Former HP VP Malhotra admits stealing trade secrets

Atul Malhotra, former VP of imaging and printing services at Hewlett Packard (HP) pleaded guilty today to stealing trade secrets in a joint prosecution by federal and California authorities. Federal trade secrets prosecutions are relatively rare but — like most federal white collar crimes — they bring a super-sized penalty.

It’s remarkable how stupid seemingly intelligent people can be when they try to get something for nothing. In this case, Malhotra appears to have thought he could win bravery or intelligence points with HP’s management team by cheating on his former employer, IBM. He could not have been more wrong. According to the DOJ press release:

Malhotra admitted that on March 15, 2006, while employed at IBM, he requested and received confidential information concerning IBM Global Services, CC Calibration Metrics. The trade secret information, marked confidential on each page, included data concerning product costs and materials that IBM used to compete in the marketplace. . .

In May 2006, Malhotra became a vice president of imaging and printing services for HP. . . after starting in his new position at HP, Malhotra shared IBM trade secrets with his superiors. On July 25, 2006, Malhotra sent an e-mail to an HP senior vice president with the subject, “For Your Eyes Only,” and attached the trade secret information for which he is charged with sharing.

Two days later, on July 27, 2006, he sent an e-mail to another HP senior vice president with the subject, “For Your Eyes Only – confidential,” and attached the same trade secret information. The court documents also reveal that in the e-mail message, Malhotra noted that knowledge of this information would help specific HP sales teams better understand their competitors’ goals as the teams determined pricing for prospective deals.

The Wall Street Journal reports that an H-P spokeswoman said last month that “in response to the emails, [HP] conducted an internal investigation, terminated Malhotra’s employment from H-P, and reported the activity to appropriate enforcement agencies and to IBM.” So much for HP brownie points.

At sentencing, scheduled for October 29, 2008, Malhotra faces up to 10 years in prison, $250,000 in fines and three years probation. This would be followed, of course, by a life-long felony record. The federal “information” charging Mahotra is posted at Wired.

For those who don’t already know, trade secrets are a special category of intellectual property protected by both state and federal law.  As outlined in my Intellectual Property Primer, trade secrets include just about any information that derives value from non-disclosure that the owner tries to keep secret through reasonable efforts.  Marking pages “confidential” is one form of reasonable effort.

The fact that Mahotra marked the material “For Your Eyes Only – confidential” suggests that he knew that sharing this information was unethical if not illegal.  The fact that he thought that HP officers would approve of his sharing this information raises questions about Mahotra, IBM and HP.  What led him to believe that this action would be viewed favorably at HP?  Hard to say.

Takeaways? Know the law and follow it; ten years is a long time; if you’re going to steal trade secrets and share them, don’t transmit them by e-mail; don’t assume you’ll be a hero for cheating in the competition game; don’t cheat ever but especially not at companies (like HP) that are currently or have recently been under major legal or ethical clouds.  They tend to be more sensitive to this kind of shenanigan than others.