Home Remedies For Politically Charged IP Theft

by Orrick - Trade Secrets Group
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In January of this year, Chinese wind turbine manufacturer Sinovel Wind Group Co. Ltd. was convicted of stealing trade secrets from U.S. company AMSC Inc. The theft caused AMSC, more than $800 million in losses and forced the company to lay off more than half its global work force. Sinovel’s sentencing—which could include fines exceeding $1 billion and a multiyear probationary period—is scheduled for June 2018.

The conviction came just as the Trump administration signaled that it was considering broad tariffs on Chinese imports as punishment for alleged intellectual property theft. Indeed, just last week the President announced a plan to impose almost $60 billion worth of annual tariffs on Chinese products. As previously reported, these retaliatory measures are the product of an investigation into China’s IP practices by the U.S. Trade Representative, the findings of which were released contemporaneously with the President’s unveiling of the new controversial trade restrictions.

Despite this politically charged backdrop, the theft perpetrated by Sinovel was an inside job facilitated by a disgruntled AMSC employee. The underlying fact pattern is something that could have happened between two U.S. competitors just as easily as it could have happened between a foreign and domestic company. Sinovel recruited an AMSC insider to download and transfer proprietary AMSC software to a Sinovel computer. The software—which was used to control the flow of electricity generated by the wind turbines into the electrical grid—was the subject of multiple contracts between Sinovel and AMSC. The companies had worked together since 2005, with Sinovel building the turbines and AMSC supplying the software for the control system. Once Sinovel successfully stole AMSC’s technology, it backed out of its contracts to avoid paying millions of dollars in fees. Still, the theft went unnoticed for months until Sinovel commissioned wind turbines incorporating the stolen software from a builder in Massachusetts.

Notwithstanding the political themes surrounding this issue, Sinovel’s theft of AMSC’s software could have been prevented, or at least mitigated, by the same protections used to combat any other trade secret misappropriation. For example, restricting trade secret access to only those employees who genuinely need it, limiting the extent to which trade secrets comingle with personal electronic devices, and implementing cybersecurity protocols to monitor activity for electronically stored trade secrets all could have helped AMSC protect its software, or at least detect the theft and mitigate the damage. While it remains to be seen whether the recentlyannounced tariffs on Chinese imports will have any effect on trade secret misappropriation via economic espionage, there are many steps U.S. companies can take to protect their intellectual property that do not require government action or military-grade cybersecurity systems.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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