A new indictment alleging misappropriation of U.S. oil and gas trade secrets by a Chinese energy company, its U.S.-based affiliate, and an executive is another example in a recent string of prosecutions for trade secrets theft involving China, a topic that we have covered on the blog here.
United Microelectronics Corporation, Inc. (“UMC”), a Taiwanese semiconductor foundry and the world’s fourth largest contract chipmaker, pleaded guilty on October 28, 2020, to criminal trade secret theft, will pay a $60 million fine – the second largest ever in a criminal trade secrets case – and will cooperate in the investigation and prosecution of its co-defendant, a Chinese state-owned enterprise.
A fundamental question in every trade secret misappropriation case is: what are the alleged trade secrets that are the subject of the claim? To assist parties and courts in answering this question, the Sedona Conference recently published Commentary on the Proper Identification of Asserted Trade Secrets in Misappropriation Cases (“Commentary”) which is available for download here.
The Commentary provides four guiding principles for identifying different types of asserted trade secrets:
- the identification of an asserted trade secrets during a lawsuit is not an adjudication of the merits or a substitute for discovery;
- the party claiming trade secret misappropriation should identify in writing the asserted trade secret at an early stage of the case;
- the party claiming the existence of a trade secret must identify the asserted trade secret at a level of particularity that is reasonable under the circumstances; and
- the identification of an asserted trade secret may be amended as the case proceeds.
Why litigate a case for months or years, only to arrive at a settlement that would have been possible before the case began? In many cases, neither litigant would choose this approach, but it happens quite often nonetheless. According to Lex Machina data, about 60% of trade secret cases filed in federal court in the last decade ended in either a voluntary (8%) or stipulated (52%) dismissal. Of course, many of these settlements were likely informed by discovery and the arguments made by the parties in court. But in other cases, resolutions probably could have been reached before both parties incurred unnecessary litigation expenses.
Under the California Uniform Trade Secrets Act (CUTSA), and many other states’ trade secret acts, a plaintiff must identify its alleged trade secrets as a prerequisite to conducting discovery. Cal. Civ. Code § 2019.210. The Ninth Circuit recently held that the Defend Trade Secrets Act (DTSA) also includes this requirement to identify alleged trade secrets with sufficient particularity. The Ninth Circuit was considering whether the U.S. District Court for the Central District of California had abused its discretion in granting summary judgment for a defendant on CUTSA and DTSA claims by finding that the plaintiff had not identified its trade secrets with sufficient particularity without any discovery. (Spoiler alert: It did.)
The U.S. government is continuing its endeavor of prosecuting individuals for the theft of U.S. trade secrets and for allegedly selling or bringing these trade secrets to China. The U.S. government is demonstrating that it considers the protection of trade secrets, particularly those used in national defense and other essential technology, to be a priority.
On October 1, 2020, the U.S. Attorney’s Office for the District of Massachusetts reported that Haoyang Yu, a U.S. citizen who was born in China, his wife Yanzhi Chen, and their company Tricon MMIC LLC, were charged in a 24-count indictment for the alleged theft of American trade secrets worth millions of dollars from Analog Devices. Analog Devices, which has its headquarters in Norwood, Massachusetts, is an international semiconductor company. Yu was charged in 2019 with stealing, downloading, and copying Analog Devices’ trade secrets. Now, he and his wife have been charged with possession and attempted possession of a trade secret; transporting stolen goods; smuggling; visa fraud; and procuring U.S. citizenship unlawfully. Continue Reading Chinese Individual Indicted for Alleged Trade Secret Theft from Semiconductor Company
Given the value of trade secrets in the global economy, businesses should always be on high alert for signs of misappropriation of trade secrets or other confidential information. COVID-19 has only increased the importance of doing so given employee mobility and a growing remote work force, which not surprisingly has spurred litigation by businesses attempting to protect trade secrets.
One recent example, CourtAlert.com (“CourtAlert”), a company offering case monitoring software for the legal industry, brought suit against a former employee and its competitor American LegalNet, Inc. (“ALN”) alleging trade secret misappropriation, unfair competition, and unjust enrichment among other claims. See CourtAlert.com, Inc. v. American LegalNet, Inc., No. 1:20-cv-07739 (S.D.N.Y.). Continue Reading Trade Secret Battle Waged in Legal Services Market
On October 2, 2020, a federal judge for the Central District of California denied a motion for a temporary restraining order (“TRO”) to enjoin the Discovery Channel from airing “The Lost Lincoln,” a documentary about an allegedly long-lost photograph of Abraham Lincoln on his deathbed. Only 130 photographs of Lincoln are known to exist.
Plaintiffs Jerry Spolar and Terry Williamson own the photograph, known as an ambrotype, and spent years researching and authenticating it. In 2018, they partnered with Whitny and James Braun to make a documentary about the photo and shared the details of their authentication efforts with the Brauns pursuant to non-disclosure agreements. The project fell through at first, but late last month, Plaintiffs learned that their former partners had created a documentary about the photograph for the Discovery Channel. Continue Reading Court Denies TRO in “The Lost Lincoln” Misappropriation Case
On September 14, 2020, China’s highest court, the Supreme People’s Court of the People’s Republic of China, released the “Opinions on Increasing Enforcement Against Intellectual Property Infringement According to Law” (关于依法加大知识产权侵权行为惩治力度的意见) (“Opinions”).
The Opinions cover four main areas: (1) Evidence Preservation, (2) Injunctions, (3) Monetary Relief, and (4) Criminal Enforcement
- Evidence Preservation
- Articles 1-4 cover evidence preservation. Evidence preservation is a measure taken by Chinese courts to investigate, collect, and preserve evidence when it may be destroyed or difficult to collect in the future. Article 2 directs courts to promptly review and decide an application for an injunction and an application for evidence preservation when a party applies for both. Article 4 allows courts to make inferences in favor of an intellectual property rights holder when the alleged infringer damages or transfers evidence subject to an evidence preservation order.
Recent United States Department of Justice (“DOJ”) indictments of Chinese hackers provide a reminder that trade secrets and other intellectual property stored on databases are attractive targets to bad actors. The DOJ announced that seven international defendants were charged in connection with computer intrusion campaigns impacting more than 100 victims in the United States and abroad.
The victims of the cyberattacks included software development companies, computer hardware manufacturers, telecommunications providers, social media companies, video game companies, non-profit organizations, universities, think tanks, and foreign governments. The hacking facilitated the theft of source code, software code signing certificates, customer account data, and other valuable business information. These cyberattacks also enabled the defendants’ other criminal schemes, including ransomware attacks and “crypto-jacking” schemes, which involve the unauthorized use of victim computers to “mine” cryptocurrency.