The Federal Bureau of Investigation (FBI) estimates that every year billions of U.S. dollars are lost to foreign and domestic competitors through corporate espionage leading to the theft of valuable trade secrets. Resources from the top levels of the U.S. government are focusing on this growing problem. Last year the White House issued a report outlining a new strategic plan to combat trade secret theft from U.S. businesses, stating that “[t]rade secret theft threatens American businesses, undermines national security, and places the security of the U.S. economy in jeopardy.”

Just who are these thieves that are compromising U.S. trade secret assets? According to the FBI, in many instances they are not outsiders but instead are corporate employees working within companies that have been targeted and compromised by outsiders. It is imperative that U.S. companies understand how the theft of intellectual property assets routinely occurs and have knowledge of the laws, resources and processes that are available to protect and defend against the theft.

Recent criminal trade secret investigations and cases

The methods used to compromise U.S. trade secret assets are broad and varied, but the cases and investigations do reveal a few common denominators, making a summary of these cases instructive.

In some reported instances, for example, the criminal conduct of corporate employees or their accomplices was exposed as they went through examinations by U.S. Customs entering or leaving the U.S. The stolen trade secrets were often captured on a portable electronic device such as an external hard drive or laptop. The implicated employee may be traveling to high-risk countries during employment and, at times, downloading massive amounts of data from company systems before or after the travel.

A recent case involving theft from telecommunications corporation Motorola further illustrates these points. In February 2007, former Motorola software engineer Hanjuan Jin walked on the jet bridge to board a flight to Beijing from Chicago’s O’Hare International Airport. She had a one-way ticket and was scheduled to begin a new job with another telecommunications company in China. A U.S. Customs officer stopped her as part of a random check of passengers. A search revealed that Jin was carrying $30,000 in cash in her laptop bag and her carry-on bags contained Motorola documents considered proprietary cellular telecommunications technology and marked “confidential and proprietary information.”

Jin was later prosecuted by the federal prosecutors for theft of Motorola’s trade secrets and violation of the Economic Espionage Act (EEA), an important federal criminal statute that prohibits the misappropriation of trade secrets. In a bench trial, she was convicted of theft of trade secrets and acquitted of the EEA charges. While the judge concluded that there was insufficient evidence to conclude that Jin’s theft intended to benefit the Chinese government, he found that the evidence in this regard was compelling enough to enhance her prison term. At sentencing, he concluded that under the applicable U.S. Sentencing Guidelines, her conduct not only involved “misappropriation of a trade secret,” it further involved an intent to benefit a foreign government, foreign instrumentality, or foreign agent.” Jin received a four-year sentence, reported to be one of the harshest ever levied in a trade secret theft case.

Early last year, federal prosecutors indicted Sinovel Wind Group Co., a manufacturer and exporter of wind turbines based in the People’s Republic of China for theft of trade secrets from its former U.S. supplier American Semiconductor Corp (ASC). The indictment, which charges the company with criminal conspiracy, trade secret theft and wire fraud, alleges that Sinovel, through two of its executives, recruited an ASC employee to leave ASC and join Sinovel, and to secretly copy intellectual property from the ASC computer system. This case further illustrates the point that often the point of compromise of an employee comes from outside of the company.

The case was investigated as part of the Department of Justice Task Force on Intellectual Property (IP Task Force). In announcing the indictment in the Sinovel case, FBI Executive Assistant Director Richard McFeely stated this case “is a classic example of the growing insider threat facing our nation’s corporations and their intellectual property.” An equally important message delivered by McFeely was that, “[t]he FBI will not stand by and watch the hemorrhage of U.S. intellectual property to foreign countries who seek to gain an unfair advantage for their military and their industries. We are actively working with our private sector and government partners to disrupt and impact those who have made it their mission to steal US military and corporate secrets. Since 2008, our economic espionage arrests have doubled; indictments have increased five-fold; and convictions have risen eight-fold.”

The Economic Espionage Act was used by federal prosecutors in both the Jin and Sinovel cases. The EEA outlaws two categories of trade secret theft: theft for the benefit of a foreign entity (economic espionage) and theft for pecuniary gain (theft of trade secrets). To qualify as a “trade secret” under the EEA, the owner of the secret must have “taken reasonable measures to keep such information secret.” Whether an owner has taken reasonable measures to ensure the secrecy of his or her trade information will depend upon the circumstances of the case. However, at a minimum, these measures should include limiting access to the information and notifying employees of its confidential nature. These simple but necessary security measures are also crucial to preventing the theft of secrets in the first place.

Of course, prevention will not always be possible. In Jin, the district court concluded that Motorola’s “multi-pronged approach to security — controlled and monitored physical access to Motorola facilities, limited access to the Motorola computer network and Motorola network equipment, a specific policy for the protection of proprietary information, and confidentiality agreements and trainings for Motorola employees — was a reasonable way to maintain the secrecy of the information.” Yet Jin, as noted above, was able to circumvent these precautions.

Just as trade secret theft and corporate espionage have certain fact patterns that tend to come up again and again, so do the actions of companies that often succeed in combating these challenges. These companies regularly evaluate the compliance controls in place, and also remain poised to respond immediately in the event a trade secret theft occurs.

*Note: Specific tips for prevention and response will be offered in a follow-up article by these authors, to be published in May.