Trade Secrets and Unclean Hands
The plaintiff in Scherer Design Group, LLC v. Ahead Engineering LLC, et al., sued a number of former employees who allegedly stole its trade secrets, and successfully obtained a preliminary injunction. The former employees claimed that the firm only discovered the alleged treachery by accessing one of the former employee’s social media and bank accounts (via the employee’s company laptop). The defendants maintained that under these circumstances the doctrine of “unclean hands” should prevent the firm from benefiting from such an unconscionable act. According to the Third Circuit, even if the firm’s monitoring of defendant’s Facebook account “constituted the kind of act that would be viewed as unconscionable, the District Court did not err in concluding the conduct was not related to the claim upon which equitable relief was sought,” which is a necessary element for the doctrine of unclean hands to apply. The appellate court agreed with district court on three grounds in finding that unclean hands is not a defense: (1) Accessing the accounts isn’t what caused the ex-employee to breach his duty of loyalty, (2) the firm had a right to the former employees’ loyalty and could prove their breach of that duty without relying on the surreptitiously obtained Facebook messages, and (3) the firm’s alleged privacy violation and the former employees alleged breach of duty of loyalty are causes of action governed by distinct bodies of law that provide their own separate remedies of misconduct. Dissent: This may be the right outcome, but the firm’s conduct was sufficiently offensive that the district court should take another look.
Huawei Indicted for Theft of Trade Secrets
On January 28, 2019, the government indicted two affiliates of the Chinese company Huawei Technologies (one of the world’s largest communications equipment manufacturers), for theft of trade secrets under the Economic Espionage Act. The indictment filed in the Seattle alleges that the two affiliates began an effort in 2012 to steal trade secrets from a competing telecommunications company. In addition, the government also brought a separate indictment in NYC against Huawei, two of its affiliates, and its Chief Financial Officer, Meng Wanzhou, alleging that Huawei and Meng misrepresented their relationship with their Iranian affiliate, Skycom Tech. Additional allegations include bank fraud, wire fraud, violations of U.S. sanctions on Iran, and conspiracy to obstruct justice related to the investigation. These charges are the latest in the Justice Department’s targeted prosecution of Chinese trade secret and economic espionage cases, or the China Initiative, which the DOJ announced in November 2018. Other recent criminal cases against Chinese companies or individuals working on their behalf include (i) charges against a former Phillips 66 employee and Chinese national who attempted to steal battery technology trade secrets on behalf of a Chinese company, (ii) charges against a Chinese company for attempting to steal technology trade secretsfrom Micron Technology related to the research of development of dynamic random-access memory (DRAM), and (iii) charges against former employees of biotech firm Genentech who attempted to steal trade secrets about the development of cancer drugs to assist a Taiwan-based company.
Chinese Engineer Sentenced to 27 months for Theft of Trade Secrets
A Chinese engineer who, as an employee, stole confidential and proprietary trade secrets related to medical devices from from Edwards Lifesciences Corp. and a Medtronic was sentenced on January 28, 2019, to 27 months in prison by a California federal. Wenfeng Lu, 46, pled guilty in May to six counts of unauthorized possession and attempted possession of trade secrets for a scheme that ran from January 2009 until 2012, when he was arrested. Despite signing numerous contracts acknowledging that he was working with proprietary technology at both companies, Lu copied numerous documents that contained trade secrets from both companies, took them home, put them on his laptop, and then made several trips to the People’s Republic of China, often right after having stolen the intellectual property. According to prosecutors, he’d gotten financing to start his own business in China, where he would make devices used to treat vascular problems with the technology he’d stolen in the United States.