Photo of Kate M. Growley, CIPP/G, CIPP/US

Last week, government contractor Advanced Fluid Systems Inc. wrapped up its summary judgment briefing in a case loaded with trade secrets trends.  In June, Advanced sought summary judgment in the Middle District of Pennsylvania on its claims for misappropriation of trade secrets, and aiding and abetting breach of fiduciary duty.  Advanced had sued a former employee, the company that the employee then founded, and another rival firm – arguing that the defendants had teamed up to steal and exploit Advanced’s proprietary designs for hydraulic systems.  According to Advanced, the result was a $2 million subcontract for work at a NASA launch site, which went to the employee’s new company instead of Advanced.

At the heart of Advanced’s allegations is the charge that, while still working at Advanced, the former employee downloaded “virtually all files” from Advanced’s servers, including sensitive drawings regarding its hydraulic technology.  Advanced argued that, just days later, the employee’s start-up company began attaching its name to some of those drawings and ultimately submitted them as part of their bid on the subcontract.

Whatever the court’s determination on the briefs, the underlying fact pattern is an all too common one.  The case highlights the need to remain ever-vigilant with respect to those employees who have access to a company’s crown jewels, as well as the potential benefits of data loss prevention (or “DLP”) technology.

On Friday, September 9, the U.S. Chamber of Commerce urged the Obama Administration to take more action against the theft of trade secrets and other intellectual property.  The Chamber did so in response to a Request for Information issued by the National Institute of Standards and Technology (NIST), seeking industry input regarding various cybersecurity issues, including the economic consequences of hacking.

The Chamber explained that “IP-related industries generate 35 percent of America’s economic output and are responsible for two-thirds of all exports and more than 40 million jobs” and that the “threat of trade secrets theft is of increasing concern to U.S. economic well-being and job creation.”  Noting that it had previously called on Congress to pass federal civil legislation, it praised the passage of the Defend Trade Secrets Act as a step in the right direction.

Underlying the Chamber’s emphasis on trade secrets protection was its broader goal of establishing norms and deterrence to “heighten the costs on sophisticated attackers that would willfully hack America’s private sector for illicit purposes.”  This was one of only three “top” cybersecurity issues that the Chamber chose to address, along with standards and information sharing, and that it urged the executive branch to prioritize.

These and other comments submitted will help inform the new Commission on Enhancing National Cybersecurity, which President Obama recently convened.  The Commission will then craft recommendations to the President for improving cybersecurity – and possibly trade secrets protection – across the public and private sectors.

The recent arrests of Chinese nationals for alleged economic espionage are raising eyebrows across American industries, who are rightfully asking how they can protect themselves from becoming the next foreign target. U.S. universities have been key figures in these headlines. The risk of economic espionage is a serious one for higher education because universities are often in the position of balancing open and collaborative research goals with tight government restrictions on data use. But for those universities contracting with the U.S. government, compliance with its information security regulations is often not optional.

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