On September 30, 2024, Siemens Energy Inc. ("Siemens Energy")—a U.S.-based subsidiary of German manufacturing conglomerate Siemens Energy AG—pled guilty to federal criminal charges relating to the misappropriation of confidential competitor information obtained during a competitive bidding process and agreed to pay $104 million as part of its resolution of the U.S. Department of Justice's ("DOJ") investigation into its conduct. This guilty plea comes after several Siemens Energy employees pled guilty to conspiracy to steal trade secrets and other related charges. While DOJ has prosecuted competitors for theft of trade secrets, the size of the criminal resolution against Siemens Energy is notable. In a press release, DOJ emphasized its interest in prosecuting conduct that undermined the integrity of the competitive marketplace. The size of the penalty signals the need for companies participating in high-value commercial bids in the U.S. domestic market to ensure they have governing policies and procedures to prevent the misuse of competitor information.
Siemens Energy's Misappropriation of Confidential Competitor Bid Information
According to court documents filed by the U.S. Attorney's Office for the Eastern District of Virginia, Dominion Energy, Inc. ("Dominion")—a utility company based in Richmond, Virginia—sought to construct a "Peaker" gas turbine plant in Chesterfield, Virginia. To build the plant, Dominion held a competitive, closed bid process and solicited requests for proposals for a project estimated to cost upwards of $500 million. Dominion received bids from Siemens Energy, General Electric Company ("GE"), and Mitsubishi Heavy Industries, Ltd. ("MHI"). All three companies executed non-disclosure agreements, which prohibited the disclosure of confidential and proprietary information exchanged during the bidding process.
After MHI and GE submitted their closed bids to Dominion for the project, a Dominion insider improperly passed sensitive, confidential information on the bids submitted by GE and MHI to a Siemens Energy account manager, who was aware of its confidential nature. The account manager then sent it to another Siemens Energy employee for a comparative analysis. Upon discovering that Siemens Energy had submitted a less competitive bid than GE, Siemens Energy resubmitted a lower, more competitive bid to undercut GE's bid price. Ultimately, Siemens Energy won the bid. DOJ alleged that this improperly obtained information provided Siemens Energy with a competitive advantage in the Dominion bidding process, improved the company's business intelligence and gave Siemens Energy a competitive advantage in future bids.
According to the plea agreement, Siemens Energy's conduct resulted in losses of between $65 million and $150 million to the victims of the scheme, and the company faced a criminal penalty range of $104 million to $208 million under the U.S. Sentencing Guidelines. Siemens Energy received the low end of the range. The plea agreement states Siemens Energy did not receive voluntary disclosure credit because the company did not voluntarily and timely disclose its misconduct to DOJ. Nevertheless, Siemens Energy received credit for the fact that its compliance program first uncovered misconduct, and the company subsequently disclosed the wrongdoing to its competitors. Further, the plea agreement notes that DOJ credited Siemens Energy for its cooperation with the investigation, termination of employees charged by DOJ for their role in the scheme, and updates to its compliance and training program. Those compliance updates included procedures and policies designed to prevent the recurrence of trade secrets theft, misappropriation of competitor confidential information, anti-trust violations, and other unlawful intellectual property acquisitions. The DOJ also acknowledged that Siemens Energy engaged an independent compliance assessment firm to evaluate its compliance and internal control policies. Siemens Energy's cooperation and remediation efforts may have saved it millions in penalties.
Compliance Risks in Private Domestic Bidding
This resolution is particularly noteworthy for companies participating in private, high-value competitive bidding in the private market. The DOJ regularly focuses its enforcement efforts surrounding corruption in procurement procedures in local and federal government bidding, and it has also used the antitrust laws to prosecute conduct that it deems uncompetitive. This case signals that DOJ is prepared to vigorously police the private domestic bidding market using more generalized criminal laws, such as conspiracy and wire fraud. The prospect of robust government criminal enforcement in this space poses a threat beyond civil litigation among the bidding competitors, providing further reason to invest in enhanced compliance policies and procedures regarding the use of confidential competitor information.
Companies engaging in competitive bidding should assess whether their compliance procedures address the risk of mishandling confidential competitor information. At a minimum, companies should include the proper handling of confidential and competitive information as part of their code of ethics. Many companies already require that employees may only use the company's proprietary and confidential information for legitimate business purposes. In light of the Siemens Energy case, a company may also consider safeguards around using other companies' confidential information, including information received during bidding processes. For example, the code of ethics may prohibit employees from sharing or accepting confidential information with or from another party unless a manager has provided approval and the other party has signed a confidentiality agreement approved by the company's counsel.
Our lawyers at Foley Hoag's White Collar Crime & Government Investigations practice represent clients in government investigations and advise them concerning compliance matters, and our lawyers in our intellectual property practice can provide specialized advice on compliance related to the use of confidential commercial information. It remains the case that a company's best defense will be an effective compliance program that can root out conduct before DOJ's involvement or engender cooperation credit in the event of government engagement.
Originally published 16 October 2024
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