A California state court recently permitted the defamation and libel claims of Lan Lee, a former employee of NetLogic Microsystems, to move forward against Yunchun Li, the wife of the employee’s former business partner.

Li told the FBI and the CEO of NetLogic that Lee was transferring Netlogic’s trade secrets to China (among other things).  Li provided this information to NetLogic and the FBI to keep her husband (another NetLogic employee) from continuing his work with Lee on an outside business opportunity in China, and to protect her family’s financial condition.  When she made the report, Li did not mention her husband’s involvement.  However, the government ultimately tried Lee and Li’s husband for economic espionage and trade secret theft.  Both were ultimately acquitted.  As a result of the criminal investigation and trial, Lee lost his job and spent most of his financial savings on his legal defense.

Lee then filed a civil suit against Li for defamation, libel per se, interference with prospective economic advantage, intentional infliction of emotional distress, and invasion of privacy.  On June 6, 2014, the Court of Appeal of the State of California Sixth Appellate District permitted the defamation and libel claims to move forward. The court found that Li’s statements to the NetLogic CEO were not protected as “in the public interest,” because Li admitted in her criminal trial testimony that she had no basis for asserting that Lee had stolen trade secrets.  Li argued that her statements were her own opinion, which the court rejected because her statements contained provably false factual allegations that Lee was stealing trade secrets. Thus, arguing that such statements were merely “opinions” did not entitle Li to protection from a defamation claim.

Many companies have codes of conduct that require employees to report suspected improper use of trade secrets, as well as suspected trade secret theft.  This civil lawsuit presents a conundrum for companies where the reporting employee has an ulterior motive for making the report.  Here, the reporting employee did not appear to have the company’s best interests in mind when making the report.  Indeed, she made the report for very personal reasons, and now she will have to defend those reasons in a civil lawsuit.

So, what impact does this have on companies looking to prevent trade secret theft?  My takeaway?   A company investigation of trade secret theft should be thorough – looking not only to the content of the report itself, but also the source of the report.  As in any investigation, credibility of the reporter is very important and should be taken into consideration when determining a proper course of action (i.e. a pursuit of civil or criminal remedies).