Trade secrets are an important aspect of intellectual property law, which is why we make a point of writing about them from time to time. Two recent news reports illustrate just how important they have become.
THE FT ARTICLE
There was an article in the Financial Times that dealt with certain Chinese organisations' theft of intellectual property, and how America is struggling to counter this.
The stats
The article makes the startling point that "about 80% of economic espionage prosecutions brought by the US Department of Justice allege conduct that would benefit the Chinese state." The article goes on to say that a 2017 estimate put the cost of stolen trade secrets, pirated software and counterfeiting by Chinese organisations at between USD225 and USD600-billion per year.
Many Chinese organisations, we're told, is becoming "more and more aggressive". In 2020, FBI Director Christopher Way described theft by Chinese organisations as the "greatest long-term threat" to US economic stability. He went on to talk of one of the "largest transfers of wealth in human history". The technologies most affected by theft include biotech, nanotech, agricultural technology and quantum computing.
Cultural sensitivities and reflection
The FT article goes on to make the point that there are sensitivities surrounding the fact that so many of the culprits are Chinese. According to a study, 90% of those convicted in the USA were of Chinese heritage. We're told that a 2018 US program to catch scientist spies was in fact scrapped because of criticism of racial profiling and discrimination. It appears that the prosecution of trade secret cases has led to a certain degree of reputational damage. There are suggestions that US authorities should both avoid racial profiling and increase the scientific expertise of law enforcement so that enforcement cases don't fail.
But there are also suggestions that China might want to "reflect on the damage its state-directed tech espionage operations are doing to its reputation". The article goes on to suggest that "for Beijing, the costs of such piracy may already be outweighing the gains".
A lengthy stretch
On 9 May 2022 the US Department of Justice, Office of Public Affairs, issued a statement headed "Chemist sentenced for stealing trade secrets, economic espionage and wire fraud."
The statement tells of the sentencing of Xiaorong You, aka Shannon You, who was sentenced to 14 years in prison for a "scheme to steal trade secrets, engage in economic espionage and commit fraud". This followed a conviction of conspiracy to commit trade secret theft, conspiracy to commit economic espionage and wire fraud.
A Justice Department spokesperson said that "the defendant stole valuable trade secrets and intended to use them to benefit not only a foreign company, but also the government of China." He went on to say that "the sentence reflects the seriousness of the offence, as well as the DOJ's commitment to protect our nation's security by investigating and prosecuting those who steal US companies' intellectual property."
The Justice Department spokesperson finished with these words: ". in the current global state of commerce, corporations are forced to place an increased emphasis on the protection of trade secrets and intellectual property. The FBI will not stand by while any nation-state attempts to steal or incentivize the theft of trade secrets from successful corporations."
It's not rocket science, it's Coke cans
It's worth noting that the technology involved in the You case did not have any military application, or indeed any of the other high-tech applications that you might associate with the theft of trade secrets. In fact, the technology related to soft drinks, more particularly formulations for bisphenol-A-free (BPA-free) coatings for the inside of beverage cans. Apparently, You gained access to this technology whilst working for Coca-Cola in the USA. You stole the secrets in order to set up a factory in China, where she received significant funding from the state.
Some brief words about trade secrets in South Africa
In South Africa, trade secrets are protected under the delict (tort) of unlawful competition, which is a common law action. We know from various court cases that competition is unlawful when it "involves a wrongful interference with another's right as a trader". Or when it involves a "deliberate misappropriation and filching of the products of another's skill and labour". There are three requirements in order for information to qualify as a trade secret - it must have industrial application, it must be confidential, and it must have an economic value.
Importantly, active steps must be taken in order to effectively protect trade secrets. Such steps should include appropriate policies dealing with the storage of, and access to trade secrets within an organisation, actively managing access to trade secrets, appropriate confidentiality clauses in employment agreements, and disclosure of trade secrets to third parties subject to robust non-disclosure obligations only.
Trade secrets can be valuable intellectual property assets and it is accordingly important to treat it as such.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
