Federal authorities intervene in apparent theft of trade secrets

On this blog, we try to write about intellectual property issues in a variety of industries so that our Florida readers can develop a well-rounded impression of the sorts of copyright, trademark and patents challenges and opportunities faced by 21st century businesses.

Until now, we have not had much of an opportunity to talk about the financial industry, but we recently came across a trade secrets case concerning that exact field.

The case concerns Citadel LLC, a Chicago financial services firm that profits considerably from its “sophisticated” automated trading system. Citadel does not let any other company use its trading system and makes efforts to keep it a secret. Those three elements mean the trading system can be protected as a “trade secret” – information that provides economic benefit, derives economic benefit from not being generally known and is subject to efforts to keep it secret.

In May 2012, federal prosecutors brought an indictment against a former qualitative engineer at Citadel. They allege he had downloaded to non-work equipment many mathematical formulas that Citadel used to predict the movement and performance of securities and investments. It does not seem there is any evidence that he planned to sell the formulas to a competitor, or go to work for a competitor himself, but regardless, those formulas were proprietary information that belonged to the company.

We thought this case was interesting because it pertained to the government pursuing the alleged theft of trade secrets, not just the company from which the trade secrets were allegedly taken. Federal authorities have increasingly realized over the past few years that to protect the U.S. economy, we need to enforce the laws that are meant to help U.S. economics benefit economically from the fruits of their labor.

Source: Chicago Tribune, “Trade-secret cases raise thorny legal issue,” Dec. 7, 2012 Ameet Sachdev, Dec. 7, 2012