On January 5, 2023, President Biden signed into law the Protecting American Intellectual Property Act of 2022 (the “PAIP Act”),[1] bipartisan legislation that authorizes the imposition of sanctions on foreign persons that have engaged in significant theft of trade secrets of U.S. persons.[2] 

In particular, the PAIP Act (through use of the term “shall”) requires the President to identify, in a report to Congress any foreign person (individuals or entities) that the President determines:

  1. has knowingly engaged in, or benefitted from, significant theft of trade secrets of U.S. persons if the theft of such trade secrets occurred on or after January 5, 2023 and is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States;[3]
  2. has provided significant financial, material, or technological support for, or goods or services in support of or to benefit significantly from, such theft;
  3. is an entity that is owned or controlled by, or that has acted or purported to act on behalf of, directly or indirectly, any foreign person identified in i. or ii.; or
  4. is a chief executive officer or member of the board of directors of any foreign entity identified under i. or ii. and whether such persons engaged in, or benefitted from, such theft.

The PAIP Act (again through use of the term “shall”) also requires that the President impose five or more of the following sanctions on any entity identified in the above-referenced reports:

  • Designate the entity on the list of Specially Designated Nationals and Blocked Persons (“SDN List”) maintained by the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC).[4]
  • Designate the entity on the Entity List.[5]
  • Direct the U.S. Export-Import Bank not to give approval to the issuance of any guarantee, insurance, extension of credit, or participation in the extension of credit in connection with the export of any goods or services to the entity.
  • Prohibit any U.S. financial institution from making loans or providing credits to the entity totaling more than $10 million in any 12-month period (unless the person is engaged in activities to relieve human suffering and the loans or credits are provided for such activities).
  • Direct the U.S. executive director to each international financial institution to oppose any loan from the international institution that would benefit the entity.
  • If the entity is a financial institution:
    • prohibit the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York from designating or permitting the continuation of any prior designation of, the financial institute as a primary dealer in U.S. Government debt instruments; and
    • prohibit the entity from serving as agent of the U.S. Government or as repository for U.S. Government funds.
  • Prohibit the U.S. government from procuring, or entering into any contract for the procurement of, any goods or services from the entity.
  • Prohibit transactions in foreign exchanges subject to U.S. jurisdiction and in which the entity has any interest.
  • Prohibit transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to U.S. jurisdiction and involve any interest of the entity.
  • Prevent U.S. persons from investing in or purchasing significant amounts of equity or debt instruments of the entity.
  • Deny visas to and entry into the United States of any executive officers or principals of, or shareholders with controlling interests in, the entity.

The President also may impose the above-referenced sanctions on the principal executive officer or officers (or individuals performing similar functions and with similar authorities as such officer or officers) of the entity.

With respect to individuals named in the report, the President is required to:

  • Designate such individuals on the SDN List.[6]  Such individuals also cannot enter the United States and are ineligible to receive a visa or other documentation to enter the United States.

Importantly, the President may waive imposition of the above-referenced sanctions if the President determines that such a waiver is in the national interests of the United States and notifies Congress of and reason for the waiver within 15 days.

The imposition of sanctions under these types of statutes (including, in particular, statutes calling for the imposition of sanctions relating to Russia) typically involve considerable discretion and political calculation, and they are much more rarely and unpredictably applied than the direct enforcement of U.S. primary sanctions, even when styled as mandatory, as is the case with the sanctions called for in the PAIP Act.

Although the PAIP Act is very broad and requires the imposition of sanctions on any foreign person identified as having engaged in trade secret theft within the scope of the PAIP Act, regardless of nationality, based on public statements made by the co-sponsors of the PAIP Act,[7] if used, we expect that sanctions imposed pursuant to the PAIP Act will primarily target Chinese actors. 

[1] Protecting American Intellectual Property Act of 2022, S. 1294, 117th Cong. (2022), available at: https://www.congress.gov/117/bills/s1294/BILLS-117s1294enr.pdf.

[2] The PAIP Act allows the U.S. Government to address significant IP issues that were first addressed in 2018 in the Section 301 Report issued under former U.S. Trade Representative Lighthizer; see https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf

[3] The PAIP Act does not define the terms “significant threat,” “economic stability,” or “materially.”

[4] The language of the PAIP Act requires that the President block and prohibit all transactions in all property and interests in property of the entity if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a U.S. person.  Persons subject to these types of sanctions are designated on the SDN List.

[5] The Entity List, which is maintained by the Department of Commerce, Bureau of Industry and Security, is included in Supplement No. 4 to part 744 of the Export Administration Regulations.

[6] Again, the PAIP Act requires the President to block and prohibit all transactions in all property and interests in property of the individual if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a U.S. person.  Persons subject to these types of sanctions are designated on the SDN List.

[7] In a press release dated January 5, 2023, Senator Van Hollen stated “[i]n China and other countries across the globe, foreign corporations are working – often in coordination with authoritarian regimes – to steal our cutting edge technologies to gain unfair advantages at America’s expense.  This also results in the off-shoring of American jobs and causes harm to our economy and our national security. We must act to deter these predatory practices by imposing high costs.”  In another press release dated December 22, 2022, Senator Sasse stated “[s]anctioning thieves for stealing American intellectual property is simple, common sense. We can’t sit back and keep acting like this isn’t a problem — we need to go after these hackers.  This legislation is a good start, but in the coming decades we have to do more to use our economic tools to slam the door on the CCP and other adversaries who keep trying to undercut our strength;” see https://www.vanhollen.senate.gov/news/press-releases/president-biden-signs-van-hollen-legislation-to-curb-ip-theft; see also https://www.sasse.senate.gov/public/index.cfm/press-releases?ID=BDA24F53-437C-4144-8621-57F4D336F563.