BLOGS: Trade Secrets Blog

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Sunday, February 28, 2010, 2/28/2010 09:29:00 PM

Home Depot Trade Secrets Thief Sentenced to Four Months

By Todd

A Forsyth County, North Carolina man has been sentenced in connection with federal charges that he stole trade secrets from his former employer, Home Depot.

Guillermo Martinez, 47, was sentenced Wednesday to four months in federal prison and four months home confinement.Patrick Crosby, spokesman for the U.S. Attorney’s Office for the Northern District of Georgia, confirmed that U.S. District Judge Willis B. Hunt Jr. also ordered Martinez to serve three years probation and pay a $10,000 fine.

Martinez pleaded guilty in December to one count of stealing trade secrets from the company. According to a statement from the U.S. Attorney’s Office, in 2008, while working as a senior manager in product engineering for the home improvement retailer, Martinez provided a vendor with company trade secrets. “Specifically, Martinez gave out confidential and proprietary pricing information, including the price that the company was paying the vendor’s competitors for the products that the vendor wanted to sell to the company,” the statement said.

It goes on to say that Martinez gave the vendor documents submitted to Home Depot by competitors and that he was negotiating with the vendor for an employment agreement.

The FBI investigated the case.“Intellectual property-related cases are serious criminal cases with high dollar stakes,” said Greg Jones, FBI Atlanta special agent in charge. “The FBI understands the corporate concerns and the potential damages caused by such thefts and considers itself well suited to investigate and enforce these laws.”

Tuesday, February 23, 2010, 2/23/2010 09:09:00 AM

Average Trade Secrets Data Theft Costs $2 Million

From Business Week, a story relaying a report from Symantec that says its survey of 2,100 information-technology executives worldwide indicates that 75% of respondents reported cyber attacks last year. Most were aimed at stealing a company’s intellectual property, such as product designs.

Average cost: $2 million per attack.

Monday, February 22, 2010, 2/22/2010 10:17:00 AM

Federal Prosecutors in Starwood v. Hilton Criminal Investigation Ask Federal Civil Judge to Stop the Proceedings for Six Months

By Todd

We've been reporting about this high-level trade secret theft case, see here:

BusinessWeek is reporting that in a unique procedural move, the federal prosecutors investigating this matter as a crime have intervened and asked the federal judge assigned to the civil lawsuit to "stay" or suspend the civil proceeding.

The office of Manhattan U.S. Attorney Preet Bharara asked U.S. District Judge Stephen C. Robinson in White Plains, New York, to suspend the production of documentary evidence and the taking of depositions in the lawsuit. The motion was filed on February 19th.

“Shortly after the filing of Starwood’s complaint, the government initiated an investigation into these allegations,” Bharara’s office said in the filing.

A six-month stay of the exchange of evidence in the case would prevent the government’s investigation from being compromised by the more liberal rules controlling the flow of information in civil lawsuits, Bharara’s office said.

Hilton issued a statement in April acknowledging receipt of a federal grand jury subpoena concerning the Starwood claims, seeking documents related to the executives’ employment and to the materials they’re accused of taking.

Those materials were returned to Starwood last February, according to Hilton’s statement.

It is not common for the federal criminal prosecutors to seek such a stay. We'll keep an eye on this one for you.

Thursday, February 18, 2010, 2/18/2010 03:30:00 PM

Departing Employee from Bimbo Bakeries Told by Court to Cool His Jets

By Todd is reporting that in his 37-page opinion in Bimbo Bakeries USA Inc. v. Botticella, United States District Judge R. Barclay Surrick granted a preliminary injunction, ruling that Chris Botticella, a former senior vice president at Bimbo, cannot start to work for Hostess Inc. because his extensive knowledge of Bimbo's trade secrets makes it substantially likely, if not inevitable, that he would disclose Bimbo's secrets to Hostess.

According to court papers, Thomas' English Muffins generate about $500 million in annual sales for Bimbo, and there are three secrets for making their "nooks and crannies" texture -- the recipe, the engineering and the process. Most Bimbo employees know only one of the secrets, and Botticella was one of just seven people with knowledge of all three.

And as a senior vice president earning $250,000 plus bonuses, Botticella was in an elite group that had access to Bimbo's competitive planning, including product launch plans and strategies for cutting costs and securing lucrative contracts for store-brand products, Surrick found.
Surrick found that Botticella had continued to work for Bimbo for several months after accepting the Hostess post in October 2009, never telling his bosses of his imminent plans to quit as he continued to attend high-level strategy meetings.

Botticella also surreptitiously accessed highly sensitive documents on his final day of work at Bimbo, Surrick found, and a computer expert showed that an external drive had been connected to Botticella's laptop.

Botticella's attempts to explain his conduct were "simply not credible," Surrick found.
"Defendant's conduct before leaving Bimbo, in not disclosing to Bimbo his acceptance of a job offer from a direct competitor, remaining in a position to receive Bimbo's confidential and trade secret information and, in fact, receiving such information after committing to the Hostess job, and copying Bimbo's trade secret information from his work laptop onto external storage devices, demonstrates an intention to use Bimbo trade secrets during his intended employment with Hostess," Surrick wrote.

Wednesday, February 17, 2010, 2/17/2010 11:25:00 AM

Federal Judge Considers Whether Photographs of Goodyear Equipment Should Be Sealed from Public View

By Todd

It is common for documents and photographs and evidence to be filed "under seal" in court proceedings involving trade secrets matters. Reason is that the secrecy of the information or thing needs to be insured, even though the secrecy of that information or thing is actually being litigated in a court usually open to all.

This is the issue facing a federal judge in Knoxville, Tennessee in a case where two defendants are accused of surreptitiously photographing some Goodyear Tire equipment while they were in the Goodyear plant in Kansas, all for the purpose of stealing the information for competitive purposes. The federal prosecutors say some photographs need to be "sealed" such that the public can't see them. The defense attorneys say the photographs aren't pictures of trade secrets at all - that's what the trial is about. They are essentially arguing that the implication to the jury if the photos are "sealed" is that they DO actually constitute trade secrets and that's not fair to their clients' defense.

We'll report back if we learn the judge's ultimate decision.

Monday, February 15, 2010, 2/15/2010 07:36:00 AM

More on Investment Banking Algorithms – UBS Style

Following hard on the heels of the report concerning the indictment of the former Goldman Sachs trader, a brief report from Here is the City (a financial markets news aggregator), saying that Traders magazine is reporting that an arbitration case against three former UBS employees alleged to have stolen an algorithmic trading code has ruled in favor of the former employees.

According to the report:

UBS filed a suit against Sanjay Girdhar, Partha Sarkar and Jatin Suryawanshi which claimed that the three individuals misappropriated trade secrets when they left the firm to join Jefferies & Co last year, but a Financial Regulatory Authority (FINRA) panel has ruled that there is no case to answer.

Friday, February 12, 2010, 2/12/2010 11:46:00 AM

Former Goldman Sachs Computer Programmer Indicted for Theft of Trade Secrets

Updating this story from last July, the New York Times reports that former Goldman Sachs computer programmer, Sergey Aleynikov, has been indicted on charges that he stole trade secrets, specifically the proprietary software that Goldman Sachs uses to make rapid-fire trades in the financial markets.

If convicted, Aleynikov could face up to 25 years in prison, according to the the U.S. Attorney for the Southern District of New York.

Aleynikov left Goldman Sachs in 2009 to join Teza Technologies.

The Times reports that prosecutors say that Mr. Aleynikov, on his last day at Goldman, transferred substantial portions of Goldman’s code to an outside computer server in Germany.

Tuesday, February 09, 2010, 2/09/2010 11:47:00 AM

Former Boeing Employee, Dongfan Chung, Sentenced to More than 15 Years for Economic Espionage

By Todd

The Wall Street Journal is reporting that a Chinese-born engineer was sentenced Monday to more than 15 years in prison for hoarding sensitive information about the U.S. space shuttle that prosecutors say he intended to share with China.

The case against Dongfan "Greg" Chung was the U.S.'s first trial on economic-espionage charges.

The 74-year-old former Boeing Co. engineer was convicted in July of six counts of economic espionage and other federal charges for keeping 300,000 pages of sensitive papers in his home.
Before sentencing Mr. Chung, U.S. District Judge Cormac J. Carney said he didn't know exactly what information Mr. Chung passed to China. "But what I do know is what he did, and what he did pass, hurt our national security and it hurt Boeing," the judge said.

Judge Carney said Mr. Chung's scheme with the Chinese government spanned 30 years.
During brief remarks, Mr. Chung begged the judge to give him a lenient sentence. He spoke from a podium while wearing a tan prison jumpsuit with his hands cuffed to a belly chain.

"Your honor, I am not a spy, I am only an ordinary man," he said, adding that he had brought the Boeing documents home to write a book.

"Your honor, I love this country.…Your honor, I beg your pardon and let me live with my family peacefully."
Documents before the court including a letter in which Chung indicated a desire to contribute to the “motherland” and its “four modernizations” program.
(Launched by Deng Xiaoping in the 1970s, the program aimed to make China a great economic power by the early 21st century, focusing on advances in the military, technology, industry and agriculture fields. Court documents said the program involved “efforts to acquire scientific information and technology from the West.”)
In getting misappropriated information to the Chinese, Chung used methods such as mail and sea freight, as well as conduits including the Chinese consulate and Chi Mak.
He also visited China on numerous occasions, lecturing on space shuttle technology, and without reporting his travel or contacts with Chinese officials to his employers.

According to the trial judgment, he was advised to use cover stories for these visits, “such as traveling to Hong Kong, visiting relatives, or accompanying his wife to an arts academy” in China.
“The trust Boeing placed in Mr. Chung to safeguard its proprietary and trade secret information obviously meant very little to Mr. Chung,” Carney said when convicting him. “He cast it aside to serve the PRC [People’s Republic of China], which he proudly proclaimed as his ‘motherland.’”

Despite Mr. Chung's age, prosecutors requested a 20-year sentence, in part to send a message to other would-be spies.

But the judge said he couldn't put a value on the amount of information that Mr. Chung stole and couldn't determine exactly how much the breaches hurt Boeing and the nation. He also cited the engineer's age and frail health in going with a sentence of 15 years and eight months.

"It's very difficult having to make a decision where someone is going to have to spend the rest of their adult life in prison," Judge Carney said. "I take no comfort or satisfaction in that."

Assistant U.S. Attorney Greg Staples noted in sentencing papers that Mr. Chung amassed a personal wealth of more than $3 million while betraying his adopted country.

"The [People's Republic of China] is bent on stealing sensitive information from the United States and shows no sign of relenting," Mr. Staples wrote. "Only strong sentences offer any hope of dissuading others from helping the PRC get that technology."

Mr. Chung's attorney, Thomas Bienert Jr., has said his client will appeal.

The government accused Mr. Chung, a stress analyst with high-level clearance, of using his 30-year career at Boeing and Rockwell International to steal the documents. They said investigators found papers stacked throughout Mr. Chung's house that included sensitive information about a booster rocket fueling system—documents that employees were ordered to lock away at the end of each day. They said Boeing invested $50 million in the technology over a five-year period.

During the nonjury trial, Mr. Chung's lawyers argued that he may have violated Boeing policy by bringing the papers home, but he didn't break any laws by doing so, and the U.S. government couldn't prove he had given secret information to China.

In his ruling, Judge Carney wrote that the notion that Mr. Chung was merely a pack rat was "ludicrous" and said the evidence showed that he had been passing information to Chinese officials as a spy.

The government believes Mr. Chung began spying for the Chinese in the late 1970s, a few years after he became a naturalized U.S. citizen and was hired by Rockwell.

Mr. Chung worked for Rockwell until it was bought by Boeing in 1996. He stayed with the company until he was laid off in 2002, then was brought back a year later as a consultant. He was fired when the FBI began its investigation in 2006.

When agents searched Mr. Chung's house that year, they discovered more than 225,000 pages of documents on Boeing-developed aerospace and defense technologies, according to trial briefs.

The technologies dealt with a phased-array antenna being developed for radar and communications on the U.S. space shuttle and a $16 million fueling mechanism for the Delta IV booster rocket, used to launch manned space vehicles.

Agents also found documents on the C-17 Globemaster troop transport used by the U.S. Air Force and militaries in Britain, Australia and Canada—but the government later dropped charges related to those finds.

Prosecutors discovered Mr. Chung's activities while investigating another suspected Chinese spy living and working in Southern California.

That man, Chi Mak, was convicted in 2007 of conspiracy to export U.S. defense technology to China. He was sentenced to 24 years in prison.

Potential Problems in Trying Goodyear Trade Secrets Case

Following up on our earlier posting here, there’s a good story in the Knoxville News Sentinel about the difficulties of trying corporate espionage cases in court without revealing trade secrets. The article outlines the conceptual clash between the philosophy of open and public courtrooms (embodied, after all, in our Constitution) and the problem that victims of trade secrets theft won’t come forward if they fear that their trade secrets will be exposed at trial.

According to the story, prosecutors are at the trial of two engineers accused of improperly snapping seven photographs at a Goodyear facility have filed a motion to stop the public from seeing what’s in those pictures.

The case is scheduled for trial in late March.

Monday, February 08, 2010, 2/08/2010 09:11:00 AM

Liberty Mutual Sues Nine Departed Employees and Their New Employer for Trade Secret Theft

By Todd

The online magazine, Insurance Journal, is reporting that Liberty Mutual Insurance is suing nine former employees and their new employer, Bermuda-based Aspen Insurance Holdings, alleging they have plotted to steal professional liability insurance business from its Liberty International Underwriters unit.

The suit, filed Feb. 1 in New York County Supreme Court, says the workers and Aspen "unlawfully conspired (and continue to conspire) to breach duties of loyalty to Liberty, raid Liberty's business operations, and misappropriate Liberty's trade secrets and goodwill."

The Liberty suit alleges that the plot was planned and executed by senior employees at Liberty International Underwriters while they were still employed by Liberty. It claims Aspen induced these employees to steal confidential information that helped Aspen build an infrastructure necessary to run a successful professional liability insurance operation in direct competition with Liberty Mutual.

Liberty says all of the nine individuals quit between Jan. 14 and Jan. 20.

The complaint says Eisler and the others began communicating with Aspen in December, 2009 "to discuss the possibility of moving Liberty professional liability insurance business over to Aspen," and began using private email addresses and not their Liberty addresses to discuss the plan.

It says that Eisler met with Aspen Holdings U.S. division president William F. Murray to plan his resignation and solicited other LIU employees to come with him to Aspen. When he resigned from Liberty on Jan. 14, Eisler "said he was taking at least five other employees with him" and turned in resignation letters for Cunningham, Camara, Goodman, Herlands and Sifert, according to the complaint.

Within days, according to the complaint, Dufresne, Olivier and Nogaki also resigned from LIU.
"The en masse departure of nine key employees of LIU's professional liability insurance unit was clearly the result of Aspen's conspiracy with Eisler and/or the other individual defendants, who at the time were still employed by Liberty, to recruit the Liberty employees whom they supervised. The purpose of the conspiracy is clear: to move the necessary infrastructure for a successful professional liability insurance operation -- including personnel, confidential proprietary information and trade secrets -- from LIU to Aspen, so that Aspen, without expending the time and funds necessary to lawfully develop a competitive professional liability insurance business, could nonetheless compete against Liberty sooner than it would be able to otherwise, and at a time when Liberty's ability to compete would be weakened by the departure of key employees," the complaint continues.

This legal concept of "raiding" is common to the securities industry and it will be interesting to learn if developed New York law will recognize the alleged competitive unfairness of hiring a significant number of employees away, as opposed to one or two. We'll keep an eye on this one for you.

Friday, February 05, 2010, 2/05/2010 09:26:00 AM

Korean Authorities Arrest Many in Alleged Theft and Transfer of Samsung's Trade Secrets to Hynix

By Todd

The Wall Street Journal is reporting that the world's top producers of computer memory chips are embroiled in an alleged case of industrial espionage after South Korean prosecutors indicted 18 people over alleged technology theft.

Prosecutors said Thursday those involved — including employees of U.S. company Allied Materials and its South Korean unit — are suspected of leaking semiconductor technology belonging to South Korea's Samsung Electronics Co. to its domestic rival Hynix Semiconductor Inc.

Samsung and Hynix are the world's top two producers of dynamic random access memory, or DRAM, chips, used mostly in personal computers. Suwon, South Korea-based Samsung is also the world's biggest manufacturer of NAND flash chips, used in digital devices such as cameras, music players and smartphones. Hynix ranks No. 3 in NAND, behind Samsung and Japan's Toshiba Corp.

The technology is believed to have been obtained by employees of the South Korean arm of Applied Materials Inc., a U.S. company that makes equipment for chip manufacturers including Samsung, and then passed on to Hynix, according to prosecutors.

Santa Clara, California-based Applied Materials said it was aware of the actions by prosecutors and confirmed that its vice president and some employees of Applied Materials Korea were indicted and detained.

"Applied believes that there are meritorious defenses to the charges and is taking appropriate measures to address this matter," the company said in a filing to the U.S. Securities and Exchange Commission on Wednesday.

"Applied has strict policies in place to protect the intellectual property of its customers, suppliers, competitors and other third parties, and takes any violation of these policies seriously," the company said.

Samsung, meanwhile, said it was concerned over the case and Hynix expressed "great regret."

"Hynix expresses its great regret that our employees have gotten involved in this case," said spokeswoman Park Seong-ae. "We expect that the facts of the case shall be strictly investigated and clearly revealed."

Our only comment at WombleTradeSecrets regarding this report regards the comment from the Hynix spokesperson. It is interesting to note the concession of "regret" and the admission that "our employees have gotten involved in this case." This is unique to these kinds of cases - where denials and objections are routinely pleaded as a public relations matter.

We'll keep an eye on this one for you.

Thursday, February 04, 2010, 2/04/2010 10:24:00 AM

Bristol-Myers-Squibb Employee Charged with Extensive Trade Secret Theft

By Todd

ABC News is reporting that Shalin Jhaveri, 29, of Syracuse, was charged in U.S. District Court with stealing trade secrets and proprietary information from the New York-based company while taking part in a management training program. He was fired Tuesday.

Employed on an immigrant worker's visa, Jhaveri had been a technical operations associate at Bristol since November 2007. If convicted, he could be sentenced to up to 10 years in prison and a $250,000 fine.

The thefts of "hundreds of the company's standard operating procedures" took place over an extended period, "but the most active period was in the last few weeks," said Assistant U.S. Attorney Stephen Green. According to United States Attorney Richard Hartunian, Jhaveri stole the trade secrets so he could establish a pharmaceutical firm in India that would compete with Bristol-Myers-Squibb in various markets around the world. Jhaveri, a native of India, was a Technical Operations Associate with Bristol-Myers-Squibb for a little over two years until he was fired.

"Both the company and law enforcement have been aware of his activities for the past several weeks," he added.

The monetary value of the documents, which were mainly in electronic form, was not disclosed.

In the training program, Jhaveri was rotated through various departments, and the department he was in most recently was one of the more sensitive areas of the company, Green said.

Tuesday, February 02, 2010, 2/02/2010 09:30:00 AM

Britain's MI5 Warns UK Businessmen: Your Firms Are Under Attack from China

By Todd

We are linking you to a fascinating report from TimesOnline about the leaking of MI5 warnings regarding doing business in China.

The piece starts off with: "The security service MI5 has accused China of bugging and burgling UK business executives and setting up “honeytraps” in a bid to blackmail them into betraying sensitive commercial secrets.

A leaked MI5 document says that undercover intelligence officers from the People’s Liberation Army and the Ministry of Public Security have also approached UK businessmen at trade fairs and exhibitions with the offer of “gifts” and “lavish hospitality”.

The gifts — cameras and memory sticks — have been found to contain electronic Trojan bugs which provide the Chinese with remote access to users’ computers.

MI5 says the Chinese government “represents one of the most significant espionage threats to the UK” because of its use of these methods, as well as widespread electronic hacking. ""

But intrigue abounds in the piece, including these gems:

"China has occasionally attempted sexual entrapment to target senior British political figures. Two years ago an aide to Gordon Brown had his BlackBerry phone stolen after being picked up by a Chinese woman who had approached him in a Shanghai hotel disco.

The report says the practice has now extended to commercial espionage. It says Chinese agents are trying to cultivate “long-term relationships” with the employees of key British companies: “An undercover intelligence officer may try to develop a friendship or business relationship, often using lavish hospitality and flattery.

“Chinese intelligence services have also been known to exploit vulnerabilities such as sexual relationships and illegal activities to pressurise individuals to co-operate with them.”

The warning to British businessmen adds: “Hotel rooms in major Chinese cities, such as Beijing and Shanghai, which are frequented by foreigners, are likely to be bugged ... hotel rooms have been searched while the occupants are out of the room.”"

This story will not die and is spreading from industrialized country to industrialized country. We will continue to report back on these and other reports.

Monday, February 01, 2010, 2/01/2010 05:12:00 PM

PNC Financial Services Sues Former Employees and New Employer, Huntington Bank

By Todd

Crain's Cleveland Business is reporting that PNC Financial Services has sued 10 departed employees and their new employer, Huntington National Bank, allegedly for stealing "plans for developing and marketing products and services, customer lists, customer investment information and fee arrangements."

The report also indicates PNC is claiming the employees are using the bank's confidential information and that they have disclosed it to Huntington, saying it is “inevitable” given the nature of their work.

We'll keep an eye on this one for you. This is another of the in vogue "inevitable use" theories that former employers are trying out, seeing what kind of traction they can get from the courts.
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