Interested in our services?
At PDR CPAs, we leverage our 45+ years of industry expertise to help you keep your finances strong and your business moving forward.
Many manufacturers are concerned about intellectual property being stolen by computer hackers and outsiders coming onto their premises. While these are certainly legitimate concerns, it’s generally more important to focus on insiders — your own staff members, former employees, on-site contractors and partners. Theft of trade secrets is often an inside job, as illustrated by four criminal cases pursued by the U.S. Department of Justice under the Economic Espionage Act. Take a look at how these companies were robbed by their employees:
1. Tse Thow Sun was employed at a Chicago company that provides real-time translation services over the phone to clients with non-English speaking customers.
Sun approached the president of a competing business with an offer to sell confidential information about his company for $3 million, according to court testimony. At a designated time, he delivered to the competition a laptop and hard drive containing trade secrets and confidential information about his employer. He was found guilty in 2003 and sentenced to 15 months in prison, five years of supervised release and a fine of $10,000.
2. In another case, Timothy Kissane worked as a release engineer for a software company based in White Plains, New York. He was responsible for the packaging of multiple components of the company’s software package, including its “source code,” the underlying computer program used to create the software. If a competitor obtains the source code for a program, it could convert features into its own software.
Kissane, who signed an employment contract agreeing to “forever keep secret” confidential information, was terminated from his job. Several weeks later, two of his former employer’s competitors received e-mail messages from “Joe Friday” at a Yahoo! e-mail account, offering the company’s source code for sale. The competitors brought these messages to the attention of the company.
Investigators tracked Kissane down through the Yahoo account. He was sentenced in 2002 to two years in prison for theft of a trade secret
3. Nicholas Daddona of Connecticut was also convicted of stealing trade secrets from a former employer, Fabricated Metal Products, Inc.
While employed by the company, Daddona began working for a competitor, Eyelet Toolmakers, Inc., without Fabricated Metal’s knowledge. Daddona admitted that he stole unique engineering plans stored on Fabricated Metal’s computers and delivered them to Eyelet and its entities.
He was sentenced in 2002 to five months home confinement with electronic monitoring, followed by 36 months of probation. In addition, he was fined $4,000 and ordered to pay $10,000 in restitution to the victim.
4. Finally, William Garrison worked as a service technician at Wendt Corporation for 16 years. He had access to engineering drawings and data that the firm developed as trade secrets over decades. Garrison decided to leave Wendt to secure another position. Prior to his departure, he downloaded thousands of closely-held trade secrets involving the engineering drawings and data that the company developed for its worldwide business. In 2003, he plead guilty to theft of trade secrets in U.S. District Court.
As these four cases illustrate, one of the biggest threats to any organization comes from the people it trusts with important information. There are a number of ways to protect your trade secrets. For example:
These are just a few steps that need to be taken. Protecting trade secrets is a never ending and constantly changing responsibility. Contact your attorney for more information.
In one of the highest profile trade secret cases in recent memory, two former employees of The Coca-Cola Company were sentenced to federal prison for conspiracy to steal Coke’s newer flavor formulas and sell them to Pepsi.
Prosecuted by the U.S. Attorney’s Office for the Northern District of Georgia, one former employee received an eight year sentence while a co-conspirator was sentenced to five years. A third conspirator was also found guilty.
All three were arrested in 2006 following a federal sting operation that was organized after the conspirators contacted Pepsi and the company, in turn, tipped off Coke.
Following the arrests, The Coca-Cola Company’s Chairman and CEO Neville Isdell announced plans to revamp the company’s internal security policies. In a memo to employees, which is posted on the company’s website, Isdell said the breach “underscores the responsibility we each have to be vigilant in protecting our trade secrets. Information is the lifeblood of the company.”
Sign up for industry accounting and tax tips below