The Rise of Foreign and UK Trade Secret Theft

In 2016, Congress introduced the Defend Trade Secrets Act to protect American companies from foreign trade secret theft. The concern is not unfounded. The FBI has indicated that U.S.-based businesses are increasingly targeted for theft of trade secrets by foreign entities, often with state-sponsorship and backing.[1] For example, the FBI recently convicted Walter Liew, a Chinese business consultant to DuPont, an American conglomerate chemical manufacturing company, for stealing the chemical processes to make a whiter paint and selling it to Chinese companies.[2] Liew took the information he gathered while working for DuPont to China and won contract bids up to almost $30 million. The U.S. government convicted Liew of economic espionage, possession of trade secrets, and tax fraud.

The FBI recently stated that foreign competitors aggressively target and recruit insiders to conduct economic intelligence on United States companies.[3] China is often cited as particularly active in trade secret theft, and specifically cyber-related theft. In 2014, a United States grand jury indicted five Chinese military officials on thirty-one counts, including cyber-espionage.[4] The Attorney General found that the Chinese officials targeted five U.S. companies in search of trade secrets and proprietary information. The defendants had attempted to steal physical files, emails, network credentials, and even installed malware on company computers.

A more recent development occurred in 2015, when a Chinese engineer, Xiwen Huang, pleaded guilty to the theft of trade secrets under a federal criminal statute.[5] After Huang obtained a chemical engineering degree from Auburn University, he worked for numerous U.S. companies and research facilities. During this time, he began a joint venture with Chinese companies to take stolen confidential and proprietary information from U.S. companies back to China in the hope of “contributing toward the societal progress of China.” The stolen trade secrets were valued between $65 million and $150 million.

There are a plethora of similar cases, but foreign trade secret theft is not limited to China. For example, in April 2015, a South Korean company, Kolon Industries, Inc., agreed to pay $360 million to DuPont in settlement after a lengthy trade secret dispute.[6] Kolon pleaded guilty to conspiracy to convert trade secrets by acquiring proprietary information from former DuPont employees. This case marked the first instance where the United States government directly served and criminally charged a foreign corporation, without direct presence in the U.S., based on an international treaty. Given these concerns about the theft of trade secrets outside the United States, the DTSA requires the Attorney General to present a biannual report that addresses multiple issues regarding the international scope of trade secret theft.[7]

The passing of the Defend Trade Secrets Act of 2016 marks the first time the federal government has provided a civil remedy for trade secret misappropriation. Upon the signing of the act, President Obama observed that one of the biggest advantages the United States has in the global economy is innovation: the United States is particularly competitive in creating new services, new goods, new products, new technologies.[8] Obama remarked, “Unfortunately, all too often, some of our competitors, instead of competing with us fairly, are trying to steal these trade secrets from American companies.” According to the Office of the National Counterintelligence Executive, “[t]he United States remains the prime target for foreign economic collection and industrial espionage by virtue of its global technological leadership and innovation.” Today, the misappropriation of trade secrets is estimated to cost American companies between $160 and $480 billion annually.[9]

[1] Randall Coleman, Combating Economic Espionage and Trade Secret Theft, FBI (May 13, 2014), https://www.fbi.gov/news/testimony/combating-economic-espionage-and-trade-secret-theft.

[2] Del Quintin Wilber, Stealing White, Bloomberg (February 4, 2016), http://www.bloomberg.com/features/2016-stealing-dupont-white/.

[3] Coleman, supra note 1.

[4] All defendants were charged in all counts. The named defendants were part of the Chinese People’s Liberation Army. Brett LoGiurato,Here’s What Chinese Military Cyber Hackers Allegedly Stole From US Companies Business Insider (May 19, 2014), http://www.businessinsider.com/us-cyberspying-charges-china-military-details-indictments-2014-5.

[5] Huang pleaded guilty to the theft of trade secrets under 18 U.S.C. 1835(a)(2). He obtained a doctorate in chemical engineering at Auburn University before working for the United States government at various research facilities. See Trade Secrets Institute, USA v. Huang, http://tsi.brooklaw.edu/cases/usa-v-huang.

[6] Trade Secrets Institute, Kolon Pays $360 Million in Settlement to DuPont for Trade Secret Misappropriation, http://tsi.brooklaw.edu/cases/recent_decisions.

[7] 18 U.S.C. § 1890(4)(b).

[8] President Barack Obama, Remarks by the President at Signing of S. 1890 – Defend Trade Secrets Act of 2016 (May 11, 2016).

[9] 162 Cong. Rec. S1630 (daily ed. Apr. 4, 2016) (statement of Sen. Coons).