Trade Secret Theft is a Real Crime

And those found guilty go to a real jail cell.

Now you know that Trade Secret theft is on the rise and costing US companies billions of dollars in revenues.  You’ve also learned 10 important things about trade secrets and how to protect them.  Now, let’s look at three recent examples of trade secret theft that have made the news.

1.  Sanofi Aventis – Research Scientist.

Who stole what?  A former Sanofi research chemist stole thousands of chemical compounds (a company trade secret) from Sanofi.  The research scientist, a 30 year old Chinese national named Yuan Li, had worked for Sanofi for 5 years developing compounds for use in future drugs.

How did she do it?  Yuan Li downloaded the trade secret information and used personal e-mail or a USB thumb drive to transfer it to her home computer.

What did she do with the trade secrets? She tried to sell the compounds through, Abby Pharmaceuticals, the U.S. unit of a Chinese company.  Yuan Li was a 50% owner in Abby.

What happened to her?  Last month, Yuan Li was sentenced to 18 months in prison by a New Jersey Court.  She must also pay $131,000 in restitution.

2.  Akamai – Finance

Who stole what?  Elliot Doxer, who worked in Akamai’s finance department, contacted the Israeli consulate in Boston in 2006, offering to spy on Akamai and pass secret information to them.  The Israeli government informed the US government, which set up a sting operation.

What did he do with the trade secrets?  Mr. Doxer delivered numerous secret files to an undercover federal agent posing as an Israeli intelligence officer over a period of 18 months.  (No information ever made it into foreign hands.)

What happened to him?  Mr. Doxer pled guilty to foreign economic espionage and was sentenced to six months in prison, six months home confinement, and a $25,000 fine in December, 2011.

3.  Intel – Design Engineer.

Who stole what? A former Intel computer hardware engineer stole 13 secret documents from Intel’s facility in Hudson, Massachusetts. The documents are worth over $1 billion in research and development costs that described Intel’s new microprocessors.  Biswamohan Pani, an Indian national, worked for Intel from May 2003 to June 11, 2008.

How did he do it?  Mr. Pani resigned from Intel in late May, 2008, saying he was going to work for a hedge fund, and took his accrued vacation time until his last official day on June 11.   However, he started working at Advanced Micro Devices, Inc. (AMD), an Intel competitor, on June 2, 2008.  That’s right…he worked for both companies for more than a week.  From June 3 to June 11, 2008, he remotely accessed an encrypted system at Intel, and downloaded the documents to his hard drive.

What did he do with the trade secrets?  Nothing.  Intel discovered the breach very quickly, contacted the FBI who acted fast to stop any information from being used.  It is thought Pani intended to use the information to advance his career at AMD.  It is important to note that AMD denied knowledge of Pani’s wrongdoing, did not ask him to steal the information, and has cooperated fully with federal investigators.

What happened to him?  Mr. Pani pled guilty to 5 counts of wire fraud in US District Court in Massachusetts.  Each count has a possible sentence of 20 years, as well as a $250,000 fine.  The prosecutors are recommending that the judge sentence Pani to six years in jail. Sentencing is scheduled for August 8.

When I see these stories, part of me says “Really, you thought you would get away with this?”, but then I remember that trade secret theft is a real crime.  These are the people who were caught.   How many more are out there have been successful?

Obviously, the examples here involve big name companies with thousands of employees, but don’t think that trade secret theft is merely a problem for big business.  The risk exists for big and small companies, as well as universities, research facilities and non-profits alike.

If you want to protect your organization’s trade secrets, you must be proactive.  Identify them early.  Have a plan to keep them secret.  Educate your employees about intellectual property and what it means to you.  Don’t assume everyone who works for you has your best interests at heart.

Ten Things You Need to Know About Trade Secrets

Trade secrets are what make your business unique.

They are your secret sauce, or ‘Grandma’s Secret Recipe’.

They make your product or service different from everyone else out there.

They are also the most ignored form of intellectual property today.

Here are 10 things you should know in order to start protecting your valuable intellectual property today.

1.  A trade secret is any formula, pattern, device or compilation of information which is used in one’s business to give him an advantage over competitors who do not know or use it.  Trade secrets include special manufacturing methods, processes, techniques, chemical formulas, computer software, data, and customer lists.

2.  Trade secrets are important.  I always like to ask my clients, how they would react if they found out that their #1 sales person just left to work for the biggest competitor and took their customer list and pricing information with them.  How would you react?  Would you get a pit deep down in your stomach?

If that thought scares you, then you know how important your trade secrets are to your business.  Those client lists and that pricing information could be trade secrets, and if you aren’t taking active steps to protect them, then that information could be walking out the door.

Now imagine if that person left with your test data, a prototype, the secret formula to your…I think you get the idea.

3.  Trade secrets are protected by law.  However, trade secret law is not uniform across the United States.  Contact an attorney in your state to understand the specific laws governing trade secrets where you do business.  If you are doing business overseas, contact an attorney in the foreign country to see what you need to do to protect your IP in that country.

4.  Unlike patents, trademarks or copyrights, there is no registration process for trade secrets.  They reside within your business and you must protect them.

5.  Trade secrets don’t expire.  They can potentially last forever if you can keep the secret that long.  There is always the risk that an independent third party may legitimately discover and use the secret.

6.  To protect your trade secrets, you should:

  • Identify them!  (You have to be specific.  Not everything in your business is protected under trade secret law.)
  • Limit employee access.  Disclose your trade secrets on a need-to-know basis.
  • Limit visitor’s access. Have all visitors sign-in.  Provide badges to indicate they are visitors in the building. Don’t let them wander around.  Accompany them around the building.  Avoid showing them sensitive areas.
  • Provide an education.  Make sure your employees understand their obligations when it comes to all of your intellectual property, including trade secrets.
  • Have confidentiality agreements, written policies, and internal procedures for employees.

7.  If you need to disclose your trade secret to a third party, you should take certain precautions before you disclose your trade secret.  Any trade secret disclosure to third parties, i.e., customers, suppliers, consultants, etc., should be limited to only those people who NEED TO KNOW under a written agreement of confidentiality of indefinite length.  (Again, check with an attorney in your state to find out the exact steps you need to take to protect your trade secrets.)

8.  It is a crime to steal a company’s trade secrets.  In the United States, perpetrators of trade secret theft are prosecuted under the Economic Espionage Act of 1996.

9.  With the rise of the internet and technology, it is easier than ever for your employees to steal trade secrets.  What used to be a labor intensive type of theft, think photocopying documents after everyone else goes home, is now easier than ever with the help of technology we use every day.  An employee can simply download files to a thumb drive and walk out the door.

10.  As we discussed last week, trade secret theft is on the rise.  Protect your valuable intellectual property by learning what you need to be doing today to stop trade secret theft in your organization.

Bonus Question.  Can you name the most well-known trade secret in the world?  Let me know your guess in the comments below!

Next week, I’ll talk about some recent high-profile trade secret theft cases.

Did You See this Billboard Recently?

FBI Billboard

If you did, it means you live or work in a city with industries and companies at high risk for trade secret theft.

Last month, the FBI put up these billboards in 9 communities across the nation, including Boston, New York, Washington, D.C., and San Francisco, in an effort to raise awareness about a growing problem: industrial espionage.

What exactly is ‘industrial espionage’?

It’s when foreign governments, corporations, and citizens spy on US companies in an effort to steal information that can provide them with some sort of economic benefit or advantage.  They are often looking for technology, pricing information, test data, or customer lists, a.k.a. the company’s trade secrets.

Why does the US Government care about trade secret theft?

Because it is a big problem for US companies.  The FBI estimates over $13 billion has been lost since October, 2011 due to trade secret theft.  That’s $13 billion in only 7 months!

In fact, state-sponsored espionage targeting the intellectual property of U.S. companies is growing so fast that the FBI considers trade secret theft a national security issue.

To be honest, the Government should be concerned about the rise in industrial espionage, and if you are an innovative company, you should too.  I’m just not sure a billboard campaign is the right approach.

How many people are going to really understand the message behind the billboards?  Seriously, I wish I had seen one in person, but RI didn’t make the cut.  Would the average person driving around in their car, stop and think about whether or not their trade secrets are at risk?  Would they even know what a trade secret is?

I’m not sure they would.

Trade secrets are often afterthoughts in corporate America, and companies with really good trade secret awareness tend to be large.  Most everyone could identify a trade secret when asked (the formula for Coca-Cola usually springs to mind), but most companies can’t identify their own trade secrets, especially small technology firms.

Why?  They don’t understand trade secrets.  They don’t quite know what they are or what they can and should do to protect them.  Which leads to the problem…if companies don’t understand trade secrets, then they can’t identify them and take the necessary steps to protect them.

I’ll continue this conversation next week with a short primer on trade secrets.

Here are a some great resources to get your trade secret education started.

– The FBI Website has some good information on trade secrets and the problem of industrial espionage.

– The National Intellectual Property Rights Coordination Center (IPR Center) is a multi-agency taskforce designed to share information, develop initiatives, coordinate enforcement actions, and conduct investigations related to IP theft.  Check out their website here.

In the meantime, if you think your company could use some help identifying and protecting your trade secrets, call me at (508) 878-3590 or email me at to set up an appointment.

I first wrote about this issue back in 2010 after I attended a workshop on economic espionage.   Click here to check out that post.

A New Guest Blog Post

This week I am honored to have written a guest post over at the Solo Practice University blog.  For those of you unfamiliar with SPU, it is an on-line educational resource for newly-graduated attorneys and their older, more experienced breathren alike, who want to hang out their own shingle.

From the SPU website:

It’s a single online destination where lawyers and law students learn the basics of running a solo practice, take classes and get expert feedback from lawyers and business professionals in specialized fields.

In my post, I talk about my journey so far as a solo attorney.  I am candid about my missteps, how I am taking charge of my career, and redefining my practice on my own terms.

This is such an exciting time for me.  I am gearing up for a big relaunch of my business next month.  Big, new things are on the horizon.

I am so happy that I can tell my story, and show other lawyers how important it is to work on your own terms (because I forgot why I wanted to do this in the first place).

Thank you, Susan, for giving me the forum.

Here’s a link to the blog post.

Twitter, I’m Calling You Out!

It’s 2012.

The so-called “Smart-Phone Wars” rage across the planet.

Global technology giants are all vying for supremacy of entire markets by buying up patents and leveraging their portfolios as they try to knock each other off the mountain.

Then along comes Twitter.

In an attempt to stop the madness, the social media giant announced in late April it will be implementing a new Innovator’s Patent Agreement, a written agreement between Twitter and its inventors.

Under its terms, Twitter says that it will assert its patents only for defensive purposes, or only with the permission of the inventors, supposedly leaving ‘control of patents in the hands of inventors.’

I understand that Twitter is standing on its principles when it announced this move.  With no gun in any pending fight, Twitter is asserting its position on patent litigation to the world loud and clear.

Starting with the Preamble, Twitter wants everyone to notice how noble and egalitarian they are when they state:

WHEREAS Company and the Inventors believe that software patents should only be used to make a positive impact in the world and, accordingly, should only be used for defensive purposes;  (Emphasis added.)

What exactly are “defensive purposes” you might ask?  Paragraph 2 reads as follows:

2.  Company, on behalf of itself and its successors, transferees, and assignees (collectively “Assignee”), agrees not to assert any claims of any Patents which may be granted on any of the above applications unless asserted for a Defensive Purpose. An assertion of claims of the Patents shall be considered for a “Defensive Purpose” if the claims are asserted:

(a) against an Entity that has filed, maintained, threatened, or voluntarily participated in an intellectual property lawsuit against Assignee or any of Assignee’s users, affiliates, customers, suppliers, or distributors;

(b) against an Entity that has filed, maintained, or voluntarily participated in a patent infringement lawsuit against another in the past ten years, so long as the Entity has not instituted the patent infringement lawsuit defensively in response to a patent litigation threat against the Entity; or

(c) otherwise to deter a patent litigation threat against Assignee or Assignee’s users, affiliates, customers, suppliers, or distributors.

If Assignee needs to assert any of the Patent claims against any entity for other than a Defensive Purpose, Assignees must obtain prior written permission from all of the Inventors without additional consideration or threat. An “Entity” includes any related entities, where the entities are related by either ownership, control, financial interest, or common purpose.

All of this would be interesting and meaningful, but for one thing.  Twitter doesn’t have any US patents to assert against anyone.  Do a search for Twitter as Assignee at the USPTO.

They have one published US patent application, and one application came up when I did a search of the assignment database.  That’s it.  (If you can find more, please let me know.)

If this is true, the Agreement is for show.  This is a public image campaign that tries to make Twitter look like the hero.  Twitter is insinuating that it is making a noble choice about when and how to use its patent portfolio when in fact Twitter couldn’t bring a patent infringement suit against anyone even if they wanted to.

If you don’t like patents, patent litigation, or the whole system, just say so.  Don’t make up some holier-than-thou Agreement when you aren’t really doing anything that noble.

I find it odd that a company with no US patents to its name is publicly announcing an Innovator’s Patent Agreement.  Does anyone else find this Agreement a bit disingenuous?  Let me know what you think in the comments below.

My Fabulous Friend Monica and our First Interview Together

Intellectual property can be a difficult subject for creative people.

Copyrights can be confusing.  Contracts can get in the way of getting your art out to the world.

But,authors, artists, and designers need to think about how to protect their creations.

Where should they start?   What should they look out for?

Listen to my interview with Monica Lee and find out…

My friend Monica hosts a show on her website Smart Creative Women.  Normally, she interviews smart, funny, successful women working in creative jobs.  Think artists, illustrators, and designers building businesses and brands from their art.  Her interviews are insightful and bold because she talks about things few dare to discuss in the creative community.  She focuses on topics like their business models, their passions, how they monetize their creative endeavors, and how they balance their lives, all while showcasing her interviewees great passion and creative expression.

A month or so ago, I had the privilege of sitting down with my dear friend for an interview on her show.  I know what you’re thinking, ‘What does non-creative Lawyer Kelli Proia bring to this table?’  Just trust me.  We made it work.

You see.  Monica and I are friends and business buddies.  We met through a mutual friend and discovered that we are both building new businesses that have one important thing in common.   We’re both trying to do something a little different in our little corner of the world.   Monica’s trying to nix the idea of the starving, struggling artist and shed some light on how artists can build money making businesses from their art.  Me?  I’m trying to get businesses, and the lawyers who love them, to rethink the way they talk about IP.   Monica and I spend a lot of time talking about our struggles and triumphs as business owners, our goals, our strategies, our money issues, and the challenges of being wives and mothers.

One of the central themes in our on-going conversation revolves around the concept of ‘value’.  We push each other to recognize and further our value.  When you are sitting by yourself in your home office, it can be pretty difficult to recognize your value sometimes.  She thought it would be great if we could bring our weekly lunch talks to the masses.

While we tried to keep our gossip to a minimum, I think we did a good job talking about knowing your value, standing up for yourself, and recognizing that it is OK to say ‘NO’ to a bad deal.  Of Course, we also discuss how to protect yourself with good contracts and intellectual property.

I hope you enjoy this interview.  It was a pleasure to make.

Are You an IP Hoarder?

I think all organizations have intellectual property in some way, shape, or form.  Whether their big or small, for profit or non-profit, mom-and-pop shops to giant multi-nationals, IP is everywhere.  Even restaurants have their secret sauce.

Lots of companies recognize their IP and track it.  In fact, they track the heck out of it.  If the company acknowledges its existence, then there is a database and files somewhere.  Someone has a list of serial numbers and dates.

Some actually manage it.  The management team cares about IP and its impact on the business.  They have employee education and policies directed to protecting their IP in a bigger way.  They implement IP monitoring programs to manage risk.  The company looks for ways to use it to boost their business.  They set goals and metrics to see if they’re doing a good job managing it.

A few companies really use their IP.  They actively engage in intellectual property licensing and/or IP litigation activities.  They search out and stop counterfeit goods.  They work safely with third parties on joint projects.  These companies use their IP as a true business asset.  And let me be clear.  There’s a difference between using the technology disclosed in the patent and using the patent.

Unfortunately, most companies don’t move past the tracking phase in the IP Administration process.  Most organizations identify their IP pretty well.  They spend money protecting and tracking it.  And what does all of this lead to?  In the end, the company sits on it, filling filing cabinets with folders and paper, and databases with numbers and dates.

I refer to these organizations as ‘IP Hoarders’.  They systematically rack up big legal bills accumulating lots of patents and trademarks.  Then, they stockpile it.

They just don’t know any better.  These companies set out on this path long ago.  ‘I invent therefore I patent’ is their motto.  It’s what they’ve always done.  They honestly believe they’re doing everything they can (and should) be doing to protect their intellectual assets.  I think they would be surprised if I told them that they were doing only half the job.

If your business is investing its hard earned dollars into patents and trademarks, ask yourself: what are we doing with these assets?  If your answer is ‘nothing’ or ‘I don’t know’, then it’s probably time to take a hard look at why you are spending money on a business asset you don’t really use.  It might be time to review your current strategy and make some important changes.

If I compulsively spent lots of money on large amounts of stuff that I never plan to use and it clutters up my home, what would you call me?  A hoarder.  Well, what would you call a company that builds up its IP portfolio for the sake of simply having a portfolio?

You’ve got 3 guesses, and the first two don’t count!

Avoid This Trap to Build a Strong IP Portfolio

It starts out fairly innocently.  You’re a start-up: 2 people with a great invention.  You want to protect that invention, so you call a patent attorney.  The patent attorney drafts and files a patent application and your company is off and running.

You start selling a product with a snazzy name, so you get some trademarks.  Your company is successful.  You grow.  You invent more.  You call your patent attorney more often.

Before you know it you’ve got 20 employees, some great products, and a small intellectual property portfolio.  And this is where you fall into a trap.

The trap is thinking what you have been doing to protect your IP is enough.  The trap is thinking ‘we invented, we patented, so we’re done’.  It’s the idea that all you need to do to create a strong IP portfolio is get the patent or register the trademark.  Like that’s all there is to it.  But there is so much more.

This is not a trap you want to fall into.  Protecting your IP is not an event, like ‘We got the patent.  Check that off the list.’  Getting the patent is the tip of the ice berg.

There’s a lot more to creating a successful IP portfolio than just securing patents and trademarks.  In fact, capturing your intellectual property is just 1 (out of 12!) component for maintaining a strong IP portfolio.  It’s actually #5 on my list!

So how do you avoid the trap?

The best way is to build a strong foundation for managing your intellectual property assets so that you can increase the return on the investment your making would be a good place to start.  (IP is a business asset that needs to be managed, remember?)

How do you build a strong foundation?  Implement the first 4 components of the IP in Focus IP Management System.

1.  IP Administration, Organization, and Budget.  At the start, you should decide what role IP will play in your company.  What do you want it to do for you?  What is the organization willing to do and who within the organization needs to do it in order to build a strong, successful IP portfolio?  How much are you willing to spend to make that happen?  You need to set goals, establish rules, and put the proper team together to make sure those goals are met.

2.  IP Reporting and Communications.  IP progress or setbacks must continuously be communicated to anyone in your organization that needs to know.

3.  IP Education.  You need to continuously tell your employees why intellectual property is important to you and your business.  Your employees need to understand what role they play in the IP process, and the rules they are expected to follow.  (Don’t assume they know.)

4.  IP Auditing.  You need a behind-the-scenes process that continuously identifies your intellectual property no matter where it resides in the company.

At some point, you need to move from merely capturing your IP to managing it.  Why?  Being more proactive allows you to get the most return on your investment in your intellectual property.

Capturing your intellectual property will always be important, but just capturing it will only get you so far.  As you grow your business, you need to change your behavior and approach your IP differently.

Be more proactive. Set IP goals, rules, and expectations, then work diligently to accomplish them.

The Last Refuge of a Troubled Company

There is an unfortunate trend in American business today. With yesterday’s news of the AOL patent auction, I can emphatically state that the last refuge of a troubled company is their patent portfolio. Kodak, Yahoo!, and now AOL are all leveraging their patents in an attempt to turn their fortunes around, increase their stock price, and get some much needed cash, be it through outright sale (AOL) or through patent litigation (Kodak and Yahoo!). Unfortunately, it’s a strategy that will fail. Not because their patent aren’t valuable, but because it’s too little too late.

In the latest incarnation of the trend, AOL sold 800 patents to Microsoft for over $1billion, and kept 300 key patents and patent applications for future use. The beleaguered internet company saw its stock price hit a 52 week high on the news. In a statement about the patent sale, AOL’s Chairman and CEO, Tim Armstrong, stated:

“We continue to hold a valuable patent portfolio…The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.” (Emphasis added.)

Congratulations to AOL on finally realizing that their patent portfolio is a business asset, has value, and can be leveraged. In fact, good for them for leveraging it in such a way that they were able to sell off some of their chaff and keep some wheat. They now have cash and a better stock price today because they sold some patents, but it doesn’t fix their underlying problems.

Unfortunately, this sale didn’t really improve the long-term future of the company. As Ben Popper reported in Venture Beat:

“While it’s true that AOL still retained some patents and will be able to license them to other players, this seems like a one time deal that represents a large portion of the value AOL held in its patents. The emphasis on returning the money to shareholders seems to indicate that AOL is hoping to goose its stagnant stock price with the promise of a payout, giving Armstrong more breathing room as he looks to turn the media/advertising business around.” (Emphasis added.)

AOL has time and money, but will it get them a ‘product’ that people want to invest in? I mean, isn’t that the only ‘real’ solution to AOL’s woes?

Shame on AOL (and Kodak and Yahoo!) for not recognizing the value in their portfolio sooner! The truth is AOL needed to use its IP years ago when it still had the chance to build the business. Now it can only use its patents as a stopgap measure to boost share price in the short term. They’re too far down the proverbial rabbit hole for any patent to help them out.

The real inquiry is ‘what should these troubled companies have done with their patents’? Why weren’t they using their valuable portfolios already? Seriously, why wasn’t their intellectual property part of their business strategy from the very beginning?

Of course that’s a rhetorical question. I already know why. They only cared about getting the patents. No one told them that possessing patents isn’t enough. It’s how you use them that matters.

Could the fates of Kodak, Yahoo! and AOL been different had they leveraged their IP portfolios before the ‘writing was on the wall’? You can never know for sure given the multitude of decisions that go on in any company. Maybe at one time AOL could have used their patents to achieve their business strategy, and found success, but I think that time is over. Their patents can’t save them from their past mistakes and their lack of strategy.

UPDATE: On April 23, 2012, Microsoft announced that it sold some 650 patents and applications it acquired from AOL to Facebook for $550 million in cash. Facebook will also license the remaining patents (~275 assets) that Microsoft obtained in the AOL deal.