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Recent Trade Secret Arrests, Convictions Illustrate Importance of Protecting Company Information
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December 20, 2010
ConstructionWebLinks.com
A recent string of arrests and criminal sentences handed down to employees who stole or are alleged to have stolen their employers’ trade secrets for their own personal gain underscores the importance of taking preventive measures to protect company secrets from internal misuse.
Sirf. In November, a former software developer at Sirf Technologies, a maker of software and chipsets for location-based services and mobile phone applications, was arrested by Secret Service agents for allegedly misappropriating Sirf’s source code as part of a scheme to set up a competing company that would sell products and services based on Sirf’s trade secrets. The employee, who is alleged to have conspired with several other former employees, faces up to 10 years in prison and a $250,000 fine.
Ford. Also in November, a former engineer with Ford Motor Co. pled guilty to federal charges of trade secret theft for taking thousands of Ford documents, including design specifications for numerous automobile subsystems. Most of the documents, which were downloaded to an external hard drive by the employee, did not relate to the engineer’s work for Ford. When arrested, many of the stolen documents were located on the laptop computer issued to him by his new employer, a Chinese auto manufacturer and Ford competitor. The stolen trade secrets were valued at up to $100 million, and the engineer faces up to eight years in prison.
Goldman Sachs. Also in November, a former computer programmer for Goldman Sachs began a federal jury trial on charges of trade secrets theft and transporting stolen property in foreign commerce. The programmer is alleged to have stolen Goldman’s software code for high-frequency securities trading and used them at his new job with a competing securities trading company. On his last day at Goldman, he allegedly used a software program to upload Goldman’s software to a Web site from his office computer. The programmer faces up to 10 years in prison.
DuPont. In October, a former chemist with DuPont was sentenced by a federal judge in Delaware to 14 months in prison for stealing trade secrets from DuPont, including several confidential chemical compound samples and a valuable process for manufacturing organic light-emitting diode (“OLED”) displays. The employee had planned to take a new job at a university in China and had been seeking financial support from the Chinese government for a new factory for manufacturing OLED devices. The criminal activity was discovered by DuPont during a screening for the chemist’s planned transfer to a DuPont facility in China. In a statement, DuPont pointed to its quick actions upon discovering the theft and the involvement of federal officials as key to preventing any significant loss to the company.
While companies can take comfort from the willingness of federal law enforcement authorities to arrest and seek criminal penalties against employees who steal company trade secrets for their own use, such enforcement cannot make up for the loss of valuable trade secrets and the consequences of their possible disclosure to competitors. For that reason, the old saying that an ounce of prevention is worth a pound of cure is particularly sound advice to companies with valuable trade secret information. Although each situation is different, here are steps that every company should consider to protect its valuable confidential information:
|  | Assess your trade secret portfolio. The first key to protecting your company’s valuable trade secrets is to know what they are. Unless the company knows what valuable confidential information it has and where it is located, that information cannot be adequately protected. Most states have laws that create civil liability for trade secret misappropriation. However, these laws require identification of the trade secrets alleged to be stolen. (See, e.g., California Code of Civil Procedure §2019.210.)
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| | Secure your trade secrets. Trade secrets cannot be protected if they are not subject to reasonable measures to ensure that they remain confidential – a requirement that extends to internal access by company personnel. Access to trade secret information should be subject to controls aimed at limiting such access to personnel who have a “need to know” the trade secret information, such as personnel directly involved in the development and/or exploitation of the trade secret information. Password-restricted “workshare” servers, source code control repositories, and full-featured document management systems that secure and track access to company documents are among the available mechanisms to secure confidential company data that should be considered.
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| | Monitor access to your trade secrets. It may be appropriate to have access to certain confidential information logged, so that unusual activity (such as a high volume of access or access to materials not related to an employee’s responsibilities) can be identified and acted upon. This could entail restricted access to physical locations where trade secrets are stored (enforced by access cards, pass codes, or sign-in mechanisms), and the use of access controls to electronically stored information as described above.
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| | Inform your employees of their obligations. Employment agreements, policies and procedures can set out the employee’s obligation to preserve the trade secrets of the company and the consequences for failure to do so. It is appropriate to reinforce this message with some regularity.
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| | Involve Human Resources in the protection of trade secrets. When an employee with access to sensitive company information separates or is terminated, Human Resources personnel can be prepared to confirm that no company confidential information (apart from what is in his/her head) leaves with that employee. This can include written verification during the exit interview that the employee confirms the obligation to maintain the confidentiality of company trade secrets and that he/she possesses no documents or other materials containing such information. This also can include accessing the employee’s history of access to trade secret repositories for patterns of unusual activity.
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| | Promptly contact counsel. As soon as you suspect theft of trade secrets, contact capable legal counsel who can help you address the situation proactively. Among other things, counsel can help you decide whether to contact law enforcement authorities and/or pursue civil remedies. While state and local authorities may have the expertise necessary to investigate and enforce the law, the FBI may be a better choice, particularly when the apparent theft may have international dimensions. If a civil remedy is more desirable, there are important considerations about the interplay between criminal and civil lawsuits to discuss.
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