Do you know where your trade secrets are?

Over the years I have found that it is difficult to persuade business owners to protect valuable information that may not otherwise qualify for trademark, copyright or patent protection in the United States. Nevertheless, business sales data, technical drawings or just about anything else can qualify for what is known as trade secret protection: The generic requirement is that (i) the information be maintained in secrecy and (ii) results in an economic benefit to the owner (iii) only if the information is not generally known. Inevitably, the challenge for business owners is to pro-actively implement the affirmative requirements under each state’s law to maintain the information in secrecy. This is especially true for computer related information that requires detailed encryptions and access codes, as well as monitored restricted access to computer systems and facilities for trade secret status. There should also be the appropriately drafted nondisclosure/ non-compete contracts with vendors, employees and other business entities to maintain trade secret status.

These requirements require administrative and legal fees, and therefore there is an economic impediment to proper trade secret protection. However, without this protection there is a much lower probability of a significant financial remedy in court for theft. For example, under the Illinois Trade Secret Act, companies that employ persons who actually misappropriate trade secrets can be held accountable financially if they had reason to know that the new employee improperly obtained valuable information.

In fact, the result of trade secret theft can be so disastrous that prevention is the only effective remedy. Under state law, most often it is the private person or entity who is the victim of the trade secret theft that must file the lawsuit with its tremendous legal costs. However, the federal government can bring cases under criminal statutes for such theft. A federal grand jury in the Western District of Wisconsin recently returned an indictment for international trade secret theft. According to the indictment, this theft resulted in $800 million dollars loss to the defrauded company and was allegedly committed by: Sinovel Corporation, a Chinese company based in the People’s Republic of China, two employees of Sinovel residing in China, and a former employee of AMSC, a United States based company. This former AMSC employee also resides outside the United States.

The indictment alleges an all too familiar pattern of trade secret theft that poses an increasing threat to software companies. According to the indictment AMSC developed and sold software and equipment that regulates the flow of electricity from wind turbines to electric grids. AMSC considered this software and equipment to be trade secrets and propriety information (that is, information owned by AMSC). Also according to the indictment, Sinovel purchased software and equipment from AMSC for its own wind turbines that Sinovel manufactured, sold and serviced overseas. It is also alleged that Sinovel and the three individuals conspired to (i) obtain AMSC’s copyrighted information and trade secrets for Sinovel’s wind turbines, and (ii) retrofit existing Sinovel wind turbines. To accomplish this theft, the indictment further alleges that that Sinovel, through its two individual employees, recruited the American based employee to (i) leave AMSC (ii) join Sinovel (iii) secretly download the software from the AMSC computer system and (iv) thereafter send the software to a computer in Austria.

Sinovel and these employees/former employees are considered innocent until proven guilty under U.S criminal law. However, if they are found guilty, any financial remedy is problematic as the company and the individual employees are not in the United States.

© 2013 Adrienne B. Naumann, Esq.
Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.

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