The United States District Court for the Northern District of Illinois recently unsealed a December 13, 2017 indictment of Chinese national, Xudong “William” Yao, who was charged with nine counts of trade secret theft. The charges stem from Yao’s theft of more than 3,000 files between September 2014 and February 2015, including trade secret information such as source code and technical specifications, from an unnamed suburban Chicago locomotive manufacturer. The stolen documents generally pertain to the Illinois manufacturer’s train control systems. According to the indictment, Yao began downloading files just two weeks after beginning his employment with the Illinois company and continued to download files while simultaneously negotiating for and accepting a job with a Chinese “provider of automotive telematics service systems.” He began working for the Chinese company several months after being fired from the Illinois company for reasons unrelated to the theft of documents, and Yao’s employer did not discover the theft until sometime later.
Yao, who is on the FBI’s “most wanted” list, remains at large and is believed to reside in China.
This case is a good reminder that not only does trade secret theft give rise to potential civil liability, it also could give rise to criminal prosecution by the Department of Justice under the Economic Espionage Act (18 U.S.C. § 1831 et seq.), providing additional avenues for vindicating the rights of victims of trade secret theft. Trade secret is broadly defined under the Act, as it is under the DTSA, 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 if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
The Espionage Act provides that anyone “with intent to convert a trade secret, that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof” shall be fined, imprisoned up to 10 years, or both. In addition, any organization that commits any offense resulting in the theft of trade secrets—or conspires with another to do so—shall be fined up to $5 million or three times the value of the trade secret to the organization benefitting from the stolen trade secrets. (Much like civil damages, criminal fines under the statute expressly include the avoided research and design costs.) Trade secret theft that is intended to benefit any foreign government, foreign instrumentality, or foreign agent is punishable by a fine up to $5 million and up to 15 years imprisonment, or both.
Companies facing the harsh reality that their trade secret information has been misappropriated by a current or former employee and provided to a competitor should report the theft to federal law enforcement in order to improve the chances of bringing the wrongdoers to justice. At a minimum, investigation by law enforcement may reveal information helpful to a civil lawsuit, and successful prosecution could financially punish competitors that accept (and use) misappropriated information. Given the U.S.’s currently firm stance against infringement of intellectual property rights by foreign entities, federal law enforcement agencies are likely motivated to take serious and investigate these matters.