1. PRESENTATION TITLE CORPORATE ESPIONAGE: Protection, Prevention, Social Media and Prosecution Presented by Audra A. Dial & Clay C. Wheeler

2. CORPORATE ESPIONAGE IN THE NEWS

3. PROTECTION OF IP ASSETS To qualify as a trade secret, an asset must derive economic value from not being generally known and be subject to reasonable degrees of protection. Securing confidential information is equally important. IP assets that do not rise to the level of trade secrets can still be protected as confidential information.

4. GENERAL STRATEGIES TO PROTECT INFORMATION Employment agreements –Ensure employees understand their obligations clearly –Expressly authorize use of electronic information as narrowly as possible –Confidentiality restrictions –Narrowly tailored covenants Computer log-ins and passwords –Restrict levels of access on need-to-know basis Confidential designations, legends, and markings on all confidential information Security cameras, badges, restrictions on access Keep secret information under “lock and key”

5. WHAT IS CORPORATE ESPIONAGE? 18 U.S.C. §§ 1831 and 1832 prohibit theft of trade secrets by persons or business entities with: Knowledge or intent that the theft will benefit any foreign government, foreign instrumentality, or foreign agent, or Knowledge or intent that the theft will benefit anyone other than the owner of the trade secret, and knowing the offense will injure that owner “Trade secrets” are defined broadly, but not without limit Benefit requirement for trade secret theft is limited to “economic” benefit. Statute reaches overseas conduct

6. CRIMINAL PROSECUTION CASE STUDY: VICTIM GOLDMAN SACHS Goldman Sachs programmer copied and transferred hundreds of thousands of lines of proprietary source code for benefit of a competitor Convicted of theft of trade secrets under Economic Espionage Act of 1996 and transportation of stolen property in interstate commerce Sentenced to 97 months in prison, 3 years of supervised release, and $12,500 fine (U.S. v. Aleynikov, No. 1:10-cr-00096 (S.D.N.Y. Feb. 11, 2010) In February 2012, the Second Circuit reversed the conviction on both counts, but left the door open for the government to seek an en banc hearing. –The decision to reverse may have hinged on the “produced for or placed in interstate or foreign commerce” language in §1832(a)

7. WASHINGTON’S REACTION TO THIS THREAT Office of the U.S. Intellectual Property Enforcement Coordinator created in 2008 The Department of Justice Task Force on Intellectual Property created in 2010— monitors and coordinates enforcement Economic Espionage Penalty Enhancement Act of 2011—increased maximum penalties

8. TECHNIQUES OF CORPORATE ESPIONAGE –Theft by an insider (esp. current or former employee) –Exploiting lax password management –Email spam –Manipulation of supplier/customer relationship –Aggressive collection of public information

9. CASE STUDY: MGA ENTERTAINMENT v. MATTEL, INC. Manufacturer of Bratz® dolls alleged that Mattel infiltrated confidential competitor showrooms in order to get an illicit preview of new Bratz® products before they hit market so that Mattel could imitate or copy them, after market for Barbie dolls had declined Alleged violations of, inter alia, Sherman Antitrust Act and California Business Practices Act $309 million judgment entered: $85 million in compensatory damages, $2.5 million in attorneys' fees/costs on trade secret claims, $135 million attorneys' fees and costs on copyright claims MGA Entm’t, Inc. v. Mattel, Inc., No. 2:11CV01063 (C.D. CAL. Feb. 3, 2011)

10. PREVENTION OF CORPORATE ESPIONAGE Remind employees of confidentiality obligations and what information is confidential Audits of compliance with corporate policies Central monitoring of electronic access to information Monitor Internet postings and blogs Password security Global employee “tip line” Anti-eavesdropping techniques

11. INTERNAL INVESTIGATIONS Why conduct an internal investigation? –Identify problems with internal controls –Identify and discipline bad employees –Satisfy disclosure obligations to shareholders, governments or others –Prepare for disclosure to law enforcement

12. BENEFITS OF A WELL-DONE INVESTIGATION China Corporate Espionage Boom Knocks Wind Out of U.S. Companies (Bloomberg 3/15/12) Through forensic data, AMSC determined its engineer in Austria had emailed AMSC’s proprietary source code to Sinovel counterparts. AMSC filed four separate lawsuits against the Chinese company in Chinese courts seeking over $1.2 billion in damages for theft of source code involving wind turbine technology.

13. TO REPORT OR NOT TO REPORT? The determination of whether to involve the criminal authorities can be complicated: –Loss of control of the matter –Subjecting company to government subpoenas and interviews –Risk of disclosure of the trade secret –Increased resources of federal law enforcement The first consideration is how to protect the client from any potential criminal exposure.

14. CIVIL PROSECUTION OPTIONS State Trade Secret Statutes State Business Practices Acts Conversion Unfair Competition Breach of Employment/Confidentiality Agreements Tortious Interference Civil RICO or CFAA Claims

15. RICO ACT (18 U.S.C. § 1961 et seq.) “Pattern of Racketeering” requires two or more predicate acts such as mail/wire fraud, false statements, interstate transport of stolen goods, criminal copyright infringement “Enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity “Injured in his business or property” requires actual, quantifiable injury to business or property

16. COMPUTER FRAUD AND ABUSE ACT (“CFAA”) Provides for civil and criminal remedies against any person who “knowingly and with intent to defraud, accesses a computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value.” 18 U.S.C. § 1030(a)(4)

17. HOW BROAD IS THE CFAA? Agency/Broad: Did the employee use the computer for a disloyal or wrongful purpose? (7 th Circuit) Middle: Did the employee go beyond his employer’s access restrictions, even if he was authorized to use the computer for certain purposes? (1 st, 5 th and 9 th, 11 th Circuits) Plain Language/Narrow: Did the employer authorize the employee to use the computer? (2 nd, 3 rd, 9 th Circuits)

18. CIVIL PROSECUTION CASE STUDY: PAYPAL, INC., ET AL. v. GOOGLE INC. PayPal and eBay filed suit alleging former executives misappropriated “mobile payment” trade secret technology for the benefit of Google, which allegedly recruited and hired executives for that very purpose Alleges claims for misappropriation, breach of contract, interference with contractual relations, unfair competition, breach of fiduciary duties, etc. Seeking, inter alia, injunctive relief and damages PayPal, Inc., et al. v. Google Inc., et al., No. 1-11-CV-201863 (Santa Clara Cty. Super. Ct., Cal. May 26, 2011)

19. CIVIL PROSECUTION CASE STUDY: PHONEDOG.COM Trade secret misappropriation claim against former employee who converted @PhoneDog followers to @Noahkravitz followers upon departure from Phone Dog; trade secrets are Twitter followers Motion to dismiss denied

20. CIVIL PROSECUTION CASE STUDY: ALPHA TIRE SYSTEMS Former marketing manager of Alpha Tire Systems conspired with competitor to steal blueprint for unique mining tire Alleged copyright infringement, trademark infringement, unfair competition, conversion, conspiracy, etc. Jury verdict of $26 million on July 15, 2010 In re: Outsidewall Tire Litig., No. 1:09cv1217 (E.D. Va. Oct. 28, 2009)

21. CIVIL PROSECUTION CASE STUDY: STARWOOD HOTELS v. HILTON HOTELS Starwood alleged that Hilton induced Starwood employees to serve as corporate spies to provide Hilton with Starwood’s confidential development plans and business opportunities for its luxury brands Alleged theft of 100,000+ electronic files Preliminary & permanent injunction; court monitors appointed until 2013; ongoing criminal investigation Starwood Hotels v. Hilton Hotels Corp., No. 09-cv-3862 (S.D.N.Y. Apr. 16, 2009)

22. CRIMINAL PROSECUTION OPTIONS Economic Espionage Act of 1996 National Stolen Property Act Wire Fraud

23. NATIONAL STOLEN PROPERTY ACT Violation requires: 1)Transportation in interstate or foreign commerce of 2)Goods, wares, or merchandise 3)That the Defendant knew were stolen, converted or taken by fraud. 18 U.S.C. § 2314

24. CRIMINAL PROSECUTION CASE STUDY: VICTIM DOW CHEMICAL Former Dow Chemical Co. scientist stole trade secrets and confidential and proprietary information pertaining to Dow’s CPE process and product technology and conspired to sell the technology to various Chinese companies. Sentenced to five years in prison in a Louisiana federal court for selling the rubber-making secrets obtained from Dow and lying under oath U.S. v. Liu, No. 3:05-cr-00085 (M.D. La., February 7, 2011) Liu has filed notice of appeal

25. CRIMINAL PROSECUTION CASE STUDY: VICTIM GOODYEAR British engineers secretly photographed equipment in Goodyear’s Kansas factory to use in designing and manufacturing a similar device for Chinese customer Convicted of, inter alia, trade secret theft, conspiracy, and wire fraud Sentenced to 4 years probation and $1000 fine. Currently on appeal. United States v. Roberts, 3:08-cr-00175 (E.D. Tenn. Dec. 2, 2008)

26. CIVIL & CRIMINAL PROSECUTION CASE STUDY: VICTIM DUPONT Former DuPont employee took proprietary information to Korean company Kolon Industries for manufacture of Kevlar technology Employee convicted and sentenced to 18 months imprisonment for theft of trade secrets and obstruction of justice Civil trial against Kolon, alleging, inter alia, misappropriation, conspiracy to injure, civil conspiracy, and tortious interference with contractual relations ongoing $920 million compensatory + $350K punitive damages against Kolon with finding of spoliation of evidence U.S. v. Mitchell, No. 3:09-cr-00425 (E.D. Va. Dec. 9, 2009) DuPont v. Kolon Indus., Inc., No. 3:09-cv-00058 (E.D. Va. Feb. 3, 2009)

27. CONTACT INFORMATION Audra A. Dial Kilpatrick Townsend Atlanta (404) 815-6307 adial@ktslaw.com Clay C. Wheeler Kilpatrick Townsend Raleigh | Winston-Salem (919) 420-1717 cwheeler@ktslaw.com