David vs. Goliath – Google Sued by Start-up for $1 Billion

According to this article on http://www.zdnet.com, tiny start-up LimitNone has sued Google in an Illinois circuit court for $1 billion over an email switching tool that LimitNone claims it created. The email switching tool was designed to migrate customers of Microsoft who rely on Outlook applications over to Google’s Gmail application. LimitNone’s switching tool, called “gMove,” was designed to move the email, contacts and calendar of Outlook users over to Gmail.

Key graphs:

LimitNone said it entered a confidentiality deal with Google to share trade secrets of its e-mail migration tool with Google engineers, sales people and key Google Apps customers.

Last December, the firm of less than five employees learned from Google that it planned to enter the market for LimitNone’s migration product itself because the business opportunity promised to be huge, according to court papers.

LimitNone alleges that Google had trouble building a similar tool–that is apparently the reason that Google entered into a confidentiality agreement with LimitNone. At this point it’s not clear how similar the tools are. According to the article: Google introduced a free, competing e-mail migration tool called “Google Email Uploader” earlier this year, which the lawsuit alleges is “almost identical” to gMove and that “both operate under a similar conceptual design.”

If true that Google had difficulty building a similar tool, and then after confidential meetings with LimitNone entered the market with a similar tool to LimitNone’s tool, it will be strong evidence of misappropriation. By virtue of the information exchanged pursuant to the confidentiality agreement, Google had access to information that would allow it to build its own version of LimitNone’s tool. However, Google could have independently created the tool, as well. The proof, as they say, will be in the pudding. If the tools are similar, then this lawsuit tilts decisively in favor of LimitNone.

Be that as it may, LimitNone will have to prove that they have reasonably protected the secrecy of their tool prior to disclosing it to Google. Much will depend on the existence and drafting of the confidentiality agreement.

The damages are staggering for what appears to be a small tool. However, LimitNone claims that the tool could help over 50 million subscribers migrate their information over to Gmail. It becomes pretty clear why Google wouldn’t want to give away licensing fees of that magnitude if it felt it could do it on its own. But, if Google could have done it on its own, why sign a confidentiality agreement with LimitNone?

LimitNone’s claim that there is a confidentiality deal in place will be the lynch pin of any successful lawsuit for LimitNone. A properly drafted confidentiality agreement tailored to the specific purpose for which the disclosure is needed will be your strongest protection against misappropriation of the type alleged by LimitNone. Ensure that your confidentiality agreements adequately protect you before disclosing any competitive information.

Chinese Spy Gets 2 Years

According to this article in USAToday, Xiaodong Sheldon Mang has been sentenced to two years in federal prison for stealing fighter-pilot training software and trying to sell it to the Chinese, Malaysian and Thai militaries.

Meng “misappropriated two defense articles … , at least six source code products which were also trade secrets, and more than one hundred materials and utilities” from Quantum. One product is “used to provide night vision simulation and is exclusively used in military applications for precision training and simulation applications,” the Justice Department said.

This is not only noteworthy for the fact that we caught a spy trying to sell U.S. intelligence to other countries, but as far as this blog is concerned, this is the first sentence handed down for a violation of the Economic Espionage Act of 1996.

Validity of Email Subpoenas on ISP’s

A fertile ground for evidence and information in support of a trade secrets claim, especially in cases where employees leave a company and take trade secrets with them, has been the employee’s email. Many trade secrets cases have been proven based on the employee’s own communications via email. It has been a practice of plaintiffs to serve a subpoena on the former employee’s ISP provider, as well as the new company’s ISP provider in order to assure that all responsive emails are received–often, the former employee is not very forthcoming in producing damaging emails on their own.

However, according to this article on Law.com, that practice is meeting more resistance in the Court. More and more often ISP providers are challenging these subpoenas and the Courts are starting to rule in their favor.

According to the article, a federal court in Virginia recently relied on the Stored Communications Act of 1986 to protect the privacy of stored emails. The Virginia court ruled against disclosure of the emails based on the Act’s requirements that consent of the e-mail subscriber, the sender of the message or the recipient is needed before any emails must be produced. Obviously, no employee misappropriating confidential information is going to agree so the Act effectively would end this practice.

The article also references the California federal court case that addressed the same issue–O’Grady v. Superior Court, 44 Cal. Rptr. 3d 72 (Calif. 6th Ct. App. 2006). In O’Grady, a California appeals court prohibited computer maker Apple from obtaining e-mail contents from an ISP in a trade secrets case. The court held that such disclosure was prohibited under the SCA, absent consent from the e-mail subscriber, sender or recipient.

California Clarifies Statute of Limitations on Trade Secret Claims

In Cypress Semiconductor Corp. v. Superior Court (Silvaco Data Systems), No. H032114 (Cal. Ct. App. May 30, 2008), the California Court of Appeals recently ruled that the Statute of Limitations begins to run on a claim for misappropriation under the California Uniform Trade Secrets Act against a third party when the Plaintiff discovers the misappropriation. A comprehensive knowledge of all facts is not necessary. A Plaintiff need only have a reason to suspect the factual basis of a claim. Instructive of this approach, the Court of Appeal stated, “[T]he plaintiff should not be expected to wait until he or she has direct proof of the defendant’s mental state before filing the lawsuit.”

In Cypress, the litigation centered around the defection of an employee from Silvaco Data Systems who misappropriated confidential information of Silvaco to develop a competing product for his new employer, Circuit Systems. Circuit then licensed its new product to its customers. Silvaco sued Circuit and the former employee, but did not sue Circuit’s customers. Eventually, Silvaco sued Cypress Semiconductor, a customer of Circuit who had licensed the new product from Silvaco–however the suit was brought more than three years after Silvaco’s claims against Circuit had ripened. On that basis, Cypress asserted that the claim was time-barred by the three year statute of limitation contained in the California Uniform Trade Secret Act. Silvaco argued that it was unaware of misuse by third parties until much later, and had therefore begun its suit against Cypress within the three limitation period.

Thus, Cypress stands for the common sense proposition that a suing party under the California Uniform Trade Secrets has three years from the discovery of each party’s misappropriation of its trade secrets. This, of course, is often a factual issue and entitled to a jury determination. Indeed, in Cypress, the Court of Appeal found that the trial court should have determined when Silvaco first had any suspicions that Circuit Systems’ customers obtained Silvaco’s trade secret information, or had reason to know, that the software licensed by Circuit Systems to its own customers contained Silvaco’s trade secrets.

Clear Channel Is Not Going To Take It Anymore

According to this article in the Chicago Tribune, Clear Channel filed suit against Tribune Co. and former employee and VP Andrew Friedman on May 19, 2008, based on allegations that Mr. Friedman had taken documents, data and files belonging to Clear Channel with him and that Mr. Friedman would use knowledge of Clear Channel’s strategies for the benefit of Tribune Co. Tribune Co. was taken private last year by Sam Zell and has been restructuring its operations since. This is only the latest hire by Tribune Co. of former Clear Channel high-level executives and apparently Clear Channel is fed up.

The article states: “Friedman was deeply involved in the formulation and implementation of the confidential plans and strategies that Clear Channel uses to develop, market, implement, and distribute its online offerings,” the suit said. The information “is of particular competitive significance and value.”

“Before leaving Clear Channel, Friedman allegedly shared information with Tribune employees about business strategies and vendors, said court papers, which included alleged transcripts of e-mails. Friedman also deleted thousands of files from his computer, Clear Channel claims.”

Clear Channel also sought a Temporary Restraining Order (TRO) which would restrain Mr. Friedman from beginning work for Tribune Co.

ChicagoBusiness.com is now reporting that U.S. District Court Judge Joan Gottshall in Chicago granted the TRO and made findings that Clear Channel would “undoubtedly suffer irreparable harm if the (temporary restraining order) is denied and (Mr.) Friedman uses the knowledge of interactive content strategies for the benefit of Tribune.” Mr. Friedman, she wrote, “will suffer little to no harm, other than being unable to work in his chosen profession for a few weeks.”

ChicagoBusiness.com further reports: “Mr. Friedman is also temporarily barred from using confidential information he gleaned during his employment at Clear Channel Communications Inc. and from hiring away other Clear Channel employees. He is also to “immediately return” to Clear Channel any documents, data and files as well as portable storage devices used to transfer proprietary information.”

The Chicago Tribune reports, “Tribune spokesman Gary Weitman described the suit as worthless. “We’re finding that there are a lot of people who want to come work for the new Tribune, and we’re going to hire the best of them, we’re going to do it lawfully and we’re not going to be intimidated by frivolous lawsuits,” he said.”

The question lies in the last statement–was it done lawfully. Of course the Tribune Co. can hire employees of Clear Channel and Clear Channel can ordinarily not prevent its employees from moving on, but if the employee is sharing confidential information, then the question of lawfulness becomes a little more murky. I don’t find that the suit is frivolous if there is evidence that Friedman shared information with Tribune that he acquired only as a result of his employment with Clear Channel.

I’m sure we will hear more facts about this case in the future–was there a confidentiality agreement, a non-compete agreement (the article appears to state that there was a one-year non-compete). I’m not saying that there is no way to recover in the absence of these trade secret strategies, but it makes it more difficult.

Sears gets “Roto-Zipped” again

You’ll recall that Sears was hit with a $21.4 million damages claim several months back for stealing an inventors idea of combining two commonly found power tools in one. I wrote about it here. It seems that the Judge felt it wasn’t enough and hit Sears with another $3.7 million to bring the total to $25 million. IPLaw360 reports on the increase here.