Industrial Espionage and the Defend Trade Secrets Act

by Mintz Levin - Global IP Matters

American corporations are facing an ever increasing threat of misappropriation of their valuable trade secrets through industrial espionage, defined as the theft of a company’s trade secrets by an actor intending to convert the trade secret to the economic benefit of a competitor. Indeed, former Attorney General Eric Holder has said that “[t]here are only two categories of companies affected by trade-secret theft: those that know they’ve been compromised and those that don’t know yet.” (See Protection of Trade Secrets: Overview of Current Law and Legislation).  With this “significant and growing threat” of industrial espionage by competitors, current and former employees, and even foreign intelligence services, American companies must be vigilant and employ all available measures to protect against misappropriation of valuable trade secrets. (See Office of the National Counterintelligence Executive, Foreign Spies Stealing U.S. Economic Secrets in Cyberspace).  In the recently enacted Defend Trade Secrets Act (“DTSA”), which creates a federal civil cause of action for trade secret misappropriation, American companies have been given a number of robust tools to prevent, or remedy ongoing misappropriation of valuable trade secrets. The DTSA was recently put to use by Monsanto Company (“Monsanto”) and The Climate Corporation (“Climate”) in Monsanto Co. v. Chen, Case No. 4:16-cv-876 (E.D. Mo.), after a former employee, with an offer to join a competing Chinese seed company, allegedly used sophisticated software capable of performing digital reconnaissance and exfiltrating data to download trade secret information from secure servers. The district court granted orders for a temporary restraining order and preliminary injunction directing the return of trade secrets and identification of cloud data storage where the trade secrets were stored. While not specifically put to use in this case, the new civil seizure mechanism of the DTSA, discussed in more detail below, is another tool that may be useful in cases like the present case where a former employee has stored misappropriated trade secret information in cloud data storage and may not fully comply with a TRO or preliminary injunction.

Monsanto’s Complaint for Trade Secret Misappropriation

On June 16, 2016, Monsanto filed a complaint in the United States District Court for the Eastern District of Missouri alleging violation of the DTSA by a former employee’s misappropriation and unauthorized use and removal of confidential and trade secret information from Monsanto’s secure data environment. Jiunn-Ren Chen was employed as a data science analyst at Monsanto. In June, Mr. Chen announced his resignation and admitted that he was considering an offer to serve as Director of Resource Management and Bioinformatics for a Chinese seed company. Following this announcement, Monsanto performed a standard review of Mr. Chen’s company issued computers and allegedly discovered that the computers were loaded with highly sophisticated and unauthorized software that could be used to perform reconnaissance, seek vulnerabilities in the system, exfiltrate data, and conceal activity on the device through cloaking functionality. Mr. Chen denied knowledge of the software, but refused to provide for forensic examination additional data devices he admitted that he had connected to his work computer. Additionally, after Mr. Chen returned his work computer, Monsanto detected that Mr. Chen’s company issued unique login credentials were used to remove fifty-two files from Monsanto’s secure environment containing proprietary material important to Monsanto and Climate’s current and future business. When confronted with the removal of these files during an exit interview, Mr. Chen allegedly made the inculpatory statement “did you find files moving,” and further admitted to contact with another Chinese national who recently plead guilty to conspiracy to commit theft of Monsanto trade secrets.

Granting of Temporary Restraining Order and Preliminary Injunction

In its motion for a temporary restraining order, Monsanto argued that there was a substantial likelihood that it would succeed on the merits because Mr. Chen used improper means, including unauthorized access to Monsanto’s secure environment, in an effort to covertly acquire highly valuable trade secret information that Monsanto had taken reasonable steps, as part of its ongoing standard operating procedures, to keep confidential. Monsanto also argued that it would suffer irreparable harm if Mr. Chen was not prevented from disclosing trade secrets to the agricultural company in China for which Mr. Chen is considering accepting employment because the misappropriated material relates to strategy and sensitive products of Climate and further explains confidential research methods and results. Monsanto also argued that the balance of the harms weighed in its favor because Mr. Chen would be in no worse position if the order issued as he has no right to use or disclose the trade secrets, and also argued that issuance of a restraining order would further the public interest because “the American people, who comprise the public, have an interest in protecting trade secrets developed by American companies from foreigners who seek to steal them.” The Court granted a temporary restraining order directing Mr. Chen to return the misappropriated trade secrets, identify the location where such information is stored, and enjoining Mr. Chen from disclosing the trade secret information.

The Court also granted an agreed to preliminary injunction ordering Mr. Chen to return all trade secret information, disclose the persons to which the trade secret information was disclosed, identify all cloud storage locations where trade secret information was kept, and enjoining Mr. Chen from further disclosure of Monsanto and Climate trade secrets. This order followed a motion for a preliminary injunction in which Monsanto explained that it had uncovered additional evidence of Mr. Chen’s misappropriation of trade secrets. Specifically, Monsanto alleged that Mr. Chen sent a number of emails to an outside account using his work email that contained confidential trade secret files related to Monsanto’s proprietary Growth Stage Tracker and FieldScripts programs which relate to assisting farmers to maximize the return on their land. Monsanto explained that these systems derive value from their confidentiality and thus divulging this information to a competitor would be particularly damaging. Mr. Chen also accessed Climate’s secure network during travels to China and visited competitors of Monsanto and Climate shortly before resigning.

Potential for Use of Civil Seizure Mechanism

In the present case, Monsanto pursued a replevin action to obtain the return of the trade secrets in Mr. Chen’s possession, and did not seek the seizure of the misappropriated trade secrets through the new civil seizure mechanism of the DTSA. The civil seizure mechanism is a potent but, as of yet, unused protection provided by the DTSA. Civil seizure is a preventative tool employed prior to a finding of misappropriation by which a court may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Using this tool, a company aware of a potential misappropriation of its trade secrets may quickly prevent further dissemination of that information during the pendency of a formal DTSA case. Orders providing for the seizure of property under the DTSA are only granted in “extraordinary circumstances.” To qualify for a civil seizure order, the requesting party must provide factual information satisfying a number of predicate factors, including specifying with reasonable particularity the matter to be seized and showing that a TRO or preliminary injunction would be inadequate. (See Explaining the Provisions of the Defend Trade Secrets Act ).

While yet to be employed, cases like the present, where an employee has potentially used external digital storage devices and/or cloud storage services to allegedly store misappropriated trade secrets may be a candidate for use of the civil seizure mechanism, especially if it is clear that the employee may not fully comply with a TRO or preliminary injunction. There is no shortage of cases where employees have allegedly stored misappropriated trade secrets using cloud storage services and other external storage media. See, e.g., Earthbound Corp. v. Mitek USA, Inc., Case No. C16-1150 RSM (W.D. Wash. Aug. 19, 2016) (granting TRO where former employee allegedly misappropriated trade secrets using Dropbox and Google Drive); Frisco Medical Ctr., L.L.P. v. Bledsoe, Case No. 4:12-cv-37 (E.D. Tex. Nov. 30, 2015) (forensic examination of former employee’s computer equipment revealed that numerous files containing trade secret information were uploaded to employee’s Dropbox account and that USB storage devices were attached to computer before Dropbox was uninstalled). Given the increasing threat of industrial espionage using advanced software and computing techniques, cases involving misappropriation and storage of trade secrets using digital means may be the first in which we see usage of the DTSA’s civil seizure mechanism.

The Climate Corporation is a wholly-owned subsidiary of Monsanto and helps the world’s formers sustainably increase their productivity using proprietary algorithms and predictive analytics to enhance technical tools sold to farmers.

[View source.]

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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