Former Applied Materials Employee Convicted of Trade Secret Theft
After four hours of deliberations, on Tuesday, August 24, 2021, a federal jury in California handed down a verdict in the closely-watched criminal trial of four former employees of Applied Materials. The four defendants were charged with stealing and possessing trade secrets of Applied Materials and engaging in a conspiracy to steal its proprietary LCD chip technology to launch a competing start-up. The jury found one defendant guilty of possessing stolen trade secrets, found two defendants not guilty of conspiring to steal Applied Materials’ proprietary technology, and were hung on the charges against a fourth defendant.
The trial of the four former employees commenced on July 27, 2021. In opening, the prosecutors argued that the former employees had stolen proprietary LCD chip technology, trade secrets that Applied Materials had spent six years and millions of dollars developing. Defense counsel, on the other hand, claimed that, after senior management announced that it was closing the defendants’ division, they encouraged one of the defendants, Liang Chen, for months to find investors to fund a spin-off entity before he was terminated in 2012.
During the trial, the jurors heard testimony from FBI agents and Applied Materials’ current and former CEOs, among others. The jury was shown a string of emails in 2012 in which Applied Materials executives stated that they wanted to keep Chen “engaged” so that he would not move to a competitor or lure away “top technical people” after he was terminated by Applied Materials. They were also shown a start-up pitch created by Chen that proposed appointing Mark Pinto, a senior Applied Materials executive, to the board of the start-up.
Counsel for the defendants presented evidence that the claims against them were driven by Applied Materials corporate counsel, who pursued a lawsuit in state court weeks after they were terminated. When the state court refused to issue the temporary restraining order sought by Applied Materials, the company then urged the FBI in early 2013 to investigate and charge the defendants with trade secret theft. Counsel for Applied Materials, defense counsel claimed, did not disclose to the government internal emails showing that executives encouraged Chen to launch a spin-off and showed interest in a potential licensing deal with him.
Trade secret theft is a serious challenge for US companies. According to former FBI Director Robert Mueller III, the “theft of trade secrets and critical technologies . . . costs our nation upwards of $250 billion a year.” The Justice Department, recognizing the threat posed by intellectual property crimes like trade secret theft, has established a Computer Hacking/Intellectual Property (“CHIP”) section and has established specialized CHIP units in U.S. Attorney’s Offices around the country. Nevertheless, criminal prosecutions have been relatively rare and, like in the Applied Materials case, prosecutors often face challenges in proving the claims, including showing that the information in question was truly a “trade secret.”
Departing executives, however, should be concerned about the risk of prosecution, which places their livelihood and liberty in jeopardy. The federal criminal statutes for theft and possession of trade secrets impose (1) $250,000 to $10,000,000 or two to three times the value of the stolen trade secrets in financial penalties; and (2) incarceration for up to 10 to 15 years. And, the experience of being the target of a federal investigation and a defendant in a criminal prosecution is life-altering for the former employee and his or her family. In the Applied Materials prosecution, even though three of the former employees were acquitted, they had to endure a federal prosecution for over nine years.
Departing executives need to be studiously careful about returning confidential information of their employers, regardless of whether it potentially rises to the level of a trade secret under federal or state law. In situations where their activities are likely to be questioned, they should work with their individual counsel to carefully identify and return all data of the company, including data on his or her personal devices and accounts. Even retaining temporary internet files automatically generated by opening company email on personal computers can give a former employer cause to question the former employee’s actions. And, in situations where, like the Applied Materials case, the departing employees are (or have been) negotiating an agreement for post-employment use of the trade secrets, any such agreement should be documented and signed by the company so that they do not have to rely on a “string of emails” in a criminal trial nine years later.