Prison Terms For Foxconn iPad2 Leakers. Any Special Treatment Here?

The Wall Street Journal has the details on a trade secrets casedecided earlier this week:

A Chinese court sentenced three people to prison terms for collaborating to steal information from a key supplier regarding Apple Inc.’s iPad 2 several months before its release, the latest outcome from leaks about products made by the technology giant.

The Shenzhen Bao’an People’s Court, in announcing its decision, said the head of a Chinese electronics-accessories manufacturer allegedly paid a former employee and a then-active employee of Taiwan’s Hon Hai Precision Industry Co. for information about the iPad 2 in order to produce protective cases for the device. Hon Hai, known by its trade name Foxconn, makes the iPad 2 and other gadgets for Apple in its factories in China.

The court said Mr. Xiao was sentenced to 18 months in prison, and fined 150,000 yuan. Mr. Lin was sentenced to 14 months and fined 100,000 yuan, and Ms. Hou was sentenced to a year in prison and fined 30,000 yuan.

This is pure speculation on my part, but based on conversations with a lot of frustrated clients I’ve had here over the years who were unable to do anything about trade secret theft, this news item might be met with an annoyed “What’s so special about those guys?”

Well, I feel your pain. Trade secret cases are very difficult. Is the problem with Chinese law? Sort of, but perhaps not the way you might think. Let’s look at a typical civil litigation approach first (I’ll hit on criminal enforcement later).

Under Chinese law, companies have a very clear cause of action with respect to trade secret theft. Even better, if an employer did its homework when putting together its human resources package, it made sure to include a confidentiality agreement as an attachment to their standard labour contract.

Are those confidentiality agreements enforceable? Absolutely. No problem there.

But here’s the wrinkle. You have an employee who has stolen trade secrets, and that employee signed a confidentiality agreement when he/she was hired. You go to court to fix the problem or get compensation, but you run into some difficulties.

The central problem is evidence. You might know exactly what happened, and who the guilty party is, but can you prove it? Do you have documentation that will hold up in court? This can be extraordinarily difficult, particularly if the bad guys are halfway intelligent and cover their tracks.

If your past trade secret theft case ran into a brick wall in China, chances are it was an evidence problem. China’s judicial system does not have U.S. style pre-trial discovery, and while judges have been more aggressive in recent years in granting plaintiff evidence requests, the limits remain significant.

So what about Foxconn and the iPad2 case? Did these guys get any special treatment?

There’s no doubt that Foxconn has serious political juice in Shenzhen. This is a very rough estimate, but Foxconn employs about 93% of all residents of Southern Guangdong, including retirees, toddlers and water buffalo. So who knows?

The one thing that leaps out here is that this was a criminal case. Putting aside issues relating to civil enforcement, getting the police or the prosecutor’s office to pursue a case like this can be very difficult. What helps? Having a big name and a lot of political clout. So yes, if we want to ask why the police happened to pursue this case, then perhaps you can be a bit frustrated.

If this was just another civil case, though, variability in results is sort of the norm. These are fundamentally fact-specific disputes, and it all comes down to what you can prove. If you have the right docs, you might have relatively smooth sailing, but if not, your case is a non-starter.

If you’re trade secrets case didn’t work out for you, you might be looking at Foxconn here with a bit of jealousy in your heart. Chances are the different result can simply be chalked up to what the winning plaintiff’s lawyer had in his briefcase when he went to court. And if that lawyer is a prosecutor with police investigation power on his side, then the odds of winning get that much better.

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