Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past few weeks (better late than never): Noteworthy Trade Secret and Non-Compete Posts and Cases:
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Tags: trade secrets, non-competes, cybersecurity, covenants not to compete
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Last week, I wrote about the media's scrutiny of Apple's many trade secrets and the special challenges for any party trying to protect its trade secrets in a public proceeding, especially a high profile one generating media coverage. As my post noted, there were several media reports of preliminary rulings by U.S. District Court Judge Lucy Koh on some of the trade secrets questions raised by the parties and by Reuters, which had sought the release of some of that data. Reuters had intervened in the lawsuit and challenged a number of the parties and third parties' claims of trade secrecy. Late last Thursday, Judge Koh issued a 29-page opinion and order formally addressing the various trade secrets claims of Apple and Samsung, as well as those of non-parties Intel, Qualcomm, IBM, Nokia and Microsoft. (A copy of the opinion is attached as a PDF below).
Judge Koh's opinion strikes the right balance on the many trade secrets presented. Her analysis notes the historic right of public access to court documents and records and the strong presumption in favor of access unless a particular court record is traditionally kept secret. Her opinion emphasized the public's interest in this trial and the importance of certain data being publicly available to assist in the public's understanding of the eventual outcome.
While her analysis is sound, the opinion avoids any bold pronouncements about the importance of trade secrets or forceful rulings regarding the intersection of trade secrets and public proceedings. As a result, her fact-based opinion, while highly visible, probably won't have far-reaching consequences because her holdings are strongly rooted in the arguments and facts before her. Frankly, this was probably the right approach given the myriad of claims, arguments and facts at issue in this very complex dispute. Apple and Samsung's Trade Secrets: As to Apple's many trade secrecy claims, Judge Koh ordered that evidence of Apple's profits and other financial data would not be placed under seal. Judge Koh was unpersuaded by Apple's claims that evidence of past profits and unit sales data could be used to meaningfully predict its future business plans that might benefit competitors. Perhaps more significantly, Judge Koh noted that Apple's request for $2.5 billion in damages, the extreme importance of the public's understanding of the eventual outcome and the extraordinary public interest that this trial had generated strongly weighed in favor of disclosure of this data. Apple was able to preserve the trade secrecy of some information. Judge Koh did place information regarding Apple's production and supply capacity, its source code, its licensing information and some of its marketing survey data under seal. She applied the same analysis and rationale to Samsung, which made similar requests for its confidential financial information and trade secrets. Third Parties' Trade Secrets: Not surprisingly, Judge Koh was more sympathetic to the claims of third parties such as Intel, Qualcomm, IBM, Nokia and Microsoft, who sought to prevent disclosure of the terms of their licensing agreements to the public. She found that the "public release of such information would place these third-parties in a weakened bargaining position in future negotiations, thereby giving their customers and competitors a significant advantage." She, therefore, sealed all information related to the pricing terms, royalty rates and payments of all current and past licensing agreements.
One interesting issue: IBM and Reuters appear to have sparred over the publication of its licensing agreement, as Reuters threatened to publish it because the agreement had been served as an exhibit on all parties. While IBM was apparently unsuccessful in getting a TRO barring its publication, Judge Koh rejected Reuters' waiver argument, reasoning that none of the information had been publicly disseminated and that "such limited disclosure does not strip IBM's information of its trade secret status. She firmly warned Reuters that if it did publish that information, it would be in direct violation of her order.
The Takeaway? Judge Koh's opinion may provide some support down the road for parties trying to protect public disclosure of their trade secrets at trial, but her fact-based opinion will have limited presidential value.
For that reason, Magistrate Clifford Shirley's opinion in the high profile trade secret prosecution of Wycko employees convicted of stealing Goodyear's trade secrets in 2010 probably provides the best guidance, particularly for trade secret claimants. In U.S. v. Roberts, 2010 U.S. Dist. LEXIS 25236 (D. Tenn. March 17,2010), Magistrate Shirley not only struck the right balance between the competing needs for public access and trade secrecy, but provided a template for future courts confronted with similar questions. Observing the "flat absurdity for the trial judge to compel [Goodyear] to publicly disclose its processes in the act of protecting them from disclosure," Magistrate Shirley balanced the needs of the criminal defendants, the public's right to access and Goodyear's trade secrets by limiting disclosure of the trade secrets -- illicit photographs taken of Goodyear's manufacturing operations -- to display of the photos to the jury alone.
Apple v. Samsung.pdf (144.98 kb)
Tags: Apple, Samsung, trade secrets, Judge Koh
IP Litigation | Licensing | California | Trade Secrets | Patents
Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed from the previous week:
Noteworthy Trade Secret and Non-Compete Articles, Cases and Posts:
Computer Fraud and Abuse Act Posts:
Cybersecurity Posts and Articles:
News You Can Use:
Tags: trade secrets, covenant not to compete, non-compete, cybersecurity
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The Apple v. Samsung case in the U.S. District Court for the Northern District of California is poised to become the intellectual property equivalent of the O.J. Simpson trial, as it is easily one of most widely followed IP dispute in years. The intense media coverage has brought an important issue to the forefront -- namely, how to handle sensitive information that is bound to be included in this type of dispute.
Apple is famously secretive, having gone so far as to build an offsite, employees-only-restaurant so competitors could not eavesdrop on its employees. As a result, one of the issues that has received the most attention is the degree to which some of Apple's trade secrets have been disclosed at trial. Apple's experience provides a number of lessons to companies about the challenges of protecting trade secrets in open court, especially in a high profile case.
On Saturday, The Wall Street Journal ran an article, "Apple's Secrets Revealed at Trial," that was its most popular online article over the weekend. The article detailed, for example, the testimony of Phil Schiller, Apple's senior VP of world-wide marketing, who revealed how much Apple spends on marketing the devices at issue. Schiller testified that Apple had spent $647 million advertising the iPhone in the U.S., from its release in 2007 through its fiscal year 2011. For the iPad, which was first sold in 2010, he estimated $457.2 was spent.
Some of the trade secrets disclosed ran counter to Apple's professed marketing and business strategy. For example, The Journal described the testimony of Scott Forstall, a senior VP who oversees the software for Apple's mobile devices, who was forced to admit that as early as January 2011, an Apple executive advocated that Apple build a tablet with a 7-inch screen. (Apple has generally disputed the appeal of devices smaller than its 9.7-inch iPad, although The Journal says there are reports that Apple is developing a smaller model). According to The Journal, Forstall described "locking down" one floor of Apple's buildings with cameras and keycard readers to strengthen security and he admitted that Apple employees put a sign up on the front door with the words Fight Club written on it, referring to the hit movie in which characters are told that the first rule of Fight Club is not to talk about Fight Club. (For more, check out The New York Times article, "At Its Trial, Apple Spills Some Trade Secrets.")
Apple has won some and lost some trade secret battles in the case. It tried to limit the admissibility of a marketing survey of its customers, arguing that parts of it were a trade secret, but U.S. District Court Judge Lucy Koh disagreed. In addition, Apple has attempted, with mixed success, to seal sales documents that Samsung wished to use in cross-examination. Indeed, the issue of Apple's trade secrets has long been a pressure point in this case, as Samsung unsuccessfully sought other trade secrets of Apple in a discovery dispute last year.
The trial has also involved the possible disclosure of trade secrets of third parties. Intel and Qualcomm have both filed motions to protect information contained in their licensing agreements and have battled with Reuters over the degree of disclosure that should be provided to the media. This of course places additional pressures on Apple, as important customer or vendor relationships may be frayed as they are drawn into the litigation.
What are the lessons for a business trying to protect its trade secrets in open court? The Apple v. Samsung dispute highlights a number of important challenges in any trial, but especially in a trade secrets trial. Here are some facts every company needs to face:
1. Accept that the standard is against you. Courts, especially federal courts, are generally reluctant to seal the court room and very sensitive to the need for open proceedings. However, simply because a company seeks to protect its trade secrets does not mean it has to disclose the very trade secrets it seeks to protect, let alone other trade secrets. For an excellent analysis of the balancing that every court should apply, see Knoxville U.S. Magistrate Clifford Shirley's opinion in U.S. v. Roberts, a high profile criminal case that involved the theft of Goodyear's trade secrets.
2. Be prepared to battle the media. In a high profile case, this is almost a certainty. As newspaper budgets have shrunk, a high profile trial is fertile ground for local or national coverage. However, even efforts to seal what your client might think is a low profile dispute may raise the media's ire and provoke a battle over a protective order. Consequently, have a brief ready to go that anticipates the First Amendment issues and the need to protect trade secrecy.
3. Choose Your Battles Wisely. Given the realities outlined above, don't squander your credibility and resources fighting over lower level trade secrets or confidential information. Know what trade secrets are truly important and be prepared to battle over them as they arise in the case. Also, insist on an order that any confidential documents will be presented to the court first before the opposing party tries to use them in open court so that you are not closing the proverbial barn door after the horse has escaped.
Tags: Apple, Samsung, trade secrets
Intellectual Property | IP Litigation | Trade Secrets
Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week: Noteworthy Trade Secret and Non-Compete Posts and Cases:
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Loparex Order 07.31.12.pdf (109.26 kb)
Tags: trade secrets, cybersecurity, non-competes, covenants not to compete
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Greetings from Rehoboth Beach! Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week: Noteworthy Trade Secret and Non-Compete Posts and Cases:
Computer Fraud and Abuse Act Posts:
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Tags: trade secrets, covenant not to compete, cybersecurity, Pangang Group, DuPont
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A recent decision by California's Fourth Appellate District Court of Appeals highlights the dangers of prosecuting a trade secret case that proves to be unsuccessful -- namely, the possibility that a court may find that the action was brought in "bad faith" because one of the elements necessary for that trade secret claim was missing. While the July 11, 2012 decision, SASCO v. Rosendin Electric, Inc., is rooted in California's version of the Uniform Trade Secret Act (UTSA), (Civ. Code, 3426.4), it is a sobering reminder that a company bringing a trade secrets claim in California may need to have actual evidence of misappropriation to support its claim. (A PDF copy of the opinion can be found below and a hat tip to Dan Westman of Morrison & Foerster for bringing this opinion to my attention).
Facts: SASCO had sued three former senior managers who joined a competitor, claiming that they had misappropriated trade secrets, including certain allegedly proprietary software, for an opportunity that was being pursued by SASCO called the Verizon Trustin Project. After a number of bruising discovery disputes, SASCO was unable to come forward with evidence that the former employees ever misappropriated any trade secrets and it dismissed its claims rather than respond to a motion for summary judgment by the former employees. The employees then sought their attorneys fees, claiming that the action had been brought in bad faith as part of a larger effort to wear them down through litigation.
Holding: The trial court found that SASCO had brought the case in bad faith under California's version of the UTSA. The trial court explained that SASCO's suspicions that its former employees had taken other trade secrets was an insufficient basis for asserting the claim and it faulted SASCO for not conducting a thorough investigation before filing the lawsuit. (SASCO's cause was not helped by the fact that the trial court also believed that the allegedly proprietary software was an "off the shelf" computer program). In light of of the absence of any direct or forensic evidence and affidavits from the former employees that they did not misappropriate the trade secrets, the trial court granted the former employees' motion for attorneys fees and costs, awarding a total of $484,943.46.
On appeal, the Court of Appeals agreed, holding that the trade secret claims were "objectively specious" which it defined as an action that superficially appears to have merit but for which there is a complete lack of evidence to support the claim. Rejecting SASCO's interpretation that only "frivolous" claims warranted a bad faith finding, the Court of Appeals reasoned that there was also ample evidence of subjective of bad faith. Specifically, the Court of Appeals was also influenced by the fact that, in a related litigation between SASCO and one of the employees, a federal district court had awarded approximately $570,000 in attorneys fees and costs against SASCO because that litigation appeared to have been initiated as part of an attempt to wear down the former employees with duplicative and costly satellite litigation in two separate forums. My Concerns: Misappropriation can be one of the tougher elements of a trade secret claim to prove and, as a result, other courts have generally found that circumstantial evidence of misappropriation is sufficient. Indeed, I would argue that circumstantial evidence is often critical in trade secret cases, which by their nature, involve stealth and concealment, making it doubly difficult to prove actual misappropriation. As was perhaps best explained by the U.S. Court of Appeals for the Sixth Circuit in its opinion in Stratienko v. Cordis Corp., 429 F.3d 532 (6th Cir. 2005): "Permitting an inference of use from evidence of access and similarity is sound because 'misappropriation and misuse can rarely be proved by convincing direct evidence.' Eden Hannon & Co., 914 F.2d at 561 (citing Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 814 (E.D. Pa.1974)). Presented with 'defendants’ witnesses who directly deny everything,' plaintiffs are often required to 'construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what the plaintiffs allege happened did in fact take place.' Id. Thus, requiring direct evidence would foreclose most trade-secret claims from reaching the jury because corporations rarely keep direct evidence of their use ready for another party to discover."
Consequently, to the extent that the Fourth District is imposing a duty of direct evidence of misappropriation in all cases, I think it may be imposing an impossible burden on some plaintiffs. If this is the standard, all that a defendant has to do is object or fail to disclose critical evidence and a plaintiff may find itself in a situation that it cannot produce that direct evidence, since evidence of misappropriation is frequently in the hands of the defendant.
The Takeaway? California plaintiffs need to do their homework and would be well served by making sure that they have some evidence of misappropriation before filing an action. While the Fourth District Court of Appeals acknowledges there may be situations where a plaintiff may bring an action in good faith if it reasonably believes discovery may reveal misappropriation, a forensic examination of any devices of departing employees and other proper investigation should be conducted before filing any action. While I am troubled that the Fourth District appears to be imposing an obligation to come forward with direct evidence given the special challenges of proving direct misappropriation, there does appear to be wiggle room in the opinion for future plaintiffs on this point.
Finally, it should be noted that the SASCO decision may be a bit of an outlier, given some of its unique facts (the dismissal of the claim by SASCO and the satellite litigation in federal court which resulted in a similar award of attorneys fees). However, there are a number of cases working there way through the courts involving claims or findings of bad faith against unsuccessful trade secret plaintiffs (see the recent case filed against Latham & Watkins, and most notably, the American Chemical Society v. Leadscope case currently being considered by the Ohio Supreme Court). Therefore, thinking through your trade secret claims and carefully considering the evidence in support of the elements of those claims before filing a lawsuit is more important than ever.
Sasco v Rosendin Opinion.pdf (178.37 kb)
Tags: trade secrets, bad faith, California, SASCO, Rosendin
California | Intellectual Property | IP Litigation | Trade Secrets | Uniform Trade Secrets Act (UTSA)
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Dupont v Kolon - Writ of Garnishment.pdf (86.82 kb)
Tags: trade secrets, cybersecurity, covenant not to compete, non-compete, DuPont, Kolon
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Here are the noteworthy trade secrets, non-compete and cybersecurity stories from the past week:
Noteworthy Trade Secret and Non-Compete Posts and Cases:
Cybersecurity Posts and Articles:
Tags: trade secrets, non-competes, covenant not to compete, cybersecurity
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CBS v ABC Order 06 21 12.pdf (63.65 kb)
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