On a day to day basis, employees working for large corporations deal with various types of information, client lists, and software. When dealing with all of this “company intelligence” it is important to know that all of these have the capability of being what is called a trade secret. When the phrase trade secret is used it basically refers to any confidential business information which provides an enterprise of competitive edge (World). In order for a piece of information to be considered a trade secret, the company must take reasonable steps to keep it an actual secret and keep all possible outlets disclosed.Companies who leave this information available are at risk at losing millions of dollars in profitability and could lead to worse.
It has happened to companies all over the world and it is imperative that a company stay in close contact with all employees and former employees that might have had access to these so called trade secrets. Parties participating in the use of trade secrets are almost always closely related internally to the company being affected by the secrets. In more than 90% of trade secret cases in both state and federal courts, the alleged misappropriator was either an employee or business partner of the trade secret owner. ” (Milligan)This is why it is so important for companies to take the reasonable steps to keep their ideas confidential.
Trade Secrets are protected differently than patents; they do not need registration and are protected without any procedural formalities. (World) Also differently than patents, trade secrets can be protected for an unlimited number of years and this is makes them very attractive for SME’s. World) Although they can be protected for an indefinite period of time there are still some certain criteria a trade secret must meet to be considered one. “While these conditions vary from country to country, some general standards exist which are referred to in Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property. ” (World)The following conditions must be met, “the information must be a secret (i. e.
it is not generally known among, or eadily accessible to, circles that normally deal with the kind of information in question), it must have commercial value because it is a secret, and it must have been reasonable steps by the rightful holder of the information to keep it secret. ” (World) It is extremely important for companies to be knowledgeable on the topic of trade secrets. The economic value in a trade secret can only be protected by the company so if they do not take the proper steps to protect their secret they would be liable for the loss of the information and no legal steps would be taken to obtain it back. Virtually all states have adopted a portion of a modified version of the Uniform Trade Secrets Act, which was drafted by the National Conference of Commissioners on Uniform State Laws in 1970 and amended in 1985. ”(Quinn)The Uniform Trade Secret Act outlines all of the details and repercussions that come with participating in trade secrets. Trade Secret misappropriation can be understood as a competitive advantage by another company.
According to the Uniform Trade Secret Act, misappropriation is defined as:(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who has utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret ad that knowledge of it had been acquired by accident or mistake. ” (Quinn) There is no secret anymore when it comes to trade secret. Parties engaging in the activity are well aware with what they are doing and businesses better know that this type of behavior is possible and could happen to them.With the economic business world become more diverse and globalization taking place in all areas of work, it is becoming harder and harder to track illegal discussions taken place between foreign parties. The threat of losing an important trade secret to a close competitor is a company’s biggest fear in these types of situations. There have been several cases where former employees have taken information from American companies and then used the secret overseas with foreign companies.
One specific example featured a Chinese scientist who formally worked for American companies pleading guilty to stealing valuable about pesticides and food products from two U. S. major companies. Pelofsky) “Kexue Huang, 46, worked at a Dow Chemical Company subsidiary from 2003 to 2008 in Indiana where he led a team of scientists developing organic insecticides and then later for another agribusiness giant, privately held Cargill Inc. ” (Pelofsky)Huang plead guilty in a federal Indiana court to one count of stealing trade secrets from Cargill and one count of taking of participating in economic espionage at Dow, “only the eighth case charged involving the U. S.
Economic Espionage Act of 1996. ” (Pelofsky) This is just one case of many that have featured secrets being stolen from U. S. companies and sent over to corporations working in China. The last several years have been filled with rivalry between the U.
S. nd China to find the newest and most advanced technology and when one side participates in the illegality of trade secrets it puts one side at a tremendous disadvantage and vice-versa for the side gaining an advantage.“Huang admitted that, despite signing a confidentially agreement, he passed numerous secrets about Dow’s products to others doing research in Germany and China, according to his plea agreement filed in federal court in Indiana. ” (Pelofsky) He admitted to using his research to take back to China to develop and produce pesticides to compete against his former employer Dow. (Pelofsky) He could face up to 20 years in prison and prosecutors have estimated the range of the two company’s total losses at $7 to $20 million dollars as result of Huang’s actions. (Pelofsky)With more and more cases of foreign trade secrets taking place in the world of international business, lawyers have began to practice how to approach these cases differently than they would a normal case in the U.
S. “There are some unique challenges that come up,” says Dean Pelletier, a shareholder at McAndrews, Held & Malloy. “You’re dealing with different time zones, you’re trying to coordinate the assembling of information—it can be a logistical nightmare. ” (Post) Also deciding on where to file these lawsuits is an important decision companies are faced to make. “In-house lawyers should discuss the pros and cons of moving forward with proceedings at the International Trade Commission (ITC) or district courts with their outside counsel. ” (Post) In most cases the action time of a company can mean the difference in savings millions in profit.
In a specific example, Amsted is a company who owns a secret process for manufacturing steel railway wheels and in the past had licensed its processes to Chinese manufacturers. (Post) “But in 2005, one Chinese company, TianRui Group Co. Ltd. , was unable to successfully negotiate a license with Amsted to use the process, and subsequently poached employees from one of Amsted’s licensees. ” (Post) The workers would go on to disclose Amsted’s secret process to TianRui which now they would be able to make wheels imported to the U. S.
Amsted would go onto file a complaint to the ITC (Internal Trade Commission) a couple years later on the grounds that TianRui had misappropriated its trade secrets and was in violation of the 1930 Tariff Act.“The ITC found in October 2009 that TianRui had violated the act, and in February 2010 it issued a 10-year limited exclusion order and 10-year cease-and- desist order against TianRui, prohibiting it from marketing, selling or importing its wheels in the U. S. The Federal Circuit affirmed the ITC’s ruling on Oct.
11, 2011. ” (Post) Successful outcomes for companies in foreign trade secret cases take a lot of future planning and critical thinking. “Lawyers who successfully argued on behalf of these companies say businesses pursuing international trade secret cases should consider the following advice. First and foremost, companies should conduct a cost-benefit analysis of proceeding with a lawsuit against a foreign business. ” (Post)Another case similar to Amsted’s situation involved DuPont suing a South Korean industrial materials company called Kolon Industries Inc.
DuPont sued Kolon claiming a former employee, who previously left the company in 2006, but left with highly confidential information about Kevlar, a fiber used to make bullet proof vests. (Post) The former employee, Michael Mitchell began working at Kolon in 2006 and DuPont claimed he shared the stolen information with his new company. The case was a rather easy one for DuPont to win as Mitchell plead guilty to trade secret theft in March 2010 and served 18 months in prison. (Post) “On Sept. 14, 2011, a U.
S. federal jury found Kolon guilty of misappropriating trade secrets and awarded DuPont $919. 9 million in damages, one of the largest trade secret awards in history. ” (Post)The language barrier is not the only hurdle companies must face when dealing with foreign lawsuits.
American companies sometimes face corruption and unethical behavior committed by foreign governments. In the case previous mentioned involving DuPont, Federal Prosecutors found and charged Chinese government officials playing a role in the theft of in their technology to manufacture the paint pigment titanium dioxide. (Reisch) The Federal Bureau of Investigation official’s recovered letters in search of the residence of Walter Liew; these letters show that Liew “was tasked by representatives of the People’s Republic of China government to obtain technology used to build chloride-route titanium dioxide factories. (Resisch)This search took place in the summer of 2011 after DuPont filed a civil complaint in April against Liew and his California-based company, USA Performance technology. (Reisch) “DuPont’s complaint alleged that Liew and others he employed embezzled technology from DuPont’s newest and most up-to-date TiO2 facility in Kuan Yin, Taiwan. Liew then sold the technology to a Chinese competitor.
In August, federal prosecutors indicted Liew on charges of witness and evidence tampering and making false statements. ” (Reisch) As seen in the cases I have discussed, even though a company can take the reasonable steps to preserve a trade secret there is no guarantee that this will stop former employees and other parties from trying to obtain confidential trade secrets.Of all the reasonable measures trade secret owners took, only two statistically predicted that the court would find that this element was satisfied: confidentiality agreements with employees and confidentiality agreements with third parties. ” (Milligan) From the previous examples it is becoming more popular for participants in trade secrets to try their luck internationally thinking there is less risk of being caught. As long as there is money to be made in the world, ambitious business men and woman will do anything they can to get a head. With all of the unethical behavior and white collar crime that has happened over the years I do not see the problem of trade secrets coming to a stop anytime soon.
