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Cloudy, with a Chance of Litigation: The Weather Channel's Trade Secret Woes Illustrate The Challenges of Licensing Database Information

 
by John Marsh 18. July 2013 13:00

A recent trade secrets decision out of New Jersey against The Weather Channel illustrates some interesting trade secret issues that arise in licensing agreements -- namely, to what extent can a licensee extract itself from a licensing agreement when it concludes that it can gather the subject matter of the license from other publicly available places (or come up with the information more cheaply).   

In Events Media Network, Inc. v. The Weather Channel, 2013 U.S. Dist. LEXIS 97514 (July 12, 2013), U.S. District Court Judge Robert P. Kugler denied a motion to dismiss filed by The Weather Channel, finding that the plaintiff Events Media Network, Inc. (EMNI) had presented sufficient allegations of trade secret theft to move the case forward.  EMNI contends that The Weather Channel took proprietary information that was supplied under their license agreement and improperly used it after the license expired.

The case involves one of the thorniest issues that arise in trade secret litigation -- whether a compilation of publicly available information can qualify as a trade secret. In its Amended Complaint (attached as a PDF below), EMNI described its business as collecting, reviewing and distributing information for various local and national events and attractions.  While it conceded that none of the individual bits of data gathered together was confidential, EMNI argued that once that information was gathered together from the various sources using a custom built database, it qualified as a trade secret.

Applying Georgia's Uniform Trade Secret Act, Judge Kugler agreed, at least at this early stage of the litigation, that EMNI had identified sufficient evidence that the information it supplied to The Weather Channel, organized in the fashion that it was, constituted a trade secret.  In this respect, his decision rests on solid ground and is consistent with the pleading standards that benefit a trade secrets plaintiff at this early juncture of the case. Todd Sullivan notes that The Weather Channel does not appear to contest that it used the information and predicts the case will be mediated or settled soon.

I Agreed to What?!!!  The case raises another interesting trade secret issue that has been in the news lately -- whether the terms of a written contract can trump trade secret law.  According to the Amended Complaint, EMNI and The Weather Channel contractually agreed that the information supplied by EMNI under the license agreement was proprietary.  As a result, EMNI argued that provision should estop The Weather Channel from claiming otherwise.

A recent case out of the U.S. Court of Appeals for the Federal Circuit, Convolve and MIT v. Compaq and Seagate, held that the contract between the parties may be controlling on the question of whether information qualifies as a trade secret and that the parties can decide between themselves what needs to be done to ensure trade secret status.  In that case, the Federal Circuit found that the plaintiff's failure to designate information as "confidential" -- as was required under a non-disclosure agreement -- doomed the plaintiff's trade secret claim (for more on the case see Dennis Crouch's post in Patently O Blog as well as Jason Stiehl's post for Seyfarth Shaw's Trading Secrets Blog).

Here, EMNI used the language of the contract to its advantage and argued that The Weather Channel had conceded the proprietary nature of the information under the license.  The lesson?  In written agreements negotiated between sophisticated commercial parties, courts will frequently defer to the language of the agreement.

Quick Takeaway for Licensees: Do your due diligence and if you have skepticism over the value of what you are going to be licensing, it may be best to say "no thanks" to the deal.

Quick Takeaway for Licensors: The language of your agreement may prove critical so make sure that your licensee concedes that the information that you are supplying is protected and proprietary. More often than not, the court will apply the language agreed to by the parties.

EMNI Amended Complaint.pdf (1.56 mb)

Tags:

Georgia | Licensing | New Jersey | Non-Disclosure Agreements | Trade Secrets | Uniform Trade Secrets Act (UTSA)

 

Apple v. Samsung Update: Judge Koh Issues Her Opinion Protecting Intel, Qualcomm, IBM, Nokia and Microsoft Trade Secrets

 
by John Marsh 14. August 2012 07:45

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: , , ,

IP Litigation | Licensing | California | Trade Secrets | Patents

 

The Internationalization of Trade Secrets: AIPLA Spring Meeting Round Up

 
by John Marsh 14. May 2012 09:45

For trade secret and non-compete lawyers, it was a productive Spring Meeting at the American Intellectual Property Law Association (AIPLA). Here are some of the highlights from Thursday's trade secrets track "The Internationalization of Trade Secrets: Big Cases, Big Verdicts and Big Challenges" presentation:
 
Protecting Trade Secrets Overseas. Beth Apperley, AMD's Corporate VP of Legal, provided a number of practical pointers on structuring agreements and other safeguards for an American company in need of protecting its trade secrets overseas or in its foreign operations. In particular, Beth emphasized the importance of engaging capable foreign counsel conversant in the laws of that state at the outset so that a company can do its homework on the jurisdiction's trade secret law and remedies. This analysis will allow a company to evaluate how adequately it can protect those trade secrets in that foreign state and decide which trade secrets it wants to use or disclose there. Beth also advised that once a company makes the decision to do business in a foreign country, it is critical to scrutinize and perform due diligence on your future foreign partners.
 
Challenges of Litigating Trade Secrets Disputes against Foreign Defendants. Mike Songer of Crowell & Moring spoke next. Mike was the lead trial lawyer for DuPont in its epic battle with Kolon, a case that resulted in a $920 million verdict last year (in my view, the most important trade secret case last year and a solid No. 1 in my Top 10 for 2011). He was able to share some of his experiences and provide practical pointers involving personal jurisdiction and the inevitable complications with personal service and discovery under the Hague Convention and other treaties. His advice?  Plan for a lot of time for those processes. Mike also emphasized the importance of translators and he shared that they can make or break your trade secrets case against a foreign defendant. For example, in the deposition context, Mike recommended selecting a translator who is not only capable but tough, as battles over what a foreign witness may have said will invariably erupt over key testimony (i.e., did the witness say that he "took" the information or that he "only reviewed" it as it lay in plain sight?).
 
Litigating Spoliation of Evidence Disputes. Griffith Price of Finnegan Henderson spoke next and he used Judge Robert Payne of the Eastern District Court of Virginia's seminal ruling last year in the DuPont v. Kolon case as a template for examining the emerging issues in spoliation of evidence. For those not familiar with the ruling, after a number of Kolon employees deleted or wrote over approximately 17,000 files, Judge Payne sanctioned Kolon by providing an adverse inference in the jury instructions about the missing evidence at trial,  a ruling that Mike Songer agreed had an significant impact on the jury in the DuPont case. In a highly entertaining but substantive presentation, Griff also weaved the importance of litigation holds and what happens to data and information when a party or former employee tries to delete or write over it on a computer. Griff's key takeaway? The cover up is always worse than the crime.
 
Managing Mobile Employees and Their Personal Devices. Ron Johnstone, Vice President and Associate General Counsel of Yahoo Inc! provided some sobering advise under the topic of personal devices. Ron has concluded that as a practical matter, it is nearly impossible in the present employment environment to completely manage employees who are using their personal devices to access work files and confidential information. He advised that, short of banning that practice outright, companies have to accept the risk of security breaches, prepare for the worst, and manage employee expectations. To accomplish this, Ron recommended implementing and reinforcing a culture of security, reserving the ability to "wipe" devices clean if any devices are lost or stolen, ongoing training and annual acknowledgements, and otherwise managing employee expectations about the privacy that they will have to surrender in exchange for the convenience of using their personal devices for work. Ron also raised an unforeseen issue that increasingly arises in the context of personal devices: recovering the information for possible litigation, an important reminder given the spoliation and preservation issues raised by Griff.
 
Litigating Trade Secrets Cases in the ITC and the Impact of the TianRui Group decision. Bryan Wilson of Morrison & Foerster's  Palo Alto office spoke about the pros and cons of litigating a trade secrets claim before the International Trade Commission (ITC). It appears that the ITC is an under-utilized tool for trade secret plaintiffs, as Bryan's research only revealed two previous reported trade secret cases before the ITC. While the ITC may only allow a litigant to bar importation of a foreign product into the U.S., it does provide significantly more confidentiality than traditional lawsuits because of the ITC's presumption of confidentiality and the fact that many filings are under seal and not available to the public. As for the decision in TainRui Group (for more on the opinion, check out this post), Bryan wondered whether the decision really reflects what the Federal Circuit Court of Appeals really thinks is happenining in China, as the majority opinion seemed to reflect a "somebody's got to do something about China!" theme and the minority opinion seemed to suggest "what did you expect to happen in China"?
 
Legislative Update. Peter Torren of Weisbrod Mateis & Copley provided a comprehensive update on the Economic Espionage Act, the pending Cyber Information Sharing and Protection Act (CISPA), the New Jersey Uniform Trade Secret Act and relevant recent decisions construing those and other federal statutes. As a former federal prosecutor, Peter was dismayed by the recent rulings in U.S. v. Aleynikov and U.S. v. Nosal, noting that one recent commentator had characterized the decisions' combined effect as "disastrous" for the IP community and a failure by the legal system to adequately protect the software community. Peter said the pending civil amendment to the EEA is still in committee and he urged the Senate to adopt language to eliminate a future result like Aleynikov.
 
On behalf of the AIPLA's Trade Secrets Law Committee, I would like to thank the panel for the outstanding presentation, their hard work and practical insights. The content provided by the speakers at the Spring Meeting was especially tremendous. AIPLA's Trade Secrets Law Committee Chair, Dan Westman, and I are going to see if the Committee can make that content available to AIPLA Trade Secret Committee members in the future, perhaps through webinars and other media.

 

Martin Marietta v. Vulcan: Four Valuable Drafting and Litigation Lessons for Trade Secret and Non-Compete Lawyers

 
by John Marsh 9. May 2012 17:45

On Monday, I wrote about recent media reports describing Delaware Chancery Court Judge Leon Strine, Jr.'s Opinion enforcing two confidentiality agreements between Martin Marietta and Vulcan to bar Martin Marietta from undertaking a hostile bid for Vulcan for the next four months (that post is below).  I have since been able to get a copy of the Opinion, which is attached as a PDF at the end of this post.  While it is not a light read (138 pages long), it is well written, well reasoned, and thoroughly entertaining. 

Given the prominence of the Delaware Chancery Court, the high profile nature of the dispute and the law firms involved (Skadden Arps and Wachtell Lipton), Judge Strine's Opinion has generated tremendous media interest (see recent analyses provided by The Wall Street Journal and The New York Times to name just a few).  While it does not apply a traditional trade secret analysis (i.e., reasonableness of safeguards, readily ascertainable, valuable to competitors, etc.), it is still an important decision in an important jurisdiction laying out sound principles for enforcing a non-disclosure agreement (NDA).  As a result, it provides four important lessons for those in the trade secret community.
 
First, the Opinion should remind us that in the context of written confidentiality agreements, we should not hesitate to make forceful public policy arguments for their enforcement.  It is easy to get caught up in defending the language of a contract, but it is always important to emphasize the intent and goals of the contract at issue.  To that end, Vulcan's counsel did a fine job of hammering the need for the enforcement of these agreements in the financial market so that future commercial parties could be confident that their disclosure of proprietary information would not be used against them. 

Judge Strine's Opinion repeatedly emphasized those goals.  In particular, Judge Strine repeatedly wrote about the need for ensuring that these agreements continue to be meaningful as risk-reducing devices to enable companies to more readily consider voluntary, value-maximizing M&A transactions.  He also focused on the parties' expectations and the importance of discouraging future parties from trying to "end-run contractual pre-disclosure procedures." 
 
Second, in commercial contracts subject to Delaware law, contractual stipulations that acknowledge irreparable injury in the event of a material breach will be enforced.  In the post-eBay v. MercExchange world, many courts have increasingly been unwilling to presume irreparable injury and have required parties to make a showing of irreparable harm to justify an injunction. 

However, in the wake of the Martin Marietta decision, commercial parties that rely on Delaware law are now armed with a powerful and well-reasoned decision that should make it easier for them to secure a presumption of irreparable harm provided their agreement includes this stipulation.  In essence, Judge Strine gave Vulcan a pass on irreparable injury  As these stipulations are frequently in license agreements and commercial NDAs, this could be a significant ruling for the trade secret community when enforcing contracts applying Delaware law.

Third, the Opinion reinforces the importance of making a reasonable request for injunctive relief.  At the trial/preliminary injunction hearing, Vulcan made what the court deemed to be a measured request for injunctive relief -- namely, a four month injunction that would prevent Martin Marietta from offering its slate of directors at an upcoming Vulcan shareholder meeting.  Judge Strine commended Vulcan for that request and I suspect it also helped Vulcan win a number of close calls on credibility in what was a well-argued and hard-fought case.  Moreover, that request was particularly shrewd as it appears unlikely that an appellate court will be able to do anything before that June meeting.
 
Finally, it reminds us that courts are still willing to impose what amounts to a non-compete (or cooling off period) if they find that a defendant has misbehaved and substantially breached a confidentiality agreement.  Martin Marietta forcefully argued that Vulcan was trying to impose a condition not found in the agreement (in this case, what is known in the M&A community as a standstill agreement) but Judge Strine found that this remedy protected the expectations of both parties going into the NDA.  In this respect, this case mirrors many trade secret cases where a plaintiff argues that a non-disclosure agreement should be enforced to forbid future conduct to ensure that the goals of the agreement are met (most notably, the recent Allergan v. Merz case).

Not surprisingly, Martin Marietta has announced it will appeal from this ruling.  I will continue to monitor the case as there is sure to be future fireworks.

92437285-Chancellor-Strine-s-opinion-in-Martin-Marietta-Materials-v-Vulcan-Materials[1].pdf (352.98 kb)

 

Update on Storing Trade Secrets in the Cloud: Lots of Angst, Some Solid Commentary, But Still No Court Rulings

 
by John Marsh 7. April 2012 19:00

Last November, I wrote about the basics of cloud computing as well as some best practices for protecting trade secrets stored in the cloud. Given the fast pace of innovation, and the exponential number of recent reports of hacking and cybertheft, my colleague John Molnar and I decided an update was in order. We have assembled a number of posts on the cloud issue and incorporated our own recommendation.

The Legal Analysis: To date, no court has yet considered the question of whether a company's placement of trade secrets in a cloud-based network would be unreasonable.  However, as the title of my post suggests, there has been no shortage of articles and posts from legal and technical commentators. 

For example, in a guest post for Forbes entitled "Is It Safe To Store Your Trade Secrets In the Cloud?", Finnegan lawyers Rob McCauley, Ming Yang, and Jared Schuettenhelm worry about the legal ramifications of storing trade secrets in the cloud. According to their post, if the cloud is known to not be 100% secure, a court might find that a company failed to take reasonable efforts to maintain the confidentiality required for most trade secret claims. Such a ruling would have potentially great ramifications when one considers the fact that cloud computing typically includes e-mail services like Google’s Gmail and Microsoft’s Hotmail as well as document synchronization like Apple’s iCloud. 

To demonstrate that a company protected its trade secrets, Peter Vogel of Gardere recommends negotiating the right to regularly conduct audits, as well as a provision ensuring deletion of all information if and when the relationship with the cloud provider is terminated. These provisions would help insulate a business from any claim that it acted unreasonably in storing confidential information in the cloud.

In a post entitled "How to Avoid Losing Your Trade Secrets When Moving to the Cloud," IP blogger Peter Toren proposes a two step test for determining if a trade secret owner has made a reasonable effort to ensure confidentiality in the cloud. First, Peter advocates that a business require its cloud service vendor to certify that it has appropriate security procedures. Second, the trade secret owner needs to do more than simply accept the vendor's assurances at face value, and Peter believes a showing that a company performed due diligence to verify the vendor's claimed security procedures would demonstrate that it acted reasonably. I would tend to agree.

Technical Considerations: Given the importance of due diligence for verifying the security of cloud storage, what should be checked? Jon Brodkin of InfoWorld gives seven recommendations from the technology research firm Gartner, Inc. While his post is several years old, it provides sound advice like demanding transparency from the cloud service vendor, checking on the specific jurisdiction where the data will be stored in, and ensuring data segregation -- all of which remain important today. 

Similarly, as Mary Beth Hamilton of Eze Castle Integration notes in the Wall Street & Technology Blog, a trade secret owner needs to check how the vendor handles external security threats as well as internal data comingling.  But it is not just a vendor’s technology that needs to be investigated. Due diligence should include the vendor’s physical facility as well. Cloud computing expert George Hulme recommends redundant data backup beyond the cloud vendor. Trade secret data would be saved to the cloud while still being backed up locally.

The Takeaway? If concerns about security cannot be resolved, a company may want to consider an in-house private cloud as Bart Copeland, CEO of cloud software provider ActiveState, recommends. While a private cloud might not be right for every enterprise, it would allow the trade secret owner to exercise full control. Of course, some of the benefits of cloud computing would be lost  but the risk of losing those trade secrets and the inability to get legal relief to retrieve or protect them should outweigh those considerations.

Lastly, the best defense of trade secrets in the cloud may be the simplest. A trade secret owner needs to be sure that the benefits of storing a trade secret in the cloud outweigh the risks. Put differently, that which is not stored in the cloud cannot be stolen from the cloud. Consequently, the best protection for a company's crown jewels is to keep them out of the cloud entirely and only store trade secrets of lesser value in the cloud. 

 

My Belated Predictions for 2012, Patent Monetization and the Power of Stories: Highlights from the Toledo IP Law's Spring Seminar

 
by John Marsh 14. March 2012 19:45

I had a wonderful visit to Toledo for the Toledo Intellectual Property Law Association's Spring Seminar last week (thanks to Ray Meiers and TIPLA for their invitation and hospitality). Here are the highlights of the three-hour presentation:

My Not-So-Fearless Predictions for 2012

My presentation included a recap of 2011 (which incorporated my top 10 trade secret decisions of last year), as well as my predictions for trends in trade secret and non-compete law for 2012. Here are some of those predictions:

1.  Uncertainty under the America Invents Act will lead to more trade secrets. Changes wrought under the AIA will lead to uncertainty in the patent context and result in greater emphasis on trade secret protection. James Schweikert and I have written about the impact of the newly-expanded prior commercial use defense and my opinion that it will lead to more use of trade secrets.   One critical factor, however, not confined to any of the AIA's new procedures or provisions is the uncertainty that comes with such significant change.  Uncertainty of this magnitude inevitably leads to litigation and greater expense to prosecute and litigate patents.  I predict that the AIA will prove to be a veritable cornucopia of litigation.  Consequently, in close calls between patents and trade secrets, companies will opt for trade secret protection to avoid that expense.

2.  More international issuesChina, DuPont v. Kolon, cyberattacks -- more and more high profile trade secrets disputes will involve foreign parties and issues.

3.  Courts will continue to permit greater employee mobility. Efforts to enforce non-competes will get tougher and tougher as more courts tacitly adopt the California model.  Expect more legislative efforts like those in Illinois and Virginia that look to level the playing field between employees and employers.  The lesson?  Choose your battles wisely. 

4.  Social media will continue to accelerate change in trade secret and employment relationships. Rulings in the PhoneDog v. Kravitz and Eagle v. Morgan cases will cement the importance of written agreements in disputes over ownership and control (I predict the former employees in each case will prevail).  Given the continued exponential growth of social media, the law of unintended consequences will continue to vex employers and provide greater uncertainty in 2012. 

5.  Emphasis on "Ownership" and "Inventorship" Provisions. For these reasons, companies should focus on cleaning up and strengthening their inventorship and ownership provisions in employment and consultant contracts.  Relying on these provisions in a litigation may be cleaner at the end of the day, as it will allow a plaintiff to emphasize the theft of information without worrying about having to argue over its secrecy.  

Calling all Inventors:

Patrick Anderson, the President of Patent Calls, Inc., a patent monetization firm based out of Austin, Texas, provided insights to inventors and companies looking to maximize the financial benefits of their patents. I learned a lot from Patrick's presentation about the depth, nature and scope of the patent monetization community.  

Patrick detailed a number of the different business models available to a patent owner, including offensive acquisitions, exclusive agency and contingent advisory services. These models include very little, if any, advanced cash, with most of the patent owner’s revenue being generated through licensing services.  I can't do justice to those concepts in this short post but for those interested in learning more, the slide deck for Patrick's PowerPoint presentation can be found here.  

The Power of Stories:

The morning's final speaker was Sam Han, PhD, a professor of law at the University of Dayton. Sam's presentation addressed the topic of substance abuse and lawyers, the role of key chemicals that operate within the brain, and their impact on human behavior.   

To illustrate his main points, Sam provided a number compelling stories, including one from Gary Klein's bestseller, "Sources of Power: How People Make Decisions."  To explain how the brain breaks down and segregates information, Sam described the story of the HMS Gloucester, a battleship tasked with shooting down silkworm missiles during the Persian Gulf War.  The ship's crew faced the excruciating decision of whether to fire upon fast-moving radar blips, not knowing whether they were approaching enemy missiles or friendly craft returning to a nearby carrier.   

You could have heard a pin drop in the auditorium as Sam walked the audience through what it was like in the ship's command center that morning.  It reminded me of the old trial lawyer bromide about making sure you communicate your case through a story, and of the sway that stories hold over us, even as we become adults.  

Tags: , , ,

General | IP Litigation | Licensing | Patents | Trade Secrets

 

Thursday Wrap-Up (March 1, 2012): Noteworthy News on Trade Secrets, Non-Competes and Cybersecurity Stories on the Web

 
by John Marsh 1. March 2012 16:30

It was a slower week in the trade secret and non-compete realm, so I had the opportunity to catch up on some recent decisions that had not made it into last week's wrap-up:

Trade Secret and Non-Compete Articles:

  • There were two major rulings in the Mattel v. MGA dispute last week, one in favor of Mattel and the other in favor of MGA. In a decision certain to please both MGA and its lawyers, the Southern District of California ruled that MGA's insurers had a duty to defend MGA in its litigation against Mattel. In the other decision, Judge David Carter dismissed MGA's anitrust counterclaim against Mattel, ruling it was barred by, among other things, the doctrine of res judicata under California law. Copies of both opinions are attached as PDFs below.
  • Speaking of antitrust counterclaims in high profile trade secret cases, Kolon continues to take it on the chin in its dispute with DuPont. Earlier this week, Judge Payne sanctioned Kolon for failing to timely contact its sales representatives and produce documents after providing DuPont and the Court assurances it would do so in a hearing last year. Judge Payne found the violation of the discovery order was in bad faith and as a result, awarded attorneys fees and held he would impose an adverse inference as to any missing documents.  A PDF copy of the opinion can be found below. 
  • A license agreement's provisions can't trump the California Uniform Trade Secrets Act (UTSA) when it comes to a party's right to reverse engineer a product. An article by Douglas Wickham of Littler details a recent decision by the Central District of California in Aqua Connect, Inc. v. Code Rebel, LLC holding that the violation of a license provision forbidding reverse engineering did not constitute "improper means" under the UTSA.
  • Alison Frankel's On The Case Blog has an update on the University of Pennsylvania's trade secret row with its former chief researcher, Dr. Craig Thompson. When I wrote about this dispute last month, I noted the absence of an employment agreement as a potential Achilles Heel in Penn's claim that Dr. Thompson had taken its trade secrets for his research for his own company. However, according to Alison, Penn has filed a second action with a more detailed complaint that identifies an employment agreement with Dr. Thompson that confirms its ownership of the trade secrets at issue and supplies greater detail about his alleged duplicity. 
  • A study commissioned by the National Science Foundation and the U.S. Census Bureau found that trade secrets are perceived as an increasingly important method of intellectual property protection. According to the study, more businesses reported that trade secrets were important or somewhat important (14%) than for patents (9%).
  • Littler's Unfair Competition and Trade Secrets Counsel Blog writes about a recent decision reinforcing the severe consequences to a party who fails to preserve evidence. In Amron Diving Supply v. Hydrolinx Diving Communications, the Southern District of California sanctioned the defendant/former employee for violating a preservation order because he “destroyed computer data by using wiping software and destroyed and threw away hard drives,” installed "document destruction software on two computers to permanently eradicate data," and allegedly "installed a new hard drive on a third computer after the court issued the preservation order and manipulated its system clock to make it appear older."  
  • "Are non-competes bad for innovation?" asks The Intangible Economy.  It is a question that has been asked a lot lately, and opponents of non-competes frequently point to the success of Silicon Valley (and the bar against non-competes in California) as evidence that innovation is spurred in their absence.  As the article notes, the academic community has certainly weighed in against them. I smell a future post.... 

Cybersecurity:

  • WikiLeaks is back!  The New York Times is reporting that WikiLeaks has published confidential emails from the security consulting firm, Stratfor. Stratfor had reported last December that Anonymous had hacked its servers. According to WikiLeaks, the emails show concerted attacks by the U.S. government directed at Julian Assange.
  • If you are negotiating a contract with the government, John Burd of Wiley Rein provides "Six cybersecurity questions for in-house counsel" to pose in those negotiations. 

News You Can Use:

  • For those still trying to preserve their privacy, the c/net article "How to prevent Google from tracking you" may help. Good luck.

MGA-Hartford Ins Order.pdf (166.95 kb)

MGA v. Mattel dismissal order.pdf (122.12 kb)

Kolon Industries v E I du Pont re Feb. 2012 Sanctions Opinion.pdf (318.10 kb)

 

Stealing Trade Secrets: Is There an App for That?

 
by John Marsh 22. February 2012 16:30

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.

 

Avoiding Disputes Over IP Ownership: Two Recent Cases Reinforce the Importance of Agreements with Researchers and Engineers

 
by John Marsh 14. February 2012 10:45

Two high profile cases have drawn attention to a frequent problem in trade secret cases involving medical researchers, software developers and engineers: Who owns the trade secrets or inventions at issue, the employee or the employer? As one might expect, a well drafted employment agreement will go a long way to resolving this question.

The first case, Abramson Cancer Center of the Univ. of Penn. v. Craig Thompson, M.D., Case No. 11-cv-09108-LAK (S.D.N.Y.), highlights the problems that the absence of an employment or consulting agreement may create. Late last year, the University of Pennsylvania's Abramson Cancer Institute sued its former research director, Dr. Craig Thompson, as well as the company that he formed after his departure, Agios Pharmaceuticals. Penn's Institute claims that Dr. Thompson took an "innovative cancer metabolism research platform" with him that was the property of the Institute. The Institute claims it has been damaged to the tune of a whopping $1 billion. As Dr. Thompson is now the President of Memorial Sloan-Kettering Cancer Institute, this dispute has garnered a number of headlines.

I have attached the amended complaint below. As you can see, there is no claim invoking a specific employment contract (while there is an invocation to an Institute Agreement, there does not appear to be any allegation that Dr. Thompson signed it).  Instead, the amended complaint primarily relies upon statutory and common law claims that Dr. Thompson owed a duty to the Institute to disclose any of his inventions or research and that he failed to disclose his discoveries while he served as research director. One would expect that Dr. Thompson and his company will emphasize the absence of any written agreement on this issue, a fact that may complicate the question of owns what. We'll obviously wait to see how things shake out.

Now compare the Northern District of Illinois' recent decision in Motorola, Inc. v. Lemko Corp., Case No. 08 C 5427 (N.D. Ill.), where the existence of a provision establishing the employer's ownership of the inventions proved critical.  (I have attached a copy of the opinion below). In Lemko, Motorola brought a trade secret action against a number of former employees who had formed a competing company, Lemko, to develop and sell devices that arose from their work on Motorola's distributed mobile architecture. The employee agreements of two of the former employees, Shaowei Pan and Nicholas Labun, contained  a provision assigning to Motorola "the entire right, title and interest in all my inventions, innovations, or ideas developed or conceived by me solely, or jointly with others, at any time during my employment ... related to the actual or anticipated business activities of Motorola." 

Pan and Labun began doing work for Lemko while they were still employed by Motorola. In 2007, Hanjuan Jin, one of Motorola's former employees, was stopped at O'Hare International Airport before boarding a one-way flight to China and it was discovered that she had documents containing Motorola's trade secrets. (Jin was convicted last week of stealing Motorola's trade secrets). Motorola later brought this action and asserted that various Lemko patents were the property of Motorola because they were related to inventions and innovations that Pan and Labun had developed for Motorola.
 
Lemko, Pan and Labun moved for summary judgment but that motion was denied because the district court found there were sufficient issues of material fact regarding whether Lemko's inventions and technology fell within the relevant employment agreements. The case settled shortly after that ruling last month.

While an agreement should considerably strengthen an employer's hand, it is important to remember that several states have specifically addressed this situation with legislation. California, for example, provides a safe harbor for employees who develop inventions or technology entirely on their own time without using their employer's resources or equipment, so long as those efforts do not relate to work performed for their employer. That statute, California Labor Code § 2870, expressly trumps any employment agreement that purports to require an employee to assign an invention that would otherwise be his under this statute.

The takeaway? Make certain that every researcher, technician and developer has a written employment or consulting agreement that includes a provision defining who owns what intellectual property that he or she develops while employed. Also, make sure that there is a requirement that they disclose any inventions that they believe that they have independently derived so that the issue of ownership can be flushed out and resolved before they decide to go forward in any new venture. Finally, double-check your state's law to see whether there are any statutes or authority addressing this situation.

The Leonard and Madlyn Abramson Family Cancer Research Institute at the Abramson Cancer Center of the University of Pennsylvania v Craig Thompson M D .pdf (416.45 kb)

Motorola Inc v Lemko Corp et al .pdf (1.23 mb)

 

LinkedIn and Twitter: Who Owns the Account, the Employer or Employee?

 
by John Marsh 6. January 2012 10:00

LinkedIn, Twitter and other social media are in the news again. Three courts are now considering the question of who owns the social media accounts before them. While none of the cases, detailed below, have definitively resolved the ownership question, taken together, they do provide a road map to what a company should be doing to better protect itself. 
 
Let's start with the first of two decisions issued last Fall.  In Ardis Health, LLC v. Nankivell, Case No. 11 5013 (NRB) (Oct. 19, 2011, S.D.N.Y.), a former employee who was responsible for Ardis Health's social media and related websites refused to return the access information for those accounts. Relying on a Work Product Agreement that the employee signed, Ardis Health was able to secure a preliminary injunction compelling the return of the access information for those accounts. This decision was pretty straightforward as the employee had signed an agreement and there was no dispute over who owned the accounts.
 
In the second case, however, there is a genuine dispute over who owns the social media account. In PhoneDog v. Kravitz, Case No. 3:11-cv-03475 (MEJ) (N.D. Cal., Nov. 8, 2011), the employer, PhoneDog, brought an action against its former employee, Noah Kravitz, to recover the Twitter account "@PhoneDog_Noah", a substantial account with over 17,000 followers. Unlike Ardis Health, PhoneDog did not have an agreement or policy to establish ownership of the account (if it did, it was not raised or discussed in the opinion). 
 
The opinion in PhoneDog only addresses Kravitz's Motion to Dismiss, and therefore has limited value because it only found that PhoneDog presented cognizable claims. However, the district court did recognize that PhoneDog adequately presented claims for misappropriation of trade secrets (specifically, the password account) and conversion. (For a more thorough discussion of these two cases and links to the two opinions, see Russell Beck's fine post in the Fair Competition Blog). Frankly, from my vantage point, the trade secret claim appears to be pretty thin and if PhoneDog is going to prevail, it will have to be on the conversion claim.
 
The most recent decision, Eagle v. Morgan, Case No. 11-4303 (E.D. Pa., Dec. 22, 2011), involves a battle over who owns the plaintiff Dr. Linda Eagle's LinkedIn account. Dr. Eagle, who had built a business providing training for the financial services industry, sold her company, Edcomm, last year. In 2008, Dr. Eagle established an account with LinkedIn and she used her account to promote Edcomm's banking education services, build her own professional reputation, and build social and professional relationships. An employee of Edcomm helped her maintain her LinkedIn account and had access to her password. 
 
Last June, Dr. Eagle was terminated by the new owners of Edcomm, and she later discovered she could not access her LinkedIn account. When Edcomm refused to return the LinkedIn account, she filed a lawsuit claiming that she owned the account and that Edcomm was essentially misappropriating it. Of course, Edcomm and the new owners counterclaimed and alleged Edcomm owned the account. 
 
In support of Edcomm's claims, they alleged that Edcomm had policies that required employees to create and maintain LinkedIn accounts, that Dr. Eagle's account was used for Edcomm business, and that Edcomm employees assisted in developing her profile and maintaining her account. Notably, however, Edcomm did not identify an agreement or policy indicating that Edcomm owned the LinkedIn account.
 
When Dr. Eagle moved to dismiss the counterclaims, Edcomm withdrew its claim that the LinkedIn account was a trade secret (a wise decision) as well as its conversion claim (perhaps not so wise) and relied soley on a claim for misappropriation of an idea under Pennsylvania law. Based on the policies detailed above, the Eastern District of Pennsylvania concluded that Edcomm had presented a claim sufficient to survive dismissal at this early stage and that discovery would need to be conducted to determine who truly owned the account. (For further analysis, check out Eric Meyer's post on The Employer Handbook Blog and a copy of the opinion can be found here).
 
The takeaway? The importance of written agreements and policies establishing ownership. In Ardis Health, the employer was able to compel its former employee to turn over the access information for its social media accounts because there was a written agreement. 
 
In contrast, in PhoneDog and Eagle, while both employers survived motions to dismiss, both face uphill battles, in my view, in establishing that they own the accounts. This is because, in the absence of a clear written understanding between the employer and employee, a court will likely be heavily influenced by whatever the Twitter and LinkedIn User Agreements say. In the case of LinkedIn, for example, the account and agreement are almost certainly going to be with the individual.
 
This may not be a big deal for many companies who may decide that they are better served by having no agreements or policies on ownership because that will better promote and encourage individuals to network, to sell, and to build professional relationships unimpeded by a corporate policy. However, to the extent that employees are charged with overseeing the social media accounts for their employer, policies and agreements are critical as the Ardis Health case illustrates. Many small businesses rely heavily on their Facebook presence for their marketing, and it could be catastrophic if a disgruntled employee departs and refuses to provide the required access and account information or tries to modify or alter the Facebook site. 
 
At the end of the day, the culture and goals of the company should drive any policies or agreements, but it is important that the company at least considers the consequences if those agreements and policies are not created or implemented.

About John Marsh

John Marsh Hahn Law AttorneyI’m a Columbus, Ohio-based attorney with a national legal practice in trade secret, non-compete, and emergency litigation. Thanks for visiting my blog. I invite you to join in the conversations here by leaving a comment or sending me an email at jmarsh@hahnlaw.com.

Disclaimer

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