Florida’s Herald Tribune is reporting that Alpha Mining Systems, a manufacturer of industrial mining tires, has won a $19.7 million verdict against former employee Sam Vance. You can find the story here.
According to the story, “in early 2005, Vance began working for China-based competitor Guizhou Tire Co. while still employed with Alpha. He would take Guizhou tire orders on his wife’s cell phone and through his personal e-mail account to avoid detection.”
He also handed over pricing and profit margin information and customer lists to Guizhou, which paid him a commission on every tire sold, records show.”
Beginning in August 2005, Vance went to work for Dubai, United Arab Emirates-based Al Dobowi Group, an upstart mining company.”
Vance gave Dobowi all of Alpha’s trade secrets, from pricing information to its customer list to the design blueprints for Alpha’s specialty tires, court records say.”
The damage to Alpha was extensive as court records show that “Del-Nat Tire Corp. and American Tire Corp. were buying a combined average of $1.9 million per month from Alpha until April 2005, when they stopped buying anything.”
From April 1, 2005, to Jan. 15, 2008, Alpha lost more than $10 million from Del-Nat alone, the court found.”
It’s a theme on this blog that I will keep repeating: the biggest threat to your trade secrets are your own employees. A comprehensive trade secrets protection plan is imperative for any company that depends on trade secrets for a competitive advantage. You must begin thinking about this critically before your company has its own Sam Vance and unlike Alpha, because you didn’t protect your trade secrets adequately, you are prevented from recovering any damages due to the misappropriation.
The $19.7 million award is one of the largest trade secret judgments in Florida history. But, how likely is it that Alpha will recover? Since, Vance didn’t show up to any court appearance, he’s probably living the high life somewhere outside the U.S. Hopefully, they’ll be able to find him and make him pay the piper for his misdeeds.
In a scenario that is becoming all too familiar, Coldwell Banker has filed a federal lawsuit in the U.S. District Court in Baltimore, seeking $2 million in damages and a restraining order on soliciting its clients, against two former executives, John and Ann D’Ambrosia, who left to open a branch of GMAC.
The suit alleges that Coldwell Banker lost 10 listing agreements to GMAC within two weeks of the GMAC branch opening. The major evidence that Coldwell is banking on (excuse the pun) appears to be email transmitted using Coldwell Banker email accounts which were sent to future GMAC sales agents who were then working as independent contractors for Coldwell.
According to this article, the email messages discuss “recruitment of Coldwell Banker sales agents; how to convince Coldwell Banker clients to follow their individual brokers to the new GMAC office; and how to transfer data from computers.
“A common thread in the quoted e-mails is the D’Ambrosias’ alleged use of Coldwell Banker to springboard their upcoming affiliation with GMAC Real Estate, which has 1,300 franchised and company-owned real estate offices in the United States and Canada and 22,000 sales associates, according to its Web site.”
Coldwell Banker has alleged 14 counts in its complaint, including violations of the Federal Computer Fraud and Abuse Act, which governs unauthorized access to “protected computers” resulting in a business loss; breach of the duty of loyalty to Coldwell Banker; tortious interference with contractual and prospective economic relations; and violations of state trade secrets law.
This case is interesting because of the heavy reliance on emails as evidence that the D’Ambrosias were planning their business venture with GMAC, and were targeting Coldwell Banker listing agreements and sales agents while working for Coldwell Banker. This is a very typical trade secrets scenario. I have said many times that email is an important part of any trade secret case involving the departure of employees who leave to open a new business in competition with their former employer and begin taking their former employers’ employees, customers and other confidential information. I can’t say it enough, when you believe that this type of situation exists within your business, one of your first priorities should be to backup the email system so that you can prevent the accidental deletion of important emails due to a document retention policy.
It will also be interesting to see what the employment agreements said–were there non-disclosure agreements, confidentiality agreements? These items are critical to an effective trade secrets protection plan.
The Miami Herald is reporting that Allstate is facing contempt charges in Missouri regarding its refusal to turn over certain documents prepared by an outside consultant from McKinsey. Allstate has already had its license suspended in Florida for its failure to turn over the same documents. Allstate claims that the documents are trade secrets.
The Miami Herald reports: “According to an attorney who has seen the report from consultant McKinsey & Co., it advises Allstate on how to improve the company’s profitability: pay less on claims and take a longer time to pay those claims.”
‘The documents describe, in graphic terms, a scheme devised by Allstate and McKinsey & Co. to essentially turn the business of insurance into a zero-sum game,” said David Bernardinelli, a Santa Fe, N.M., plaintiff attorney involved in a case against Allstate.
Not exactly the kind of stuff that is good for business and it’s obvious why Allstate would rather pay $25,000 per day in contempt charges than turn them over so that the public could get a look at them.
While I understand why Allstate would not want the documents to be produced, calling a scheme to essentially stick it to the consumer a trade secret is quite a stretch. After all, doesn’t the public generally know that insurance companies operate this way? In other words, what’s the secret?
UPDATE: Here’s an additional article on the Allstate case and the so-called McKinsey documents. The author speculates that this case could cause major changes in the insurance industry, that it could result in a class-action lawsuit, and that all major insurers are nervously watching the outcome. I’ll bet they are.
Financial Week is reporting that Aerotek, a staffing firm based in Maryland and run by Steve Bisciotti, who also owns the Baltimore Ravens of the NFL, has sued Michael Ponce, a former employee for breach of contract, misappropriation of trade secrets, interference with contractual relationships, unfair competition and false advertising. Aerotek has also asked the court to stop Mr. Ponce from using its trade secrets to solicit business and to force him to return confidential client information. The suit was filed on November 9, 2007, in Sacramento County Superior Court.
This is where it gets interesting–the allegations relate to Ponce leaving Aerotek to join Johnson Group Staffing Co., a company started by Chris Johnson, another former employee of Aerotek, who was already sued by Aerotek in June 2006. That lawsuit was settled–as part of the settlement the Johnson Group agreed to stop soliciting or serving Aerotek contract engineering clients for 15 months.
Now, Aerotek is going after another employee who defected to work for the Johnson Group. According to the Sacramento Business Journal, Ponce was hired by Aerotek in March 2005. According to the article, he signed a confidentiality and nondisclosure statement, promising not to divulge any trade secrets for the benefit of another company. The complaint alleges that Ponce made an unauthorized copy of a client binder which he is apparently now using to contact clients of Aerotek.
We’ll keep you updated on this case as it progresses.
Here’s an article following up on the iRobot/Robotic FX case, for anyone interested. It appears Mr. Ahed is out of business. Lesson: Don’t steal trade secrets.
You can see my earlier post on this topic here.
Last January Silicon Image sued Analogix in California for copyright infringement, misappropriation of trade secrets, and unlawful, unfair and fraudulent business practices. Silicon Image alleged that Analogix, without authorization and in violation of Silicon Image’s intellectual property rights — copied and used Silicon Image’s proprietary register maps and semiconductor configuration software. In addition Silicon Image sought an injunction barring Analogix from its ongoing infringement of Silicon Image’s intellectual property rights.
If your confused, maybe this will clear it up. According to Silicon Image’s previous press release: “Semiconductor layout designs involve strategic placement of various electronic components, including small memory cells called registers, on interconnected layers of a chip. Silicon Image’s layout designs, including its register maps that identify locations of registers within its chip designs, are its guarded trade secrets. Documentation describing its designs is not publicly disclosed and is provided to Silicon Image’s customers or business partners only under strict non-disclosure agreements. Silicon Image alleges that Analogix copied and used Silicon Image’s register maps by gaining unauthorized access to Silicon Image’s proprietary and confidential information.”
“Along with its chips, Silicon Image has developed, at substantial expense, its semiconductor configuration software. Silicon Image provides the software to its customers who use it to configure Silicon Image chips incorporated in their consumer products. Under its software license agreements, Silicon Image’s semiconductor configuration software can only be used with Silicon Image chips and no other products. Such a restriction is common in the industry. The complaint charges Analogix with illegally copying and modifying Silicon Image’s semiconductor configuration software and knowingly encouraging its existing and prospective customers to modify and use Silicon Image’s semiconductor configuration software with Analogix’s chips, a use that is beyond the scope, and in violation of, the rights granted under Silicon Image’s software license agreements.”
Now that we have the lay of the land. On January 8, 2008, it was reported that the U.S. District Court denied Silicon Image, Inc.’s request for a preliminary injunction.
Both sides are spinning the story in their favor. Analogix released a statement emphasizing that the court denied the request stating that “the evidence gives rise to serious questions on the merits as to this claim.” You can find that press release here.
Silicon Image released its own statement emphasizing that the court had concluded that “Silicon Image has demonstrated a strong probability of success on the question of misappropriation” and that the judge ordered an expedited trial for April 2008 on that basis. The trial was originally set for September 2008. Silicon Image further stated that the judge accelerated the trial date “in light of the evident copying, the serious questions raised by Silicon Image on the merits, and the possibility of irreparable harm.” You can find that press release here.
This is an interesting turn of events and makes one wonder what exactly Silicon Image’s evidence of misappropriation was and why it was not enough for a preliminary injunction but was strong enough to find there had been “evident copying” and warranted an expedited trial. We will continue to follow this case as it progresses and keep you informed of the results.
An interesting case out of Mississippi concerning the scope of trade secrets. People for the Ethical Treatment of Animals (PETA) has requested documents under the Mississippi Public Records Act from Iams (a pet food maker) relating to experiments conducted on animals. Iams says that the information is protected Intellectual Property and trade secret and not subject to the Public Records Act. PETA responded by saying they don’t want trade secret information, they just want to know what happened to the animals.
While I’m not sure that PETA’s request that they don’t want trade secrets and only want to know what happened to the animals contains a distinction (aren’t the results of the experiments (the alleged trade secrets) actually results about what happened to the animals?), I find myself in rare agreement with PETA. I don’t believe that a company should be able to hide behind IP laws to protect actions taken which might be otherwise objectionable. There is certainly a distinction between protecting customer lists and business processes as opposed to the results of experiments which might be harming animals. I think that if we begin to extend IP or trade secret protection to these types of situations, we may find ourselves on a very slippery slope indeed.
Apparently the court agreed as it found that protocols relating to the experiments was not protected by trade secret law. The case is up on appeal in the Mississippi Supreme Court–we will inform you when there is more news.