Spilling The Beans – Trade Secrets and the Industry

Taipei, December 2013

HTC Employees Arrested For Leaking Trade Secrets

Six employees of HTC Corp. were indicted for revealing trade secrets, falsifying expenses and accepting kickbacks from suppliers. Prominent among them was Thomas Chien, VP of Design for HTC, who leaked information about an unlaunched HTC smartphone UI design to a group of individuals in Beijing with whom he was planning to start smartphone design companies in Taiwan and China, rumored to be in cooperation with partners backed by the Chinese government.

The other 5 employees who were accomplices to the wrongdoing were identified as HTC research and development director Wu Chien-hung, HTC senior manager of design and innovation Huang Kuo-ching, senior manager of design and innovation Huang Hung-yi, manufacturing design department manager Hung Chung-yi, and employee Chen Shih-tsou.

A complaint was filed against Chien and two of the above employees with Taiwan’s Bureau of Investigation. Some of the employees got off with settlements, after they showed remorse and were forgiven by HTC. However, Chien reportedly showed no remorse and was turning to all sorts of arguments to try and get away. He was caught when the R&D Center of HTC was raided and he was found to be illegally downloading confidential content.

Which are the local laws coming into play here?

Interestingly, the 3 prime accused, including Chien were held under Article 13 of Taiwan’s Trade Secrets Act which had been revised just earlier that year. The article bans stealing or unauthorized reproduction, revelation and use of key corporate business secrets.

Does the information leaked constitute trade secrets, and how?

If the information is a part of an initiative towards which company invested resources, directed research, is considered by the company as confidential and important in maintaining its competitive position in the industry and for which the company proactively limits access to people who need to have it, as well as requires employees to sign non-disclosure agreements to protect such proprietary information and intelllectual property, then such information qualifies as trade secrets.

If the information is known industry standards or best practices, information that employees learnt and/or skill they acquired over the routine of their everyday work, which was not specifically expected from employer and the employer did not invest resources and supervision into it, that would not qualify as trade secret, unless a confidential relationship exists between employer and employee in which secrecy of the information is implied. Information that is publically disclosed also does not qualify.

In this case, the UI design and specs of a yet-to-be-released phone definitely would qualify as trade secrets as evident from the criteria outlined above. HTC’s statement reveals that they considered this information proprietary and held the event a breach of integrity, ethics and respect for privacy and security.

Implications of the breach for accused

Under Taiwanese law, the breach is punishable by imprisonment of upto 10 years and a fine between $0.1 mn and $1.6 mn. For monetary gain above $1.6 mn by the persons held, the fine is between 2 and 10 times the amount of gain.

What would the accused have to prove to get off the hook?

They would have to prove any one or more of the following:

1) That the information they revealed did not constitute trade secrets.

2) That they were not bound by any non-disclosure, confidentiality or secrecy agreement.

3) That they did not indulge in misappropriation of any information in the first place

Implications of the law on technology and society

When judging cases of this sort, responsibility needs to be maintained, considering the implications of the judgement on society and industry. Laws related to trade secrets should be formulated such that they neither unfairly and unreasonably favor employer nor employee. They should be sufficient enough to protect companies and at the same time, not so restrictive as to hamper employee mobility or to render the very strengths of employees their weakness. Disambiguating between trade secrets and skills and dexterity acquired by employees on the job is extremely significant and material to the judgement in such cases and should be treated with care.The Inevitable Disclosure Doctrine, while neither accepted nor rejected by courts, could be controversial, inadequate and erroneous in making judgements.