Trade Secrets: Google Sued

Some news showing that anyone can be a defendant and any can be a plaintiff in a trade secrets case. This is from dBTechno: Google Sued By Start-Up Over E-Mail Switching Tool.

"Washington (dbTechno) - Google has been sued by a Chicago start-up company named LimitNone. The two-count lawsuit is over a tool called Google E-Mail Uploader.

The two-count lawsuit states that Google misappropriated trade secrets, and also violated consumer fraud laws in the state of Illinois."

The article does not explain how a transaction between two business violates Illinois consumer fraud statutes.

Biotech Moving from Patents to Trade Secrets

TMCNet's U.S. Patent Reforms Might Force Firms to Rely on Trade Secrets has several interesting points. First, it serves as a reminder of the interplay between patents and trade secrets. Secondly, it notes (what should be a familiar refrain if you have been reading my other articles on trade secrets) that effective trade secrets require planning and enforcement by the business.

The flight away from patents can be seen in filing statistics. The number of chem/bio patents filed at the USPTO rose from 30,000 per year in the mid-1990s to 45,000 in 2001. By 2006, the level of filing had fallen back to where it stood 10 years earlier. Similarly, at the European Patent Office, there was a 13 percent year-on-year increase between 1995 and 2000, followed by a 6 percent year-on-year fall from 2000 to 2003.

But, Gollin said, 'biotech is still innovative, so where is innovation going if not into patents?'

The answer seems to be that the scales are tipping back in favor of keeping trade secrets, posing the question of whether biotechs prefer the patent or trade secret approach when it comes to protecting their intellectual property."

***

The increased reliance on trade secrets and know-how to protect IP raises cultural and management issues, given that the easiest route for those types of information to be disclosed is through current and former employees.

That is a particular problem in biotech said Kerry Flynn, vice president of intellectual property and licensing at Shire Human Genetic Therapies Inc. "It is an incestuous community; employees leaving to join a competitor down the street makes keeping trade secrets a bit of a challenge."

***

As a result, the company has set up a formal process to protect trade secrets. In addition to signing nondisclosure agreements on joining Shire, new employees are briefed by a lawyer on the company's policy. They are reminded also of their duty of confidentiality to previous employers, in a bid to ensure that Shire cannot be accused of stealing trade secrets from other companies.

Trade Secrets: Another Case of Departing Employee Problems - Colorado This Time

Green Patent Blog's Court Orders Ex-Xantrex Veep to Stop Solar Inverter Work for Competitor contains a longish report on this case. By now the factual basis ought to be so commonplace as not to need mentioning:

Xantrex’s complaint (xantrex.pdf) alleged that Thompson breached his employment agreement by leaving Xantrex and immediately starting employment with AE (the non-compete provision prohibited Thompson from working for any competitor within one year of leaving Xantrex). Thompson worked on solar inverter technology at Xantrex, and AE entered the solar inverter market shortly before Thompson joined AE.

While at Xantrex, Thompson was Vice President of Engineering and Product Development and had access to the company’s confidential information. According to the complaint, Thompson had played a leading role in acquiring and integrating certain cutting edge solar inverter technology into Xantrex’s products.

About trade secrets, I found this paragraph particularly interesting:

As to success on the merits of the trade secrets claim, Judge Daniel found enough evidence that the confidential information accessed by Thompson prior to leaving Xantrex rises to the level of trade secrets (e.g., solar inverter product development information and data on the benefits of various product features). The court also found that Thompson’s rapid accessing of trade secret documents just before leaving Xantrex was of particular concern because his ready recollection of possible trade secrets would make their use by AE possible without him actually telling anyone. In other words, Thompson’s mere knowledge of the information would make misappropriation likely.

While only a decision on a motion to dismiss and a motion for preliminary injunction, I still find it interesting if only for providing another detail to the following lessons:

1. Protect your trade secrets - it is cheaper than litigation.
2. Hiring a high profile employee from a competitor is an invitation to a lawsuit that will likely to be successful.
3. Hiring a high profile employee from a competitor with a non-compete agreement is an even greater invitation to a lawsuit that will likely to be successful.

Trade Secrets - A Good Article to Read

I could not decide how to digest Musical chairs: brokers and insurers must fight to retain their clients when key employees leave. The article covers a lot of territory - some of it focused upon in my earlier posts on trade secrets. Yes, the article focuses on the insurance industry but the following points apply equally to any type of business:

Companies have a variety of ways to protect themselves when employees leave and try taking business with them, said Steven A. Goldfarb, a partner with the Cleveland-based law firm of Hahn Loeser & Parks.

These legal tactics include pursuing violations of common law, fiduciary duty or the Uniform Trade Secrets Act against the defector and rival company. One common tactic is pursuing violations of restrictive covenants, which are contracts that limit what employees can do after they leave a company.

Such documents can include geographical covenants, which restrict an employee from working for a competitor within a certain area for a certain length of time. Another is the non-solicitation covenant, which restricts an employee from soliciting the company's clients or employees for a certain period of time.

Trade Secrets - News

The song goes on as before: employees moving between competitors means litigation.

Clean Technology Intellectual-Property Claims On The Rise

Employees moving among these companies will cause more trade-secret lawsuits, said Bob O'Connor, co-head of Wilson Sonsini Goodrich & Rosati's clean- technology practice and a partner with the firm.

"Presently there is a tremendous amount of employee mobility, and with that comes the potential that information employees gain from a prior employer would be the kind of information that prior employer would not want to see in the hands of a new employer," O'Connor said.

The question remains: what has the first employer done to protect itself? Non-compete agreements, garden leave provisions, and the like are a must, but even more importantly are the security measures taken by the first employer.

Read Picture This for an interesting slant on those security measures:

The same urge is felt at businesses such as Samsung Electronics, where the desire to protect trade secrets has led to a ban on camera-phones inside some company facilities. U.S. federal courts also ban the devices, and sports teams are telling fans they can't use them to take videos at games.

Such efforts are, at best, fingers in the dike and, at worst, may fool corporate executives and government officials into believing they've actually accomplished something. Here's why: It takes very little effort to find a "spy shop"—a store selling all kinds of cloak-and-dagger stuff. The proprietor will be happy to sell you a camera that replaces the top button on your shirt, or one that fits nicely into your briefcase, giving you the same hidden-camera abilities that local television news programs so cheerfully demonstrate when they're looking for a ratings boost.

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Companies also need to recognize that insiders, not outsiders, are the more serious threats. Then they need to work on policies that protect the information that simply must be kept secret without discouraging everyday business.

I'd urge people in authority to consider the possibility that some of the most closely guarded information would be better off in the public sphere. This is unquestionably true for government-held information, where the penchant for secrecy is frequently a tactic to keep taxpayers and political opponents from learning the details of mismanagement, or worse. It's likely true in companies as well, where information that might be used by competitors could well prove more valuable if made available to assist customers and investors in making better decisions. It might even help the company improve its products and services.

Trade secret Litigation News for the Week of May 24

Craiglist and eBay go at in California, Craigslist sues eBay and alleges corporate spy plan:

In a lawsuit filed in California Superior Court in San Francisco, Craigslist challenged allegations in an eBay suit filed in Delaware state court in April that accused Craigslist of discriminating against eBay as a shareholder.

EBay's suit in Delaware Chancery Court charged Craigslist had used "clandestine meetings" to dilute eBay's 28.4 percent stake in Craigslist to 24.85, or less than a quarter of the company.

In addition to unfair competition and fraudulent business claims, the countersuit accuses eBay of copyright infringement and using misleading advertising on Google to run ads for its rival Kijiji site that appeared to be Craigslist ads.

The lawsuit demands that eBay restore all shares of Craigslist owned by eBay or for the court to require eBay to divest its holdings in Craigslist. The suit asks eBay to disgorge profits tied to the business and for punitive damages.

EBay spokeswoman Kim Rubey responded to Craigslist's lawsuit against eBay, saying: "We regret that Craigslist felt compelled to resort to unfounded and unsubstantiated claims in order to divert attention from actions by Craigslist's board that unfairly diluted our minority interest."

The Coca-Cola case from a few years back resurfaced, Federal Court of Appeals Affirms Sentences in Theft of Trade Secret Case

In a federal criminal case that was prosecuted in Atlanta, Georgia, the Eleventh Circuit Court of Appeals recently affirmed the sentences of two individuals convicted of conspiracy to commit theft of trade secrets. This federal case received a lot of media attention because it involved an allegation that a Coca-Cola Company employee and others attempted to sell confidential documents and materials to one of Coke's main competitors, Pepsi. After learning of the alleged scheme, an FBI agent posed as a Pepsi employee who was interested in purchasing the documents.

I mentioned the Fisker/Tesla case in Trade Secrets Litigation News. Green Car Advisor reports Fisker wants the case to go to arbitration. AS the report notes, arbitration takes the case out of court and out of public scrutiny.

Speaking of Defamation - A Georgia Case and Indiana Law

I wrote a bit about Indiana defamation law in Business Defamation/Trade Secrets. Reading the following from Quick Takes -- April 15, 2008 from Workforce.com made me think I should repeat myself:

"You Can’t Say That: Slander allegations made by an ex-employee of Amerisave Mortgage Corp. will be heard in court after all, following a decision by the Supreme Court of Georgia that overturns a lower court’s ruling to dismiss the lawsuit. The case stems from allegations made by Stephen Scouten that Amerisave and its business associates allegedly “defamed him by disseminating false information” to employees that he was terminated for theft, according to court transcripts and published reports."

This certainly sounds like the defenses of May v. Frauhiger (WP format) and Dietz v. Finlay Fine Jewelry Corp. (html format) would not apply. Without knowing more , I would say the best defense would be on the issues of damages and malice. Remember the elements for defamation are a defamatory communication; made with malice; publication of the communication; and damages.

Business Defamation/Trade Secrets

Someone asked me an interesting question about a customer contact/relationship database. With customer relations management (CRM) being touted as so important for businesses of all sorts, could there be action against a company for content of its CRM database?

While CRM might contain or be a trade secret of a company, any content from its clients ought not be trade secrets of any sort. (More on why only "ought not" in a moment).

Could the company be liable for defamation? Only if the information contained in the CRM database satisfies the following elements: a defamatory communication; made with malice; publication of the communication; and damages. See Schrader v. Eli Lilly & Co., 639 N.E.2d 258, 261 (Ind. 1994). A more recent cases having interest here are May v. Frauhiger (WP format) from 1999 and Dietz v. Finlay Fine Jewelry Corp. (html format) from 2001.

In general, if the company keeps information in its CRM database private there is no liability for the company even if the information is false.

I see a couple of interesting trade secret scenarios. First, if an employee leaks the content of a
CRM database does not seem likely to be a defamation case against the company but might give the company's clients a cause of action against the employee. My second scenario involves a client giving trade secrets to the company under a non-disclosure agreement and this information goes into the CRM database (or any other database) and that gets leaked to the world - there I see a free-for-all of litigation.

From the News - A Trade Secrets Mess in Virginia

Google Alerts brought the headline Wife of Danville councilman to appeal trade-secret decision to my attention and it raises some very interesting points for such a short article.

The story raises points about trade secrets, fraudulent conveyances, collections, and litigation in general.

1. Collections. Woman loses a trade secrets case and plaintiff gets a nice sized judgment. Thing is unlike personal injury cases where insurance will pay the judgment, with a trade secrets case we have to look for assets to pay the judgment. Plaintiff in this Virginia case is doing just that.
   
2. Fraudulent conveyances. This where a defendant has an asset and transfers it away from a creditor. Fraudulent conveyance came to mind when reading this (and I bet it sounded loud and clear to plaintiff's attorneys):

   On March 17, Romar’s attorneys, Glenn Pulley and W. Huntington Byrnes, filed a motion asking for an accelerated hearing because Tomer and her husband, Danville City Councilman Adam Tomer, transferred ownership of their home to John C. Tomer on March 4.
   

   Their motion said, “The deed … purports to be both a deed of bargain and sale and a deed of gift. It is unknown at this time whether or not Adam J. Tomer and Robin G. Tomer actually received consideration for the transfer, but it is clear that the Grantors reported the sale price of $91,000.00 to the Clerk.”

3. Litigation Generally. A plaintiff may have a great case - liability clear to everyone - but if the defendant lacks assets there may be no way to pay the judgment. Then a great case becomes a pretty poor case. Civil cases bring to mind a line from a song: "Money, that's what I want." Do not expect a lawyer to take on a civil suit as a contingency fee case where collecting the judgment is unlikely.
4. Trade Secrets. Consider all the above, read the report from Virginia, and then read my other articles on trade secrets, and you should realize why I emphasize prevention as the best employment for a business' lawyer in a trade secrets case. Use the judgment from the Virgina case to decide if the cost of prevention is less than the risk of trade secrets exposed:

   An earlier court date was not granted, the motions were heard on April 7, and a Judgment Order was filed, ordering Robin Tomer to pay Romar $171,000.

Keep saying this: trade secrets can unmake my business.

From Pilotonline.com's FAI's founder lays blame for problems on executives:

Two years ago, George Christian said he had amassed enough wealth to leave his company in other executives' hands and spend his time traveling the world and playing poker.

***

Christian said he cannot afford to hire an attorney to respond to the Virginia attorney general's charges against him and his company. Representing himself, he filed a third-party complaint in Chesapeake Circuit Court against six former FAI managers and one of the companies that he claims they formed using FAI's assets and business model.

"The third-party defendants breached their duties of loyalty and good faith by, among other things, self-dealing and misappropriating trade secrets for the unlawful use in a competing business," Christian's filing reads.

If you have an Indiana business and want to protect your trade secrets, you can give me a call.

Trade Secrets: Thinking About Security

Thanks to Indiana Trade Secrets Blog for pointing the way to People and Security Rules which makes a very good point:

Procedures are a tough balancing act. If they're too lax, there will be security problems. If they're too tight, people will get around them and there will be security problems.

Indiana Trade Secrets Blog does an excellent job of putting this into the non-nuclear weapon context of most businesses:

When it comes to protecting your trade secrets, having well-written and tight policies or rules is important. Equally important, however, is making sure that your employees are following them. Conduct audits, run tests, do something to make sure your rules and policies just aren’t sitting in a binder somewhere.

Trade Secrets: Voicemail Sinks Case

Law.com reports that a California trade secrets case may have been lost by one party's lawyers leaving a message on the other parties' voicemail.

In Jasmine Networks Inc. v. Marvell Semiconductor Inc., S124914, Marvell attorneys had argued Jasmine wasn't entitled to use a voice mail that Matthew Gloss -- Marvell's former general counsel -- and two colleagues had inadvertently left on the telephone of Jasmine's top lawyer. Jasmine wanted to introduce the voice mail as evidence that Marvell was planning to steal Jasmine's trade secrets.

The California Court of Appeals ruled against Marvell and the California Supreme Court ordered the case back to the Court of Appeals.

Be very careful not only about what you say but where you say it - digital recording can be evidence.

Following Up on "Trade Secrets Litigation: Allstate Posts Documents Online"

Womble Trade Secrets Blog posted about Allstate's putting alleged trade secrets up on the Net. Its Good Hands Trade Secrets: Allstate Releases Data on How it Sets Rates from April 8 has two points not included in my Trade Secrets Litigation: Allstate Posts Documents Online:

Allstate said Monday that it didn't post the documents in response to Friday's court ruling, noting that it could not have created a site with 150,000 pages that quickly.

"We think the documents do merit protection and what we did to protect them was justified, but at some point you have to look to the threat of the brand," spokesman Rich Halberg said. "Critics were using bits and snippets of documents to create an inaccurate picture of claims."

Rocky Brands - A Follw up on Trade Secrets News Roundup of 2/18/08

According to Columbus Business First, Rocky Brands settled its trade secrets case:

The Nelsonville-based footwear maker on Monday said it reached a settlement with former Rocky employee Glen Bratcher, his company and a Chinese manufacturer it alleged were using trade secrets to make boots nearly identical to some Rocky lines. Also named in the suit were Bratcher's Franklin, Tenn.-based company, Westwood Footwear and Accessories LLC and Nantong Hong Yi Wang Shoes Company Ltd., which makes products for Westwood as well as Rocky Brands.

Rocky said terms of the settlement are confidential, but CEO Mike Brooks said the company is "extremely pleased" with the resolution of the case, which included 13 claims against Bratcher and the two companies.

Trade Secrets Video

The Trade Secrets Vault posted a link to a law school lecture on trade secrets. The lecture tries to answer the question Why Do We Have Trade Secrets?. I am not sure how many non-lawyers will sit through a 45 minute lecture. I find this interesting regardless of the sound quality - but then I am a lawyer interested in this area of law, aren't I?

Who do I think should listen to this video?

1. Those in the DIY crowd who think they can handle trade secret matters on their own. They need to know the complications of the area.
2. Those who want to know why trade secrets are important.

Follow Up on "Restaurants and intellectual property"

Trade Secrets Vault Blog reports in April 19 post Chef’s Lawsuit Against a Former Assistant Is Settled Out of Court settlement of the Pearl Oyster Bar case mentioned in my posts Restaurants and intellectual property and Thinking more about restaurants and intellectual property #1.

The settlement included a confidentiality clause, so no one but the parties and lawyers know the settlement's details.

What can an Indiana employer do about hiring an Employee who might have trade secrets?

Other than not hiring a person from a competitor because you know they have trade secrets, I find the following general rules from Trade Secret Misappropriation By Employee: Is The Employer Liable? are a very good start:

...., employers hiring employees from competitors should, at a minimum, first ascertain that there is no non-compete agreement with the prior employer. Second, the new employer should have the new employee sign a statement for the personnel file that the new employee either does not have knowledge of any trade secrets of the prior employer or shall not use any such trade secrets of the prior employer while employed by the new employer. While such a statement may not necessarily assure protection against liability, it will at least show a good faith attempt to avoid misappropriation of trade secrets.

Employers should ask if there is a non-compete agreement of every employee. Without knowing any particular positions or employee's talents, the employer should consider placing the employee in a position differing from their former job.

Non-lawyer writing on Trade Secrets

If you have read my trade secret articles and I have left you somewhat dazed and confused, then please read Intellectual Property - Trade Secrets, Copyrights and Trademarks from the Independent Inventors Blog. For a non-lawyer, he does a very good job of explaining the importance of trade secrets.

Trade Secrets Litigation News

Tesla Motors looks like the big news of the week. At least, that is my impression from today's Google Alerts.

Edmunds Inside Line's Tesla Motors Sues Fisker Over Trade Secret reports:

SAN FRANCISCO — Tesla Motors filed suit on Monday in San Mateo Superior Court. The action contends that Denmark-born designer Henrik Fisker's company fraudulently agreed to take on Tesla's $875,000 design contract for the White Star sedan to gain access to confidential design information and trade secrets, according to media reports. Afterward, Fisker announced the Karma, a competing vehicle.

"It caused a slight delay in White Star because we could not use the Fisker styling," Tesla Chairman Elon Musk told The New York Times. "The styling was substandard compared to what he unveiled for his product. He gave us an inferior work product, and it's obvious why."

Autoweek's Tesla sues Fisker, alleges theft of trade secrets adds what I find to be a very interesting paragraph:

The contract had a non-exclusivity clause, which allowed Fisker to perform styling and design services for other companies. Henrik Fisker is a former Aston Martin designer who started his own company in 2005 to specialty BMW and Mercedes cars.

I have to wonder what this clause says. Right now, I am hearing Claude Rains decrying gambling at Rick's while pocketing his winnings. As for the trade secrets claim, I would think that a non-exclusivity clause acts as a warning sign to protect trade secrets.

With high stakes for Tesla and a lot of money on the line, this could be the trade secrets case of the year.

Yes, Yes, Yes... A Great Trade Secrets Post

Excuse the Meg Ryan/When Harry Met Sally imitation, but I read the following in Shhh….it’s my trade secret. from Wisconsin Business Law and Litigation and could not resist:

When new businesses begin hiring, they are driven clarify to extreme degrees that no employee should bring in either ideas, documents, etc from former employers to use at the new job. They may also inquire into any non-compete or non-disclosure agreements the employee signed with a prior employers and, contrarily, may have employees sign new non-compete and non-disclosure agreements to protect the company’s own trade secrets.

There is no doubt that trade secrets are valuable, but they require constant tending, like a plant.

I have been trying to get certain ideas across about trade secrets for the past year and there they are in two neat paragraphs. Beautiful.

The post also makes a good point for what I call trade secret audits:

The primary problem businesses run into with trade secret law is the second prong - reasonable efforts to maintain secrecy of the trade secret. Courts judge reasonableness based on the nature of the secret so a business generally has no way to predict what protection measures will be sufficient in the court’s eyes.

Having counsel review your methods for protecting your trade secrets may not be a magic bullet but I do think it will help prove sufficiency to a court.