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Litigating Trade Secret Claims
In February 2014, a quantitative analyst at a New York hedge fund was arrested for using a decompiler program to view his employer's encrypted trading models and then sending them to his personal e-mail. He allegedly planned to take this information to a new employer, apparently for significant financial incentives. The incident is reminiscent of another widely publicized theft at Goldman Sachs. In 2009, a week before quitting his job to join another trading firm, Sergey Aleynikov, a programmer at Goldman Sachs, downloaded 32 megabytes of a proprietary algorithmic trading code from his employer. The code, which some called Goldman's “secret sauce,” was used for a high-frequency trading (HFT) system, whereby traders use computer algorithms to rapidly trade securities, taking advantage of minute price changes to make a profit. Aleynikov had been offered $1.2 million per year to join a startup seeking to develop its own HFT system. He took that offer and was arrested by FBI agents at Newark Airport before making the jump.
Although high-profile, these are not isolated incidents. Former employees escape with valuable information every day, resulting in substantial, sometimes devastating losses to employers. Some employees claim the trade secrets belong to them; others attempt to explain away their conduct. Devices such as the new untraceable Blackphone, developed by Spanish startup Geeksphone, adds another layer of complication as it encrypts e-mails and text messaging, and has anti-tracking services that will make it much more difficult to discover employee misconduct and gain access to data during litigation.
When facing such inside threats, many employers are aware of the standard precautionary measures to take, such as utilizing invention assignment agreements and confidentiality agreements, requiring passwords and limiting access to key databases. Fewer are prepared, however, with a plan and an immediate response team to address an actual breach. Following three key steps can help to make the difference. This article provides a glimpse into what happens on game day when valuable information is compromised and decisions need to be made fast.
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