GM Keeping Close Eye on IP in Saab Liquidation

General Motors says safeguards exist to prevent the leaking of intellectual property as its former Saab Automobile unit heads toward liquidation, but experts warn a threat remains given the Swedish auto maker’s rocky ending.

“If there is a risk, it is from a current employee about to become a former employee,” says Herbert Hart, a director with McAndrews, Held & Malloy – a Chicago law firm that specializes in intellectual-property issues. “It’s an issue even with a seemingly loyal employee in a going concern.”

The risk could be heightened at Saab, which has struggled in its two years of independence from GM.

Strapped for cash, Saab shut down its Trollhattan, Sweden, assembly plant in March after missing supplier payments. Later, the company started missing employee payrolls when it could not lock up an investor to secure its future.

GM sold the unit in 2010 to Dutch businessman Victor Muller for $74 million but maintained a small stake because it owned the technology used in Saab cars.

Over the weekend, GM blocked a life-saving takeover of Saab by Chinese dealership-giant Pang Da and auto maker Zhejiang Youngman Lotus Automobile.

The investors agreed to buy the brand under the premise of growing its business in Asia. But GM sees the expansion plan as a threat to its booming operations in China and fears its IP could end up in competitors’ hands under the new ownership.

Saab on Monday filed for bankruptcy in Sweden, putting an end to the 64-year-old auto maker. A court in Sweden will oversee the company’s receivership shortly.

Saab’s intellectual property will not be sold because most of it still is owned by GM, which says it has taken steps to ensure none of its IP is leaked.

“We have protections in place to make sure there are no unauthorized transfers of intellectual property,” says GM spokesman Jim Cain. “We have a pretty strict set of controls in place.”

Even while under GM’s ownership for 20 years, Saab struggled, and critics complained Detroit never gave the brand the product or independence it needed to thrive. Therefore, the thinking goes, ill will toward GM could still exist.

Few industries place more importance on safeguarding IP than automotive, yet its history is littered with cases of disgruntled or money-hungry employees shopping secret information.

Earlier this year, a former Ford engineer was sentenced to prison for taking trade secrets with him, including designs of future Ford cars, when he left to join a competing auto maker in China.

Indeed, Asia has proven to be a flashpoint of controversy. In 2005, GM filed suit against China-based Chery for allegedly copying the Chevrolet Spark. The case was settled out of court.

More recently, GM wrestled with a similar situation over the past two years at its South Korean operations, where an engineer took plans for existing vehicles with him when he quit for a local operation of Russian auto maker TagAZ. He was sentenced to jail time and three other TagAZ employees were suspended.

In 2009, GM killed a deal to sell its money-losing Opel operation in Europe to parts maker Magna and Russian auto maker GAZ Group, fearing IP would be at stake.

Expect GM to start combing every corner of Saab’s business, says James Malackowski, chairman and CEO of Ocean Tomo, an IP consultancy in Chicago.

GM likely will begin by making sure patents owned by Saab when it was under GM have been transferred to Detroit. “My suspicion is, there would be very little remaining at this point,” Malackowski says.

GM also must search Saab for any “freedom to practice” agreements, which would allow other auto makers to use Saab technology. “Those are often under-examined documents,” he says.

Finally, it would behoove GM to determine which employees are Saab’s top inventors and keep a sharp eye on their future employment. Auto makers typically compel such employees to sign non-disclosure agreements, hoping the threat of legal action will keep their IP safe.

Warns Hart: “Some people feel bound to honor those agreements, and others do not.”

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