IP Law Daily, TRADE SECRETS—9th Cir.: Former Netgear employee’s trade secret theft convictions upheld, (Nov 6, 2014)

By Cheryl Beise, J.D.

Sufficient evidence supported a district court’s judgment convicting Suibin Zhang, a former Netgear project engineer, of five felony counts for stealing trade secrets from Marvell Semiconductor before he began working for Marvell’s chief rival, Broadcom Corporation, the U.S. Court of Appeals in San Francisco has ruled (U.S. v. Zhang, November 5, 2014, Per Curiam).

As a Neatgear employee, Zhang had to Marvell’s secure database (the “extranet”). The day after accepting a position at Broadcom, Zhang used his Netgear account to access the extranet and download and steal trade secret information found in dozens of documents, datasheets, hardware specifications, design guides, functional specifications, application notes, board designs, and other confidential and proprietary items from Marvell.

In May 2012, the federal district court in San Jose found Zhang guilty of three counts of theft and copying of trade secrets for downloading the trade secrets from a secure database (“extranet”), one count of duplication of trade secrets for loading the trade secrets onto a laptop provided by his new employer Broadcom, and one count of possession of stolen trade secrets. Zhang was sentenced to three months in prison, followed by a three-year term of supervised release, and was ordered to pay $75,000 in restitution to Marvell.

On appeal, Zhang raised three contentions: (1) the evidence supporting the verdict was insufficient; (2) the district court erred in admitting a spreadsheet into evidence; and (3) violation of his Sixth Amendment right to a public trial. The Ninth Circuit rejected all three arguments.

Verdict. Sufficient evidence supported the verdict, the court held. First, the evidence showed that Marvell took “reasonable measures” to protect its trade secrets. Marvell “advis[ed] [users] of the existence of a trade secret, limit[ed] access to [the] trade secret on [a] ‘need to know basis,’ and controll[ed] . . . access” to the extranet by requiring usernames and passwords, additional passwords and licenses for certain documents, and the user’s agreement to a Terms of Use.

Second, sufficient evidence supported that Zhang “knowingly” misappropriated trade secrets. Although Zhang did not personally sign a non-disclosure agreement (“NDA”) with Marvell, his acceptance of a limited license agreement incorporating the NDA indicated his familiarity with the document. Substantial circumstantial evidence indicated that Zhang signed an NDA with Netgear. In addition, the extranet website and Terms of Use repeatedly referred to the protection of “Confidential Information.” Zhang’s evasiveness when questioned by the FBI also indicated his awareness of the information’s confidentiality.

Third, sufficient evidence showed that Zhang stole or misappropriated Marvell’s information. The volume and timing of Zhang’s downloads were highly suspicious and unprecedented. Further, Zhang not only downloaded the files, he transferred them to his Broadcom laptop at his new employment.

Fourth, sufficient evidence supported the finding that Zhang intended to convert the Marvell information for his or Broadcom’s economic benefit, even if he was prevented from doing so.

Lastly, sufficient evidence showed that Zhang intended to injure Marvell or knew that his offense would injure Marvell. 18 U.S.C. § 1832 does not require proof of actual injury; it only requires knowledge that a theft “will” injure, the court noted. A rational trier of fact could find that Zhang knew his offense would injure Marvell when he took the secrets with him to one of Marvell’s competitors.

Admission of evidence. Zhang argued that the district court erred in admitting a spreadsheet, which contemporaneously recorded a review of employee files, as a business record. Even assuming the admission of the spreadsheet was in error, the error was harmless, according to the court, because substantial evidence supported the inference that Zhang knew that he was not permitted to obtain and use Marvell documents for his own purposes.

Public trial. The Ninth Circuit also ruled that Zhang’s Sixth Amendment right to public trial was not violated. The district court reasonably decided to close the courtroom for one witness’ testimony in order to protect Marvell’s trade secrets while the witness testified about the contents of certain documents.

The district court’s judgment of conviction was upheld.

The case is No. 13-10143.

Attorneys: Barbara Valliere, Assistant, Office of the U.S. Attorney, for United States. Manuel Urquidez Araujo, Federal Public Defender's Office, for Suibin Zhang.

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