Did BAIC Know It Was Joyriding With Ford's Trade Secrets?

8 articles to go: IP Dragon on its way to its 1000th article

November 17, 2010 Xiang Dong Yu, an automobile engineer who worked for Ford Motor Corporation from 1997-2007, pleaded guilty to two counts of theft of trade secrets, as was announced by the Department of Justice of the Eastern District of Michigan.

Between December 20, 2006 and January 2, 2007 he worked for the Ford subsidiary in Shenzhen, China. According to the press release of the Department of Justice:

"Yu copied some 4,000 Ford documents onto an external hard drive, including sensitive Ford design documents. Included in those documents were systems design specifications for the engine/transmission mounting subsystem, electrical distribution system, electric power supply, electrical distribution system, electric power supply, electrical subsystem and generic body module, among others."

In 2007 he resigned and in 2008 started to work for Beijing Automobile Industry Company (BAIC). Maybe Ford found out copycat behaviour at BAIC or maybe Mr Yu left traces, either way, the FBI was investigating and when Mr Yu returned to the U.S. he made a stupendous mistake by bringing his BAIC laptop with the stolen Ford specifications on it.

Read more here.

In Hong Kong trade secrets can be protected by the action of breach of confidentiality,"entirely judge-made law, untrammelled by statutory modification," as Professor Pendleton put it jocularly. The judgements have been very generous to employees: basically everything you can memorise employees can keep. Mr Xiang of course downloaded files on a laptop. In China several statutory laws apply (contract law binds contract parties and unfair competition law can bind third parties, such as BAIC). See regulations relevant to trade secrets in China and Ms Pagnattaro's advice on how to protect trade secrets, here.

Yes, I have left the question of the title unanswered. Could or should BAIC have known that Xiang did not develop the technology during the time when he was working for BAIC? What is your take on the matter. Comments are welcome.

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Ms Pagnattaro Does Not Keep It A Secret How To Protect Your Trade Secret In China

Marisa Anne Pagnattaro wrote a very good paper: ‘‘‘The Google Challenge’’: Enforcement of Noncompete and Trade Secret Agreements for Employees Working in China’, American Business Law Journal Volume 44, Issue 4, 603–637, Winter 2007.

If you don't need to share a product, idea or ingredient with the world, then don't. Keep it a business secret, just like Coca-Cola who never patented its drink's ingredients. Easier said than done, though. At Coca-Cola only two people in the board of directors have each half the number combination to a safe. And there are a lot of things you should pay attention to protecting your trade secret. Trade secret is considered often as the ugly stepdaughter of the IP system. But it can be very effective.

In China the Provisional Regulations of the State Council on Technology Transfer, promulgated
January 10, 1985, and the Regulations on the Administration of Technology Acquisition Contracts, May 24, 1985, hereinafter Technology Acquisition Regulations Detailed Rules and Regulations for the Implementation of the Regulations on the Administration of Technology Import Contracts, December 30, 1987, are relevant. However, all of these rules and regulations are contract based and, accordingly, are not binding on third parties. Additionally, no legal penalties are specified; the only remedy is for
breach of agreement.

The Law Against Unfair Competition, September 2, 1993, and Regional regulations: Labour Contract Regulations of Shanghai Municipality, effective May 1, 2002.

Ms Pagnattaro illustrates the relevance of protecting trade secrets by showing the case of Dr. Kai-fu Lee who first worked for Microsoft and then for Google. Even more interesting is the conclusions she is drawing from this case.

The duration of the noncompete agreement should be limited to the amount that is just enough to protect the employer. "The longer the period, the more evidence you need to prove that the period is reasonable and necessary to protect against unfair competition and not an undue restrain on the employee’s right to work."

Limit the Scope of the Information covered by the noncompete agreement. "It is advisable that the noncompete clause expressly states that it is designed to preserve business secrets, thereby tying the agreement to a legitimate business reason and undermining any defense that the agreement is an unfair restriction on labor or creates undue hardship on the employee."

Tailor the geographic scope of the noncompete agreement to protect legitimate business interests.

Provide compensation in exchange for the noncompete agreement.

Limit access to the trade secret information. Files and other places containing trade secrets should be labeled.

Ensure that the information claimed to be a trade secret has economic value and practical applicability realizable utility.

Take active steps to protect the business secret.

The policy should also include penalties for improper use or disclosure of the information and enforcement of the penalties.

Incorporate a provision addressing trade secrets developed by the employee.

Take Action When an Employee Resigns. "Notify new employers of the secrecy obligations after a key employee leaves, the employer may want to follow upon where the employee goes, to protect against breaches of the noncompete agreement as well as the development of any competitive practices that infringe on business secrets to which the former employee was privy."

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