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Trade Secret Risks, Criminal Prosecutions and Protecting Trade Secrets

Businesses understand that their trade secrets are valuable assets.  However, businesses fail to understand how vulnerable their trade secrets are to misappropriation and straight-out theft.

The US Justice Department has been beefing up its enforcement in this area, relying on new and existing prosecution and investigation tools.

Companies have to act with vigilance by protecting their confidential and sensitive trade secrets, and aggressively prosecuting civil misappropriation and referring criminal cases when appropriate.  This requires careful calibration and design of data storage security requirements.

The Justice Department has been aggressively prosecuting Chinese economic espionage cases.  The Justice Department’s enforcement efforts are part of the Administration’s tough trade policy against China. 

In the last quarter of 2018, the Justice Department brought four separate indictments involving Chinese economic espionage schemes.  In the last case of 2018, the Justice Department charged two companies – a Chinese and a Taiwan company, along with three individuals for trade secret theft, conspiracy, economic espionage and related crimes.

The indictment alleges that the defendant stole trade secrets from Micron Technologies relating to the research and development of dynamic random-access memory (DRAM), a technology used to store data in electronic devices.  China has identified DRAM technology as a national priority because Chinese companies have not been able to develop similar technology.

The Chinese and Taiwan companies recruited former Micron employees who allegedly downloaded and stole Micron information relating to eight different trade secrets (totaling almost 1000 files).  The charged companies used the trade secrets to advance the development of DRAM technology products and production techniques, including filing of five patents containing the same or very similar technology set forth in Micron’s trade secrets.

Along with the criminal case, the Department of Commerce added the offending companies to its Entity List and the Justice Department filed a companion civil case seeking an injunction to prevent the companies from exporting, selling or importing to the US any product containing DRAM manufactured by the companies.

In a separate matter, on December 20, 2019, the Justice Department arrested an engineer who stole trade secrets from his employer in Oklahoma and planned to transfer the information to a competitor in China.  The allegation is the tenth case brought against Chinese officials or companies for industrial espionage.

A supervisor at Phillips 66 became suspicious when Hongjin Tan, an employee, gave his notice and stated he was moving back to China.  Tan’s resignation triggered an automatic revocation of his access to company data and a review of his recent activity.  The review revealed that Tan had accessed hundreds of files relating to a valuable and unique product produced by Phillips 66 and its plans for marketing the product in China.  Tan used an unauthorized personal USB memory stick to download and copy of the files.

A subsequent FBI search of Tan’s work computer located a work agreement between Tan and a Chinese company offering him compensation for the sensitive trade information he planned to bring with him to China.  Tan started to steal sensitive trade information weeks before his announced departure.

The recent prosecutions underscore the importance of companies taking affirmative steps to protect their trade secrets and sensitive information.  Companies have to classify, control access, block transmission and exporting of sensitive information, and actively monitor sensitive files.  To preserve the ability to prosecute such cases, companies have to classify sensitive documents and designate them as sensitive.  Access to documents and files have to be controlled as a way to prevent theft.  Passive monitoring techniques have to be replaced with active monitoring so that companies learn real-time that files may be improperly transferred.  To reinforce these protections, companies have to adopt important policies regarding access to confidential trade information and secure appropriate protections through non-disclosure agreements with its employees and third-party partners. 

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