The Federal Prosecution of Trade Secret Theft

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1 Presented to: The Federal Prosecution of Trade Secret Theft June 16, 2016 Presented by: Barak Cohen, Partner Disclaimer: The information contained herein should not be relied upon as legal advice and is never a substitute for qualified legal counsel. Please contact Barak Cohen for additional information. Perkins Coie LLP

2 Agenda The Process: How a Federal Criminal Prosecution Unfolds The Economic Espionage Act ( EEA ) A Case Study: United States v. Yu Xue Best Practices for Companies 2 Perkins Coie LLP PerkinsCoie.com

3 The Process: How a Federal Criminal Prosecution Unfolds 3 Perkins Coie LLP PerkinsCoie.com

4 Phases of a Federal Criminal Investigation Investigation Often initiated by an insider. Directed by USDOJ or one of 93 US Attorney s Offices. Evidence-gathering through various techniques. Usually involves grand jury and continues until case resolves. Indictment and Pre-Trial Litigation If no pre-indictment deal or declination. Quicker than civil litigation (Speedy Trial Act). Trial and Post-Trial Proceedings Cases often resolve in pre-trial plea deals. 4 Perkins Coie LLP PerkinsCoie.com

5 The Economic Espionage Act ( EEA ) 5 Perkins Coie LLP PerkinsCoie.com

6 Economic Espionage 18 U.S.C ) The defendant stole, or without authorization of the owner, obtained, destroyed, or conveyed information; 2) the defendant knew this information was proprietary; 3) the information was in fact a trade secret; 4) the defendant knew the offense would benefit or was intended to benefit a foreign government, foreign instrumentality, or foreign agent. 6 Perkins Coie LLP PerkinsCoie.com

7 Theft of Trade Secrets 18 U.S.C ) The defendant stole, or without authorization of the owner, obtained, destroyed, or conveyed information; 2) the defendant knew this information was proprietary; 3) the information was in fact a trade secret; 4) the defendant intended to convert the trade secret to the benefit of anyone other than the owner; 5) the defendant knew or intended that the owner of the trade secret would be injured; and 6) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce. 7 Perkins Coie LLP PerkinsCoie.com

8 Punishment Economic espionage Individuals: Up to 15 years imprisonment, or a fine of not more than $5 million, or both. Organizations: A fine of not more than the greater of $10 million or three times the value of the stolen trade secret. Theft of trade secrets Individuals and Organizations: Up to 10 years imprisonment, or a fine of not more than $250,000 (not more than $5 million for organizations), or both. 8 Perkins Coie LLP PerkinsCoie.com

9 Definition of a Trade Secret The definition is very broad. It includes, generally, all types of information, however stored or maintained: o Financial, business, scientific, technical, economic, or engineering information. Owner must have taken reasonable measures to keep such information secret. The information derives independent economic value (actual or potential) from not being generally known to, and not being readily ascertainable through proper means, by the public. 9 Perkins Coie LLP PerkinsCoie.com

10 Special Considerations Multiple statutes may apply to the same misconduct. o Wire fraud and Computer Fraud and Abuse Act, among others. Both sections may apply to extraterritorial conduct if the offender is a U.S. national or if an act in furtherance of the crime is committed in the U.S. Any attempt or conspiracy to commit either offense carries the same penalties as the underlying crime. Restitution and forfeiture may apply. 10 Perkins Coie LLP PerkinsCoie.com

11 A Case Study: United States v. Yu Xue 11 Perkins Coie LLP PerkinsCoie.com

12 U.S. v. Yu Xue: Background Investigation initiated February 20, FBI interviewed an informant who provided information about defendant Tian Xue, her colleagues, and their business enterprises. Search warrants executed: Personal Google accounts. Yu Xue s office, work computer, and Lucy Xi s work computer. 12 Perkins Coie LLP PerkinsCoie.com

13 U.S. v. Yu Xue: Background Trade secrets established by FBI interviews with GSK scientists and an expert witness. Criminal complaint filed under seal on December 29, Defendants arrested on January 5, Perkins Coie LLP PerkinsCoie.com

14 U.S. v. Yu Xue: Indictment Defendants indicted on January 20, Charges: Conspiracy to commit wire fraud; wire fraud. Conspiracy to steal trade secrets; theft of trade secrets. Conspiracy to commit money laundering. Forfeiture. 14 Perkins Coie LLP PerkinsCoie.com

15 U.S. v. Yu Xue: Core Allegations GSK researchers Yu Xue and Lucy Xi are accused of ing and downloading proprietary data and sending it to the other defendants, who worked for the Chinese startup Renopharma, which provides contract research services for early drug discovery. Xue helped lead a GSK project focused on cancer treatment. The indictment alleges that Xue, who had an ownership interest in Renopharma, hoped that the company would profit from the information. 15 Perkins Coie LLP PerkinsCoie.com

16 U.S. v. Yu Xue: Potential Defenses Transferred information didn t constitute trade secrets. Prosecutors have been forced to dismiss similar cases after realizing that the information was public. o o December 2014, prosecutors dropped charges against Eli Lilly scientists Guoqing Cao and Shuyu Li. September 2015, prosecutors dropped charges against Xiaoxing Xi, the interim chair of Temple University s physics department. 16 Perkins Coie LLP PerkinsCoie.com

17 U.S. v. Yu Xue: Potential Defenses The defendant didn t know the information was proprietary. Cases rise and fall on awareness of policies, employee acknowledgments, and notifications. Legislative history suggests that traditional defenses available in a civil trade secrets case also apply here. Parallel development. Reverse engineering. 17 Perkins Coie LLP PerkinsCoie.com

18 Best Practices for Companies 18 Perkins Coie LLP PerkinsCoie.com

19 Best Practices for Companies Policies Access and handling policies. Information security (e.g., s, BYOD). On-boarding and off-boarding of employees. Agreements: o Non-compete, non-solicitation, confidentiality, telecommuting Training Train employees regarding EEA and relevant policies. Require written acknowledgment. Security Take inventory of trade secrets. Ensure physical/technical security. 19 Perkins Coie LLP PerkinsCoie.com

20 Best Practices for Companies (continued) Internal Controls Include EEA compliance in M & A due diligence. Hiring of competitors former employees. Payments to competitors former or current employees. Sources of competitive intelligence. Record and document reverse engineering efforts. o Involve compliance professionals and managers. Prepare to Respond Internal investigations. POC for cooperating with law enforcement authorities. 20 Perkins Coie LLP PerkinsCoie.com

21 Questions? Contact: Barak Cohen Partner, Perkins Coie Perkins Coie LLP PerkinsCoie.com