The Trade Secrets Blog

Following Trade Secrets Litigation

First Amendment v. Trade Secrets – The Curious Case of Think Secret

The Think Secret Blog, a popular Apple rumor blog, has settled its trade secrets case with Apple–the confidential settlement requires Think Secret to shut down, but it does not require Think Secret to reveal its sources inside Apple. InformationWeek.com is reporting the story here.

If you haven’t been following the case, Think Secret posted information from an inside source at Apple. Apple subsequently sued Think Secret, and its owner Nick Ciarelli, for publishing its trade secrets and getting information from individuals who were subject to a confidentiality agreement. Ciarelli contended that the information was legally obtained (via the same type of newsgathering practices as other journalists). Ciarelli has said “I talk to sources of information, investigate tips, follow up on leads, and corroborate details. I believe these practices are reflected in Think Secret’s track record.” Based on this, Ciarelli argued that he was protected by the right to free speech. A journalist cannot be prohibited from publishing lawfully obtained information according to the U.S. Supreme Court.

There are many issues raised by this very curious case: (1) Are bloggers truly journalists; (2) Did Think Secret use the same types of newsgathering practices as other journalists, i.e., is it a journalistic practice to ask people to violate confidentiality agreements and should such a practice be protected; (3) was the information legally obtained if individuals were asked to violate confidentiality agreements; and (4) did Ciarelli disseminate information that he knew, or should have known, was confidential?

This case has generated no small amount of anger by the blogging community because of the potential precedent it sets. While I believe that bloggers should have the same rights as “journalists” if they are reporting on newsworthy items, I do not believe that the first amendment allows anyone to disseminate information which they know, or should know, came from sources which are under confidentiality agreements to keep the information secret. Apple’s beef here was that Ciarelli knowingly encouraged his sources to breach their confidentiality agreements. The salient question of fact is whether he “knowingly” encouraged someone to breach the confidentiality agreements. If he did, then I believe he would be liable under most states Uniform Trade Secrets Acts.

In California, at Civil Code § 3426.1, “misappropriation” is defined as:

(1) Acquisition of a secret of another by a person who knows or has reason to know that the secret was acquired by improper means; or
(2) Disclosure or use of a secret of another without express or implied consent by a person who:(A) Used improper means to acquire knowledge of the secret; or (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use. (emphasis added)

Based on these definitions, I believe that Ciarelli was more than likely liable under the Act by virtue of receiving information he knew was confidential and was acquired by improper means (i.e., encouraging an individual under a confidentiality agreement to violate that agreement). Here’s an opposite view.

This case is also fascinating in that Ciarelli was not required to give up the names of his sources to Apple. What Faustian bargain was struck we may never know, but it is interesting to speculate as Don Reisinger of The Digital Home blog has done here.

Advertisements

December 21, 2007 Posted by | confidentiality, confidentiality agreement, Intellectual Property, misappropriation, trade secret theft, Trade Secrets, Uncategorized | , , , , , , , | Leave a comment

iRobot Gets “Unmanned Surge” Army Contract

For those following the iRobot trade secrets case against Robotic FX, Wired.com is reporting that the Army is now awarding the “unmanned surge” $286 million contract to iRobot. You can read the article here. The AP is also reporting this story here. Xconomy.com reports the story here and, if you are so inclined, has detailed coverage of the whole affair here.

If you haven’t been following this matter, back in September, the Army initially awarded the contract to Robotic FX, a small company run by a former engineer of iRobot named Jameel Ahed.

Shortly before the deal between Robotic FX and the Army was announced, iRobot sued Ahed and Robotic FX for theft of trade secrets, claiming that the design of the companies’ respective robots were similar. The lawsuit included a request to preserve all evidence–but, Ahed began destroying evidence anyway.

Because of Ahed’s actions, the Judge granted a temporary injunction that blocked the contract from being performed, and found that Ahed’s actions were a strong inference of guilt.

The Army, having no choice really, awarded the contract to iRobot today.

Interesting case. What’s most interesting is the common mindset of individuals, once they have been sued, that convinces them to destroy evidence which might indicate guilt. This is never a smart thing to do–this case demonstrates that spoliation of evidence is not effective because it creates an inference of guilt which will, in most cases, typically be stronger in the Judge’s or jurors’ eyes than any document, which might otherwise indicate guilt, can do on its own. For instance, a competent lawyer might still be able to argue that there was no trade secret protection for the subject documents and information because the company seeking protection did not take reasonable steps to protect the information, as required by statute. Or that the information was already in the public domain as a result of other third party contracts. However, if the information is destroyed outright, regardless of any actual guilt and/or argument that can be made, the inference of guilt will weigh more heavily.

Don’t destroy evidence. Besides being unethical it is also illegal and will generally achieve results similar to the results achieved by Jameel Ahed and Robotic FX.

We’ll keep you posted on how this impacts the litigation.

December 18, 2007 Posted by | Intellectual Property, misappropriation, trade secret theft, Trade Secrets | , , , , , , | 1 Comment

Employee Raiding and Trade Secrets Suit – PNC Sues Wachovia

According to the Pittsburgh Tribune-Review, PNC has sued Wachovia and is seeking a temporary restraining order to prevent the theft of its trade secrets, including valuable employee and customer relationships, confidential information and goodwill. Read the article here.

According to the court filing, Wachovia is attempting to persuade PNC’s employees to come work for it and bring their existing clients by claiming in a letter that PNC Investments’ parent company “is exiting the retail brokerage business.”

Key graph:

PNC claims Wachovia officials provided targeted employees with a “blueprint” detailing how they should disclose confidential and proprietary PNC business information while “surreptitiously” working for both companies for two months.

It will be interesting to see how this one plays out and if the allegations of PNC that Wachovia provided a “blueprint” to trade secret theft are true.

December 17, 2007 Posted by | Intellectual Property, misappropriation, Trade Secrets | , , , , | Leave a comment

Heading Off Trade Secret Theft

I found an interesting article over at Business Week that was written last year by Lisa Fleming, an attorney in Boston, Mass. The article has valuable and pertinent information for any small business owner concerned about trade secret theft–and if you’re a small business owner not concerned about trade secret theft, then you should definitely read the article. I guarantee that you will be concerned after reading the article–at least, you should be.

Key graphs:

For smaller employers, there are a number of reasons why the effects of trade secret theft can be so devastating. Often, small firms are think tanks for new technology. Their main competitive advantage is their flexibility and their ability to turn out a new product or a twist on an existing product that gives them an important slice of the market. When an employee leaves for a competing firm or to start her own business, and takes with her valuable confidential information, that can wipe out the small firm’s sales.

and

The first company to develop a key technology in an industry like telecommunications, for instance, gets a huge competitive and financial edge, even if it’s relatively short-lived. Losing that edge because of intellectual property theft can have disastrous effects, especially on a smaller company. Losing a key trade secret can mean that a company loses its dominance in a key market, loses millions in sales, and ultimately even fails entirely.

and, speaking about where businesses can get advice for trade secret protection:

Employers can draw upon their human-resources personnel or consultants in this area. They should also have attorneys who are savvy about this part of the law review their plans and legal documents, to maximize their protection. It’s an area fraught with expensive litigation, so it’s important to make sure up-front that your written agreements and company policies are as strong and as specific as they can be, so they’ll stand up in court. (emphasis mine)

Read the whole thing.

That last paragraph touches on an issue that I will continue to stress–it is much less expensive to lay the proper groundwork up front for a trade secrets protection plan than it is to litigate later. While litigation may be inevitable in some cases, when your trade secret protection plans are properly established and properly followed, a settlement early in the process stands a much greater chance; and that will ultimately save you money.

For more information, on this topic click on my Free Report entitled “5 Biggest Mistakes Businesses Make Protecting Trade Secrets.”

December 13, 2007 Posted by | Intellectual Property, misappropriation, Trade Secrets | , , , , , , , | Leave a comment

Practically Speaking – Protecting IP Is A Top Concern for Start-Ups and Entrepreneurs

There’s an interesting article over at the The Signal that every entrepreneur and every person interested in starting a business should read. It would sound somewhat cynical coming from me since it advocates taking your business start-up plans to an attorney for an IP review, so I will let Dr. Maureen Stephenson do the talking and convincing.

Key graphs:

Entrepreneurs should start thinking about protecting their intellectual property earlier than most. Small businesses tend to delay this step because of the cost, but if you haven’t applied for copyrights or patents, or registered your trade name and trademark or protected your trade secrets, you may have trouble making your case in court. Entrepreneurs should take their business plans to an experienced intellectual property attorney at the startup. Spending money upfront for legal help can save you from expense later by giving you strong trademark or copyright rights which can deter competitors from infringing. (emphasis mine)

and

Spending the money for legal guidance at the start-up of your business may seem like an additional burden to be avoided, but if you sleep on your intellectual property rights you’ll lose them. Be proactive and you’ll be protected and save money in the long run.

Very good advice indeed and you should read the whole thing. We are seeing more and more that individuals are willing to infringe another’s IP when they believe there is opportunity to do so. It makes sense to limit those opportunities as soon as possible, and to hopefully prevent the infringement from ever occurring–which is much cheaper than a lawsuit. I will have more to say on this topic in a later post.

December 10, 2007 Posted by | copyrights, Intellectual Property, patents, Practically Speaking, Trade Secrets, trademarks | , , , | Leave a comment

To Compete or Non-Compete

I was going to post some practical information about the effect and validity of non-compete agreements in California (they’re generally not enforceable) and alternatives that California businesses have to non-compete agreements to protect their businesses from employees who go to work for competitors (hint: it has to do with confidentiality agreements and non-disclosure agreements–which are enforceable), but there is an interesting exchange occurring right now on the net regarding overall policy relating to non-compete agreements which was started by some comments of Bijan Sabet last weekend (Mr. Sabet is a partner at Spark Capital in Boston, Mass.).

Essentially, the invalidity of non-compete agreements in California has been a source of consternation for many business owners trying to protect their businesses from employees leaving for competitors. On the flip side, proponents of non-competes have pointed to the explosion of businesses and technology in Silicon Valley as evidence that the California legislature got it right when they invalidated the non-compete agreement because of its function as a barrier to free markets. So who’s right? Continue reading

December 7, 2007 Posted by | confidentiality agreement, Intellectual Property, non-compete agreement, non-disclosure agreement, Trade Secrets | , , , , , , , , , , , | Leave a comment

Thanks to the Trade Secrets Vault

The Trade Secrets Vault, hosted by Jon Cavicchi, has graciously posted a link to my Free Report entitled “5 Biggest Mistakes Businesses Make Protecting Trade Secrets.” It’s a must read for any business owner interested in protecting trade secrets. Thanks Jon. And thanks for the link to my press release announcing the launch of this site as well.

December 4, 2007 Posted by | Intellectual Property, misappropriation, Trade Secrets, Uncategorized | , | 1 Comment

Sears Gets “Roto Zipped” for $21M

For anyone following the Sears trade secrets case in Chicago where Roto Zip Tool Corp. alleged that Sears had breached a non-disclosure agreement and misappropriated a trade secret regarding a rotary cutting tool combined with a plunge base router, IP Law360 is reporting that a jury has found that Sears stole the trade secrets of Roto Zip and awarded Roto Zip (now known as RRK Holding Co.) damages of $21M ($8M of which was for punitive damages).

A family-owned company has won a $21 million verdict against national retailer Sears, Roebuck and Co. after a jury found the appliance store chain guilty of stealing the invention for a popular power tool.

The federal jury in Illinois ruled Sears had misappropriated the trade secrets of Wisconsin carpenter Bob Kopras and the company he started 30 years ago in his basement, Roto Zip Tool Corp.

Instructive in this case was the court’s denial of summary judgment relative to Sears’ argument that the tool was generally known within the relevant industry because it was comprised of two well-known tools and could thus not be considered a trade secret. However, the court found that “although a spiral saw and a plunge base router were marketed and known as separate products, the combination of the two into a single convertible product was not on the market, and was referred to as “new” and “innovative” by the Defendant itself. . . . The new combination of tools offered a lucrative and competitive product.” The court also stressed that the combination tool “had never been on the market before.”

Thus, this case may stand for the precedent that a trade secret does not have to be totally comprised of confidential information, but rather can be a “new” and “inventive” way of combining products already known to the industry and not protected by trade secret law because they have been previously disclosed to the public.

December 3, 2007 Posted by | Intellectual Property, misappropriation, non-disclosure agreement, Trade Secrets | , , , , | 1 Comment

The Costs of Corporate Espionage

An interesting article referenced on the Legal Infrastructure of Business Blog about corporate espionage and trade secrets.

According to the referenced article by Chris Warren, “the FBI places the losses to U.S. companies as the result of theft at somewhere between $25 billion and $100 billion. (…) The U.S. International Trade Commission estimates annual losses are closer to $300 billion, and the Office of the National Counterintelligence Executive reports that foreign countries are involved in efforts to collect sensitive information from U.S. companies.”

Corporate espionage is clearly a major issue confronting businesses today and a hard look at a company’s trade secret protection plan must be taken to ensure that its trade secrets are, in fact, adequately protected.

Professor Randal C. Picker says it best:

My major concern is that the huge value of estimated annual losses only means that something is wrong. Either companies are not being efficient in keeping their secrets (or maybe can´t due to the sophistication of “spying” methods), or maybe it means that additional regulation is required to help companies protect secrets (processes, methods, etc) that they decided not to protect via patents. Maybe this decision of not filing for a patent reflects the complexities or vulnerabilities of the process.

Even if a business does what is required under the relevant statutory scheme, it may be that the price tag on adequate trade secrets protection forces a change in how companies do business because of the high level of corporate espionage. In other words, it may not matter that you have done enough under the Uniform Trade Secrets Act, as drafted, to protect your trade secrets because the trade secrets are still being stolen, along with your competitive advantage. I think that the point that Professor Picker makes is that more proactive trade secret protection measures will be required by companies in the future to maintain a competitive advantage, regardless of whether the measures go beyond the types of measures required to initially attain statutory trade secret protection.  Of course, additional measures means additional expense for companies seeking to protect their trade secrets.

December 3, 2007 Posted by | Intellectual Property, Trade Secrets, uniform trade secret act | , , , , , | 1 Comment