In yet another employee misappropriation case, the FBI got involved in the alleged theft of trade secret information for intumescent fire-proofing coating (I don’t know what it is either) from a worldwide paint company with a subsidiary in Houston, Texas. Jensen Zeng was arrested on January 29, 2008, and detained pending further criminal proceedings after being indicted on two counts of trade secrets theft and one count of computer fraud. Although the press release from the FBI doesn’t say it, the charges likely stem from violations of the Economic Espionage Act. Furthermore, there is no indication of a civil suit by the company, I am sure we can expect one.
Based on the brief allegations detailed in the FBI press release, we can begin to pciture the strong case the paint company has made for itself because, if the allegations are proven true, they implemented and sustained an effective trade secrets protection plan (something this blog highly recommends doing if you have any trade secret information which provides value to your company). In the following paragraph from the press release I will highlight the items which are directly related to a trade secrets protection plan.
According to the indictment, Zeng allegedly signed a confidentiality agreement with his employer and was aware of his responsibility to keep and maintain the confidentiality of his employer’s proprietary interest in trade secrets. Between Nov. 1, 2005 and Jan. 29, 2008, Zeng is accused of accessing without authorization his employer’s protected computer system and obtaining the trade secret formula for the intumescent fire-proofing product with the intent to defraud his employer. Zeng is accused of downloading the trade secret formula from the company’s database with the intent to convert the trade secret to the benefit of a person other than his employer on or about Nov. 1, 2005, and again on Jan. 29, 2008, and concealing the formula in a box under the insulation in the attic of his residence. The indictment also alleges Zeng formed his own business in October 2007 for the purpose of marketing intumescent fire-proofing coating.
A trade secrets protection plan is critical to any action for trade secrets whether brought in civil court or pursuant to Federal Laws such as the Economic Espionage Act.
I wrote earlier about the potential legal ramifications of Spygate (the New England Patriots taping of defensive signals) and what is now commonly referred to as Spygate II (the New England Patriots taping of a Rams walk-through practice prior to Super Bowl XXXVI) here.
This article over at ESPN indicates that Sen. Arlen Specter’s investigation of the controversy is being stonewalled. According to Specter, the NFL owners are putting up a united front regarding the controversy in order to put it behind them and move on, and that the NFL is putting so many preconditions on the testimony of Matt Walsh (who apparently knows quite a bit about this whole Spygate issue) that Specter believes that he may never testify.
It seems the NFL might be flexing their muscles in the face of ever increasing scrutiny from Congress. We’ll see how it turns out…
Someone must really be mad that the Patriots lost, because there are now rumblings that coach Bill Belichick and the NFL will come under fire relating to alleged tapes that the Patriots secretly made of a St. Louis Rams walkthrough prior to Super Bowl XXXVI. Read the story by Mike Florio of the Sporting News here.
Many of you will remember that the Patriots were huge underdogs to the Rams (nicknamed “The Greatest Show on Turf” for their explosive offense) in Super Bowl XXXVI, and pulled off the upset to begin the first of their three Super Bowl wins this decade.
What does this have to do with trade secrets, you ask? Good question.
Apparently, there is a chance that the Patriots could be liable under the 1996 Economic Espionage Act which makes theft of trade secrets a federal offense. According to ESPN, Sen. Arlen Spector of Pennsylvania has been sniffing around and has requested a meeting with NFL Commissioner Roger Goodell regarding the destruction of tapes relating to accusations by the New York Jets earlier this year that the Patriots taped their signals from the sideline during a game–a big no-no according to NFL rules. Here’s Sen. Spector’s letters to Commissioner Goodell. I’m sure they will probably discuss the Super Bowl XXXVI controversy, as well, which has exploded in the media in recent days.
So, how does something called the Economic Espionage Act potentially apply to NFL football games. Glad you asked. The Act makes it a crime punishable by fines and imprisonment to steal, take, carry away or obtain by fraud or deception any “trade secret.” It also makes the receipt or possession of trade secrets a federal crime if you know that the information has been stolen.
A “trade secret” is defined by the act as follows:
all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if –
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) 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.
A pretty broad definition–perhaps broad enough to include a secret taping of another team’s walkthrough prior to a Super Bowl. After all, a secret tape of an opponents’ walkthrough could be construed as business information such as a pattern, plan, design, method, technique, process or procedure. And such information definitely derives a benefit from not being known to the opponent (that’s the whole point, right?). And if the Rams took precautions to protect their practices from the public, then it can be construed that the walkthrough is not readily ascertainable through proper means. And if Belichick and/or the Patriots received the tape and knew that it was secretly taped and against NFL rules, then potential punishment under the Act is possible.
The resolution could hinge on the testimony of an individual named Matt Walsh who is the man who apparently taped the Rams walkthrough. His testimony could be enough to land the Patriots, Belichick and the NFL in hot water, depending on who knew what and when. Sen. Spector has already reached out to Walsh.
Keep in mind that this is mainly conjecture and any prosecution depends upon whether a U.S. Attorney believes that a crime may have been committed but, in any event, it will be fascinating to watch as it unfolds, both for prurient interest and to see exactly how far the Economic Espionage Act may stretch. My only question is how a jail stint for Belichick would affect these standings. Stay tuned.