United States v. Hsu: Legal Impossibility Is No Defense Under the EEA

The Economic Espionage Act of 1996 criminalized trade-secret theft for the first time as a matter of federal law, but it did so with statutory language that raised an immediate practical problem: how do you run an undercover sting for trade-secret theft without handing the suspect a real trade secret to steal? United States v. Hsu, 155 F.3d 189 (3d Cir. 1998), decided August 26, 1998 in an opinion by Circuit Judge Marjorie O. Rendell of the United States Court of Appeals for the Third Circuit, answered that question and in doing so produced the first major appellate construction of the EEA. The court held that legal impossibility is not a defense to attempt or conspiracy under the Act, which means the government does not need an actual trade secret to secure a conviction for trying to steal one. That holding shaped how trade-secret prosecutions have been built ever since.

At a glance

• Case: United States v. Hsu, 155 F.3d 189 (3d Cir. 1998)
• Decided: August 26, 1998, opinion by Circuit Judge Marjorie O. Rendell, sitting with Judges Stapleton and Cowen; the district court’s discovery order was reversed and the case remanded
• Holding: Legal impossibility is not a defense to charges of attempt and conspiracy to steal trade secrets under 18 U.S.C. 1832(a)(4) and (a)(5), so the prosecution need not prove that an actual trade secret existed, and the defendants had no need for the real underlying secrets to defend against those charges.
• Significance: The foundational appellate reading of the EEA, validating undercover sting operations that use decoy materials and defining the intent-centered structure of the statute’s inchoate offenses.

The sting and the charges

The prosecution grew out of an FBI operation targeting the anticancer drug Taxol, which Bristol-Myers Squibb produced from the bark of the Pacific yew. A two-year undercover investigation led to a July 1997 indictment of Kai-Lo Hsu, Chester S. Ho, and Jessica Chou, who was never arrested because she lived in Taiwan. They were alleged to have sought to acquire “second generation” Taxol process technology, a plant cell culture method related to the first-generation technology behind the marketed drug. An undercover FBI agent posed as a technology information broker, and the “corrupt” Bristol-Myers scientist he offered up was in fact a company employee cooperating with the FBI. At the June 1997 hotel meeting the scientist displayed Bristol-Myers documents and the agents arrested Hsu and Ho on the spot. No trade secret was ever handed over, though the government later acknowledged that the documents it had displayed did contain actual trade secrets, used because authentic-looking substitutes could not be prepared on short notice for the scientists Hsu brought along.

Hsu and Ho were charged under 18 U.S.C. 1832(a)(4) and (a)(5), the EEA provisions covering attempt and conspiracy to steal commercial trade secrets, along with wire fraud and other counts. They were not charged with completed theft of trade secrets. Because the sting used government-controlled documents, the case squarely posed the question the statute’s drafters had anticipated: if the materials the defendants tried to obtain were not, in fact, trade secrets, could there be a crime?

The discovery fight that framed the appeal

The issue reached the Third Circuit through a discovery dispute. The defendants sought production of the actual Taxol documents, arguing they needed them to mount a defense: if the government’s materials contained no real trade secrets, the defense theory ran, then stealing them would not have been a crime, and the charges should fail. The district court rejected the impossibility argument itself, but still ordered disclosure, reasoning that the existence of a trade secret was an element the jury had to decide. See United States v. Hsu, 982 F. Supp. 1022 (E.D. Pa. 1997). The government took an interlocutory appeal, which section 1835 expressly authorizes from any order directing disclosure of a trade secret, contending that turning over genuine Taxol trade secrets to the very people accused of trying to steal them would defeat the purpose of the EEA and expose the confidential technology it was meant to protect.

The confidentiality tension was not incidental. The EEA includes 18 U.S.C. 1835, which directs courts to preserve the confidentiality of alleged trade secrets during prosecution, reflecting Congress’s awareness that a trade-secret trial can itself become a vehicle for disclosure. The discovery ruling threatened to invert that protection. The Third Circuit’s resolution turned not on the confidentiality provision alone but on a more fundamental point about the structure of attempt liability.

Legal impossibility and the intent-centered offense

Judge Rendell’s opinion reasoned that whether real trade secrets existed was irrelevant to the attempt and conspiracy charges, because legal impossibility is not a defense to those inchoate offenses. The Third Circuit was at the time the only circuit that still recognized a common-law legal impossibility defense at all, from United States v. Berrigan, 482 F.2d 171 (3d Cir. 1973), and the court declined to extend it here. It noted that the line between legal impossibility, where the intended acts would not amount to a crime even if completed, and factual impossibility, where circumstances unknown to the actor prevent consummation, is largely semantic, and that the defendants’ own theory could be described either way. Adopting the Model Penal Code test, the court held that a defendant is guilty of attempt if, under the circumstances as he believes them to be, he takes a substantial step toward the crime. A defendant who believes he is acquiring a trade secret and takes substantial steps to do so has committed attempt regardless of whether the target was genuinely secret. The court separately held that legal impossibility is no defense to conspiracy either.

The practical logic was decisive and the court stated it plainly. If legal impossibility were a defense, the government would be forced to use actual trade secrets in every sting, disclosing the very secrets it sought to protect to the suspects it was investigating. That would gut the enforcement scheme Congress built. By locating culpability in the defendant’s intent and conduct rather than in the objective status of the materials, the court preserved the sting as a viable investigative tool.

Because the actual secrecy of the documents was immaterial to attempt and conspiracy, the defendants had no need for the real Taxol trade secrets to defend on impossibility grounds. The Third Circuit affirmed the district court’s ruling that legal impossibility was unavailable, reversed the discovery order, and remanded. It pointedly did not decide that the defendants could never see the redacted material. The defendants had argued on appeal that the documents were also material to entrapment, outrageous government conduct, and jurisdiction defenses, but they had not raised those arguments below, and no court had yet reviewed the redactions, which Bristol-Myers employees had made on their own. The court therefore left it to the district court, if the defendants renewed those arguments, to conduct an in camera review and assess materiality. The holding still did double duty: it settled the substantive law of EEA attempts and it kept the confidentiality the statute prizes intact for the impossibility theory.

What Hsu established for EEA prosecutions

Hsu set the template for a generation of trade-secret cases. Prosecutors could now run stings using sham or non-secret materials, secure that a conviction for attempt or conspiracy would not collapse if a defendant later argued the decoy was not truly secret. The decision also clarified the mental-state architecture of section 1832: the offense centers on the defendant’s intent to convert a trade secret to the economic benefit of someone other than the owner, and on knowledge that the offense would injure the owner. For the inchoate versions of the crime, the government proves what the defendant intended and did, not what the materials objectively were.

Later cases absorbed the point. The distinction between the completed offense, which does require an actual trade secret, and the attempt or conspiracy offense, which does not, became a fixture of EEA doctrine. The completed-theft prosecutions that followed, including the Second Circuit’s medium-focused analysis in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), and United States v. Agrawal, 726 F.3d 235 (2d Cir. 2013), litigated whether a real trade secret and the statutory jurisdictional elements were present. Hsu is the case that explains why the inchoate charges do not require the government to walk into that thicket.

Open questions

Hsu resolved the impossibility question but left adjacent issues for later development. It did not fully map how much a defendant must believe about the trade-secret character of the target, or how a jury should be instructed where the defendant is indifferent to whether the information is genuinely secret. It did not address the outer limits of the “substantial step” requirement in a sting where the government supplies most of the opportunity, an area that shades into the entrapment defense the court expressly left for the district court on remand. And while it protected confidentiality in the discovery posture before it, it left the broader interaction between section 1835 and a defendant’s trial rights to be worked out case by case, a tension that continues to surface whenever a completed-theft charge forces the government to prove the secret in open court.

Implications for inventors and businesses

• Undercover enforcement is real leverage. Because attempt and conspiracy do not require a genuine trade secret, law enforcement can act on a credible tip before any secret actually leaves the company. Report suspected solicitation early, since the crime can be complete once a suspect takes substantial steps toward acquisition.
• The completed offense still turns on real secrecy. Hsu governs attempts. If your matter involves an actual taking, the case will hinge on proving the information was a trade secret and meets the statute’s jurisdictional elements, so the underlying secrecy record still matters enormously.
• Confidentiality protections exist, but plan for exposure. Section 1835 lets courts shield trade secrets during prosecution, yet a completed-theft trial may still require proof of the secret. Coordinate with prosecutors on protective orders before a criminal referral, and weigh the disclosure risk against the deterrence value.
• Intent evidence is the center of gravity. In inchoate EEA cases the record that convicts is the defendant’s own words and conduct showing belief and purpose. Preserve communications, badge and access logs, and forensic artifacts that document what the actor intended and did.

Frequently asked questions

Does the EEA require the government to prove a real trade secret existed for an attempt charge? No. In United States v. Hsu the Third Circuit held that legal impossibility is not a defense to attempt or conspiracy under the Economic Espionage Act, so the government need not prove that an actual trade secret existed or changed hands. What matters is the defendant’s intent and belief that the information was a trade secret, plus a substantial step toward the crime. This is what allows undercover stings to use decoy or non-secret materials.

Why did the defendants want the actual Taxol documents in discovery? They argued that to defend an attempt charge they needed to see whether the materials the FBI used contained real trade secrets, on the theory that if no trade secret existed, no crime was possible. The Third Circuit rejected that logic. Because legal impossibility is not a defense, the actual secrecy of the sting documents was irrelevant to the attempt and conspiracy charges, so the defendants had no need for the underlying Taxol trade secrets on that theory. The court reversed the disclosure order and remanded, leaving the district court to decide by in camera review whether the redacted material was material to any other defense the defendants might raise.

What is the difference between factual and legal impossibility here? Factual impossibility, where circumstances unknown to the defendant make the intended crime impossible, has never been a defense to attempt. Legal impossibility, where the completed act would not be a crime, sometimes is. The Hsu court treated the absence of a real trade secret as, at most, a form of impossibility that does not excuse an attempt, because the defendant intended to steal what he believed was a trade secret and took substantial steps to do so.

Authorities and sources

• United States v. Hsu, 155 F.3d 189 (3d Cir. 1998), full opinion text: FindLaw
• United States v. Hsu, 155 F.3d 189 (3d Cir. 1998), alternate copy of the opinion: CaseMine
• 18 U.S.C. 1832 (EEA, theft of trade secrets): Cornell LII
• 18 U.S.C. 1835 (EEA, orders to preserve confidentiality): Cornell LII
• U.S. Department of Justice CCIPS, “Your Secrets Are Safe With Us: How Prosecutors Protect Trade Secrets”: DOJ CCIPS
• United States v. Hsu, 40 F. Supp. 2d 623 (E.D. Pa. 1999), post-remand ruling rejecting a vagueness challenge to the EEA: vLex