Recent Criminal Prosecutions for Trade Secret Theft

Holland & Knight LLP

Holland & Knight LLP

Theft of trade secrets typically spurs civil actions against the offender, but theft of trade secrets can also be prosecuted criminally under the Economic Espionage Act, 18 U.S.C. § 1831 et seq. (the “Act”) and other related statutes. Several high-profile arrests, convictions, and indictments have come down in recent months highlighting the Department of Justice’s active enforcement in this area.

A former scientist with GlaxoSmithKline recently pled guilty to stealing proprietary company information regarding a developmental anti-cancer drug. Prosecutors alleged that the scientist planned to use the information to support her own pharmaceutical company, which was established in her native China with the support of Chinese government funds.

A former engineer of General Electric (GE) was arrested this summer by the FBI and charged with stealing information regarding GE’s turbines to benefit Chinese companies. The criminal complaint alleges that the engineer used steganography to hide data files in digital pictures, which he then emailed to himself. Steganography, the practice of concealing sensitive information within other non-secret text, images, or data, is one tactic employed by misappropriators.

In July, a federal jury found an electrical engineer guilty of stealing trade secrets from his former employer, a defense contractor who developed prototypes for the U.S. Navy. The jury convicted the engineer after hearing evidence that immediately prior to leaving his employment for a job with a competitor, he uploaded thousands of accounting, engineering, and design files to his personal Dropbox account.

Also in July, a manufacturer of wind turbines was sentenced for its role in the theft of proprietary wind turbine technology from a supplier. The jury heard evidence that the defendants conspired to obtain copyrighted information and trade secrets from its supplier in order to make and retrofit its own wind turbines without having to pay the supplier for the same information and services.

Earlier this year, a Chinese national was sentenced to five years in prison following an undercover operation by the FBI that exposed his theft of proprietary software and source code. The former employee told undercover agents that he could take steps to prevent anyone from learning the code had been stolen by developing computer scripts to conceal the origin of the proprietary source code.

The Act makes it a crime to steal trade secrets or obtain trade secrets knowing them to have been stolen. 18 U.S.C. § 1831(a). The Act broadly defines trade secrets to include

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing

provided that the owner takes “reasonable measures to keep such information secret” and the continued secrecy of the information has actual or potential “independent economic value.” 18 U.S.C. § 1839. Violators can be imprisoned and/or fined. Violators who intend to benefit a foreign government face higher penalties.

Companies victimized by trade secret theft, employees who are considering retaining proprietary information, or companies onboarding new employees who possess trade secrets of their former employer, should be mindful of the potential for criminal prosecution and the avenues available under the Act to protect secrets and enjoin further theft.

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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