Articles Posted in Trade Secrets

A U.S. Department of Commerce report estimated that more than 27 million American workers were employed in “IP-intensive industries” in 2010. Another nearly 13 million jobs were connected to the industries indirectly. The figures highlight the dependency U.S. businesses have on a 40 million member work force to keep trade secrets confidential.

Trade secrets’ vulnerability is alive and well, even when you have full confidence in a trusted staff. After all, times and work situations change.

What if a competitor lures away a top executive or a group of highly-skilled employees? What if some of your employees decide they’d like to start their own companies, competing with what you do? Technology makes it easy for secrets of your operation to follow them.

New Los Angeles companies have multiple hurdles to overcome before they turn a profit. Limited financial resources deprive companies of power and leave little room for mistakes. Technology start-ups are especially vulnerable, since some competitors are enormous companies with seemingly-bottomless pockets.

A California case against Google, claiming the tech king swiped trade secrets for Google Plus Hangouts, was dealt a severe blow. Be In, the company that invented a video chat feature called CamUp, argued Google introduced a nearly “identical” feature on Google Plus mere months after the companies met to talk about a collaborative effort.

The judge shot down several of Be In’s claims, although kept the door open for future litigation.

No California business wants an ex-employee to profit from confidential company information known as trade secrets. At the same time, former employees feel strangled by forced non-compete agreements that prevent them from working in a chosen career or launching a business of their own.

Non-compete contracts stipulate an employee cannot leave a company to work for a competitor within a certain distance for a set time. The agreements are a condition of employment. A typical contract may forbid an ex-employee from heading to or becoming a direct competitor within a 50 mile or greater radius for up to one year.

California is an exception among states where non-compete contracts are regularly enforced. Judges more often than not rule that California non-compete agreements are invalid. That makes sense for a state with a business philosophy that encourages entrepreneurship.

In the not-so-very distant past, intellectual property lawsuits over the theft of confidential business information involved physical evidence like voluminous paperwork. Today’s technology allows trade secret thieves to download digital documents into external storage devices that can be hidden in the palm of a hand.

Trade secret theft has become easier in the last several years, which places a greater burden on California businesses to protect private property. Motives for theft have also shifted from extortion and competitors’ jealousy to personal gain or supplying information to overseas sources.

Last spring, a Chinese-born woman was sentenced to a 70-month federal prison term for lifting military-related secrets from the files of L-3 Communications. The same defendant had been convicted of stealing and selling inside information from drug maker Sanofi-Aventis through a Chinese company she co-owned.

Alleged corporate betrayal is at the heart of a lawsuit filed by a California game chip maker against five former employees. Advanced Micro Devices Inc. claims the defendants downloaded company trade secrets before resigning and then lured former coworkers to join them at competitor Nvidia Corp.

The employees were only partially successful in getting a federal judge to dismiss the trade secrets lawsuit. The court recently dropped charges of unfair competition but refused to toss out allegations of breach of contract and trade secret misappropriation.

Breach of contract charges refers to nondisclosure agreements between employers and their workers.

Employee theft in California businesses has reached a level beyond stealing a stapler from the supply closet. The Computer Security Institute estimates that a one-time security breach in an online business can cost between $600,000 and $7 million a day.

Customer lists, intellectual recipes, financial data, trade secrets and expansion plans fall into the hands of hackers, many of whom double as trusted employees. Security professionals say one-time-only, insider hack attacks swipe about 10,000 pieces of confidential information. External hackers get away with a lot less sensitive material than that.

No organization is entirely immune from theft. Wireless giant Verizon admitted one-fifth of its security hacks were perpetrated by people within the company. Businesses are responding to theft by securing as many open doors to intellectual property as possible, starting with the hiring process.

Four former employees of Advanced Micro Devices Inc. are being sued for stealing company secrets and soliciting other employees to jump ship for Nvidia Corp. The trade secrets dispute filed by the California PC processor and chipset manufacturer says the workers spent their last days at AMD downloading 100,000 “sensitive” files.

The defendants worked together at an Advanced Micro Devices facility on the East Coast. The intellectual property complaint alleges three defendants transferred trade secrets. Some of the men reportedly engaged a fourth ex-employee to recruit AMD staff members to leave the company.

Advanced Micro claims the files transferred to storage devices contained company strategies for the development of new processes and products. The files also included licensing contracts and detailed technical information that would be invaluable to its competitor Nvidia.

Start-up companies often don’t challenge market giants. Other than the risk of losing a trade secret or other intellectual property dispute, struggling companies fear the costs involved. Small companies sometimes muster the backing and determination to do battle anyway.

California company TechForward — which failed to stay afloat and was sold in 2012 — was not a long-standing or profitable company when it decided to take on electronics retail giant Best Buy. Yet the company scored a multi-million dollar victory in a trade secrets dispute.

Best Buy was recently ordered to pay damages totaling $27 million for swiping software secrets the retailer used in an ill-fated “Guaranteed Buyback” program. TechForward received a $22 million award. The rest of the damages were punitive to deter the company and others like it from ever stealing trade secrets again.

Is Zynga headed toward game over? The value of the social media game-designing company has plummeted since 2011. During the same time, the company was accused of insider trading and later sued by Electronic Arts Inc. over the similarity between Zynga’s The Ville game series and EA’s Sims Social. The copyright infringement suit is just one of many against Zynga.

Now Zynga is proactively trying to protect its interests, claiming a former executive who was once in charge of the popular game CityVille took trade secrets with him when he left the company in August. The filing in a state court in San Francisco accuses the ex-general manager of trade secret theft.

The lawsuit alleges the executive, now working for game-making rival Kixeye, sent hundreds of Zynga documents to a file-sharing account within days of leaving the company. The documents included revenue figures, more than one year of company emails, “historic and future monetization plans” and confidential game development ideas for CityVille. Also reported missing was Zynga’s data used to identify games that are expected to do well with users.

A former Motorola Inc. software engineer was sentenced to a four-year federal prison term recently. She was convicted of swiping confidential Motorola information for a telecommunications firm linked to the Chinese government. The court hoped the sentence would be a deterrent for trade secret thieves in California and throughout the country.

The court threw out charges that the naturalized U.S. citizen was guilty of spying for the Chinese government. Intercepted trade secrets the Motorola worker tried to sneak on board an outbound international flight in 2007 were destined for Sun Kaisens, a Chinese military product manufacturer.

The engineer’s defense attorney hoped the client would receive probation. The lawyer tried to convince the court that the employee copied the cellphone data for a good reason. The worker had just come off a lengthy medical leave and was “refreshing” her company knowledge.