nomic uncertainty, it felt like the right time
for a forum to routinely discuss intellectual property protection in the paint and
coatings industry.
From time to time the impact of higher
profile instances of such intellectual property thievery have been covered by Tim
Wright in Coatings World’s Editor’s Page
while the financial implications of illegal
competition have been discussed by Dr.
Phil Phillips of Chemark Consulting and
Coatings World’s regular “Business Corner” columnist. So, I talked with the editor at Coatings World about having such
a dialogue. He agreed, and here we go.
Over the course of the next year, this column—IPaint—will broaden and build upon
those discussions and cover specific intellectual property issues relevant to the paint and
coatings industry. The major theme of IPaint
will be trade secret protection, patent protection and the interplay between them.
Some topics to be covered include departing employee practices, in-house trade
secret protection, and best practices such
as trade secret audits to strengthen and
expand intellectual property protection.
We will also get into the sorts of agreements routinely used to protect these sorts
of assets, and the pitfalls of these agreements for which to be on the lookout.
Also, the issue of how to manage trade
secrets in the burgeoning economies of the
world with less well-developed intellectual
property laws will be covered. You will find
how to value these sorts of assets, and how
to best transfer them upon sale, merger or
acquisition in order to extract maximal
value. Or, if you are the purchaser, how to
insure you get the goods for which you
have bargained and paid. You will also
learn how to grow and nurture the intellectual seeds you plant so that they garner the
best possible protection from the get-go.
In doing all of these things, I make you
the reader this promise: IPaint will assiduously avoid dry legal recitations of case
law or “blackbook” strings of citations.
As it turns out, the events that will provide the best education about how to protect our intellectual property assets are
real-world cases of bad guys. Bad guys
who are really bent on the heist, who are
really stealing formulations, ingredients
and processes that are really valuable to
the victim company. The drama of theft
and illegal competition abounds in our industry, so it turns out that we won’t have
to dig too hard to find them.
Take the case of the PPG executive
charged for illegally exporting hundreds of
gallons of a high-performance industrial
epoxy coating to the Chashma 2 nuclear
power plant in Pakistan (owned and operated by the Pakistan Atomic Energy Commission, an entity on the Department of
Commerce’s list of prohibited entities to
whom to export American goods). A former
managing director of PPG Paints Trading (a
wholly-owned Shanghai-located subsidiary
of PPG Industries) Xun Wang was arrested
on June 16, 2011 in Atlanta, Ga.
After PPG Industries sought an export license in January 2006 for the shipments of
the high-tech coatings to Pakistan, it was denied in June of that year.
Wang and her co-conspirators schemed
to, and did in fact, illegally export the
coatings from the U.S. to Chashma 2, via
a third-party distributor in China. The action was intentionally concealed from
PPG Industries that the paint would be delivered to the Pakistani reactor. Instead,
the conspirators falsely stated that the
coatings were to be used at a nuclear
power plant in China, the export of goods
to which would not require a license from
the department of commerce.
Why not just have the coatings reverse-engineered in the U.S. or China? Why not
just take the MSDS for the coatings and
have them made by a contract formulator?
Certainly, there would appear to have been
time enough to do so, as the indictment alleges that Wang and her co-conspirators exported three shipments of coatings from the
United States to Chashma 2 without the required department of commerce license. The
obvious answer is that the apparent ease (in
the eyes of the thieves) of illegally exporting
the coatings significantly out-weighed the
difficulty (perhaps practical impossibility) of
extracting the trade secret formulations.
Or, consider the case of a former Valspar
employee admitting to stealing trade secrets
from the paint maker with plans to take
them to a new employer in China. David
Yen Lee worked as a technical director at
the Wheeling, Ill., facility of Minneapolis-based Valspar from 2006 to 2009, prior to
agreeing to start employment in Shanghai
at Nippon Paint as its vice president of technology and administrator of research and
development. The pocket-sized thumb drive
he had in his possession when he was arrested contained Valspar data worth
USD$7-20 million. Lee ultimately bargained a plea with federal prosecutors and
received a 15-month sentence.
As a technical director at Valspar, Lee
had access to Valspar’s secured internal
computer network, including access to
trade secrets in the form of proprietary
chemical formulas, paint properties calculations, and emerging research and development information. For about four
months prior to his departure, Lee admitted downloading trade secrets from
Valspar’s secured computer system.
According to Dr. Larry Brandenburger,
Valspar’s vice president for research and
development, who knew Lee as a colleague, the departing employee mechanisms in place at the time for detecting
trade secret misappropriation worked.
“It demonstrated to us how critical it is
to apply these techniques to each and
every employee with access to trade secrets, no matter how unlikely you believe
it is that the employee would attempt to
misappropriate your confidential information,” said Brandenburger.
Valspar used lessons learned from the
events surrounding the case to improve
its trade secret protection processes
making them even tighter, according to
Brandenburger.
So, moving forward what I hope is that
you Coatings World readers will open a
dialogue with us about protecting valuable paint and coatings intellectual property assets. Through this dialogue I will
introduce you to tools that you can apply
on a day-to-day basis to protect the “good
luck spit” in your product portfolio. CW
Technology Litigators (McDaniel &
Assoc. P.C.) was founded in 1999 by Steve
McDaniel, Ph.D., J.D. in Austin, Texas.
The firm is a full-service intellectual property law firm with a particular focus on
trade secret protection. For more information visit them online at www.technol-
ogylitigators.com.
