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Posts Tagged: "economic espionage"

The China Initiative: Combating Economic Espionage and Trade Secret Exfiltration

Open innovation is a key ingredient to the development of valuable intellectual property. Research institutions, universities, and private businesses work in close collaboration with one another, sharing confidential business information, processes, and trade secrets in order to create content. But while open innovation is a boon to creativity it is also a vulnerable entry point for bad actors to exploit the open and collaborative mindset of research-focused institutions (like universities) or the faith in contractual confidentiality obligations that many companies rely upon to conduct business. Several recent U.S. government findings have placed the blame for some of the most significant threats to domestic intellectual property at bad actors in the People’s Republic of China. A report by U.S. Trade Representative Robert Lighthizer found that Chinese sponsorship of hacking into American businesses and commercial networks has been taking place for more than a decade and posed a significant threat to our nation’s economic prosperity and competitiveness.

The Blades Just Keep Spinning

Sinovel encouraged him to leave AMSC, promising to pay him a million dollars over five years (along with an apartment, and, reportedly, a prostitute). His advance was only 15,000 euros, but it did the trick. Karabasevic resigned, but his supervisor asked him to stay on for a while, with full access to the company’s systems. This allowed him time to create a bootleg version of the AMSC controller software, and to transfer it to his future employer in China. This was the software that evaded the AMSC technicians’ diagnostic tools and allowed the windmills to keep turning when they should have turned off. It would be some months before the company learned about their former employee’s treachery, but in the meantime it had lost almost 90% of its revenue, shed a billion dollars in shareholder equity, and had to lay off 700 employees.

House Permanent Select Committee on Intelligence Holds Hearing on China’s Threat to U.S. Innovation Leadership

On the morning of Thursday, July 19th, the House Permanent Select Committee on Intelligence held a hearing titled China’s Threat to American Government and Private Sector Research and Innovation Leadership. The day’s hearing was dedicated to discuss strategies, both legal and illicit, which are employed by the Chinese government and designed to gain a competitive advantage over the United States.

Was America’s Industrial Revolution Based on Trade Secret Theft?

Is it reasonable to say that the U.S. got an unfair head start on the Industrial Revolution by stealing secrets from Britain? I don’t think so. Industrial espionage had been practiced in Europe throughout the 18th Century, with the British and French particularly active, even using diplomats to get access to valuable commercial information. Moreover, Britain, like some other European countries, frequently granted “patents of importation,” which didn’t require the applicant to be an inventor, if the invention was new within the country’s borders. In this way, governments regularly encouraged people to “steal” ideas from abroad and bring them home. This opportunistic behavior by nations was seen as acceptable only because of the mercantilist attitude of the time, where national interest was all that mattered. It would be another hundred years before international treaties were established to guarantee respect for foreign intellectual property laws, creating the more integrated environment for IP that promotes global commerce today.

Available Remedies under the DTSA

The DTSA amends the Economic Espionage Act of 1996 (“EEA”) to provide for civil remedies in federal courts for the misappropriation of trade secrets. The new Section 1836(b) provides for both equitable and monetary relief. Subsection 1836(b)(3) authorizes a federal court to grant an injunction to prevent actual or threatened misappropriation of trade secrets. The language is identical to § 2 of the Uniform Trade Secrets Act (“UTSA”). However, there are a number of limitations as to when a court may issue an injunction under the DTSA. First, the injunction may not “(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows ….” Section 1836(b)(3)(A)(i)(I).

President Obama Signs Federal Defend Trade Secrets Act

The DTSA amends the federal Economic Espionage Act of 1996 to create, for the first time, a federal civil remedy for the misappropriation of trade secrets. This new law provides a clear path to enforce trade secret rights in federal court. Proponents of the DTSA argue that this will lead to more uniformity and predictability in applicable standards. However, that remains to be seen. The DTSA does not preempt any existing state laws governing trade secret enforcement. Accordingly, to the extent that state laws differ from each other and the DTSA, the differences will likely persist despite the new federal scheme.

It’s Time for Congress to Start Protecting Trade Secrets

While trade secrets have become more important, advances in electronics like flash drives and smartphones have made data theft almost infinitely easier and faster. And unlike the threats of a generation ago, when trade secret theft typically benefited a local competitor, globalization of business means that today’s insiders often steal on behalf of companies located in other states or countries.

Federal Trade Secret Legislation Would Strengthen U.S. Economy and Promote the Rule of Law

In a 2014 Heritage Foundation Legal Memorandum, I highlighted the growing problem of trade secret misappropriation faced by American business, and explained that an appropriately crafted federal law would help American victims recover damages for theft of their trade secrets, make it easier to stop thieves before they leave the country, and thereby strengthen the American economy, without undermining federalism.…