Trade secret cases are fascinating. They give some insight into how companies develop research; how valuable that research is; and the steps these companies take to protect research from being leaked to competitors. Trade secrets are stored on computers, in hard files, or maybe in a lab’s test tubes. But even the most sophisticated passwords and locked doors can’t always stop leaks by an employee determined to do so.
A recent indictment brought against two former Eli Lilly scientists for leaking the company’s research to a Chinese company is a fascinating glimpse into just how easy it is for employees to leak trade secrets, even when the company has implemented a wide array of security procedures to protect those secrets.
The Defendants and “Individual #1”
Guoqing Cao, the first defendant, has been a U.S. citizen since 2002. He worked at Eli Lilly as senior biologist and research advisor from 2005 until 2012. In particular, Cao worked on cardiovascular disease and diabetes drug research. He is charged with six counts of Theft of Trade Secrets and Aiding and Abetting under 18 U.S.C. § 1832(a)(2) and 18 U.S.C. § 2, as well as conspiracy to commit Theft of Trade Secrets under 18 U.S.C. § 1832(a)(2) and 18 U.S.C. § 1832(a)(5).
Shuyu “Dan” Li, has been a U.S. citizen since 2009. He worked at Eli Lilly from 2002 to 2013 as a senior biologist. Li worked on cancer research. Mr. Li was charged with three counts of Theft of Trade secrets and one count of conspiracy to commit Theft of Trade Secrets.
“Individual #1”—presumably a cooperating informant—was born in China (as were the two defendants) and has been a U.S. citizen since 2003. He worked at Eli Lilly as a senior chemist and research advisor from 1998 to 2008. After leaving Eli Lilly, Individual #1 started working for a Chinese competitor of Lilly’s called Jiangsu Hengrui Medicine Company (“Hengrui”).
Eli Lilly’s Research Efforts and Security
The indictment describes the lengthy R&D process that Eli Lilly uses to bring a drug to market, noting that “on average, the process takes ten to fifteen years.” It describes the eight basic steps of the process, from “establishing the disease state” to “clinical trials.” According to the indictment:
The disclosure of Lilly’s strategic focus and interest in a research target at any stage of the drug discovery and development process impairs Lilly’s competitive advantage in significant ways.
The indictment, of course, does not describe the trade secrets that were allegedly leaked. They are simply denoted as “Trade Secret One” through “Trade Secret Eight,” with the barest description of the disease being researched.
To protect this process, Eli Lilly adopted several methods of security:
- Limiting physical access to the company’s offices
- Requiring employee confidentiality agreements that extended beyond the time of employment
- Regular training in security measures and need for confidentiality (sometimes called “Red Book” training at the company)
- Limiting access to computer networks
- Restrictive guidelines about publishing Eli Lilly trade secrets outside the company
The indictment includes several allegations as to how both Mr. Cao and Mr. Li received regular training and reminders about the need to keep the company’s trade secrets safe. It specifically alleges that the two men received such training even after they started leaking those secrets.
The Scheme to Steal Trade Secrets
Much of the indictment focus on Mr. Cao. In early 2010, Mr. Cao sent his resume to Hengrui. He traveled to China in May 2010. Just before the trip, the indictment alleges that Mr. Cao “attached four external storage devices to his Lilly computer.” He did so several other times in 2011. The indictment does not allege what information, if any, Mr. Cao placed on the devices. Individual #1 urged Mr. Cao
to continue recruiting scientists for networking purposes and to collaborate with the submission of Chinese grant applications that would be submitted for funding to support Hengrui’s research and development.
The indictment alleges that Mr. Cao received an employment offer from Hengrui. Shortly after the offer was made, Mr. Cao sent “an e-mail containing Trade Secrets one through Three to Individual #1.” In January 2012, Mr. Cao resigned from Eli Lilly to work for Hengrui.
The Continuing Conspiracy
Mr. Li and Mr. Cao allegedly engaged in a conspiracy to steal trade secrets. After Mr. Cao left Eli Lilly, he communicated with Mr. Li about sending confidential Eli Lilly information about drug trials. In particular, Mr. Li allegedly downloaded and sent to Mr. Cao certain Lilly-authored papers and PowerPoint presentations about research. Mr. Cao would receive the information and send it to Individual #1.
Mr. Cao supposedly sent Mr. Li a list of five research topics in which Mr. Cao was interested. Mr. Li sent more confidential information from Lilly to Mr. Cao for use at Hengrui through email attachments.
The trade secret statute is fairly broad. It prohibits an individual from “knowingly” taking any of the following steps:
- Stealing, appropriating without authorization, conceals or obtains information
- “Copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends mails, communicates or conveys such information”
- Receives, buys or possesses such information
- Attempts any of these offenses
- Conspires to commit any of these offenses
There are a few other requirements. First, the defendant must have the “intent to convert a trade secret.” Second, the trade secret must be related to a product that is to be placed in interstate or foreign commerce.” Third, the action must have been taken for “the economic benefit of anyone other than the owner.” Fourth, the defendant must have done so “intending or knowing that the offense will injury any owner of that trade secret.”
If (and this is a big “if”) the allegations of the indictment are true, then it appears the government has made out a strong case here. It’s possible, I suppose, that Mr. Cao may argue that they were simply sending the information to show the quality of his work to obtain a new position. And perhaps Mr. Li will argue he did not know that Mr. Cao was sharing the information with one of Lilly’s competitors.
Had the two defendants moved to China, they’d likely be out of reach of the Department of Justice. But they both live near Indianapolis. They were arrested October 1, and bail was denied. Each count carries a possible 10 year sentence.
Having worked in the field of clinical trials I know the importance of keeping this information confidential especially from other competitors. I hope they are found guilty!
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