Given the kerfuffle over the recent admissions by Facebook, Twitter, Foursquare, Path and others that they downloaded personal information and/or uploaded contacts through, among other things, Apps on users' iPhones, it was inevitable that someone would ask whether there might be trade secrets that could be misappropriated as well. Larry Magid recently wrote a post, "Privacy, Safety & Trade Secrets at Risk in Latest Apple App Flap," for Forbes posing that very question.
For the digitally unsavvy who missed last week's news, Larry's article presents a nice summary: On February 8th, a developer discovered that his "entire address book (including full names, emails and phone numbers) was being sent as a list to Path.” Path, an app that allows people to create and share their personal journals, quickly admitted it, apologized, and issued a new version that sought permission before uploading user data. Other companies, including Foursquare, Twitter, Facebook, Instagram and Voxer, later came forward and admitted uploading user data. Larry's post expresses concern that given the sheer number of Apps that now exist (over 500,00 for the iPhone and 400,000 for the Droid), it is conceivable that a developer with less-than-pure intentions (other than, of course, simply harvesting the data of its users) could use the interface with the iPhone or Droid to do so. Larry expresses concern that a list of a user's contacts could confer some form of competitive advantage. While there may be some legitimate concerns on the privacy front about these developments, I don't think companies have much to worry about on the trade secrets front. The vast majority of users would face, at worst, disclosure of their contact information, which would exist in a fairly rudimentary form (email addresses, phone numbers) and which in some instances would already be available to the public (Twitter, for example, generally lists a user's followers and the other users that he/she is following). Moreover, one would presume that a user would tread carefully with an App that he perceives competes with him or his employer; in fact, it would be tough to defend a trade secret claim where that information was shared with a competitor with no safeguards. While it is possible, given the growing universe of Apps and the blurring of personal and professional lives on smartphones, that some form of trade secret could be uploaded or taken, it is tough for me to envision such a situation. And since contact information and customer lists are generally perceived as the red-headed stepchildren of the trade secret world, under these circumstances it would be tough to argue for any trade secret protection.
Tags: trade secrets, Apps, iPhones, Forbes, Droids, Twitter, Foursquare, Facebook, Path
Cybersecurity | Intellectual Property | Licensing | Social Media | Trade Secrets
Late last month, the U.S. Supreme Court issued its long-awaited opinion in U.S. v. Jones, which held that affixing a GPS device to an individual's car and tracking his movements without a warrant constituted a violation of the Fourth Amendment. The opinion has not only been dissected by academics and criminal defense attorneys but also by a number of technology commentators. One of the better articles is entitled "A Supreme Court Justice's Radical Proposal Regarding The Privacy of Your Google Searches, Facebook Account & Phone Records," written by Kashmir Hill, a technology and social media columnist at Forbes. Hill's article analyzes Justice Sotomayor's concurring opinion, which has generated the most commentary. It is an important opinion, the type that just may resonate in other areas of the law, including trade secret law as well as the Computer Fraud and Abuse Act.
Let me explain. Justice Sotomayor asked whether the Supreme Court should revise its present notions of the reasonable expectation of privacy in the digital age. In so doing, she questioned the viability of the third party doctrine, a doctrine that holds that the sharing of information with a third party means that you have a diminished expectation of privacy, and less or no Fourth Amendment rights to complain if the government secures that same information. Here are the two paragraphs that stand out:
"More fundamentally, it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties. This approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks. People disclose the phone numbers that they dial or text to their cellular providers; the URLs that they visit and the e-mail addresses with which they correspond to their Internet service providers; and the books, groceries, and medications they purchase to online retailers. Perhaps, as JUSTICE ALITO notes, some people may find the 'tradeoff' of privacy for convenience 'worthwhile,' or come to accept this 'diminution of privacy' as 'inevitable,' and perhaps not.
I for one doubt that people would accept without complaint the warrantless disclosure to the Government of a list of every Web site they had visited in the last week, or month, or year. But whatever the societal expectations, they can attain constitutionally protected status only if our Fourth Amendment jurisprudence ceases to treat secrecy as a prerequisite for privacy. I would not assume that all information voluntarily disclosed to some member of the public for a limited purpose is, for that reason alone, disentitled to Fourth Amendment protection."
What is the impact of this concurring opinion on trade secret law? One of the most litigated issues in trade secret cases is whether a trade secret has been disclosed to a third party and under what circumstances. Some courts have applied a rigid test that disclosure of trade secrets, no matter what the circumstances, may result in the waiver of its trade secrecy. However, many courts have applied an analysis that parallels the one supplied by Justice Sotomayor -- one that recognizes that, given the reality of our digital age, there may be some disclosure that is necessitated by practical and economic considerations. For example, does a business waive its trade secrets if it stores them with a cloud provider? Do trade secrets lose their protection if an employee inadvertently discloses some of their elements on the Internet? Are trade secrets lost if some of them are shared with a customer to facilitate or close a sale? A court adopting Justice Sotomayor's view would likely say "no."
And the CFAA? This is where Justice Sotomayor's reasoning could have the greatest impact. I wrote last Fall about the possible fallout from U.S. v. Nosal, a Ninth Circuit case holding that violation of a company's Internet or computer usage policy could satisfy the access without authorization requirement for a claim under the CFAA. Professor Orin Kerr of George Washington and others had predicted that Nosal's reasoning could lead to the conclusion that a party's failure to follow the Terms and Conditions supplied by Facebook, LinkedIn or some other website could give rise to a claim under the CFAA. Sure enough, in September 2011, the Northern District of California found that a commercial party's failure to follow those terms could give rise to a claim under the CFAA in Facebook v. MaxBounty.
Which leads to the following question: When was the last time any of us actually took the time to read the "Terms of Service" that accompany a software download, to open an account with an Internet Service Provider, or that allow us to do our banking or pay for something on eBay? And if you did take the time to read them and declined them, what happened? I strongly suspect that the reality is most of us don't have much of a choice when it comes to accepting those terms, whatever they are, to perform those mundane but necessary tasks, unless of course you are content to live like Ted Kaczynski, holed up in a cabin in the woods of Montana.
It is in this respect, therefore, that Justice Sotomayor's reasoning could have the most impact. Her concurring opinion recognizes the practical realities of the digital age and more importantly, reflects the overwhelming expectation that the vast majority of us have when we access or share information over the Internet, over our mobile phones or through other electronic devices.
Tags: Justice Sotomayor, U.S. v. Jones, U.S. v. Nosal, Facebook, trade secrets, CFAA, Computer Fraud and Abuse Act
Computer Fraud and Abuse Act (CFAA) | Intellectual Property | Social Media | Trade Secrets
Tags: social media, Twitter, LinkedIn, Facebook, trade secrets, owns, employer, employee
California | Intellectual Property | IP Litigation | Licensing | New York | Pennsylvania | Social Media | Trade Secrets
Today's post features Nos. 4 through 6 of the Top Ten Trade Secret and Non-Compete Decisions of 2011. They are:
6. IBM v. Visentin (U.S. District Court for the Southern District of New York and U.S. Court Appeals for the Second Circuit) and Aspect Software v. Barnett (U.S. District Court for Massachusetts)These two cases presented the same issue -- to what extent should a non-compete be enforced when the new employer and former employee have put safeguards in place to protect the plaintiff's trade secrets and customer relationships. Both of these cases provide a fine example of what a company should do if it wants to hire an employee with a non-compete but minimize potential entanglements with the former employer (see my previous blog post on the Aspect Software case where the former employee and new employer incorporated 8 steps to safeguard the plaintiff's interests). However, taken together, these two cases also reinforce another feature of non-compete and trade secret cases -- their unpredictability. In Visentin, the Southern District of New York (and later, the Second Circuit) found that the former employee and the new employer (HP) had acted reasonably to protect the business interests of the former employer (IBM) and that the non-compete should not be enforced to prevent the employee's new job with HP. In contrast, in Aspect Software, although the district court commended the former employee and his new employer, Avaya, for "the scrupulous steps" they took to safeguard the plaintiff's trade secrets and customer relationships, it still enforced the non-compete because of concerns that the employee would inevitably use his former employer's trade secrets.
As increased employee mobility and a poor economy continue into 2012, look for more cases like Visentin and Aspect Software. Courts will be forced to balance the interests of all parties and still protect the legitimate interests of the former employer. These cases may have a profound impact on the viability of the inevitable disclosure doctrine, the traditional counterweight to an employee's assurances about his or her good faith efforts to protect the former employer's trade secrets.
5. Mattel v. MGA (U.S. District Court for the Southern District of California, Los Angeles)Will it ever end?
When I first started putting this list together, I thought about using movie titles to highlight the key qualities of each case. When it came to selecting a title for this bitter case, plenty came to mind -- "There Will Be Blood" and "Drag Me to Hell" certainly would have captured it nicely. However, the most fitting title is probably "Reversal of Fortune" as this epic lawsuit, at least in its most recent round, has swung decisively in favor of MGA.
If you are reading this post, you are likely familiar with the history of this dispute which began in 2003, when Mattel first sued MGA for stealing the idea for the pouty-lipped Bratz Line through a former Mattel employee. In 2008, Mattel won a $100 million jury verdict, only to see that judgment reversed by the Ninth Circuit. Then, in April 2011, MGA prevailed during the second jury trial, not only persuading the jury to reject Mattel's claims but also to award MGA $83 million on its trade secret counterclaims. That award swelled to $310 million when the district court imposed exemplary damages and attorneys fees in post-trial proceedings. What will the next ruling bring? No one really knows, as the trade secret version of Jarndyce and Jarndyce continues to work its way through California's federal courts.
4. U.S. v. Nosal (U.S. Court of Appeals for the Ninth Circuit)The scope of the Computer Fraud and Abuse Act (CFAA) continues to beguile litigants and courts alike, and no CFAA case raised more eyebrows in 2011 than the Ninth Circuit's decision in U.S. v. Nosal, 642 F.3d 781 (9th Cir. Apr. 28, 2011). In Nosal, the Ninth Circuit held that the violation of a computer use policy that placed "clear and conspicuous restrictions on the employees’ access” to the employer’s computer system and the specific data at issue could be enough to qualify as conduct that exceeded authorized access, a necesssary element of a CFAA claim.
We will reveal our top three cases next week, so please stay tuned. In the meantime, have a safe and happy new year.
Tags: trade secrets, non compete, covenant not to compete, confidential information, IBM, Visentin, Aspect Software, Avaya, Barnett, Nosal, Computer Fraud and Abuse Act, CFAA, Mattel, MGA, Facebook, MaxBounty
Computer Fraud and Abuse Act (CFAA) | General | Intellectual Property | Copyrights | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
Tags: Arbitration, trade secrets, Twitter, Facebook, Advanced Equities, Felix Investments, Mazzola, injunction, TRO, FINRA, AAA
General | Injunctions | Intellectual Property | IP Litigation | New York | Restrictive Covenants | Trade Secrets
Many of us are still trying to get our minds around the transformative effect of social media sites on the workplace, on litigation and, for purposes of this post, the trade secret practice area.
Social media's impact has been both practical and substantive. On the practical side, when a a non-compete case comes through the door, one of the first things that I do is check to see if the potential defendant has a LinkedIn profile for background information. More often than not, my client has already scoped that profile out because the client remains "connected" to the former employee and can monitor, to some extent, the employee's contacts and connections. The Virginia Non-Compete Blog, whose clients are generally employees on the receiving end of non-compete disputes, has likened this curiosity to a form of "cyber-stalking," effectively using the analogy of a break-up and resulting matrimonial dispute to illustrate that point (it's a great example, as Facebook and other social media have become an evidentiary boon to the matrimonial bar). As a result, it counsels its clients to take a hiatus from social media sites to avoid potential disagreements during this period of high tension, which is good advice.
Substantively, LinkedIn continues to be a topic of discussion in the trade secret community. I wrote a post last month on the Sasqua Group decision out of the Eastern District of New York and its potential impact on the protection of customer lists. Another issue recently raised in the context of LinkedIn is who truly owns the connections information that is listed within LinkedIn's site. A case that was closely watched last year, TEKsystems, Inc. v. Hammernik, et al. (0:10-cv-00819-PJS-SRN) (D. Minn. 2010), addressed this issue -- namely, whether a defendant's use of LinkedIn was a violation of his non-solicitation agreements.
In that case, TEKsystems accused one of the defendants of using LinkedIn to solicit TEKsystems’ contract employees and clients and identified approximately 20 TEKsystems contract employees that were solicited using LinkedIn. While that defendant admitted using LinkedIn to communicate with those individuals, he denied otherwise having communicated with them. He also argued that TEKsystems' and its employees' use of LinkedIn and Facebook for recruiting, promotional and other purposes voided any claim that any information posted on those sites was a trade secret or confidential.
No ruling was ever issued on the LinkedIn issues as the parties entered into a stipulated order enforcing the non-solicitation agreement and requiring the return of TEKsystems’ documents; however, the case generated tremendous interest as the first case to attempt to sort out these issues.
At the end of the day, the same fundamentals that apply to protecting trade secrets in other areas apply to the use of LinkedIn. First, to the extent that a company uses a non-solicitation or non-compete agreement, that agreement should specify that post-employment communications to customers made through an online social networking website including LinkedIn or Facebook constitute a violation of that agreement. This step will preserve the client's contractual remedy, whatever the trade secret status of the contact information.
Second, any employment or non-solicitation agreement should include a confidentiality provision that expressly defines confidential information to include client identities and contact information and that it is the property of the employer. That provision should unambiguously state that confidential information may not be used or disclosed for any purpose other than on behalf of the employer, including through the use of social media, and again, identifying LinkedIn.
Finally, employers should develop, disseminate, and, if necessary, train employees on company policies addressing the use of social media. Through these policies, employers should make sure that their employees understand which information is considered confidential and what information constitutes a trade secret. This will require companies to be vigilant about their employees’ use of social media and that they monitor that use from time to time to ensure that employees are complying with their written agreements and the company’s policies. Many companies have already created social media officers who are responsible for ensuring the creation and implantation of these social media policies. In the absence of follow-through to ensure compliance, a court may deem that failure as proof that trade secrets do not exist or are not sufficiently important to warrant protection.
Tags: LinkedIn, Facebook, trade secret, trade secrets, non-solicitation, TEKsystems, Sasqua, social media, non-compete
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Non-Disclosure Agreements | Non-Solicitation Agreements | Restrictive Covenants | Social Media | Trade Secrets
The phenomena of social media and its near exponential growth has generated tremendous dialogue within the IP community about its impact. Facebook now has more than 640 million members, Twitter now has over 175 million users, and LinkedIn has more than 101 million users. Given these staggering numbers, and the inevitability that some users will eventually misuse or attempt to display confidential information or trade secrets of their employers, it makes sense to review the recent cases addressing trade secrets, as well as the steps a client can take to minimize that risk.
One of the first noteworthy cases comes from the Eastern District of New York and it illustrates the challenges that an employer may face when trying to protect a customer list in this new era. In Sasqua Group, Inc. v. Courtney, 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. Aug. 2, 2010), affirmed, Sept. 7, 2010, the plaintiff, Sasqua, was a recruiting and search firm that built its niche in the area of executives for the financial services industry. According to Sasqua, its founder, Christopher Tors, had worked for over 20 years as a precious metals and foreign currency trader for Goldman Sachs, AIG and UBS, and had used that experience to form Sasqua and compile a substantial client database. That client database included, among other things, client contact information, individual profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, and resumes. Tors claimed that he hired and trained his niece, Lori Courtney, as a recruiter for Sasqua. After Courtney left Sasqua to form a competing firm, Sasqua and Tors concluded that Courtney was using the contents of their client database, which they believed contained highly confidential information.
Because Sasqua did not have a written non-competition or non-solicitation agreement with Courtney, they commenced an injunctive action for misappropriation of trade secrets. However, in a withering opinion rejecting that effort, the U.S. District Court Magistrate who presided over the injunction proceeding found that their customer database and the information contained within that database were not trade secrets.
In particular, the Magistrate found it significant that Courtney was able to demonstrate in court how the information in Sasqua's database could be found through internet searches of websites such as FX Week, Google, Bloomberg.com, and LinkedIn. The Magistrate was impressed with Courtney’s testimony about “how such a search could be conducted on Linkedin, which [Courtney] described as being 'like Facebook but for business' and as being more searchable than Bloomberg 'because people put their whole profile on LinkedIn.'" (Sasqua Group, at p. 24).
The Magistrate was not troubled by the fact that Courtney admitted she did not use the internet to get the information at issue and all but conceded that she had taken it from Sasqua. In holding that the information was not confidential information or a trade secret, the Magistrate noted how the internet had changed the business landscape: "The information in Sasqua's database concerning the needs of its clients, their preferences, hiring practices, and business strategies, as well as Sasqua’s acquaintance with those decision-makers may well have been a protectable trade secret in the early years of Sasqua's existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here. However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story" (Sasqua Group, at p. 39).
Three lessons can be drawn from the Sasqua Group decision. First, it is critical to have written non-competition, non-solicitation or confidentiality agreements with employees, contractors and vendors with whom confidential customer information may be shared. Second, an employer needs to have agreements and policies that make clear that sensitive customer information gathered while an employee is the property of the employer and is to be protected. Such an acknowledgement would have necessarily bolstered Sasqua’s claim of proprietary information at the TRO and preliminary injunction stage. Third, an employer has to ensure that its confidential customer information does not find its way into social media websites. This means that that the employer must monitor its employees’ social media profiles, descriptions and blogs to ensure that they are complying with the employer’s policies and agreements.
Tags: Social media, trade secrets, customer list, non-compete agreement, non-disclosure agreement, Facebook, LinkedIn, Twitter
General | Intellectual Property | IP Litigation | Licensing | New York | Social Media | Trade Secrets
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