What is Corporate Espionage, Industrial Espionage, Cyber Espionage, and Economic Espionage? The DOJ Explains …

Cyber Espionage - fact or fiction?

Cyber Espionage – fact or fiction?

What is Cyber Espionage?

Corporate espionage, industrial espionage, and cyber espionage all generally mean the same thing: (1) intentionally targeting or acquiring trade secrets of companies to benefit any foreign government, foreign instrumentality, or foreign agent, (FBI) which means, in simpler terms, (2) espionage conducted to gain a commercial advantage (Wikipedia).

What is this not? This is not espionage to gain a national security advantage — it is to gain economic advantage. Of course, it could be argued that this is a distinction without a difference as an economic advantage could certainly help on national security matters as well, but that is going down too deep into the weeds. You need to understand the distinction.

I have been writing about cyber espionage for a while,

And, I have spoken about it at seminars where many people probably thought I was making that stuff up — you know, about the big bad conspiracy by foreign governments to steal valuable intellectual property from US businesses to give their countries’ businesses a competitive advantage.

But I have to admit, it is really nice to have validation from a reputable source — the United States Department of Justice.

An Example of Cyber Espionage

This week the news is abuzz about a lawsuit brought by the United States Department of Justice in the United States District Court for the Western District of Pennsylvania against five officers of the Chinese People’s Liberation Army: Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu and Gu Chunhui.

The Indictment charges the Chinese officers with six offenses:

  1. Conspiring to commit computer fraud and abuse (Computer Fraud and Abuse Act, 18 U.S.C. § 1030(b));
  2. Wrongful access of a protected computer for financial gain (Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030(a)(2)(C), 1030(c)(2)(B)(i)-(iii), and 2);
  3. Wrongful transmission to damage a protected computer (Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030(a)(5)(A), 1030(c)(4)(B), and 2);
  4. Aggravated identity theft (Identity Theft Act, 18 U.S.C. §§ 1028A(a)(1), (b), (c)(4), and 2);
  5. Economic espionage (Economic Espionage Act, 18 U.S.C. §§ 1831(a)(2), (a)(4), and 2); and
  6. Trade secret theft (Trade Secrets Act, 18 U.S.C. §§ 1832(a)(2), (a)(4), and 2).

The Indictment, based off of an FBI investigation, alleges that from 2006 to 2014 the officers actions targeted six US companies (Westinghouse Electric Co. (Westinghouse), U.S. subsidiaries of SolarWorld AG (SolarWorld), United States Steel Corp. (U.S. Steel), Allegheny Technologies Inc. (ATI), the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) and Alcoa Inc.) with hacking into the computer systems of the companies and engaging in the following conduct (see DOJ Summary):

Westinghouse

In 2010, while Westinghouse was building four AP1000 power plants in China and negotiating other terms of the construction with a Chinese SOE (SOE-1), including technology transfers, Sun stole confidential and proprietary technical and design specifications for pipes, pipe supports, and pipe routing within the AP1000 plant buildings.

Additionally, in 2010 and 2011, while Westinghouse was exploring other business ventures with SOE-1, Sun stole sensitive, non-public, and deliberative e-mails belonging to senior decision-makers responsible for Westinghouse’s business relationship with SOE-1.

Solarworld

In 2012, at about the same time the Commerce Department found that Chinese solar product manufacturers had “dumped” products into U.S. markets at prices below fair value, Wen and at least one other, unidentified co-conspirator stole thousands of files including information about SolarWorld’s cash flow, manufacturing metrics, production line information, costs, and privileged attorney-client communications relating to ongoing trade litigation, among other things.  Such information would have enabled a Chinese competitor to target SolarWorld’s business operations aggressively from a variety of angles.

U.S. Steel

In 2010, U.S. Steel was participating in trade cases with Chinese steel companies, including one particular state-owned enterprise (SOE-2). Shortly before the scheduled release of a preliminary determination in one such litigation, Sun sent spearphishing e-mails to U.S. Steel employees, some of whom were in a division associated with the litigation. Some of these e-mails resulted in the installation of malware on U.S. Steel computers. Three days later, Wang stole hostnames and descriptions of U.S. Steel computers (including those that controlled physical access to company facilities and mobile device access to company networks). Wang thereafter took steps to identify and exploit vulnerable servers on that list.

ATI

In 2012, ATI was engaged in a joint venture with SOE-2, competed with SOE-2, and was involved in a trade dispute with SOE-2. In April of that year, Wen gained access to ATI’s network and stole network credentials for virtually every ATI employee.

USW

In 2012, USW was involved in public disputes over Chinese trade practices in at least two industries. At or about the time USW issued public statements regarding those trade disputes and related legislative proposals, Wen stole e-mails from senior USW employees containing sensitive, non-public, and deliberative information about USW strategies, including strategies related to pending trade disputes. USW’s computers continued to beacon to the conspiracy’s infrastructure until at least early 2013.

Alcoa

About three weeks after Alcoa announced a partnership with a Chinese state-owned enterprise (SOE-3) in February 2008, Sun sent a spearphishing e-mail to Alcoa. Thereafter, in or about June 2008, unidentified individuals stole thousands of e-mail messages and attachments from Alcoa’s computers, including internal discussions concerning that transaction.

Does Your Business Have Trade Secrets?

If your business has trade secrets (and it does), you must protect them. To do this you need to take affirmative steps to identify those trade secrets and implement policies and procedures to protect them from disclosure, whether intentionally or unintentionally, by insiders and outsiders alike. I have made it easy for you to get started.

All you need to do is use this free guide that I prepared to walk you through the process and, of course, feel free to let me know if you have any questions along the way: Texas Business Guide: Identifying and Protecting Trade Secrets Under the (New) Texas Uniform Trade Secrets Act

 

 


About the author

Shawn Tuma is a lawyer who is experienced in advising clients on digital business risk which includes complex digital information law and intellectual property issues. This includes things such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act; helping companies with data security issues from assessing their data security strengths and vulnerabilities, helping them implement policies and procedures for better securing their data, preparing data breach incident response plans, leading them through responses to a data breach, and litigating disputes that have arisen from data breaches. Shawn is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as throughout the nation pro hac vice). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.

Collin County Bench Bar Presentation on Cyber Risks to Lawyers #CCBBF

Collin County Bench Bar Presentation Digital Information Law

Collin County Bench Bar Presentation Digital Information Law

This morning I have the privilege of speaking at the Collin County Bench Bar Conference and talking with a tremendous group of Collin County Judges and Lawyers about the risks that lawyers, their clients, and their law practices face from data insecurity issues.

Here is the Prezi presentation that I will be using – take a look and tell me what you think! Cyber Fraud, Data Breaches, and Corporate Espionage: How They Impact Your Law Practice

p.s. The theme for the weekend is The Kentucky Derby if you were wondering how the horse fit in!

Corporate Espionage: Hacking A Company Through A Chinese Restaurant Takeout Menu

Photo Credit: country_boy_shane via Compfight cc

Photo Credit: country_boy_shane via Compfight cc

Corporate espionage (industrial espionage) is a favorite topic of mine. I have written and presented on the subject quite a bit and, while I am never sure how my readers react when I write about this, I do carefully watch the look on my audience members’ faces when I first mention the issue. The story their eyes tell is interesting.

The story of “why should I care about this?”

At first they usually have a glazed over look with no emotion or reaction — as if they are thinking “this is just another lawyer using fancy lawyer words but whatever he is talking about, it doesn’t apply to anything that I do” and they politely sit there feigning paying attention.

And then, I tell them about the cases where Chinese state-sponsored groups had “insiders” planted in companies like Motorola or DuPont to steal their proprietary trade secrets. Their reaction does not change — as if they are thinking “yeah, ok, whatever, my company is not Motorola or DuPont or anything like it — we are a small shop and nobody cares that much about what we have.”

And then, trying to get their attention with something they have heard about, I mention Target and the massive and expensive Target breach. Their reaction does not change — as if they are thinking “dude, why are you telling me this? My company is nothing like Target — we could barely even be a supplier to Target, why would anyone care about us?”

And then, I ask them if they have ever heard of Fazio Mechanical Services — knowing they have no idea of who that is.

Blank stares.

So I ask them to raise their hands if they’ve ever heard of Fazio Mechanical Services — and usually no one raises their hands but at least now they are listening …

So I go on to explain that

  • Fazio Mechanical Services is (or should I say was) a vendor to Target and that it was a breach of Fazio’s computer system through an email spear phishing attack that ultimately allowed the hackers to breach the Target system;
  • While no one may have cared about getting Fazio’s information, Fazio’s system was very valuable to the hackers because it provided an intrusion point into the Target system — which made attacking Fazio very valuable, strategically, to the hackers;
  • Hackers are smart and very strategic and now that they have seen a great example of how effective using indirect methods, such as third party vendors, to attack their primary target has been and they will likely do it again;
  • Even if they do not believe their company is a high value target to hackers, if one of their suppliers, vendors, or other business associates may be, it could be their system that is used to become that intrusion point to reach the high value target, and
  • If that were to happen, their business would likely be the next Fazio and they would probably be looking for new employment.

What does this have to do with hacking through a Chinese Restaurant Takeout Menu (website)?

This usually brings the abstract notion of “corporate espionage” to reality for them. I was reminded of this when I read a recent article in the New York Times titled Hackers Lurking in Vents and Soda Machines that provides a great explanation of how hackers use this indirect method of attack on their primary targets. Here are a few poignant quotes but you should read the whole article:

Unable to breach the computer network at a big oil company, hackers infected with malware the online menu of a Chinese restaurant that was popular with employees. When the workers browsed the menu, they inadvertently downloaded code that gave the attackers a foothold in the business’s vast computer network.

*   *   *

Hackers in the recent Target payment card breach gained access to the retailer’s records through its heating and cooling system. In other cases, hackers have used printers, thermostats and videoconferencing equipment.

Companies have always needed to be diligent in keeping ahead of hackers — email and leaky employee devices are an old problem — but the situation has grown increasingly complex and urgent as countless third parties are granted remote access to corporate systems. This access comes through software controlling all kinds of services a company needs: heating, ventilation and air-conditioning; billing, expense and human-resources management systems; graphics and data analytics functions; health insurance providers; and even vending machines.

Full Article: http://www.nytimes.com/2014/04/08/technology/the-spy-in-the-soda-machine.html?ref=technology&_r=0.

This is a serious problem — even your company needs to pay attention to it, even if no one in your company likes Chinese takeout.


 

About the author

Shawn Tuma is a lawyer who is experienced in advising clients on complex digital information law and intellectual property issues. These issues include things such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act; helping companies with data security issues from assessing their data security strengths and vulnerabilities, helping them implement policies and procedures for better securing their data, preparing data breach incident response plans, leading them through responses to a data breach, and litigating disputes that have arisen from data breaches. Shawn is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as throughout the nation pro hac vice). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.

3 Steps for Obtaining Trade Secrets in Discovery

Discovery of Trade Secrets

When are trade secrets discoverable?

When can a competitor use litigation to find out your company’s trade secret information?

Let me explain it this way …

What if it was your businesses’ valuable information?

Pause for a moment and imagine that your business is the industry leading innovator in its field because, through your effort and resources, you have developed secret tricks and techniques for how to do things that your customers love and that is what makes your business so successful. You keep these tricks and techniques so secret that only the most trusted people inside your company — those who have a need to know them — have access to and know these secrets.

These secrets are what the law calls trade secrets. They are what most real people (i.e., non-lawyers) call the “crown jewels”, “keys to the kingdom”, or the “secret sauce” — they are that important.

Now, imagine that your fiercest competitor, who is called FierceCo, knows you have secret ways for how you do things, but does not know what those secrets are. FierceCo has tried for years to find out what they are but has never succeeded. Now FierceCo has met an enterprising lawyer and has a new plan.

Would you want your competitor to get your valuable trade secret information simply by suing you?

FierceCo sues your business — for whatever made-up reason it can concoct — and demands that you disclose what your trade secrets are in the discovery in the lawsuit. Will it work? After all of these years of protecting your businesses’ trade secrets from FierceCo, will you now be required to turn over the “keys to the kingdom”?

Maybe, maybe not.

Your secret information that qualifies as trade secrets is privileged and, because of that privilege, the only way FierceCo can get it is if it can satisfy a specific test under the law. And then, even if FierceCo can get access to that information, the purposes for which it can use the information are severely restricted by court order and any violation of that order could land FierceCo in contempt of court. Contempt is not good — trust me on this.

The test under the Texas Common Law

The test that must be met was explained by the Dallas Court of Appeals in In re The Goodyear Tire & Rubber Co., 392 S.W.3d 687 (Tex. App.–Dallas 2010, orig. proceeding). In this case the court said that a party to a lawsuit can refuse to disclose their trade secrets, and prevent others from disclosing its trade secrets if

  1. Not disclosing the trade secrets will not tend to conceal fraud or otherwise work injustice;
  2. The party not wanting to disclose its trade secrets then shows that the information fits the definition of trade secrets; and
  3. The party requesting the information then establishs that the information is necessary for a fair adjudication of its claim or defense.

In our hypothetical case, this means that FierceCo must meet the burden of establishing that the information is necessary for a fair adjudication of its claim or defense or else the court cannot require it to be disclosed. This does not mean simply that it is relevant to the case. Instead, FierceCo “‘must demonstrate with specificity exactly how the lack of the information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat.'” Id. at 696. “This specificity showing must be made with regard to each category of information that” FierceCo requests and for which you assert the trade secret privilege. Id.

“A trial court abuses its discretion if it orders disclosure of trade secrets when the requesting party has not carried its burden to show the information is necessary for a fair adjudication of its claim.” Goodyear, 392 S.W.3d at 693.

The “new” test under the Texas Uniform Trade Secrets Act — substantively, it really is the same

While the 3 step test of Goodyear was under the common law of trade secrets, before Texas enacted the Texas Uniform Trade Secrets Act (TUTSA) (eff. 9/1/13), the test remains substantially the same under TUTSA. TUTSA specifically instructs the Texas courts to look to the cases from other jurisdictions that have adopted their version of the Uniform Trade Secrets Act, Tex. Civ. Prac. & Rem. Code § 134A.008, and the predominate test in those jurisdictions is substantially the same 3 step test.

In Bridgestone Americas Holding, Inc. v. Mayberry, 878 N.E.2d 189, 193 (Ind. 2007), the Supreme Court of Indiana explained the 3 step balancing test that is to be applied under the Uniform Trade Secrets Act when trade secret information is sought in discovery:

  1. The party opposing discovery must show that the information sought is a trade secret and that disclosure would be harmful.
  2. If trade secret status is established, the burden shifts to the party seeking discovery to show that the information is relevant and necessary to bring the matter to trial.
  3. If both parties satisfy their burden, the court must weigh the potential harm of disclosure against the need for the information in reaching a decision.

The focal point of the test should be on proof of real necessity

This 3 step balancing test has been adopted by other states and is the appropriate test for Texas courts to apply under TUTSA. The “necessity” prong is the one that should really be the focal point of the court’s analysis. To meet the burden of establishing the second step of the test, “the party seeking trade secret information cannot simply claim unfairness but must show ‘with specificity how the lack of the information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat.’”

Meanwhile, it is clear from the case law that establishing necessity is the heart of this three-part analysis. When necessity is established, courts frequently hold that the trade secret must be disclosed, albeit with some protection.
“Necessity” means that without discovery of the particular trade secret, the discovering party would be unable to present its case “to the point that an unjust result is a real, rather than a merely possible, threat.” In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 733 (Tex.2003). Implicit in this is the notion that suitable substitutes must be completely lacking.

The requesting party must meet a very high burden to establish a true necessity, as required, in order to obtain the trade secret information. This requires their showing of a true necessity with no suitable substitutes available to provide the requested information.

 

 

About the author

Shawn Tuma is a lawyer who is experienced in advising clients on complex digital information law and intellectual property issues such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act. He is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as across the nation pro hac vice ). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.

Why is PNC Bank Accusing Morgan Stanley of Corporate Espionage and Trade Secret Theft?

You No Let Me Download

©2011 Braydon Fuller

I often write about corporate espionage and trade secrets but I bet some of you may still be trying to imagine real-world scenarios that demonstrate exactly what those terms mean and how they apply. Let me tell you a story and see if it helps it make more sense.

Let’s Talk About Your Business

Let’s say you have a business and you have some really valuable information that your employees use when they are working for your business — the most important of which is the list of your customers and all of the background information you have compiled on those customers. Because you know how valuable this information is, you have had your company’s IT department implement certain technological limits to keep people from downloading that information to USB drives, Dropbox, or emailing it to their Gmail account. You’re really thinking ahead of the curve in trying to safeguard your trade secret information and you’re feeling pretty proud of yourself. And, you should, because most businesses don’t go to such efforts to protect their valuable trade secret information.

Zig Ziglar had a saying about dishonest employees: “If a person is dishonest, I hope he is dumb. I’d hate to have a smart crook working for me.

You, however, hired smart …

Now let’s imagine you had pretty senior and high ranking person in your company decide to leave to go work for one of your competitors where having your customer list (with all the extra information included) would be a great asset to them. And, you later come to believe, the competitor was actively trying to hire your employees and was trying to get them to take your trade secret information and bring it with them. You, however, have thrown a kink in their plans with your on-the-ball IT department’s information security practices. Or so you think.

Before telling you of her intentions to leave your company, this soon-to-be former employee still has access to your trade secret customer list from her computer and decides to access it on the system and pull it up for one last look. Can you imagine what she does next?

She whips out the trusty little smart phone and takes picture after picture after picture of all of the information on her computer monitor! She didn’t download it — she couldn’t. But she has it in several digital images on her mobile phone and when she goes out the door of your company, so too do your highly valuable trade secret customer lists.

Here Is The Real Life Case

This is a storified version of the allegations made by PNC Bank against its former employee, Eileen Daly, and her new employer Morgan Stanley in the case PNC Financial Services Group, Inc. v. Daly and Morgan Stanley, Inc. (Complaint) filed in the United States District Court for the Western District of Pennsylvania on March 14, 2014.

What makes this case (as alleged, anyway) a case of corporate espionage? Simple. It is one company trying to steal the valuable information of another company. It happens all the time. In this case it just so happened to be by an “insider” — a departing employee.

This is Clearly a Trade Secrets Case — But Could it Also Be a CFAA?

PNC sued the defendants for several causes of action, including misappropriation of trade secrets and unfair competition — exactly what you would expect in a case like this, right? It did not, however, sue them for “unauthorized access” in violation of the Computer Fraud and Abuse Act and, while I can think of several reasons why PNC may not have done so, it did get me to wondering if they could have. I mean after all, there have been much weaker CFAA cases filed in Pennsylvania District Courts.

What Does the Statute Say?

To violate the Computer Fraud and Abuse Act  under the most lenient part of the statute, the defendant must “intentionally access[] a computer without authorization or exceed[] authorized access, and thereby obtain[] … information from any protected computer;” 18 U.S.C. § 1030(a)(2)(C). And here, the information could not be downloaded, even though attempted, sooooo …..

Was There an Access?

Maybe so. She did have to access the computer system to retrieve the information and pull it up on her computer monitor. The question of whether her access was unauthorized or exceeded authorized access has not been conclusively determined by the Third Circuit, however, the bulk of the district court cases tend to follow the Strict Access Theory of the Ninth and Fourth Circuits, under which it probably would not have been improper, though in the Fifth and Eleventh Circuits under the Intended Use Theory, it may very well have been.

Was Information Obtained?

Yes, it was. The defendant took pictures of the trade secret customer lists — information — and kept those pictures on her smart phone. That sounds like the obtaining of information to me.

Was There a Loss?

I don’t think so. Without the “loss” there is no civil case unless there is “damage,” which is not very common. For the difference between the two, see Loss and Damage Are Not Interchangeable Under CFAA–District Court Blows Right Past CFAA’s “Loss” Requirement in Sysco Corp. v. Katz

The federal district courts in Pennsylvania are extremely strict when it comes to calculating the loss under 18 U.S.C. § 1030(g). Last year I handled the defense of a civil CFAA case in the Eastern District of Pennsylvania and thoroughly briefed two motions to dismiss that were heavily premised on the Pennsylvania district courts’ strict loss jurisprudence. (Here are the motions: Motion to Dismiss and Motion to Dismiss Amended Complaint) I convinced the plaintiff to dismiss the claims against my client with prejudice before the plaintiff filed a response or the court ruled on the motions, however, I remain very confident that the positions asserted in the motions were consistent with the courts’ standards on this issue and would have been successful. 

Under these standards, I cannot imagine how investigating the taking of pictures of a computer monitor could qualify as a “loss” or “damage” such to get the case past 18 U.S.C. 1030(g) and survive a motion to dismiss. I haven’t put a lot of thought into this, and am not saying it can’t happen, I just haven’t thought of how it would.

My guess is this is why the attorneys representing PNC didn’t bother throwing in a claim for violating the CFAA — well that, and, they probably didn’t see a need for it since they were already in federal court on diversity jurisdiction!

About the author

Shawn Tuma is a lawyer who is experienced in advising clients on complex digital information law and intellectual property issues such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act. He is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as across the nation pro hac vice ). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.

Why Texas Businesses Need a Guide to Help Them Identify and Protect Their Trade Secrets

Texas Business Guide for Identifying and Protecting Trade Secrets

Texas Business Guide: Identifying and Protecting Trade Secrets Under the (New) Texas Uniform Trade Secrets Act

Texas businesses need a guide to help them identify and protect their trade secrets because the nature of today’s business environment demands that they either protect their valuable assets or someone else will take it from them. It really is that simple.

Download the free Guide!

Yes, Your Business Has Trade Secrets

Whether they realize it or not, virtually every business has trade secrets which can be as simple as something unique or remarkable about the way it makes a product or provides a service that sets it apart from the competition. This is something that gives the business a competitive advantage and is usually something it has spent significant time and resources to develop.

Unfortunately, in today’s business environment, honor and integrity are not always the rule and many businesses find their trade secrets are being taken and used to compete against them. This can come from as close as disloyal employees or local competitors to around the world from foreign state‐sponsored organizations engaging in industrial espionage.

Preparation is the Key to Successfully Protecting Your Businesses’ Trade Secrets

The first time many businesses ever gives serious thought to their trade secrets is when they find that they have been taken. It is then that the business begins scrambling to identify its trade secrets and, assuming it can put together a comprehensive list, hopes and prays that it has satisfied the requirements for keeping that information protected under the law of trade secrets so that it can use the legal process to keep it from being used by the businesses’ competitors. To make matters worse, when the disclosure of trade secrets is being threatened and an injunction from a court is all that will stop it, Time is precious and every minutes can make the difference between winning or losing.

Here Is The Guide

Shawn Tuma and the BrittonTuma law firm have prepared a comprehensive Guide to help you understand how to identify and protect your businesses’ trade secrets. The Guide provides a step-by-step explanation of everything from what trade secrets are in general, to how to identify your own businesses’ trade secrets, to the most common threats against trade secrets, and how to protect against those threats.

You can download a free .pdf copy of the Guide by clicking on this link: Texas Business Guide: Identifying and Protecting Trade Secrets Under the (New) Texas Uniform Trade Secrets Act 

Once you have downloaded the Guide, you can be proactive in protecting your businesses’ trade secrets by using it to prepare for the problem before it ever arises and, in doing so, help reduce the chances that the problem will ever arise by:

  1. carefully evaluating what information it has that qualifies as trade secret information;
  2. implementing security measures, policies, and procedures to prevent the disclosure of that information and protect its trade secret status; and,
  3. in the event its trade secrets are ever compromised, be much better prepared to quickly and efficiently make its case in a court of law and successfully prevent others from using its trade secrets.
About the author

Shawn Tuma is a lawyer who is experienced in advising clients on complex intellectual property issues such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act. He is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as across the nation pro hac vice ). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.

Northern District of Texas Court Requires Plaintiffs’ Pre-Discovery Identification of Trade Secrets

The pre-discovery of a plaintiff's alleged trade secrets is like separating the wheat from the chaff.

Separating the wheat from the chaff

A federal court in the Northern District of Texas ordered the plaintiffs to identify the trade secrets they accused the defendants of misappropriating before the parties began discovery.

In this case the plaintiffs sued the defendants alleging they had misappropriated their trade secret information. Before the parties began discovery in the case, the defendants filed a Motion for Order Requiring Pre-Discovery Identification of Trade Secrets asking the court to require the plaintiffs to identify specifically what they were claiming to be their trade secrets before permitting them to engage in discovery. Moreover, the defendants requested that 

Defendants’ Arguments for Requiring Pre-Discovery Identification of Trade Secrets

The defendants argued they were unable to properly prepare their case, or even develop the scope of their discovery, without a more defined list of specifically what trade secrets plaintiffs claimed they had misappropriated. The defendants asked the court to order plaintiffs to provide defendants a list that:

  1. separately breaks out each of the individual alleged trade secrets that Plaintiffs claim Defendants have misappropriated;
  2. identifies all such claims with sufficient particularity so that the reader understands how each such claim differs from public domain information – including the plaintiffs’ public patent filings; and
  3. to the extent that one Defendant is accused of misappropriating information different from the other, lists which trade secrets each defendant allegedly had misappropriated.

The defendants explained 3 reasons for why they were entitled to this information:

  1. gives Defendants fair notice of the specific charges against them;
  2. allows the Court and the parties to set an appropriate scope of discovery and to determine whether particular discovery disputes fall within that scope; and
  3. avoids allowing a plaintiff to mold its claims around whatever it may find in a defendant’s discovery responses in order to prolong a case.

In this Case of First Impression, the Court Orders the Pre-Discovery Identification of Trade Secrets

This was a case of first impression for the United States District Court for the Northern District of Texas and only the second court in the Fifth Circuit to address such a request. The court acknowledged, however, that requiring the pre-discovery identification of trade secrets did represent a growing trend and cited cases from district courts in other circuits in which the plaintiffs were required to do so after balancing the respective interests of the parties. In granting the motion, the court found it had sufficient authority under Rule 16(c)(2)(L) of the Federal Rules of Civil Procedure, which sets forth “a mechanism for fostering the same goals of facilitating discovery in unique cases” by “provid[ing] the district court with broad discretion to adopt [ ] special procedures for managing potentially difficult legal questions, or unusual proof problems.”

The court ordered plaintiffs to describe their alleged trade secrets with reasonable particularity — what does that mean? The court offered several guidelines:

What is Not Reasonable Particularity

The court provided examples of what is not considered reasonable particularity:

Courts have not specifically defined what constitutes “reasonable particularity” but have been descriptive about what will not satisfy the requirement: a laundry list of general categories of alleged “trade secret” information, see Ikon, 2009 WL 4429156, at *3; lengthy, descriptive, but non-specific, paragraphs, see id. at *3 n.3; generally listing software, data processing algorithms, and processes that a plaintiff developed, owned, or licensed; see DeRubeis, 244 F.R.D. at 679, disclosures that only reveal the end results of, or functions performed by, the claimed trade secrets, see id.; and various concepts, elements, or components that make up designs, see Switch, 2012 WL 2342929 at *5.

What May Be Reasonable Particularity

It also provided examples of what other courts have found to be reasonable particularity:

Some courts have also suggested what might constitute reasonable particularity: a list that separately breaks out each of the individual alleged trade secrets and identifies each claim so that the reader understands how each claim differs from public domain filings, see USAA, 289 F.R.D. at 249, or a response in which a plaintiff “specifically describe[s] what particular combination of components renders each of its
designs novel or unique, how the components are combined, and how they operate in unique combination,” see Switch, 2012 WL 2342929 at *5.

What the Court Found Helpful

The court explained what reasoning it found to be helpful in reaching its conclusion:

The undersigned finds instructive the guidelines set forth in those cases attempting to provide guidance as to what “reasonable particularity” means. Specifically, USAA’s holding is helpful and similar to what Defendants propose here. Requiring a list that separately breaks out each individually alleged trade secret would help Defendants craft their discovery responses, provide relevant documents, and limit objections. Requiring Plaintiffs to describe how the claimed trade secret is unique from that which is found in the public domain will be helpful for the same reasons, especially in light of the fact that the processes at issue may also be found in Plaintiffs’ public patent filings. Because the information would be public information and by its nature could not be a trade secret, see 37 C.F.R. § 1.11(a), eliminating those alleged trade secrets would be helpful.

Requiring Plaintiffs to provide a list of trade secrets at issue, defined with reasonable particularity, would be helpful to Plaintiffs as well. Doing so could help Plaintiffs avoid a situation in which they are not entitled to certain discovery because their trade secrets claims are too broad, see Avaya, Inc. v. Cisco Sys., Inc., No. 10-5881, 2011 WL 4962817, at *2-3 (D.N.J. Oct. 18, 2011), or where they are ordered to produce
something that they argue is not relevant. Moreover, this Order will not prevent Plaintiffs from seeking to amend or supplement their list in the future, should the circumstances warrant doing so. See FED. R. CIV. P. 26(e).

What the Court Ordered

The court ordered the plaintiffs to identify the trade secrets they alleged had been misappropriated, with reasonable particularity, before the parties began discovery in the case.

Plaintiffs are ORDERED to provide to Defendants by June 25, 2013, a list of alleged trade secrets that Plaintiffs contend that Defendants misappropriated. The list should identify each alleged trade secret and shoud

(1) separately break out each of the individual alleged trade secrets that Plaintiffs claim Defendants have misappropriated;

(2) identify all such claims with sufficient particularity so that the reader understands how each such claim differs from public domain information – including Plaintiffs’ public patent filings; and

(3), to the extent that one Defendant is accused of misappropriating information different from the other, include a list of which trade secrets each Defendant allegedly misappropriated.

Shawn Tuma was lead counsel for the defense team on this case. If you would like a copy of the court’s Order, the Motion or the Response, please feel free to contact Shawn directly  at 469.635.1335 or stuma@brittontuma.com.

About the author

Shawn Tuma is a lawyer who is experienced in advising clients on complex intellectual property issues such as trade secrets litigation and misappropriation of trade secrets (under common law and the Texas Uniform Trade Secrets Act), unfair competition, and cyber crimes such as the Computer Fraud and Abuse Act. He is a partner at BrittonTuma, a boutique business law firm with offices near the border of Frisco and Plano, Texas which is located minutes from the District Courts of Collin County, Texas and the Plano Court of the United States District Court, Eastern District of Texas. He represents clients in lawsuits across the Dallas / Fort Worth Metroplex including state and federal courts in Collin County, Denton County, Dallas County, and Tarrant County, which are all courts in which he regularly handles cases (as well as across the nation pro hac vice ). Tuma regularly serves as a consultant to other lawyers on issues within his area of expertise and also serves as local counsel for attorneys with cases in the District Courts of Collin County, Texas, the United States District Court, Eastern District of Texas, and the United States District Court, Northern District of Texas.