Lessons from Intel's Trade-Secret Case

A low-level former employee made off with valuable information by retaining access to company computers after starting a job with a competitor

Allegations of trade-secret theft by an employee of chipmaker Intel (INTC) shed light on the surprising vulnerability of one of the world's biggest and most sophisticated technology companies.

Biswamohan Pani, a low-level engineer at Intel, made off with information valued by Intel at more than $1 billion, according to a Nov. 5 indictment. Pani is due to appear in Boston federal court to be arraigned on Nov. 20.

Pani allegedly used the simplest of ruses to walk away with some of the chipmaker's most valuable and closely guarded information, and Intel later learned of the actions seemingly by chance. The case could provide an object lesson for companies hoping to keep their data from walking out the door with departing staff. "It's amazing how poorly most companies deal with these [information security] issues," says Nick Akerman, a New York lawyer who specializes in trade-secret cases and reviewed court filings in the Pani case. The facts alleged in the indictment reveal "an overall lack of sophistication" in Intel's "ability to prevent this stuff from leaving their company.…For a company that's got this much valuable information, this is terrible."

"Mission-Critical Documents"

One of the most intriguing aspects of the case is that Pani was able to remain an Intel employee—with access to sensitive company data—for days after beginning a job at rival Advanced Micro Devices (AMD). According to court filings, Pani set June 11, 2008, to be his last day at Intel, but said he would be out of the office until that time, making use of accrued vacation time. In fact, Pani began working at AMD on June 2. Yet by also remaining on Intel's payroll, he maintained access to Intel's computer network. Using his Intel-issued laptop, Pani remotely downloaded 13 documents designated as "top secret," prosecutors allege. These "included mission-critical documents describing in detail the processes Intel uses for designing its newest generation of microprocessors," the indictment states.

R. Bradford Bailey, Pani's lawyer, says his client will plead not guilty. Pani "continues to maintain his innocence and is planning a vigorous defense," Bailey says. According to a statement filed in the case by Timothy W. Russell, an agent for the FBI, Pani told investigators in July that he had acquired the information to help his wife, who was also an Intel employee. The indictment states that AMD did not ask Pani to take the information or know that he had taken it. Pani, who is 33 and lives in Worcester, Mass., is no longer employed at AMD. In a statement, AMD notes that it "has cooperated fully with the FBI investigation."

Heard It Through the Grapevine

It is only by chance, according to the government, that Intel learned of Pani's plans to work for a competitor and decided to check if he had made off with confidential files. After receiving a performance review in April of "below expectations," Pani informed Intel on May 29 that he was resigning, according to Russell's statement. In an e-mail to his boss, Pani said a hedge fund was interested in an option-trading strategy he had developed, and that he might "dabble in that for a few months" and otherwise "rest, reflect, and rejuvenate."

Just before Pani returned for his final day at Intel and his exit interview, his boss "heard a rumor" that Pani had accepted a position at AMD, according to Russell's statement. This prompted a review of Pani's actions, which revealed not only that he had downloaded top-secret material, but also that he had copied his Intel laptop's hard drive onto an external storage device.

During a search of Pani's home on July 1, FBI agents found a variety of Intel documents and design drawings, according to Russell's statement.

Akerman, the trade-secret attorney, credits Intel for conducting a swift forensic analysis of Pani's actions once its suspicions were aroused. "Most companies, somebody leaves, they take their computer back, they reimage it [wiping clean the hard drive], they don't even look for this stuff," Akerman says. The vast majority of trade-secret theft, he says, never gets detected. Still, Intel "just happened to stumble across this," Akerman notes. "They're just lucky." Responding to Akerman's criticism of Intel's data security, Intel spokesman Chuck Mulloy says: "There's not anything we can say concerning the views of someone who has never set foot in an Intel building and knows only what is in the public record."

Possible 10 Years in Prison

Indeed, there may be little that Intel or any other company can do to thwart the purloining of trade secrets by some employees, says Christopher P. Stief, a Radnor (Pa.) lawyer who also handles trade-secret cases. "No matter how sophisticated your systems, you're still relying on people," and if a company's own employees engage in deceit, "that's a tough one to guard against," Stief says.

As for Pani's motives, Russell says in his statement: "It appears at this point that Pani obtained Intel's trade secrets to benefit himself in his work at AMD without AMD's knowledge that he was doing so." Stief says Pani's actions are indicative of a fairly frequent impulse among employees changing jobs: to take a bit of work product from their old job with them. Earlier this year, for example, NCR (NCR) filed a civil lawsuit in Ohio alleging that one of its top sales executives had downloaded more than 3,000 NCR files to personal hard drives just before jumping ship to Hewlett-Packard (HPQ), a competitor in bank technology and services. Similar to the Pani case, there was no allegation that HP sought or received the information. In April, NCR won an order requiring the executive to return any material she had taken, and it is now pursuing claims against her in an arbitration.

Because Intel chose to take Pani's case to federal prosecutors, the potential sanctions he faces are far more dire. If convicted of trade-secret theft, he could face up to 10 years in prison.

Before it's here, it's on the Bloomberg Terminal.