On February 13, 2020, the United States brought new criminal charges against Chinese telecom giant Huawei Technologies Company, alleging that the company participated in a racketeering conspiracy and conspired to steal trade secrets from companies in the United States. The new charges are in addition to the government’s previous allegations that Huawei committed financial fraud and deliberately evaded U.S. sanctions on Iran and North Korea.
According to the allegations in the superseding indictment, Huawei used various methods to misappropriate intellectual property from its U.S. corporate victims, including by entering into confidentiality agreements whereby it falsely promised that it would not use intellectual property for its own commercial use, by recruiting employees from victim companies to obtain access to confidential intellectual property, and by using proxies, such as scientists at research institutions or third-party companies, to gain access to victims’ intellectual property and then provide the confidential information to Huawei. According to the indictment, one way that Huawei incentivized the misappropriation of trade secrets was by implementing a bonus program for its employees who obtained confidential information from competitors. Under the program, Huawei created a formal reward scale that paid employees of Huawei affiliates for stealing information from competitors based on the value of the information provided. The superseding indictment further alleges that Huawei engaged in a formal program to cover up and conceal its misappropriation by providing false information and false affidavits in various investigations and litigation.
The racketeering, or RICO, charges allege that Huawei deliberately engaged in a pattern of unlawful conduct, including wire fraud, financial fraud, obstruction of justice, witness tampering, theft of trade secrets, money laundering and copyright infringement, all as part of a scheme to dominate the telecommunications and consumer electronics markets in the countries in which it operated. Criminal RICO charges, historically used to prosecute the Mafia and other organized crime groups, are rarely brought against corporations. The charges are significant because they allow the government to introduce evidence of past conduct that would otherwise fall outside the statute of limitations.
The charges against Huawei reflect the Justice Department’s increased interest in prosecuting trade secret theft and forced technology transfer, as detailed in our previous client alert. The government’s efforts, however, have had decidedly mixed results. Two recent cases in which scientists were charged with trade secret theft ended in acquittals, and the United States voluntarily dismissed a separate case against several individuals. In addition, while President Trump has been actively pressuring other countries not to do business with Huawei, he recently tweeted that he supported the sale of U.S.-made jet engines to China, reflecting a division within the government on how to tackle piracy issues involving high-tech products.
While the government is stepping up its enforcement efforts, companies must remain vigilant and ensure that they have adequate safeguards in place to protect their intellectual property from theft or misappropriation by employees or external business partners. Equally important, they should conduct periodic audits to ensure that policies are being followed and, where necessary, appropriately enforced.
As part of a comprehensive plan to protect its trade secrets, a company should consider taking the following steps:
- Compile a list of trade secrets and other confidential intellectual property. Consider who has access to the information, whether it is truly confidential and how the information derives value from its secrecy.
- Develop and disseminate a written policy for the protection of confidential and trade secret information.
- Train employees who have access to trade secrets on how to identify the company’s confidential and trade secret information and how to recognize potential threats from internal or external sources. Illustrate the risks and consequences by citing specific cases the government has prosecuted. The Huawei case is an important example of a foreign company allegedly using economic espionage pervasively to further its commercial objectives. Employees should be trained to spot red flags that indicate the potential misappropriation of the company’s technology or research.
- Restrict disclosure of confidential and trade secret information, both internally and externally. Within the company, trade secrets should only be accessible by those employees who have a legitimate need to know the information. Take precautions to secure the information, whether it is stored on a computer network or in a physical file system. Implement procedures to ensure that employees who have left the company or changed assignments are precluded from access. Trade secrets should not be disclosed outside the company except for a legitimate business purpose and should always be subject to a nondisclosure or confidentiality agreement that protects the information in perpetuity. Employment and separation agreements should contain similar provisions. Finally, documents or electronic files that contain trade secret information should be marked accordingly.
- Ensure that cybersecurity policies and protocols are up to date and adequately protect the company’s most valuable confidential and trade secret information. Precautions should include encryption, periodic threat assessments and updated policies on data accessibility restrictions.
Compliments of Thompson Hine, a Member of the EACCNY