Friday, April 30, 2010, 4/30/2010 12:31:00 PM

San Jose Business Journal: "Trade Secret Theft By Rogue Employees On the Rise"

By Todd

This from today's San Jose Business Journal:
"Silicon Valley lawyers who specialize in this area of law say trade secret cases are on the rise. The improved economy, they say, has led to more people switching jobs ­— and more people getting accused of stealing valuable, confidential information from their old offices.

Roberta Hayashi, head of the litigation department and employment practice group at San Jose-based Berliner Cohen, is one such lawyer. Hayashi said she’s now involved with six trade secret cases, compared with only one between the fall of 2008 and mid-2009, when the economy was near bottom.

“People really didn’t have other jobs that they were moving to,” she said.

A trade secret has three characteristics: It’s a secret and not generally known; it’s commercially valuable because it’s a secret; and its owner makes reasonable efforts to guard its secrecy, said Gary Weiss, chair of Orrick Herrington's global intellectual property practice in Menlo Park.
Weiss and other lawyers said California law prohibits “non-compete” agreements, in which an employee would contractually agree to refrain from competing against a former employer for a given period of time. In addition, he said departing workers are allowed to use all “general skills and knowledge” at a new job, even if it means competing against their old offices.

But, he said, the law prohibits workers from stealing or using trade secrets held by their old employers, even if the information is in their head and not, say, in an electronic database.
“There’s all kinds of information that meet that test, and all kinds of ways to misappropriate it,” Weiss said.

Case in point

One recent case involves SOAPprojects, Inc., an accounting and financial consulting firm in Mountain View.

Kamal Gupta, a former employee, allegedly entered the firm’s office one day this January and told the front-desk receptionist he needed his old contact list. Gupta had quit a month earlier, but according to court documents, he told the woman that a partner at the firm had given him permission to get the contacts.

Gupta then took his old company laptop home and, before returning it the next day, allegedly stole confidential data, trade secrets and other proprietary information, which he now uses at his new job.

The firm’s partner, meanwhile, was in India when the alleged incident occurred.

SOAProjects filed a lawsuit on April 23 against Gupta and his new employer, Germany-based SCM Microsystems, Inc., a former SOAProjects client. The company is alleging computer fraud, breach of contract and misappropriation of trade secrets, among other things.

SOAProjects, which filed the complaint in U.S. District Court in San Jose, wants $1 million in damages and a jury trial. Harmeet Dhillon, the firm’s attorney, said she tried to reach a settlement with Gupta and SCM Microsystems but to no avail.

“They think it’s fine to steal the information and go with it,” she said. “It’s not gonna work here in America.”

Darby Dye, a spokeswoman for SCM Microsystems, declined to comment.

No industry is immune

Nevertheless, trade secret cases span a range of industries, from banking to electronics to title insurance, Hayashi said.

During an economic downturn, for instance, laid-off workers sometimes steal information to retaliate against their former employer, said Scott Frewing, a white-collar criminal partner at Baker & McKenzie in Palo Alto.

Other times, people take secrets because they developed the secret data and felt underappreciated at work, or they plan to develop a new product with the information and make money, he said.

“Profit and ego are probably the two most common motivations for people who do that,” said Frewing, a former federal prosecutor.

Still, there are measures companies can take to help limit the risk of trade secret theft, he said.

These include requiring workers to sign non-disclosure agreements, having an IT system that lets a company protect sensitive information, and “regularly tracking” whether an employee’s access to data is appropriate given their duties and authority.

But, he noted, companies can’t stop “a rogue employee” from acting inappropriately.

“Like banks have never been able to completely prevent bank robbery,” he said, “companies have never been able to fully prevent trade secret theft.""


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