The Economic Espionage Act (EEA), a US criminal statute enacted in 1996, was, until recently, a relatively dormant law used primarily to prosecute individuals accused of stealing trade secrets from US companies.
The past few years and, in particular, the past few months have seen a revival of interest in the EEA. US President Barack Obama recently signed two statutory amendments to close loopholes and strengthen penalties under the EEA: the Theft of Trade Secrets Clarification Act of 2012 (signed into law in December 2012) and the Foreign and Economic Espionage Penalty Enhancement Act of 2012 (signed into law in January 2013). Prosecutions under the EEA—particularly corporate prosecutions—have been increasing, and the trend looks set to accelerate in the coming years.
Because the US Government has primarily used the EEA to target non-US defendants, EEA cases have served as the setting for a debate on cutting-edge issues regarding the parameters for serving a US criminal summons on a non-US company. Notably, US courts currently are split on the question of whether or not prosecutors may serve such a summons on an entity that has never had a US mailing address. Because service of a summons is necessary to commence a criminal case against a corporation, a rule that would limit service to entities with a current or former US address could effectively immunise many non-US entities from US criminal prosecution. Though this issue has arisen primarily in the context of the EEA, it has implications for any setting in which US prosecutors seek to bring criminal charges against a non-US company.
Legal Requirements for Service
Federal Rules of Criminal Procedure 4 and 9 provide the framework for service of a US criminal summons. Rule 4(c)(3)(C) states
A summons is served on an organization by delivering a copy to an officer, to a managingor general agent, or to another agent appointedor legally authorized to receive service of process. A copy must also be mailed to the organization’s last known address within the district or to its principal place of business elsewhere in the United States.
For a company without any offices in the United States, courts generally have found that prosecutors may satisfy the first sentence of the rule, commonly known as the "delivery provision," by
- Delivering the summons to an officer or managing or general agent of the company that may be found in the United States. This can include delivery to a US subsidiary if the court finds that the subsidiary meets the requirements of a "managing or general agent" under applicable agency law.
- Delivering the summons to a US entity that, under applicable law, qualifies as an alter ego of the company.
- Following the procedures of a mutual legal assistance treaty (MLAT) with the nation in question in order to effect delivery outside the United States.
It is the second sentence of Rule 4(c)(3) (C) (the mailing requirement) that is at the crux of a divide between district courts. In the context of the EEA, one court has held that the mailing requirement is a necessary component of effective service, while another held that it is merely a means of providing additional notice. This difference may mean life or death for a prosecutor’s case against a non-US company because the mailing requirement—if it truly is a requirement—may be trickier to satisfy than the delivery requirement. Specifically, while mailing to an alter ego with a US address likely will satisfy this provision, there is no language that would allow mailing to an officer or managing or general agent to suffice. Moreover, even compliance with an MLAT to serve a company at its non-US headquarters will not demonstrate mailing to a "last known address" or "principal place of business" in the United States.
District Court Split over Mailing Requirement
In an EEA case (United States v Pangang Group Co. 879 F. Supp. 2d 1052 (N.D. Cal. 2012)) brought against four Chinese corporate defendants (the Pangang defendants) in the US District Court for the Northern District of California, prosecutors attempted to serve the Pangang defendants by delivering and mailing the summonses to a US subsidiary, Pan America Inc. The Pangang defendants moved to quash service of the summons on the basis that the prosecutors failed to comply with Rule 4(c)(3)(C).
The court granted the motion to quash, holding that the prosecution had not met the mailing requirement because, even if Pan America was a general agent and thus able to satisfy the delivery provision, the US Government had not shown that Pan America was an alter ego for any of the Pangang defendants.
In the EEA case (United States v Kolon Indus., Inc. Crim. No. 3:12cr137-01, 2013 U.S. Dist. LEXIS 24770 (E.D. Va. Feb 22, 2013)) against Kolon Industries Inc., a South Korean company accused of stealing trade secrets from an American manufacturer, the court viewed Rule 4(c)(3)(C) very differently. The Kolon court held that the first sentence of the rule lays out the manner in which service must be accomplished, while the mailing "requirement" is not a component of effective service; it "merely provides an additional means of providing notice to the organisation that is to be served pursuant to the first sentence."
The court reasoned that Congress plainly intended the EEA to apply to non-US entities and therefore it would be absurd to interpret the rule in a manner that would allow a "corporation to effectively immunise itself from prosecution" by maintaining its principal place of business outside the United States.
In reaching this decision, the court acknowledged the Pangang decision, as well as United States v Johnson Matthey PLC No. 2:06- CR-169, 2007 WL 2254676 (D. Utah Aug 2, 2007), in which the court had viewed the mailing requirement as essential to proper service. However, the court found support from other district court cases that had held the mailing provision was not a requirement of valid service. The Kolon court did quash service due to other failings, thereby stalling the case until the US Government can perfect service.
Following the first Pangang decision, the US Government again tried to serve summonses on the Pangang defendants, which then brought a motion to quash service on much the same grounds as before. In its second decision, the Pangang court specifically rejected Kolon’s holding that the mailing requirement is not a condition of service. The court noted the mailing requirement’s use of the term "must" and concluded from that term "that the drafters intended the mailing requirement to be a mandatory component of effective service."
Lessons Learned from Kolon and Pangang
At present there are only a handful of US district court cases that address the mailing requirement as it relates to non-US corporate defendants. However, this is likely to be a growing area of the law as prosecutors start bringing more EEA cases against corporate defendants. Until US appeals courts begin to rule on the matter, the Federal Rules are amended or Congress takes other action to provide for the service of defendants that operate largely outside the United States, it remains worthwhile for non-US corporate criminal defendants to consider moving to quash service on any of their domestic subsidiaries or partners. In such motions, courts will look to see whether companies have observed the corporate formalities vis-à-vis US subsidiaries or whether there is any way to find such subsidiaries to be an alter ego.