Author: Paul Curwell
Are Australian’s culturally reluctant to take steps to protect our Intellectual Property?
Throughout my career, I have worked with businesses, R&D intensive organisations and universities which make a living commercialising their Intellectual Property (IP). As an undergraduate biotechnology student, I completed a number of internships with research laboratories in Australia and the United States, before working out that wasn’t the right career for me. Later, as a Master of Technology Management student at business school in Brisbane, I wrote my thesis on the protection of IP. I then moved on to a mix of consulting and industry roles, mostly in financial services. Unfortunately, wherever I go in Australia I regularly encounter situations involving IP and trade secrets theft. For example:
- A departing employee who blatantly stole IP from their employer, only to find in-house counsel couldn’t be bothered to take action either against the employee or their new employer (where they were using the stolen assets) as they didn’t consider IP theft a real issue
- Another company not only failed to terminate the IT accounts for multiple employees who had left at the same time for a direct competitor, but also stole their former employer’s laptop and used it and their login credentials to login to their former employer’s IT network from their new employer’s offices to steal the IP they hadn’t already taken, as well as commercial material such as pricing which had been updated since they left
- An employee who had a lucrative contract with a foreign third party to supply the research paid for by their primary employer to the third party, without the knowledge of the primary employer and in breach of their employment contract and fiduciary duty
Based on my experience, I am comfortable saying the culture of IP protection, and the maturity of associated IP protection programs in Australia is low. Australian businesses are overly reliant on legal measures to protect our IP, at the expense of adequate security and insider threat programs. Unfortunately, once your IP is gone, it is very expensive and time consuming to get it back. Having spent almost 20 years working in the fraud and security field I am still amazed at the way in which we protect our confidential information and IP in Australia and the almost complete disregard we show for both protecting these intangible assets and responding when something goes wrong: This is in complete contrast to that of the US and other R&D intensive nations. Slowly, finally, things are starting to change.
‘Trade secrets’ defined for the first time in Australian legislation
In August 2018, the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 recieved royal asset, and now forms part of Australia’s Criminal Code Act 1995 (Cth). Theft of trade secrets and IP is big business globally, and involves both nation states, criminal groups and individuals. The US Trade Representative estimates the cost of trade secrets and IP theft at US$200bn to $600bn annually. When the perpetrator is a nation state, or acting on behalf of a nation state, this is termed ‘economic espionage’ (as opposed to traditional espionage which focuses on theft of national security related information). When the perpetrator is a competitor or private intelligence company, this is termed ‘industrial espionage’. In Australia, economic espionage is considered a form of Foreign Interference.
Foreign interference is activity that is:
- carried out by, or on behalf of a foreign actor
- coercive, corrupting, deceptive, clandestine
- contrary to Australia’s sovereignty, values and national interests
Foreign interference activities go beyond routine diplomatic influence and may take place alongside espionage activities. A range of sectors are targeted:
- democratic institutions
- education and research
- media and communications
- culturally and linguistically diverse communities
- critical infrastructure
Most Australian’s don’t believe industrial or economic espionage happens here in fortress Australia, but unfortunately these practices are alive and well, its just they rarely make it to the courts or hit the headlines, and victim companies rarely if ever disclose this fact. So what does this new legislation do? Effectively, it “introduces a new offence targeting theft of trade secrets on behalf of a foreign government. This amounts to economic espionage and can severely damage Australia’s national security and economic interests. The new offence will apply to dishonest dealings with trade secrets on behalf of a foreign actor“.
92A.1 Division 92A – Theft of Trade Secrets involving a Foreign Government Principal
The penalty for commiting this offence is 15 years imprisonment.
Division 92A does not cover theft of confidential information or trade secrets where there is no involvement of a foreign government – these cases are addressed under other legislation as well as under common law and will be subject to a separate post.
What is a ‘Foreign Government Principal’?
Under section 90.3 of the legisiation, an offence of trade secrets theft requires the perpetrator (e.g. the employee) to be acting on behalf of a ‘foreign government principal’. Note that the legislation also defines a ‘foreign principal’, which is different. A ‘foreign government principal’ is defined as follows:
- the government of a foreign country or of part of a foreign country;
- an authority of the government of a foreign country;
- an authority of the government of part of a foreign country;
- a foreign local government body or foreign regional government body;
- a company defined under the Act as a foreign public enterprise;
- a body or association defined under the Act as a foreign public enterprise;
- an entity or organisation owned, directed or controlled:
- by a foreign government principal within the meaning of any other paragraph of this definition; or
- by 2 or more such foreign government principals that are foreign government principals in relation to the same foreign country.
Importantly, the legislation is written quite broadly so as to encompass many of the typologies typically found with economic espionage, namely the involvement of national as well as state / province and local level government agencies, associations and similar legal entity types.
Section 70.1 of the Criminal Code 1995 provides a comprehensive definition of a ‘foreign public enterprise’ which encompasses both formal control (i.e. in the form of shareholdings) as well as influence (i.e. indirect or coercive control which might be exerted against a company’s key persons by a foreign government to ensure support).
Three elements of the offence define expectations of employers – IP Protection programs
In addition to the involvement of a ‘foreign government principal’, a person (e.g. employee, contractor) commits an offence under Division 92A if the person dishonestly receives, obtains, takes, copies or duplicates, sells, buys or discloses information; and the following three circumstances exist:
- The information is not generally be known in trade or business, or in that particular trade or business concerned
- The information has a commercial value that would be, or could reasonably be expected to be, destroyed or diminished if the information were communicated
- The owner of the information had made reasonable efforts in the circumstances to prevent that information from becoming generally known
The first circumstance is relatively straight forward: if the information is public or in any way considered ‘common knowledge’, it is not a trade secret. Secondly, like all forms of IP, trade secrets must have some form of commercial value, for example, being used to build or do something which creates a saleable asset or generate revenue. Lastly, the owner of the trade secret(s) must have taken reasonable steps to protect that information from unauthorised disclosure – i.e., the implementation of an IP Protection program.
These elements are common to the definitions of a trade secret in other jurisdictions, such as the United States and Canada. Additionally, the legislation does not provide any guidance on what might be considered ‘reasonable efforts’ by a court to protect such information. However, there is a body of industry better practice around what IP Protection programs should look like which can be used by employers and IP Rights holders to inform these decisions. For more information, have a read of my earlier post on this subject.
- Criminal Code Act 1995 (Cth) Division 92A, www.legislation.gov.au
- Curwell, P. (2021). In business, confidential information is a critical asset, https://forewarnedblog.com/2021/02/21/building-a-program-to-protect-your-sensitive-business-information/
- Department of Home Affairs (2021). Countering Foreign Interference
- Goldstein, P. and Driscoll, S. (2018). Intellectual Property and China: Is China Stealing American IP?, Stanford Law School, https://law.stanford.edu/2018/04/10/intellectual-property-china-china-stealing-american-ip/
- Revised explanatory Memoranda, National Security Legislation Amendment (Espionage and Foreign Interference) Bill 2017 (Cth)
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