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.

Alternatives to the Non-Compete

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.

IBM Sues Former M&A Chief

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.

Key graph:

“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…

Activision Ordered to Hand Over Source Code

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.

ClearOne Maintains Its Award

I reported on this jury verdict back in November here. According to websitegear.com, it appears that the Judge has entered a Final Order awarding $9.6 million, not much less than the jury’s award.

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.”

Luna Innovations Eclipsed By $36 Million Award

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.

Practically Speaking – Beware of Phishing

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.

Microsoft Begins Trade Secret Suit

Biggest news is that Microsoft is getting into the trade secrets fray. Geek.com is reporting that Microsoft has sued its former employee Mike Mullor (no, it’s not what you think–this has nothing to do with an ex-employee taking other employees and trade secrets with him–although I can’t fault you for thinking so) for breach of contract, theft of confidential documents, non-disclosure of intentions, fraud, misappropriation of trade secrets, and unjust enrichment.

It appears that Mr. Mullor, who before beginning work at Microsoft, owned a company called Ancora that was no longer trading, applied for and got a job with Microsoft in 2005 and began compiling information allegedly in fulfillment of a scheme whereby he would take the information and then turnaround and sue Microsoft in a patent infringement case for his startup company.

According to the article: “Mullor thought he was covering his tracks by using software that deleted traces of him downloading files, but Microsoft managed to find the evidence it needed to prove he downloaded files.”

Microsoft “also managed to turn up e-mail evidence [that Mullor] was planning patent lawsuits from 2004, before he joined them.”

Mullor’s response: “These are shameful, dishonest attacks on my character by Microsoft — the company that stole my idea in the first place … Microsoft fired me for trying to protect my own invention — an invention I told them about before they ever hired me.”

Muller also claims that “Microsoft knew about the patent and Ancora and that he discussed it with Microsoft lawyers and their anti-piracy group before taking employment with the company.”

This could get very interesting. Stay tuned . . .

Hey Ya! Andre 3000 Sued for $2 Million

bostonherald.com is reporting that Andre Benjamin aka Andre 3000 of the musical group Outkast has been sued, along with the Cartoon Network and Turner Broadcasting, by Timothy McGee, a Boston postal worker, for $2 million in damages relating to animated series “Class of 3000.” The suit claims copyright infringement, breach of contract and misappropriation of trade secrets and requests damages “including but not limited to” all the profits from the show, legal fees and “whatever this court may deem additionally just and proper.” Unfortunately for McGee, the profits from the show aren’t that extensive as it has already been cancelled.

Key graphs:

Timothy McGee, 33, a former art student, claims he developed “characters, artwork, storylines . . . and concepts” for an animated series he called “The Music Factory of the ’90s,” nearly 10 years before the oddly similar “Class” began airing on the Cartoon channel.

and:

In 1997, the Boston guy submitted a proposal for his show to Michael Lazzo, then a vice president of programming for the Cartoon Network, and promptly received a rejection letter.

Nine years later, in November 2006, the Cartoon Network premiered “Class of 3000,” an animated series set in Atlanta.

Only time will tell if McGee has the goods to be able to hang this one on Andre. A good place to start will be any documentation he submitted to Lazzo in 1997, the rejection letter, and (if he’s lucky) a non-disclosure agreement. Oftentimes, when people pitch shows or ideas, the programming executive refuses to sign non-disclosures on the chance that they are pursuing a similar themed show already. These cases are notoriously hard to prove because of the passage of time and the difficulty of getting the right witnesses–is Lazzo still working for Cartoon Network (the article is unclear), and what documents still exist at Cartoon Network that might support McGee’s claim?

Another question, is it going to be worth it for McGee? This is not a question to be taken lightly. Even though you may have been wronged, a good business person will always, always conduct a cost-benefit analysis of pursuing a claim. If the damages aren’t great enough, there is little sense in filing a lawsuit and paying a lawyer lots of money just to achieve the satisfaction of knowing that a court of law agrees that you were wronged. A simple maxim: If the damages aren’t there, it is rarely worth it to litigate.

In this case, I see little reason to pursue this claim. Even if McGee were to win in spectacular fashion, the odds that an animated feature on the Cartoon Network that lasted for only two years will have generated enough profit to justify an award of $2 million is debatable.

We’ll keep you posted on this one.

Clear Win for ClearOne

I’m a little late on this one but, better late than never. According to marketwatch.com, ClearOne Communications was awarded in excess of $10 million by a jury in a federal trade secret case in Utah. ClearOne sued BiAmp Systems, WideBand Systems, Dr. Jun Yang (a former employee of ClearOne), Andrew Chiang, Lonnie Bowers and Versatile DSP, Inc. for misappropriation of trade secrets, breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty relating to the theft of algorithms and computer code.

Key Graph:

On November 5, 2008, the jury returned a verdict in the Intellectual Property Case in favor of ClearOne and against all of the Defendants. Accordingly, the jury awarded ClearOne approximately $3.5 million in compensatory damages and $7.0 million in punitive damages. Among other things, the jury found that all of the Defendants willfully and maliciously misappropriated ClearOne’s trade secrets. Based on that finding, the court may also award ClearOne exemplary damages and reasonable attorneys’ fees. The court left in place the previously-entered preliminary injunction, pending ClearOne’s application for entry of a permanent injunction against the Defendants.

Big win for ClearOne and congratulations to the Magleby & Greenwood law firm who obviously did an exemplary job of presenting ClearOne’s case to the jury. Big wins like this typically mean that a company has paid attention to its trade secrets protection plan and adhered to its implementation, including, confidentiality agreements, exit interviews, password protections, limited access, etc. Your company should be doing the same thing.