The Trade Secrets Blog

Following Trade Secrets Litigation

IBM Tries For A Second Bite at the Apple (or Dell in this case)

Back in June I posted on IBM’s lawsuit against it’s former M&A chief, David Johnson, here. IBM sought a preliminary injunction to prevent Johnson from performing his duties at Dell. The Judge denied the preliminary injunction on June 26, 2009, saying that it would unfairly hurt Johnson’s career.

IBM appealed the ruling. However, not satisfied, IBM also sought to revive its motion for preliminary injunction based on the discovery of new evidence against Johnson. The New Brunswick Business Journal is now reporting that U.S. District Judge Steven Robinson denied IBM again. Robinson wrote, “The court shall not allow IBM to litigate this matter through piecemeal, seriatim motions requesting the same relief.” According to Robinson, such a method “is vexatious and does a great disservice to the interests of Mr. Johnson and of the court.”

The litigation appears to center around the validity of a 2005 agreement, specifically, whether it is valid even though it wasn’t properly signed by Johnson and IBM never followed through on threats to take away his equity in the company if he didn’t re-sign it. According to Johnson, he deliberately signed the agreement in the wrong place.

Take away message: Make sure your employees sign any agreements in the correct place. There really is no reason for an employee not to do so, unless he plans on creating wiggle room for himself as Mr. Johnson has done.

August 7, 2009 Posted by | confidentiality agreement, Intellectual Property, misappropriation, non-compete agreement, trade secret theft, Trade Secrets | , , , | 1 Comment

Ex-Intel Employee Indicted for Trade Secret Theft

Networkworld.com is reporting that Biswamohan Pani, a design engineer at Intel’s Hudson, Massachusetts offices before going to work for AMD, is accused of stealing $1 billion worth of trade secrets to help his new employer.

Key graph: “Pani is accused of accessing Intel’s network remotely and downloading 13 top-secret documents and other proprietary information related to methods for designing microprocessors, “including a document explaining how the encrypted documents could be reviewed when not connected to Intel’s computer system” the Telegram reports.”

Apparently AMD was unaware of the theft. “Prosecutors say Pani planned to use the secrets to advance his career at AMD. The information Pani allegedly downloaded “was worth more than $1 billion in research and development costs,” the Associated Press reported. Pani told investigators he downloaded the top-secret documents to help his wife, who works for Intel, the Telegram reports.”

The defense that he was just helping his wife is an interesting one. It will be interesting to see how it plays. Would the wife need the information that he accessed to do her job? Was the wife cleared to access the allegedly stolen documents? How did Pani access the documents? Using the wife’s clearance or his own clearance from when he used to work for Intel? There are a lot of unanswered questions and we’ll keep an eye out on this one. My guess is that the “I did it for my wife” defense won’t stand up to scrutiny. As far as trade secrets cases go, this is about as big as it gets and will be very interesting to follow.

One word of advice for Intel: If your ex-employees can access over $1 billion worth of information from a remote location after they have started work for your major competitor, your trade secrets protection plan needs some serious work. While it is all well and good to have confidentiality agreements, and the like in the event of something like this, doesn’t it just make sense to ensure that its secure from this type of misapproriation in the first place? $1 billion worth of information was available remotely? It’s an eye-popping amount of information to have floating in cyberspace, ripe for the plucking by ex-employees.

November 7, 2008 Posted by | confidentiality, confidentiality agreement, misappropriation, non-disclosure agreement, trade secret theft, Trade Secrets | , , , , , , | 1 Comment

It’ll All Come Out in the Wash? – Kate Hudson Sued

This news may be a little old but it is worth posting as I am going to be following the progress of this case closely. You can find a link to the information here.

Actress Kate Hudson and ceebrity stylist David Babaii have been sued by 220 Laboratories Inc. in Los Angeles Superior Court over allegations that Hudson and Babaii misappropriated trade secret information relating to the ingredients of hair-care products (specifically Volcano Ash).

Key graph:

“220 Laboratories says it was the only supplier of volcanic ash in the USA and that it entered an “oral contract” with the Tinseltown twosome in August 2006 to develop and manufacture hair products. The company says it revealed their “confidential” ingredient list to Hudson and Babaii in November, and that the duo then took the ash samples and shopped around to find a cheaper deal.”

If the allegations are true and 220’s ingredients list can be categorized as trade secrets (i.e., not generally known to the public, and the subject of efforts to maintain the secrecy of the ingredient list) then 220 may have a pretty good case depending on how it is that Hudson and Babaii came into contact with the ingredient list. In other words, if they signed a confidentiality agreement that specifically stated ingredient lists as the subject of the confidential communication, then 220 stands a very good chance of prevailing. However, the use of the “oral contract” language makes me believe that there is no confidentiality agreement, just an agreement to do business together (which may be a separate claim, but not a trade secret misappropriation claim). If so, it will be interesting to see how 220 will claim that information for which they did not even go to the simple step of having a confidentiality agreement signed before disclosing can be classified as a trade secret.

In any event, if 220 is merely relying on an oral contract to do business together as a basis for their trade secret misappropriation lawsuit, then we can learn a few lessons here: (1) get any contract in writing before you place any reliance on the agreement; (2) before disclosing any sensitive information, get a confidentiality agreement. Had these two steps been followed by 220, their case would, most likely, be much stronger. I cannot stress this enough–use Confidentiality Agreements when disclosing sensitive information.

September 8, 2008 Posted by | confidentiality agreement, Intellectual Property, misappropriation, trade secret theft, Trade Secrets | , , , | Leave a comment

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.

June 30, 2008 Posted by | confidentiality agreement, Intellectual Property, misappropriation, trade secret theft, Trade Secrets | , , , , , , | Leave a comment

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.

June 6, 2008 Posted by | confidentiality agreement, Intellectual Property, misappropriation, non-compete agreement, trade secret theft, Trade Secrets | , , , , | Leave a comment

Bad “Karma” in Silicon Valley?

The New York Times reports that Tesla Motors, the Silicon Valley electric sports car maker, has filed suit in San Mateo Superior Court in California against Fisker Automotive and two employees, including Henrik Fisker. Fisker was hired by Tesla last year to design a four-seat sedan, codenamed White Star.

Key graph: “The Tesla lawsuit contends that Mr. Fisker and his chief operating officer, Bernhard Koehler, doing business under the name Fisker Coachbuild, fraudulently agreed to take on Tesla’s $875,000 design contract to gain access to confidential design information and trade secrets, then announced a competing vehicle [the aforementioned “Karma”]. Last fall Mr. Fisker founded Fisker Automotive, which is backed by the venture capital firm Kleiner Perkins Caufield & Byers.”

The Tesla lawsuit seeks to stop Mr. Fisker from using Tesla design documents, along with a return of the money from the contract and unspecified punitive damages.

For what it’s worth, earth2tek.com is reporting that Fisker Automotive has said that the suit is “ridiculous” and that it will “vigorously defend” itself from “these meritless claims.”

My question is what design documents did he take, if any. It’s not stated in the article that he took anything, only that he had access to design documents while he was working for Tesla. Also, is Tesla referring to design documents that existed before Fisker arrived, or the very design documents that Fisker was hired to produce? This question shouldn’t matter if Fisker “walked out the door” with design documents (whether he produced them or not) because they would clearly fall under the ownership of Tesla based on the “work made for hire” doctrine–and I assume that Tesla had confidentiality agreements and non-disclosure agreements in place (if not, then they haven’t been reading this blog). However, if Fisker was designing his own car (the Karma) from memory it may present a more interesting question.

You’ll recall that we reported a case in Ohio where the court found that trade secrets did not lose their status as trade secrets simply because someone memorized them. You can read about that here. California has no such ruling. Did Fisker memorize his designs? Is that even possible in this situation? Might this be the case that reviews the issue of memorization of trade secrets?

Also, remember that there are no non-compete agreements in California. This case could become very interesting because of the short amount of time that Fisker was with Tesla. Stay tuned…

April 25, 2008 Posted by | confidentiality agreement, Intellectual Property, misappropriation, trade secret theft, Trade Secrets | , , , , | Leave a comment

FBI Arrests Chinese Chemist for Theft of Trade Secrets

In yet another employee misappropriation case, the FBI got involved in the alleged theft of trade secret information for intumescent fire-proofing coating (I don’t know what it is either) from a worldwide paint company with a subsidiary in Houston, Texas. Jensen Zeng was arrested on January 29, 2008, and detained pending further criminal proceedings after being indicted on two counts of trade secrets theft and one count of computer fraud. Although the press release from the FBI doesn’t say it, the charges likely stem from violations of the Economic Espionage Act. Furthermore, there is no indication of a civil suit by the company, I am sure we can expect one.

Based on the brief allegations detailed in the FBI press release, we can begin to pciture the strong case the paint company has made for itself because, if the allegations are proven true, they implemented and sustained an effective trade secrets protection plan (something this blog highly recommends doing if you have any trade secret information which provides value to your company). In the following paragraph from the press release I will highlight the items which are directly related to a trade secrets protection plan.

According to the indictment, Zeng allegedly signed a confidentiality agreement with his employer and was aware of his responsibility to keep and maintain the confidentiality of his employer’s proprietary interest in trade secrets. Between Nov. 1, 2005 and Jan. 29, 2008, Zeng is accused of accessing without authorization his employer’s protected computer system and obtaining the trade secret formula for the intumescent fire-proofing product with the intent to defraud his employer. Zeng is accused of downloading the trade secret formula from the company’s database with the intent to convert the trade secret to the benefit of a person other than his employer on or about Nov. 1, 2005, and again on Jan. 29, 2008, and concealing the formula in a box under the insulation in the attic of his residence. The indictment also alleges Zeng formed his own business in October 2007 for the purpose of marketing intumescent fire-proofing coating.

A trade secrets protection plan is critical to any action for trade secrets whether brought in civil court or pursuant to Federal Laws such as the Economic Espionage Act.

February 25, 2008 Posted by | confidentiality agreement, Intellectual Property, trade secret theft, Trade Secrets | , , , , | Leave a comment

Trade Secrets Can Cost A Lot of Bread (or Pan)

Two rival Hispanic bakeries in Portland are caught up in a trade secrets skirmish over recipes that two former employees took to another bakery. Notice the emphasis on former employees.

Key graph:

“These recipes and baking methods constituted valuable trade secrets not publicly known and … the cakes and pastries made from them were and are in great demand by the Hispanic community in the greater Portland-Vancouver metropolitan area.”

There may be hope for the Plaintiff in this case as it appears that his trade secrets protection plan was in place because the complaint attaches confidentiality agreements signed by the former employees. Bravo.

February 15, 2008 Posted by | confidentiality agreement, Intellectual Property, trade secret theft, Trade Secrets | , | Leave a comment

Another Employee Misappropriation Suit – Agilent Sues Advanced Materials

TradingMarkets.com is reporting that Agilent Technologies, Inc. is suing Advanced Materials Technology Inc. in Delaware for breach of confidentiality agreements, misappropriation of trade secrets, and breach of fiduciary duties relating to its high-performance liquid chromatography or HPLC technology, whatever that is. Agilent alleges that three employees of Advanced, formerly of Agilent, took Agilent trade secrets and confidential information and used it for the benefit of Advanced in developing its Halo HPLC. The story is here.

Do you notice a trend with these cases? Bonus points if you said that most of them relate to former employees leaving for another company and using their former company’s trade secrets and confidential information to compete unfairly.

These cases all have one thing in common–they will turn on the strength of the plaintiff’s trade secrets protection plan. A strong plan that is effectively implemented will generally allow recovery, while on the other hand, companies with no plans, or companies who don’t effectively implement their protection plans will generally be denied recovery.

We will follow this case as it develops to analyze the strength of Agilent’s trade secrets protection plan and its implementation.

February 1, 2008 Posted by | confidentiality agreement, Intellectual Property, misappropriation, trade secret theft, Trade Secrets | , , , | 2 Comments

Coldwell Banker Sues Former Employees

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.

January 23, 2008 Posted by | confidentiality agreement, non-compete agreement, non-disclosure agreement, Trade Secrets | , , , , | Leave a comment