HTC Execs Arrested for Allegedly Selling Trade Secrets to China: Why U.S. Companies Should Take Note

3 minute read | September.10.2013

The recent arrest and likely prosecution of three executives at Taiwanese smartphone giant HTC Corporation may foreshadow an era of tougher prosecutions under Taiwan’s newly amended Trade Secrets Act. Although the arrests allegedly target the leaking of Taiwanese trade secrets to China, the case could also signal changes for U.S. companies seeking to recruit talent from Taiwan.

On August 31, 2013, three top HTC product designers were arrested in Taiwan on suspicion of stealing trade secrets and submitting fraudulent expense claims after HTC filed a complaint with the Taiwan Investigation Bureau. The trio allegedly planned to set up a competing design company and stole trade secrets related to HTC’s upcoming “Sense 6.0 UI” design. In addition, they allegedly submitted false commission fees from an external design firm, although the design work was performed in-house.

An additional layer of intrigue and scandal came to light when reports surfaced that the arrested executives were allegedly passing on the confidential information to the Chengdu city government in China (although it is unclear thus far whether the executives succeeded in passing off any secrets). According to these reports, the Chengdu government was prepared to pay for the start-up costs of the competing company in exchange for the HTC trade secrets.

The arrest of the HTC executives will likely be the first high-profile test of Taiwan’s recently toughened criminal Trade Secrets Act. Earlier this year, Taiwan amended the Act because of increasing concern about unlawful trade secret disclosure to competing companies in China and South Korea. The amendment implemented tougher penalties against offenders who illegally acquire, use, or leak commercial secrets, including increased jail time and fines.

The act calls for even steeper penalties for international industrial espionage. In cases where the perpetrator steals trade secrets for the purpose of using them in foreign jurisdictions, the amended act provides for up to 10 years in prison and fines of up to TWD $50 million (approximately USD $1,675,000). If the offender’s gain exceeds the maximum fine, there can be a further fine of up to ten times the gain. We have seen cases where gains have been measured in the hundreds of millions of dollars, so the “further fine” could become substantial depending on the circumstances. The law also provides for fines against the employer of anyone found to have misappropriated trade secrets.

U.S. employers who recruit Taiwanese talent should take note of these latest developments. Taiwan's passage of a stiffer trade secrets law, followed by a high-profile prosecution, could signal that Taiwan is getting more serious about going after suspected theft of secrets from Taiwanese companies. U.S. companies who have operations in China, South Korea, or other Asian countries should pay particular attention that their subsidiaries and affiliates are taking appropriate steps to ensure that new Taiwanese hires are not bringing with them the trade secrets or confidential information of their former employer, and that they aren't poaching Taiwanese talent to exploit their knowledge of their former employer's secrets.