Industrial Espionage

The Short Arm of the Law: U.S. Problems Prosecuting Foreigners for Trade Secret Theft

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Revised post available here.

They say politics stops at the water’s edge. Increasingly, so does the power of the United States to thwart trade secret theft.

As the nation struggles to bolster its defenses against cyberattacks, recent cases have highlighted legal loopholes in prosecuting foreign-based companies and individuals for the theft of trade secrets. Defendants have grown adept at exploiting American procedural rules governing such things as service of process to stall prosecutions indefinitely.

Late last month, a federal grand jury in Wisconsin returned an indictment charging Sinovel Wind Group Co. and two of its executives with stealing trade secrets from American Superconductor Corp. (AMSC). Sinovel is China’s third-biggest maker of wind turbines, and until March 2011, AMSC supplied Sinovel with turbine-control software.

According to the indictment, Sinovel owed AMSC more than $100 million for delivered software, products, and services, and had contracted to buy another $700 million worth. But instead of paying its debts and making good on its orders, Sinovel and two of its executives plotted with a former AMSC employee to steal AMSC’s turbine-control source code and use it in Sinovel’s turbines. READ MORE →

Rubber Match? Resin Trade Secret Battle Results in a Multi-Jurisdictional Draw

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On the same day last week, two rival rubber resin companies issued press releases — each claiming legal victory in the same trade secret dispute.

SI Group, a developer of rubber resins and tackifiers, touted its “significant victory” over Sino Legend before the U.S. International Trade Commission.  On the same day, Sino Legend also claimed victory in a parallel Chinese action when the Shanghai No. 2 Intermediate People’s Court rejected SI’s claims concerning the same dispute.

SI ’s ITC complaint alleged that Sino Legend misappropriated SI’s secret manufacturing processes by poaching one of SI’s Shanghai-based employees, Xu Jie.  Xu was allegedly the only person at the plant who had access to the entirety of SI’s secret manufacturing processes.  Shortly after Xu’s departure from SI, Sino Legend began producing competing products.  SI accused Sino Legend of using SI’s secret processes and of filing patent applications that contained misappropriated Sino Legend information.

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Terror Tactics: Report Urges Government to Use Financial, Trade and Immigration Systems to Squeeze Theft of IP

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A new report on halting the theft of trade secrets and other intellectual property reads like a blueprint for fighting terrorism­—not surprising, given that it was co-authored by the nation’s former spy chief and a member of the 9/11 Commission.

On Wednesday, the Commission on the Theft of American Intellectual Property released its report detailing the scale and scope of the problem.  The Commission is an independent, bipartisan body made up of members from national security, foreign affairs, academia, politics and the private sector.  It is chaired by former director of national intelligence Dennis C. Blair and former U.S. Ambassador to China and ex-Utah Gov. Jon M. Huntsman Jr.  Its report is the product of an eleven-month study. 

The Commission’s report pulls no punches: it calls IP theft “one of the most pressing issues of economic and national security facing [the United States]” and singles out China as “the biggest IP offender in the world.”  Along with documenting patent, trademark, and copyright violations, the report dedicates a full chapter to trade secret theft.  Among its alarming findings:

  • In 2009, U.S. firms lost at least $1.1 billion from the misappropriation of trade secrets to China alone.  Russia is also an aggressive collector of sensitive U.S. economic information and technologies, especially in cyberspace.
  • In the past two years, an unprecedented number of cyberattacks have been perpetrated against major corporations, nonprofit institutions, and governments, with the majority of these attacks originating in China.  Our blog discussed the real lesson of Chinese cyberhacking earlier this month.
  • Cyberattacks are common, with some companies experiencing 72 successful attacks per week.  All sectors and all types of companies, large and small, are the targets of attacks.

Just as the 9/11 Commission reported the intelligence failings that led to the terrorist attacks,
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