Keeping Trade Secrets Secure

A new association has been established to speak for industry on this vital topic.

The ability to protect proprietary technology against misappropriation by competitors is of utmost importance to the kinds of high-tech manufacturing industries critical to Taiwan’s economic success. Both multinational and domestic companies operating here have suffered from attempts by unethical rivals in other markets (mainly China) to gain access to their invaluable trade secrets, often by luring away key personnel with offers of huge bonuses and salaries in exchange for confidential information. The secrets – which could be anything from production processes to marketing plans – may be in the form of purloined files and documents or may simply reside in the memory of the departing employees.

During the past several years, Taiwan has made impressive strides in providing greater legal protection to trade secrets, adopting measures similar to those generally in force in developed economies. A landmark development was passage in 2013 of an amended Trade Secrets Act that imposed criminal penalties for violation of the law. Additional legislation has made more investigative tools available to law-enforcement agencies in trade-secret cases, authorizing them to engage in communications surveillance in certain instances and to provide cooperating witnesses with immunity or reduced sentences. Another change in the law places a greater burden of proof on defendants in trade secrets cases, requiring them to respond to specific allegations.

Although the environment for protecting trade secrets is now much improved, some difficulties remain. A major one is that prosecutors and the Ministry of Justice Investigation Bureau (MJIB) are often reluctant to pursue a case unless the victim can first present concrete evidence. “They want to see very thorough hard evidence – who, what, when, what value? – before agreeing to start an investigation,” says an executive of a company with experience in such cases. “But that is usually very hard to provide with trade secret misappropriation cases.”

Unlike other forms of theft, a company may not even realize it has been victimized until a year or two later when a competitor suddenly brings a product to market that is similar or identical to its own, even though the rival has not appeared to have engaged in R&D or licensed technology from others. The alarm bells ring even more loudly when it is discovered that ex-employees of the victim company are now working for the competing firm.

In the United States, the authorities will generally take action based on such “reasonable suspicion,” in expectation that specific details proving guilt or innocence will emerge in the course of the investigation.

Another obstacle is the lack of familiarity with the operation of high-tech industries on the part of many prosecutors and investigators. “They may find it hard to believe there can be information on a little memory stick that could lead to losses of millions of U.S. dollars or more if in the wrong hands,” says the executive.

Over the past few years, representatives of eight leading technology companies operating in Taiwan – including U.S.-invested, European, and domestic corporations – have occasionally met informally to exchange ideas on trade secret protection and to offer suggestions to the government for dealing with the problem. To strengthen that effort, the companies in the coalition, which include several AmCham Taipei members, have now applied to the Ministry of Interior and received permission to establish a Taiwan Association for Trade Secrets Protection. The inaugural meeting was held last month.

One purpose of the Association is to create an organization to serve as the collective voice of industry in communicating with law-enforcement agencies on how to make the most effective use of the legal foundation already established. Another is to educate companies on what needs to be done internally to ensure that trade secrets are well-protected. “Over 80% of the effort involves things you need to do yourself,” says a ranking official with one of the Association’s founding companies. “It means changing the habits of how we do our day-to-day jobs, even the culture of the company, by instituting controls over downloading, use of media and imaging devices, emailing, and so on. Most employees just don’t like to change their past ways of doing things unless there’s a clear commitment from the very top. The companies also have to be willing to invest in the necessary software and monitoring systems.”

But both government and industry are increasingly aware of the significance of protecting trade secrets. Without confidence that the fruit of their R&D is secure, companies will hesitate to engage in the innovation on which Taiwan’s future prosperity will depend.