An executive who stole his employer’s trade secrets and then used them to benefit his new employer learned the hard way that this type of crime definitely does not pay. In fact, after pleading guilty to theft of trade secrets, he was sentenced to over a year in jail and ordered to pay more than $530,000 in restitution.
Christopher Barry worked at Lutonix, Inc, based in New Hope, Minnesota. He resigned his research and development position in 2015 to become the CEO of a start-up medical device company called Urotronic. On the day before leaving Lutonix, Barry downloaded a plethora of proprietary information onto his personal computer. He later used that information for the benefit of his new employer Urotronic.
State and Federal Law Protect Trade Secrets
State and federal law provide remedies for those victimized by the misappropriation of trade secrets. The Minnesota Uniform Trade Secrets Act defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Federal law, the Defend Trade Secrets Act of 2016, similarly protects against stealing trade secrets and provides civil and criminal remedies for those victimized by trade secret theft. Federal law defines a trade secret as:
all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
The Barry case, while somewhat unique in that it was prosecuted as a criminal matter under federal law, presents several important lessons. First, employers should ensure their trade secrets are carefully secured and monitored. Only those employees with a need to have access to the trade secrets should have access. Once a trade secret is lost, the economic harm to the company is seldom restored.
Second, employers should ensure that new hires are not violating any contractual or statutory obligations, such as non-competition agreements or misappropriation of trade secrets. New employers who could benefit from such stolen information should be leery as well. Barry’s new employer, Urotronic, was spared significant liability based on its alleged lack of knowledge of Barry’s misdeeds but the result could have been far more damaging had such knowledge been proven.
Third, employers should remember that not all proprietary or confidential information will be protected as a trade secret. Employers are well served to protect sensitive business information so it may be legally classified as a trade secret and accordingly be provided maximum protection under the law. For all information that may not be deemed a trade secret under the law, employers should consider obtaining confidentiality and non-disclosure agreements with employees and contractors.
Last, companies with valuable intangible assets must remain vigilant about protecting and enforcing their intellectual property rights, including patents, copyright, trademarks and trade secrets. Registration of protectable intellectual property provides owners with greater statutory protections and redress in the event of misappropriation or infringement.
The Barry case is somewhat unusual in several respects. For one thing, his wrongdoing was discovered, documented, prosecuted and acknowledged, resulting in his plea agreement. Many cases of trade secret theft remain undetected and the former employers are therefore unable to prosecute or obtain restitution.
Employers therefore should safeguard their trade secrets and intellectual property, including registering their protectable interests. The cost of failing to do so generally far outweighs the legal fees of obtaining statutory protections.
Jon L. Farnsworth is a shareholder at Felhaber Larson in Minneapolis, Minnesota. He regularly represents clients in complex intellectual property disputes and aids clients in protecting their intellectual property rights. He can be reached at firstname.lastname@example.org and 612-373-8455.