Silicon Valley/San Jose Business Journal is reporting that Language Line Services Inc. and Tele-Interpreters, LLC, a competitor in the language interpretation industry, has sued Voiance Language Services for misappropriation of trade secrets and customer information.
Voiance has allegedly hired an ex-employee of Language Line who had possession of Language Line’s and Tele-Interpreter’s trade secrets.
The suit says Voiance has used trade secrets it got from its new hire “to cut short the otherwise long and uncertain process that would have been required for identifying, contacting and enticing Tele-Interpreters’ customers.”
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.
A great article over at Computerworld.com regarding the treatment of non-competes given today’s economy. It is very interesting reading. According to the article, courts have been reluctant to enforce non-compete agreements (in those states where enforcement is typical) because of the bad economy and the difficulty that people are
The article then provides several alternative tools to protect your company’s trade secrets which do not revolve around non-compete agreements. having just finding a job, in general.
The article first suggests that all companies perform a “trade secrets audit”–a suggestion I wholeheartedly endorse. A trade secret audit can provide the following: “Once all such assets are identified and valued and the risk of their loss has been assessed, the company designs and implements a comprehensive protection program, typically involving some combination of written agreements (called “restrictive covenants”), written policies concerning the appropriate use of company information, defined security measures and a detailed enforcement scheme, including not only enforcement of each of the applicable agreements, but also reliance on both established and novel legal claims and theories.”
The article then identifies some of the alternative forms of protection that may help in an economy where non-competes are not being enforced:
* “Garden leave” clauses: A type of noncompete agreement that compensates an employee during the period that the employee’s competitive activities are restricted. In a traditional garden leave clause, the employment relationship technically continues during the restricted period. However, the legality of such an obligation remains dubious.
* Forfeiture-for-competition agreements and compensation-for-competition agreements: Agreements by which an employee either forfeits certain benefits or pays some amount of money if he engages in activities that are competitive with his former employer.
* Forfeiture agreements: Agreements by which an employee forfeits benefits when his employment terminates, regardless of whether he engages in competitive activities.
* Nondisclosure/confidentiality agreements: Agreements by which an employee agrees not to use or disclose an employer’s confidential information.
* Nonsolicitation agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to accept — business from the employer’s customers.
* Antipiracy agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to hire — the employer’s employees.
* Invention assignment agreements: Agreements by which an employee assigns to the employer any potential inventions conceived of during employment.
Any or all of these can be important for your business. While the requirements for enforcement are similar to non-competes, “courts are nevertheless more likely to enforce these agreements than noncompete agreements. For example, garden leave clauses are more likely to be enforced because of the palliative effects of the compensation paid during the restrictive period. Similarly, forfeiture-for-competition and compensation-for-competition agreements are more likely to be enforced because they impose only financial disincentives — not a bar — to an employee’s employment by a competitor.”
Read the whole thing. If you have any questions about your own trade secrets protection plan, please contact me and I would be more than happy to discuss.
Websphere Journal is reporting that IBM has sued its former M&A chief, David Johnson, for taking a job with Dell Computers. The suit is based on a 2005 non-compete agreement signed by Johnson–IBM accuses Johnson of misappropriating trade secrets.
“the complaint against Johnson says the information he possesses is “among the company’s most competitively sensitive information, is carefully guarded, not made accessible to the public or IBM’s competitors, and is disclosed even to IBM employees on a strict ‘need to know’ basis.”
Johnson knows what companies and technologies IBM plans to invest in, when, what ROI it expects and what it may divest.”
It appears that IBM is basing its claims on the “inevitable disclosure doctrine” as there are no actual allegations of misappropriation. This will bear watching…
According to Gamespot.com, A Judge has ordered Activision to hand over the source code for the DJ game, Scratch: The Ultimate DJ. This case has gotten interesting fairly quickly. Let’s recap.
Activision was sued on April 14 by Genius Productions and Numark Industries for “intentional interference with contract, breach of contract…and misappropriation of trade secrets” after Activision purchased Scratch developer 7 Studios. 7 Studios is under contract to develop Scratch: The Ultimate DJ, for Genius and Numark.
Gamespot.com reported on April 16, 2009, the following: “Genius and Numark’s [April 14] filing claimed that Activision contacted them via the cash-strapped 7 Studios expressing interest in buying Scratch: The Ultimate DJ. However, after announcing its own DJ Hero game and seeing a demo of Stratch, Activision allegedly broke off negotiations and promptly bought 7 Studios. The suit then contends that 7 Studios slowed work on the game and refused to turn over software and a Numark turntable-inspired controller when Genius terminated its contract.
In addition to “substantial damages” and a return of its assets, Genius and Numark sought a restraining order against Activision’s release of DJ Hero so Scratch could retain its “‘first to market’ status.”
Then, Activision released statement announcing that a Los Angeles judge had rejected the request for a restraining order, citing a lack of evidence:
“Activision Publishing strongly denies the allegations made by Genius Products and Numark Industries and believes that the claims are disingenuous and lack any merit. Yesterday, the L.A. Superior Court found that there was no evidence of any wrongdoing by Activision and refused to grant any restraining order against Activision.
“These allegations are nothing more than an attempt by Genius to place blame for the game’s delay, as well as to divert attention from the cash flow, liquidity, and revenue challenges Genius detailed in its March 30, 2009, SEC filing. By their own admission in October 2008, the game had fallen behind in production, which was well before Activision had any involvement with Genius, Numark or California 7 Studios regarding the game.”
So, that’s the background.
On April 20, 2009, gamespot.com reported that “Genius and Numark are claiming that it was they, not Activision, who prevailed in court last week. Through an external publicity agency, the companies made public the transcript of the April 15 hearing, which was presided over by Judge James C. Chalfant.”
The hearing began with the judge saying that, “There isn’t any evidence against Activision. …There is no reason to restrain Activision from doing anything.” However, the judge quickly added that “There is evidence that…7 Studios has a duty to return the work product, source code, and software of the plaintiff [Genius].”
“It is actually very straightforward. They hired you. They have terminated the deal. Their agreement requires return of materials,” said the judge. “No matter how you slice this banana, they are entitled to the work product back. I don’t know why your client would want to continue working on a project for which they have been terminated.”
Chalfant then ordered Activision to make its 7 Studios subsidiary turn over the Scratch source code by today, April 20, in preparations for a subsequent hearing next month. “You [Activision] turn over the source code, and then if you want it back, you can argue on May 6th as to why you should get it back. I can’t under any circumstance think why you would be entitled to keep the source code.”
Next step is the May 6 hearing on damages. We’ll keep you posted.
It appears the Judge was pretty convinced of BiAmp’s wrongful actions:
As to defendant Biamp, the court ruled that the finding of willful and malicious trade secret misappropriation by Biamp was supported because “Biamp deliberately ignored numerous warning signs suggesting that the AEC technology offered by WideBand was not WideBand’s to sell. Given all the facts presented to Biamp at the time, it could not have held a good faith belief that its use of the WideBand code was valid,” and that Biamp earned over $1.5 million “by purchasing the WideBand technology at half the price offered by ClearOne and then selling the technology at the same price it charged when dealing with ClearOne.” The court also wrote that “having reviewed the testimony of Biamp’s witnesses…the court finds that the jury (who has the sole responsibility to assess witness credibility) reasonably found by clear and convincing evidence that Biamp’s behavior was willful and malicious.” For these and other reasons, the court concluded that “an award of exemplary damages against Biamp is appropriate to punish Biamp for ignoring its due diligence duties in order to profit at the expense of a competitor and to send a message deterring other companies from engaging in similar conduct.”
Law.com is reporting that a California jury hit Luna Innovations for $36 million in damages for breaking an agreement Luna had with hansen Medical to develop a robotic catheter and misused trade secrets to land a contract with Hansen’s competitor, Intuitive Surgical, Inc.
Key sentence: “The jury found that Luna breached its contract with Hansen in five ways, including breaking a nondisclosure agreement and failing to offer Hansen the first opportunity to negotiate an exclusive license to the technology they were developing together.”
It’s worth noting that Hansen had the opportunity to win this one because there was a nondisclosure agreement signed before any information of Hansen’s was disclosed to Luna. It is critical for small businesses looking to partner up that they execute nondisclosure agreements to protect their trade secrets.
Interesting case out of Ohio–The Columbus Dispatch is reporting that there is a fight over whether or not previously administered tests should be considered public records, and thus accessible to enterprising students who want to make a public records request to see the information prior to taking a test. The school district has taken the position that the tests are “trade secrets” and on that basis cannot be construed as public records. It seems that the Courts are agreeing with them.
For what it’s worth, I can’t imagine how the tests can be construed as “trade secrets” without changing the whole trade secrets system. Hundreds of students have seen the tests, none of whom were under any degree of confidentiality–by definition, the tests can no longer be considered “secret” after individuals under no confidentiality obligations have seen them.
The attorney for the school district said: “If this test is found to be a public record and we have to disseminate it, its utility is now zero,” he said. “Every student would have an economic incentive to try to get copies of the test beforehand.” Specious argument at best. So what if students get the tests–I had some teachers give me their previous tests as study materials and as an indication of what to expect on a future test. Just because a student gets a test and reviews the information, doesn’t mean that he will memorize the information, and it doesn’t mean that the information will appear on a future test.
Seems to me that this is a bunch of teachers who don’t feel like making a new test every year and instead want to rely on older versions–if the tests are public records, they won’t be able to do that. It hardly makes sense to turn the trade secrets statutes on their head in order to save teachers from more work though.
Back in September I reported that KFC was temporarily re-locating their famous 11 herbs and spices recipe so that they could upgrade the security around it. You can find that report here.
Now one of the most famous trade secrets in existence has been placed in its new home. According to this article from yahoo.com, the secret recipe “is now protected by an array of high-tech security gadgets, including motion detectors and cameras that allow guards to monitor the vault around the clock.”
“Thick concrete blocks encapsulate the vault, situated near office cubicles, that is connected to a backup generator to keep the security system operating in times of power outages.”
So, if you were planning on misappropriating the Colonel’s valuable trade secret, it looks like you missed your last best chance–that would have been before they moved it when “the recipe was kept in a filing cabinet equipped with two combination locks in the vault.”
Interesting article over networkworld.com about the dangers of phishing scams. As you’ll read in the article, phishing scams have become very sophisticated and if anyone at your company who has access to confidential information falls prey, you’re trade secrets may be at risk. Phishing scams can surreptitiously install a keystroke logger and other programs that allow remote control of the PC. And they’re no longer limited to lower level employees. In fact, the practice of targeting corporate executives and other important employees even has a name–“Whaling.”
According to Lorrie Faith Cranor, director of the Carnegie Mellon University CyLab Usable Privacy and Security Laboratory, phishing plays on human vulnerabilities and is not strictly a technological problem. “Although we have shown that we can teach people to protect themselves from phishers, even those educated users must remain vigilant and may require periodic retraining to keep up with phishers’ evolving tactics.”
The article has a clever approach to raising awareness within your employees of the sophisticated phishing scams. A web-based program called PhishMe will send fake phishing emails to your employees. For anyone who falls for the fake emails and clicks the link, PhishMe will send instant feedback and training on how to spot genuine phishing emails. Great idea.
File this in the “ounce of prevention is worth a pound of cure” file. In other words, even if you follow the advice of this blog to fully protect yourself against trade secret misappropriation, the cheaper and better approach to any trade secret litigation is to avoid it in the first place. Taking this article to heart and ensuring that your key personnel are aware of the tactics and dangers of phishing scams may ultimately save you lots of headache and money, not to mention your competitive edge.