More on the China Connection with Economic Espionage in the U.S.

In a follow up to our June post concerning an economic espionage case in which trade secrets of NetLogic Microsystems, Inc. were stolen, a story from Bloomberg concerning a superseding indictment.

The indictment claims that Lan Lee, 42, of Palo Alto, California, and Yuefei Ge, 34, of San Jose, California, planned to use the stolen trade secrets to garner venture-capital funding from the government of China for a company they formed.

According to an announcement from the U.S. Attorney's Office in San Francisco, Lee and Ge allegedly stole secrets from NetLogic Microsystems Inc., a Mountain View, California-based computer chip design company, and Taiwan Semiconductor Manufacturing Co., a Taiwan company with offices in San Jose. They sought funding from a program in China's General Armaments Department and a Chinese government program created to develop communications and laser technologies for the military.

Magic and Trade Secrets

From the Economist, an interesting story about how magicians protect the trade secrets of their magic tricks without resort to the law.

Apparently, the issue is attracting some academic interest among those in the so-called IP "negative space" which, in addition to magic, includes fashion and haute cuisine.

Yale Law School professor Jacob Loshin has an article on the subject. (The link is here.)

Part of the secret of doing it without law: magicians have developed a "unique set of informal norms and sanctions for violators."

Don’t Plot Against Your Soon-To-Be Former Employer on Your Work Computer

An interesting lesson arises from a new opinion in a trade secrets case from the Supreme Court of Virginia, Banks v. Mario Industries of Virginia, Inc., 2007 WL 2683509 (Va. Sept. 14, 2007).

The scenario was the usual one, an employee leaves his employer, Mario Industries, and goes into competition. Just prior to leaving though, he prepared a confidential pre-resignation memorandum for the purpose of seeking legal advice from his lawyer. The rub is he did it on his Mario computer.

According to the court, “[p]ursuant to Mario's employee handbook, Mario permitted employees to use their work computers for personal business. However, Mario's employee handbook provided that there was no expectation of privacy regarding Mario's computers. Cook created the pre-resignation memorandum on a work computer located at Mario's office. Cook printed the document from this computer, and Cook sent it to his attorney for the purposes of seeking legal advice. Cook then deleted the document from the computer. Mario's forensic computer expert, however, retrieved the document from the computer's hard drive.”

The court held this wasn’t privileged based on its earlier ruling in Clagett v. Commonwealth, 472 S.E.2d 263 (Va. 1996), that “the [attorney-client] privilege is waived where the communication takes place under circumstances such that persons outside the privilege can overhear what is said.”

Therefore, the fact that it could be retrieved, meant that it was no longer privileged (and thus properly admitted into evidence).

The lesson: use your home computer for communications with your counsel.

(By the way, this earlier post links to a case from last year where the federal court in the Eastern District of New York ruled just the other way.)

Trade Secrets in Formula One -- A $100 Million Fine

A review of these pages might give some the impression that stealing trade secrets often doesn't receive the punishment it deserves. Well, not always.

From the New York Times, a story, following up on our earlier story from May, concerning the big trade secrets scandal in Formula One Racing.

The lede: "McLaren Mercedes, the leading team in the Formula One championship, was fined $100 million on Thursday and excluded from the constructors’ title in the spying scandal that has plagued the sport all season."

The International Automobile Federation, the governing body of formula, found the McLaren guilty of cheating by using trade secrets in the form of data obtained from Ferrari, its main rival, to improve its own car.

Not surprisingly, this is the harshest punishment given in 57 years of Formula One racing. It also indicates that there's big, big money in this sport.

New Zealand Points Finger (Sort Of) At China For Stealing State Secrets - China Responds "We're Getting Ripped Off Too"

The New Zealand Herald is reporting that Prime Minister Helen Clark moved yesterday to deflect finger-pointing away from China after an admission by New Zealand spymaster Warren Tucker that foreign Governments had hacked into state computer systems in this country.

China itself cried foul yesterday, claiming it was the victim of massive losses of state and military secrets through internet spying.

Mr Tucker made the admission in an interview last week in the context of reports linking China to hacking of Government computers in the US, Britain, Germany and Canada.

US President George W. Bush hinted that he was going to raise the issue with Chinese President Hu Jintao at Apec in Sydney last week but did not directly accuse China.

Mr Tucker is the director of the Security Intelligence Service and the former director of the Government Communications Security Bureau, which is New Zealand's international intelligence gathering agency, and protector of information.

Helen Clark said yesterday that she had not been given warning of what Mr Tucker had been going to say but was "quite relaxed about it".

She has said no classified information has been stolen but she refuses to identify nations suspected or departments targeted.

It is understood there is no connection to the free trade agreement negotiations with China.

Green MP Keith Locke asked in Parliament if the talks could continue "if the Chinese Government is hacking into our computers and stealing information relevant to our bargaining position".

Helen Clark said: "The New Zealand Government has made no such allegation about China."

Trade Minister Phil Goff yesterday played down any suggestion that information sensitive to the free trade negotiations has been hacked.

"All Governments anticipate that other parties will try to break into their security systems and trade systems," he said.

"I have no particular target in mind when I talk about that."

He suggested there would not be much point in hacking over trade negotiations.

Meanwhile, Reuters reported China's Vice-Minister of Information Industry, Lou Qinjian, as saying China had suffered "massive" and "shocking" losses of state and military secrets through the internet.

A Chinese Embassy spokesman referred the Herald to comments made last week by a Foreign Ministry spokesman when asked about hacking in Germany which said: "The Chinese Government has always opposed and forbidden any criminal acts under-mining computer systems including hacking. Hacking is an international issue and China is a frequent victim."

WHAT THEY SAID"All Governments anticipate that other parties will try to break into their security systems and trade systems - I have no particular target in mind when I talk about that." Trade Minister Phil Goff

"The Chinese Government has always opposed and forbidden any criminal acts undermining computer systems including hacking." a Chinese Foreign Ministry spokesman

Oracle v. SAP Trade Secrets Case Could Be Headed Towards Settlement

CNNMoney.com is reporting that German software giant SAP AG (SAP) and rival Oracle Corp. (ORCL) have once again postponed a crucial meeting with the judge overseeing a lawsuit alleging SAP stole thousands of Oracle's trade secrets.

By pushing back their case-management conference for another two weeks, both sides are dropping broad hints that a possible settlement of the lawsuit is in the works. At the very least, the delay provides even more time to craft such a deal.

The case-management conference is now scheduled for Sept. 25. The official reason for the latest delay, according to court papers, was a scheduling conflict among one of the more than dozen attorneys involved in the case.

The meeting to take place on Tuesday had been rescheduled from last week.

A spokesman for SAP couldn't be reached Tuesday for comment, while an Oracle spokeswoman didn't immediately return a phone message seeking comment.

According to the suit filed in U.S. District Court in San Francisco, SAP's Texas-based customer support unit known as TomorrowNow illegally downloaded thousands of Oracle software programs in late 2006 and early 2007.

"This storehouse of stolen Oracle intellectual property enables SAP to offer cut rate support services to customers that use Oracle software," Oracle alleges in the suit.

In comments made after the suit was filed, Henning Kagermann, SAP's chief executive, said "we regret very much" the incident occurred.

"Even a single inappropriate download is unacceptable from my perspective," he said.

Arabs Focus on Intellectual Property Protections

This just out from Amman, Jordan - "the Arab Society for Intellectual Property (ASIP) announced on Monday that it will be holding the exam for the "Patents of Inventions and Trade Secrets" course within the Arab Certified Intellectual Property Practitioner (ACIPP) program on September 25, 2007 at Talal Abu-Ghazaleh College of Business/German University.

The program is comprised of four courses:

Module 1: Introduction to Intellectual Property Module 2: Trademarks and Unfair Competition Module 3: Copyrights and Related Rights Module 4: Patents of Inventions and Trade Secrets

Upon the completion of each course, students will sit for a final examination. Upon successful passing of the examination, they will receive a certificate. When a student passes final examinations in the Modules, s/he will be granted the full Arab Certified Intellectual Property Practitioner Certificate."

If this isn't proof that trade secret protection and the need for it is recognized in even the most economically troubled environs, nothing is.

Cogent Systems and Northrop Grumman Settle Fingerprint Identification Software Trade Secrets Case

CNN Money.com is reporting that Cogent Systems and Northrop Grumman Corporation today announced that they have reached an agreement to settle Cogent's lawsuit against Northrop Grumman regarding Cogent's automated fingerprint identification technology. The agreement is subject to negotiation and execution of definitive documents.

Under the terms of the agreement, Northrop Grumman has agreed to pay Cogent $25 million to settle the litigation. Northrop Grumman also has agreed to pay Cogent $15 million for a non-exclusive license to use specified Cogent state-of-the-art automated fingerprint identification software in certain existing programs, including IDENT1. Northrop Grumman and Cogent also have agreed to enter into a five-year research and development, service and products agreement, under which Northrop Grumman will pay Cogent $20 million for products and services over the term of the agreement. Northrop Grumman does not expect the terms of the settlement to have an impact on its guidance for 2007.

This settlement will end the litigation and allow the companies to work together as strategic alliance partners to provide future customers with state-of-the-art fingerprint identification technology and other biometric solutions.

Cogent filed suit in 2005 alleging that Northrop Grumman had misappropriated its proprietary technology and trade secrets for automated fingerprint identification software for use on the IDENT 1 contract with the British Police Information Technology Organisation, and its successor the National Policing Improvement Agency.

Breathalyzer Trade Secrets

We're posting this one because we still get hits on this old story from December 2005 concerning defense lawyers seeking to obtain the source code for breathalyzers used to convict their clients in drunk driving cases.

From Slashdot, a story that reports that New Jersey attorney Evan M. Levow has gotten an order from the Supreme Court of New Jersey forcing the manufacturer of the popular Draeger AlcoTest 7110 to reveal its source code.

Levow then turned the code over to experts, Base One Technologies, to analyze. According to the story, Base One found that, contrary to Draeger's protestations that the code was proprietary, the code consisted mostly of general algorithms.

In other words, according to the story, "the trade secrets claim which manufacturers were hiding behind was completely without merit."

At the same time these developments are occurring in New Jersey, Slashdot reports that Minnesota missed a deadline to turn over source code from another breathalyzer.

Trade Secrets and the Headhunters

From SFGate.com, a story about federal criminal charges brought in connection with the theft of trade secrets from executive recruiting firm, Korn/Ferry International.

Two former Korn/Ferry executives used the services of an administrative assistant within the company to run searches on clients and job candidates. The three have been charged in U.S. District Court in San Francisco with "conspiracy to misappropriate, receive, possess and transmit trade secrets, gain unauthorized access to a protected computer, exceeding authorized access to a protected computer, and unauthorized password use."

This type of "insider/outsider" conspiracy -- not unlike the Coca-Cola trade secrets case -- may be becoming more prevalent.

The key to a successful prosecution will be good and clear policies that will support claims under the Computer Fraud & Abuse Act.