2. Business Investment in Intangibles
1.4
1.2
Corp. investment in the U.S. in R&D, IT, IP, branding, etc.
1
0.8
Billions of USD Annually
0.6
0.4
0.2
0
1950's 1960's 1970's 1980's 1990's 2000's
Source: U of Maryland, 2009 2
3. Value of Tangible v. Intangible Assets
100%
83% 68% 32% 20% 20%
90%
80%
80% 80%
70%
Tangible
60% 68%
Assets
50%
Intangible
40% Assets
30% 32%
20%
10% 17%
0%
1975 1985 1995 2005 2010
U.S. S&P 500 Market Value
Source: Ocean Tomo 3
4. Types of Intellectual Property
Patent
Trademark
Inventions relating
Distinctive signs to
to design, camera,
identify a product.
battery, scrolling,
touch screen,
bounce-back,
pinch zoom, etc.
The iPhone has Trade Secret
over 200 patents. Valuable information
kept secret, such as
business strategies,
Copyright manufacturing
Expressions of ideas processes, chemical
in manuals, software, formulas, customer
apps, icons, etc. lists, etc.
4
5. What is a Trade Secret?
General Definition
● Information, such as a formula, pattern, compilation,
program, device, method, or process, that
● Has economic value because not generally known or
readily ascertainable by proper means, and
● Reasonable efforts are used to keep it secret.
--------------------------
The exact definition depends on the jurisdiction, but. . .
Most jurisdictions use similar definitions.
5
6. What is Forbidden?
Violations (generally)
● Misappropriate: Acquire trade secret by improper means,
such as theft, bribery, or espionage, or . . .
● Receive/possess misappropriated trade secret, or . . .
● Use trade secret knowing it was misappropriated.
-------------------------------
Exact details depend on the jurisdiction, but. . .
Reverse engineering or independent development of the
secret is allowed (unlike a patent).
6
7. Examples of Trade Secrets
Formula invented in 1886. In a safe ever since.
In safe in NY from 1919-1925, as loan collateral.
• In safe in Atlanta from 1925-present.
KFC original recipe since 1940.
Original handwritten recipe locked in safe.
Only 2 executives have full access.
7
8. Examples of Trade Secrets
Spray lubricant invented 1953.
Never patented. Formula locked in bank safe.
Concentrate mixed at 3 locations, then distributed
worldwide to aerosol makers.
PageRank algorithm determines search results.
Protected by patent/trademark, but the details
(over 500M variables) protected as trade secrets.
8
9. Civil Trade Secret Lawsuits in the U.S.
2500
Number of civil lawsuits filed
2000
1500
1000
500
0
2000 01 02 03 04 05 06 07 08 09 2010
Source: www.faircompetitionlaw.com 9
11. Who Steals Trade Secrets?
Unrelated
Unknown
3d Party
4%
6%
Business
Partner Employee
31% (past/present)
59%
Found guilty in
US trade secret
lawsuits from
1950-2008
Source: O’Melveny & Myers (2010). 11
12. What Secrets are Stolen?
45
40 Percent of lawsuits
35
involving different types
30
of secrets 1950-2008
25
20
15
10
5
0
Source: O’Melveny & Myers (2010). 12
13. Increasing China connection?
Percent of US criminal prosecutions
for theft of trade secrets where the
defendant is a PRC citizen or was 6 of the 7 cases
born in China. filed in 2010
40% of all cases
from 2008-2010
30% of all
cases from In most cases, the secrets
1996-2010 were sold to a PRC company
or PRC government.
Source: O’Melveny & Myers (2010).
13
14. Recent US cases w China connection
Year Victim Accused Type of Secrets Sentence
2011 Apple Paul Shin Devine Info to suppliers for $1M bribes Guilty
2009 Boeing Greg Chung Jets, rockets, space shuttle 15 yrs prison
2012 CME Chunlai Yang Stock trading source code 6 yrs prison
2011 Dow Kexue Huang Pesticides, food products 7 yrs prison
2012 Dow Wen Chyu Liu Chemical for vinyl products 5 yrs prison
2012 Dupont Walter Liew Pigments for paints/plastics Pending
2010 Dupont Hong Meng LEDs for displays 14 mos prison
2011 EnfoTech Yan Zhu Hazardous waste disposal 3 yrs probation
2009 Ford Xiang Dong Yu Automotive designs & specs 6 yrs prison
2012 GM Shanshan Du Hybrid car technology Pending
2012 L-3 Sixing Liu Military navigation data Guilty
2012 Motorola Hanjuan Jin Mobile phone tech data 4 yrs prison
2007 P. Paragon Chi Mak Nuclear submarines, etc. 24 yrs prison
14
2012 Sanofi Yuan Li Pharmaceuticals 18 mos prison
16. Avery-Denison v. Four Pillars (1997-2003)
First trial under Economic Espionage Act.
Avery-Denison makes tape/stickers.
Four Pillars is a Taiwan competitor.
Four Pillars President & daughter (Yang/Yang)
paid $160,000 over 8 years for formulas from
Avery-Denison employee (Lee).
Four Pillars/Yang/Yang/Lee were all found guilty.
Four Pillars:$5 million fine. Lee: 6 mos prison.
Yang/Yang: 51 mos/24 mos prison. Too late, they fled to TWN.
16
17. Dupont v. Kolon (2012)
DuPont makes super-strong Kevlar fiber.
Korean competitor (Kolon) hired Dupont
workers, paid for specs, designs, test results,
pricing info, manufacturing info, etc.
Kolon began selling its version of Kevlar.
Dupont won civil case:
● $920M damages, and
● Kolon sales of related products in U.S. banned for 20 years.
2012: Prosecutor filed criminal case seeking $225M.
17
18. US v. Jin (2012)
1998: American citizen born in China joins
Motorola as software engineer.
2006: Takes leave; joins PRC competitor.
Returns to Motorola to steal sensitive info.
Arrested at U.S. airport with one-way ticket to
China and over 1,000 electronic and paper files.
2008: Criminal charges filed.
2012: Convicted/Sentenced to 4 years prison.
18
19. U.S. v. Greg Chung
American engineer born in China, worked for
Boeing and Rockwell more than 30 yrs.
Sold info to PRC govt since 1970’s for over $3M,
concerning many technologies, including:
• F-15 fighter
• B-52 bomber
• Delta IV rocket
• Chinook helicopter
• Space shuttle
Over 300k pages of confidential Boeing technical
documents in his house when arrested.
2010: Age 74, found guilty, sentenced to 15 yrs.
19
20. TSMC v. SMIC
Taiwan Semiconductor (TSMC) is world’s
largest dedicated semiconductor foundry.
PRC chipmaker, SMIC, was poaching engineers
and management from TSMC and others.
TSMC sued in TWN/China for unfair competition
and theft of trade secrets. Settled for $175M.
TSMC also sued in US, learned SMIC had 15k TSMC docs,
with 500k pages of manufacturing information.
2d Settlement: SMIC paid $200M plus 8% of its stock.
20
22. REASONABLE PRECAUTIONS ARE ESSENTIAL!
If reasonable efforts not taken to keep secret:
► Information may be stolen, and . . .
► Trade secret remedies may be unavailable.
Don’t forget, the definition of trade secret includes
“reasonable efforts to maintain secrecy.”
Without such efforts, it will not qualify as a trade secret.
22
23. Perform IP Audit
Interview personnel from R&D, sales, legal, finance, etc.
Compile list of sensitive information, including:
● Type of information
● Means of protection
● Persons with access (internal/external)
● Approximate value
● Cost to develop it
● Ease of unauthorized duplication/development
Use Audit results to develop plan of protection.
23
24. Should you Patent it instead?
Factors favoring patents:
● Value of the information > cost of patenting
● Satisfies patent requirements (e.g., novelty, etc.)
● Easily reverse engineered
● Easily independently developed
In other cases, trade secret protection is preferable.
Often both can be used at the same time.
For more on this subject, visit www.asialaw.biz/blog
24
25. Physical Security
● Fences and locked doors
● Security guards/badges/cameras
● Cameras prohibited (including cell-phone cameras)
● Sensitive materials in locked rooms/cabinets
● Sign log-book to access sensitive materials
● User ID for photocopiers
● Passwords for computers – changed regularly
● Paper shredders (or shredding service)
25
26. Security Procedures
● Mark “Confidential” “Do not Copy” etc.
● Distribute on need-to-know basis
● Don’t cc to broad mailing list
● Even greater care when sharing externally
● Require signed NDA before disclosing
● Password protect electronic documents
● Require signed acknowledgement of receipt of info
● Regular trainings of employees
26
27. Careful when Hiring
References & background checks
New hires sign agreement/s containing:
● Confidentiality Agreement
● Assignment of IP developed during employment
● Non-competition (during/after employment)
● Prohibition against using stolen trade secrets
Comparable language in Employee Handbook.
27
28. Careful when Employee Leaves
Upon Notice of resignation/termination:
● Restrict access to sensitive materials
● Monitor emails, downloading, copying
Exit interview:
● Checklist -- return badge, computer, company property
● Remind employee of confidentiality obligations
● Require signed acknowledgement of obligations
After departure:
● Inspect computer, work area, files, etc.
● Preserve emails and hard-drive temporarily.
28
29. Non-Competition Agreements
● Unenforceable if unreasonable.
● Only for senior staff and those accessing secrets.
● Restrict by time, geography, position, products, etc.
(e.g., Employee may not work on LCD monitors for
competitor in TWN for 2 years following termination…)
● Specify additional compensation paid for the restriction.
● Specify injunction & attorney fees allowed if breach.
● Remind employee of Non-Compete at departure.
● Consider sending registered warning letter to new employer.
29
30. Sharing with Partners, Suppliers, etc.
Avoid JVs, or obtain majority share if possible.
Investigate other party beforehand. Get references.
Build commodity pieces in China, brains in Taiwan.
Strong Contracts:
● Identify trade secrets
● Supplier must restrict access/implement security
● Right to audit for compliance
● Disputes resolved in mediation/arbitration
Work closely with their management to help train them.
Mark docs “confidential,” encrypt, password protect.
30
32. Taiwan Criminal Action
Currently, Taiwan’s Trade Secret Act does NOT
provide criminal remedies.
However, an action may be possible under the
Taiwan Criminal Act if the below elements are
satisfied –
(Taiwan Criminal Act protects “all secrets” that
certain people have access to)
1. Certain professionals (e.g., doctors, pharmacists, lawyers,
accountants, clergymen, or notaries) may be sentenced
up to 1 year prison or NTD$50,000 fine for intentionally
disclosing secrets learned from their clients/patients.
(More severe than violation of attorney/client or
doctor/patient privilege under U.S. law)
32
33. Taiwan Criminal Action
2. Intentional disclosure of secret learned during employment,
in violation of confidentiality obligation required by law,
court order or contract is punishable by up to 1 year prison
or NTD$1,000 fine (Taiwan Criminal Act).
3. Enhanced penalties –
Public officer who intentionally discloses
secret learned during his public service
may be sentenced up to 2 years prison or
NTD$2,000 fine.
Person who intentionally discloses secret
learned through the use of computer or electronic devices
may be sentenced up to 2 years prison or NTD$5,000 fine.
33
34. Taiwan Criminal Action
4. Victim Must file Complaint –
For this type of crime, there is no sua sponte criminal
investigation or prosecution. Prosecutors will initiate
criminal investigation only when victim files a complaint.
5. Statute of Limitations –
Criminal Complaint for this type of crime must be
filed by the victim within 6 months after learning
the identity of the offender.
34
35. Taiwan Criminal Action
6. If Other Crimes also Involved –
• Use of fraudulent means to steal trade secrets, or
• Acquire trade secrets through breach of trust
(failure to fulfill duty entrusted to him/her)
Sentence up to 5 years prison and/or
NTD$1,000 fine.
7. Filing Complaint is NOT Required
Prosecutors may initiate sua sponte criminal investigation
without a request and there is no statute of limitations for
above type of criminal action.
35
36. New Criminal Remedy
Amendment to Taiwan Trade Secret Act –
Passed by Executive Yuan Oct. 25, 2012
(Not Effective Yet)
Sentence up to 5 years prison and NTD$10 million
if a person:
1. Acquires trade secret through improper means, or
2. Reproduces, misappropriates or discloses trade
secret without authorization,
OR
1. Has been requested by the trade secret owner to destroy the
confidential information, but
2. Fails to destroy the confidential information as requested.
36
37. New Criminal Remedy
Amendment to Taiwan Trade Secret Act –
Passed by Executive Yuan Oct. 25, 2012
(Not Effective Yet):
Enhanced Penalty –
A person may be sentenced up to 5 years prison AND
NTD$50 million if
The unlawful misappropriation or disclosure
of trade secret occurs outside Taiwan.
37
38. Assisting the Prosecutor
The prosecutor’s investigations are closed to
the public, under Taiwan Criminal Procedure Act,
but the victim may assist.
• Help prosecutor identify the trade secret (e.g.,
datasheet, schematics, customer list, etc.) that has
been misappropriated.
• Provide record showing the information is economically
valuable and has been kept confidential (e.g., only certain
employees had access).
• Provide relevant documents, such as confidentiality
agreement signed when employee joined the company.
38
39. Gathering Evidence
Prosecutor may request court to issue Search Warrant, under
Taiwan Criminal Procedure Act, to search the body, property,
electronic record, residence or other premises of an accused.
A third party’s premises may be searched only when there is
probable cause to believe the body, property or electronic
record of the accused is located there.
- Provide prosecutor with evidence showing
that the confidential information is in the
possession of the accused or
in third party’s premises.
- Identify the location of trade secrets.
39
40. Taiwan Civil Actions
Possible Causes of Action –
1. Breach of Employment Contract
2. Breach of Confidentiality Agreement
3. Misappropriation under Current Trade Secret Act -
a. Injunctive relief and Secrecy Maintaining Order are available.
b. May request destruction of products generated from
misappropriation or devices used for misappropriation.
c. To preserve confidentiality of trade secret, access to court
docket may be restricted and hearings may be non-public.
40
41. Civil Action for Misappropriation
Misappropriation under Trade Secret Act -
a. Acquire trade secret through improper means.
b. Knew or should have known the information is trade secret
acquired by improper means, but still proceed to acquire,
use or disclose such trade secret.
c. After obtaining trade secret through legitimate reasons,
knew or should have known it’s a trade secret defined
under (a), but proceed to use/disclose that secret.
d. Use/disclose legally acquired trade secret by improper
means.
e. Use/disclose trade secret in violation of laws that impose
duty to maintain secrecy.
41
42. Save Costs by Ancillary Action
Court filing fee for civil action in Taiwan:
- About 1% of claim amount for trial at first instance
- About 1.5% for appeal
Filing fee may be waived if civil action is filed on same subject
matter as criminal case, after criminal case is filed, but before
appellate court issues decision in criminal case.
42
43. Don’t Miss the Deadline
Statute of Limitations for Civil Action –
● Taiwan Trade Secret Act – civil action must be brought within
2 years after learning of misappropriation or 10 years after the
misappropriation happens, whichever comes earlier.
● MediaTek case – Taiwan IP Court dismissed MediaTek’s civil
claim for NTD$ 20M, because it was filed after the statute of
limitations expired (MediaTek learned of the violation in 2007/3,
but didn’t file civil action until 2012/2).
43
44. MediaTek v. Yang
MediaTek: one of largest Taiwan-based IC design companies.
2007: Former MediaTek digital TV marketing employee disclosed
secrets regarding IC design to new employer, Mstar Semi-
conductor, a competitor. MediaTek filed criminal complaint for
disclosing commercial secrets in violation of Taiwan Criminal Act.
Taipei District Court sentenced the
employee to 9 months in prison,
which could be commuted to a fine of
NT$270,000 (US$9,225).
2011: MediaTek appealed decision, brought ancillary civil action
at Intellectual Property Court. IP Court affirmed the criminal
judgment but dismissed the civil action for statute of limitations.
44
45. AUO v. China Star Optoelectronics
AUO is TWN’s 2d largest LCD panel-maker.
AUO filed civil lawsuit in 2012, alleging two
high-level execs stole trade secrets before
quitting to work for a major PRC competitor.
Prosecutors launched criminal investigation, searching the
former employees’ houses in Sept. 2012.
Potential threat to Taiwan’s entire LCD-panel industry.
Taiwan criminal and civil investigations are ongoing.
45
47. Why Take Action in the US?
Possible Reasons:
● Defendant is US company/citizen
● Witnesses/evidence in the US
● Defendant has US assets
● Defendant imports into US
● More reliable legal system in US
● Stronger remedies under US law
● US discovery system
47
48. Criminal Remedies in the U.S.
Theft of Trade Secrets Economic Espionage
18 USC 1832 18 USC 1831
Elements
It is a crime to knowingly:
Basically the same, but knowing
● Steal trade secrets
the theft will benefit a foreign
● Possess stolen trade secrets government, company or agent.
● Attempt either of the above
Sentence
Person: 10 years prison Person: 15 years prison
plus $250,000 fine plus $500,000 fine
Company: $5M fine Company: $10M fine
48
49. Drawbacks of Criminal Action
● Govt may decline to prosecute
Other priorities, especially if foreign victim.
● Slower than civil action
Overworked; must present case to grand jury, etc.
● Higher burden of proof than civil case
Beyond reasonable doubt v. preponderance of evidence.
● May stop/slow the discovery process
Defendant may “plead the 5th” due to criminal case.
Prosecutor may demand discovery put on hold.
On the other hand, civil suit may result in prompt seizure of
evidence, injunction, Order banning evidence destruction…
49
50. Civil Action may be Possible
Most States have laws authorizing trade secret claims.
Mostly based on the Uniform Trade Secrets Act (UTSA).
It MAY be possible for a:
● US or foreign Plaintiff to sue a
● US or foreign Defendant
● In State court in the US, based on
● Violations committed inside/outside the US
50
51. Remedies under UTSA (State law)
1. Monetary Damages
● Actual Loss
● Wrongful Gain
● Reasonable Royalty
2. Double Damages if willful/malicious
3. Injunction for actual/threatened misappropriation
4. Attorney fees may be awarded if:
● Plaintiff filed the lawsuit in bad faith
● Motion to terminate injunction made/opposed in BF
● Willful and malicious misappropriation
51
52. Required for State Lawsuit
To win Lawsuit:
● Trade secret
● Plaintiff owned it
● Defendant had access
● Knew/should have known was trade secret
● Acquired wrongfully. Circumstantial evidence OK
(access + similar product)
Was it a Trade Secret?
● How well known outside company
● How well known inside company
● Measures taken to protect secrecy
● Value to owner/competitors
● Money/effort spent developing it
● Ease of legal duplication/acquisition by others
52
53. Common Defenses
● No jurisdiction
● Statute of Limitations
US: 3 yrs after knew/should have known of violation.
● Not a Trade secret
- Already publicly known
- Readily ascertainable by proper means
- Lack of reasonable efforts to keep secret
● Defendant’s technology not derived from Plaintiff’s
- The technologies are different/distinguishable
- Defendant’s was independently developed
53
54. Lawsuit in Federal Court?
Fed court probably better than State court if foreign parties.
Fed law only authorizes criminal (not civil) actions.
State claim may be permitted in Fed court, if combined with
Fed claim such as:
● Patent Infringement (35 USC 271)
● Copyright Infringement (17 USC 501)
● Unfair Competition (15 USC 1125)
● RICO (18 USC 1961)
Fed court may reject state claim if it would predominate.
(Richtek v. UPI, N.Dist.CA, 2011: TWN trade secret claim rejected.)
54
55. Jurisdiction may be Obstacle
Personal Jurisdiction Required
1. The legal violation occurred in the state, or
Defendant has continuous/systematic contacts w the state
(office, assets, employees, sales, activities, etc.) and. . .
2. Suing Defendant there would not violate Due Process.
Jurisdiction against foreign individuals is especially difficult.
Personal Jurisdiction rejected:
AFTG v. Nuvoton, Fed Cir. 2012 (Asus, Pegatron, Micro-Star)
Richtek v. UPI, N. Dist. CA 2011 (4 TWN corps/16 individuals)
Wistron v. Adams, N. Dist CA 2011 (Wistron, Aopen)
55
56. Forum Non Conveniens
Even if one establishes Personal Jurisdiction . . .
Court may dismiss case if it should be decided elsewhere.
Factors Courts Consider:
● Location of witnesses and evidence
● Available process to compel testimony
● Possible need to view the premises
● Need to apply foreign law
● Unfairness of burdening potential jurors
● Availability of satisfactory due process elsewhere
(Taiwan is regularly recognized as an adequate forum)
56
57. Block Defendant’s US Imports
Even if no jurisdiction against wrongdoers . . .
May be possible to block imports of wrongful products by filing
Complaint with International Trade Commission (ITC).
● ITC has authority to ban imports into US of goods made
using “unfair methods of competition” (19 USC §1337).
● Usually for patent infringement. Now may be used to block
goods derived from stolen trade secrets (Tianrui, 2011).
● Fast/powerful, but Complainant must prove the wrongful
goods threaten a US “domestic industry.”
(Both parties sell goods in the US derived from the secret.)
57
59. What is a Trade Secret?
● Information that has economic value, because . . .
● Not generally known or readily ascertainable, and
● Reasonable efforts are used to keep it secret.
THEREFORE,
Without reasonable efforts to keep it secret:
► It may be stolen or wrongfully disclosed, and
► Legal remedies for trade secrets may be unavailable.
59
60. TOP PRIORITY: Prevent Loss
● Conduct IP audit
Identify sensitive info, develop plan.
● Physical security features
Fences, cameras, locks, etc.
● Security procedures
Restrict access, mark “confidential”, etc.
Regular employee trainings
● Careful when hiring
Background check, strong contracts
● Careful when employees depart
Monitor, remind of obligations, check afterwards
● Careful with 3d Parties
Restrict access, strong contracts
60
61. Legal Remedies in Taiwan
Criminal Action
● Present Trade Secrets Act lacks criminal penalties.
● Amended Trade Secrets Act will have criminal penalties.
● Violation of Criminal Act for employee to intentionally
breach confidentiality agreement.
● Enhanced penalties if fraud/electronic device involved.
Civil Action
● Launch criminal action first for information gathering.
● Launch criminal action first to waive court filing fees.
● Statute of Limitations: earlier of 2 years after learning of
the violation or 10 years after the violation occurs.
● Monetary damages and injunctive relief available.
61
62. Legal Remedies in the U.S.
● Why U.S.? Defendant’s assets/imports. Discovery.
● Economic Espionage Act: Federal crime, but . . .
may be unavailable for foreign victims.
● Civil action may be possible in state/federal court, but. . .
jurisdiction may be a hurdle unless U.S. parties.
● Forum non conveniens also a hurdle if most parties,
evidence and relevant acts in Asia.
● ITC: Block imports into U.S. of wrongful goods, but
requires “domestic industry”
62
63. Thank You
Chris Neumeyer Jessica Chiang
Managing Partner, Asia Law Senior Counsel
Foreign Legal Affairs Law Firm Delta Electronics, Inc.
chrisneumeyer@asialaw.biz Jessica.chiang@delta.com.tw
www.asialaw.biz www.delta.com.tw
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