What is
noteworthy about the following case is how clearly it demonstrates how stolen
trade secrets can be used to benefit a competitor, or for someone to go into
business against his former employer. It is important to remember that this
happens everyday all over the country, and all over the world.
Not all spies and thieves are caught, and not all victims want the
publicity that going public will likely bring. The Solar Turbine case might
never have come to light had it not been for a couple of twists of fate.
In this case,
Jack Shearer used information from his former employer to start and build a
successful $8 million business. Perhaps if he had been more successful in his
previous employment, he wouldn’t have been fired.
But Shearer was
terminated from Solar Turbines, Inc., of San Diego, after 26 years of
employment. Solar, with 5,100 employees, is a wholly owned subsidiary of
Caterpillar, Inc. The company designs and manufactures industrial gas turbine
engines and turbo machinery systems for the production and transmission of
crude oil, petroleum products and natural gas all over the world. The
machinery generates electricity and thermal energy for a wide variety of
industrial applications. Solar’s equipment is used to provide electrical
power for industrial operations such as oil drilling operations in the Middle
East. Caterpillar is the world’s leading manufacturer of construction
and mining equipment, diesel and natural gas engines, and industrial gas
turbines.
After his
termination, Shearer decided to compete with Solar and started Tejas
Compressor Systems, Inc., Tejas Procurement Services, Inc., and Procurement
Solutions International, all headquartered in Conroe, Texas. Shearer’s original plan was to use the Tejas companies to
overhaul and refurbish Solar turbines and compressors, as well as to provide
field maintenance and service for customers who used equipment originally
manufactured by Solar. 
Using at least
two accomplices – and probably more – working for Solar, Shearer obtained
Solar’s trade secret information from 1993 through 1999. He used the stolen
information, valued at millions of dollars, to manufacture counterfeit Solar
parts through the Tejas companies. His known conspirators were William
Humes and Jack Edward Nafus, who provided him with the necessary plans to have
third party manufacturers counterfeit Solar equipment and parts.
Shearer,
through Tejas, paid Humes and Nafus to provide Solar drawings, plans, and
schematics that included confidential specifications describing the dimensions
and manufacturing details of Solar parts. Shearer was aware that these
were proprietary trade secrets and that stealing them would in all likelihood
harm Solar. Humes received more
than $40,000; Nafus received $26,700, and in 1998 Shearer agreed to pay Nafus
a retainer of $2,000 per month to continue to provide the information Shearer
needed. A third conspirator – whom the FBI will not name and who may have
entered into a sealed plea bargain in exchange for his testimony – received
$42,000.
Shearer
directed his employees to “sanitize” the Solar plans, drawings, designs
and schematics so that a third party wouldn’t be able to tell the original
source. The employees were specifically directed to remove all of Solar’s
proprietary warnings and transfer the information to third party machine shops
where the actual manufacturing of the parts took place.
However, it’s
hard to get good help these days, especially with crooks and spies.
In some cases, Shearer and his employees transferred the stolen Solar
plans, drawings, designs and schematics to those third party machine shops
with Solar’s clearly marked proprietary warnings still affixed and clearly
visible. In addition, to those in
the know, Solar’s parts have a specialized form, fit, and function, and
plans depicting Solar’s parts are readily identifiable as Solar’s
proprietary property. Think of a
fingerprint.
Shearer and his
band were quite successful. Over the years, the Tejas companies acquired a
collection of Solar plans that numbered well into the hundreds.
Tejas provided this information to various third party machine shops
that needed the plans and schematics to manufacture the counterfeit Solar
parts for which Shearer was paying them. However, because the counterfeit
parts produced by these machine shops were not manufactured to Solar’s
precise safety standards, the use of the equipment in the field raised serious
safety concerns.
After producing
a counterfeit part or machine, the third party manufacturers shipped the
finished product either directly to the end user, or to Tejas, which would
then ship out the parts to its customers.
In all cases, Shearer directed his crack sales force to tell end users
that the counterfeit parts were in fact genuine Solar parts. Using as a guide
the original stolen Solar drawings, Shearer instructed its employees to place
identical Solar parts numbers on the counterfeit manufactured parts in order
to deceive the end users. As a nice finishing touch, Shearer had his employees
create completely bogus “Certificates of Compliance” for the counterfeit
parts. These were similar to
legitimate Solar certificates and were created specifically for the
unsuspecting customers that requested proof that what they were receiving
were, in fact, genuine Solar parts.
As if all of
this wasn’t enough, Shearer, on behalf of his third company, Procurement
Solutions International, also purchased stolen trade secret information on
Solar fuel control valves for its turbine engine. Shearer paid Nafus $6,500 for this information.
Here’s where
it gets interesting.
While he was
employed at Solar, Shearer lived overseas and serviced a huge sales territory
that included Libya, Jordan, Syria, Lebanon, Iraq, Iran and Saudi Arabia. So,
he had numerous contacts and potential customers in that part of the world.
And it didn’t take him long to capitalize on his contacts.
One of his
primary customers was an Iranian businessman who operated an oil and gas parts
broker business in Sweden. This businessman placed millions of dollars
of orders per year with Tejas. The orders he placed were designed for oil
field applications, but they were all painted desert beige. Some of Tejas
employees became suspicious that the machinery and parts that were ordered by
this Iranian businessman were going to prohibited countries, such as Iran, and
used in Iran’s oil fields, in direct violation of U.S. policy.
Think about
this for a moment: On the one
hand, Shearer doesn’t think twice about committing economic espionage
against his former employer, Solar. But, now Tejas is confronted with the
sticky ethical problem of whether or not to fill the Iranian’s order since
Tejas is now suspicious that doing so might violate U.S. national policy
against providing goods and services to a prohibited country.
By coincidence,
at the same time, one of Tejas’ own suppliers suddenly refused to
manufacture parts for Tejas. Why? The refusal was apparently based merely on
the type of gear Tejas asked to be manufactured since the supplier determined
that it was a proprietary Solar part for a Solar turbine engine located in
Iran. Why would Tejas be ordering a replacement part for a piece of
Solar equipment in Iran?
Additionally,
the supplier told Tejas that it refusal decision was based on the presumption
that manufacturing the requested part would put the company in violation of
the Presidential Order prohibiting sales of such parts to prohibited countries
such as Iran – which was the same dilemma Tejas was facing.
Even crooks and
spies apparently have their limits. One third party manufacturer called Nafus
at Solar to inquire about a price quote for an order that was placed by the
Iranian businessman. The manufacturer learned from Nafus that the type of
shaft it was trying to procure belonged to a turbine unit located in Iraq.
Nafus – the spy who had been freely supplying his employer’s trade secrets
to Shearer for years and years! – suddenly found religion and refused to
provide the requested information unless Tejas could provide verification that
the shaft was not heading to a customer in an embargoed country.
But the bigger
dilemma occurred when Solar brought in the FBI.
Shearer, Humes,
Nafus, as well as the Tejas companies, all pled guilty to conspiracy
to steal trade secrets under the Economic Espionage Act. Shearer was
sentenced to 54 months in prison and three years supervised release, and was
ordered to pay restitution of $7.6 million; Nafus got 21 months, 3 years
supervised release and was ordered to pay $3.8 million restitution; Humes got
27 months, 3 years supervised release and was ordered to pay $3.8 million
restitution. Each of the Tejas businesses and Procurement Solutions
International were placed on five years probation and ordered to pay $7.6
million in restitution.
These sentences are among the longest sentences ever imposed in an
Economic Espionage case. [i]
[i] Department of Justice
sources, website, grand jury presentment, plus DOJ news releases; Carr,
Chris; Morton, Jack; Furniss, Jerry, The Economic Espionage Act: Bear
Trap or Mousetrap, The Texas Intellectual Property Law Journal, Vol.
8, No. 2, Winter 2000, p. 195; website of attorney R. Mark Halligan.
© Copyright 2002 by Steven
Fink, All Rights Reserved. The text of this publication, or any part
thereof, may not be reproduced in any manner whatsoever without written
permission from the publisher or author.
Excerpt from the chapter: 
