

we're 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 we're united on this front. we also look foertdrward to working with ranking member graham, for the tools necessary for trade secret theft. we look forward to working with senator flake and agree it's important to study ways for overseas theft. american companies are competing globally and the know-how 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 leahy's 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 company and i think more broadly as an industry. because of so much of our intellectual property is protected as trade secrets. and right now a lot of those are considering the changing landscape and sophistication of the means of which our intellectual property and trade secrets can be obtained. so anything that helps to improve law enforcement's 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 it's a figure that is very difficult to get one's arms around because companies itself don't 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. >> i'll 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 we're 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 we'll 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 it's 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. >> that's always unusual. >> we're happy to have all of you here and you're 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. we're 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 i'm 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 ex-parte seizure of stolen materials and prevent further disclosure or divestment of that information broadly would be a

very positive gold standard for future discussions on harm onization and trade secret laws around the world with our major trading partners. it's 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 aren't 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 you're trying to protect. so i'm 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 that's not very mature. we laid out a five-step 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 who's 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 company's 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 america's intellectual property. we have heard from an array of

witnesses today the compelling picture of what's at stake here of the $5 trillion of value held in america's 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 we've 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 it's 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 i've got through working with senator hatch and with eli lilly and number of other companies represented here today and i'm 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 couldn't 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 it's very expensive. lit companies can't 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

ex-employee 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 there's 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 ex-parte seizure aspect of the bill that's 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, it's 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? that's 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 we're pretty innovative and always thinking outside the box. and other people pretty good at copying. from a criminal point of view we're trying to put teeth into this area of the law. mr. hoffman, when you're overseas representing boeing on trying to do a joint venture, what do you worry about the most? if you're 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 you'll have a forced partnership based on the host country's 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 there's a trade secret theft or intellectual property theft in a foreign country? what more can we do and how does that system work? >> i'm 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 it's 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 you're located doing exactly the same thing you're doing? >> right. that's always an issue and therefore we're 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 it's a wild, wild west. >> there's 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

it's 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 i'm not plowing old ground here. but i'm concerned about the rate at which trade secrets are being stolen internationally as opposed to domestically and trying to get some sense of that. i've 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 we're 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 it's a supplier overseas or a customer overseas, they need to understand the global environment in which they are

working. we're 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 i'm 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 we're 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 it's important to have legislation that protects both domestic and foreign trade secret theft do all of you agree with that? good. we'll 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. there's 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 we've 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 more the company's 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. it's very difficult to come forward with documentation. it's very difficult to seek expert testimony that can help

prove that a theft has occurred if you can't talk about specifically in open court what the means of the disclosure was or what the subject matter of the disclosure was. because once it's 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 we've 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 they've got all the agencies there, they've got everybody represented, that's 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 can't import things into america and

the customs, you know, agency halts their products from coming into america. the only way we're 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 we'll get their attention. >> okay. so you're not -- your experience wasn't 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 doesn't get to import goods? that's an additional penalty for them? >> precisely. we just want everybody to work together and quickly resolve these top ticks and we just can't 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, it's a real issue. it's causing americans to be hurt in very concrete and meaningful ways. second as you've seen today couldn't be more bipartisan. so i don't see us getting dragged into the partisan turmoil. we're 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 we'll 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 we're 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 i'm confident we'll 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

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in a moment. this afternoon national security adviser susan rice will sit down with judy woodruff for the pbs news hour to talk about u.s. foreign policy challenges. that is live at 1:00 eastern. later, president obama's choice to held -- had the confirmation advisory panel. observation at 2:00. coming up, the mission and history of the council on foreign relations which was founded in 1921. to talk about it, edward alden a senior fellow joins us. the u.s. ambassador to the soviet union will take your crawls about -- your calls about ukraine and u.s. russia relations. pulitzer prize winner glenn

greenwald will discuss his new book on edward snowden. the book is " no place to hide." you can join the conversation on facebook and twitter. host: good morning. it's wednesday, may 14 2014. the house continues to be out of session this week but the senate is in and it's set today to continue debating an $84 billion measure aimed at reviving and extending several expired business tax breaks. at the white house yesterday president obama sought to keep pressure on congressional republicans to support a comprehensive overhaul of immigration laws. the president said that the next few months before congress takes its summer recess offers a narrow window to move integration reform, and this morning on the "washington journal," we're asking our viewers your thoughts on the state of