The Trade Secrets Vault

A blog of trade secrets news, verdicts, and resources
 

By Paul Elias

A Federal judge sentenced a Walnut Creek chemical engineer to 15 years in prison and fined him $28 million after his rare economic-espionage conviction for selling China the technology that creates a white pigment.

U.S. District Court Judge Jeffrey White in Oakland said Walter Liew had "turned against his adopted country over greed."

A jury previously convicted the 56-year-old Liew of receiving $28 million from companies controlled by the Chinese government in exchange for DuPont Co.'s secret recipe for making cars, paper and a long list of everyday items whiter.

White noted that U.S. authorities had managed to trace $22 million of that money to various Singapore and Chinese companies controlled by Liew's in-laws before losing the trail.

"We'll never get it," White said. "It has been spirited out of the country."

Liew and his wife, Christina Liew, launched a small California company in the 1990s aimed at exploiting China's desire to build a DuPont-like factory to manufacture the white pigment known as titanium dioxide. The Liews hired retired DuPont engineers and, according to the FBI, paid them thousands of dollars for sensitive company documents laying out a process to make the pigment.

To continue reading this great story from San Jose Mercury News, please click here.

Mo Yun, wife of billionaire DBN Chairman Shao Genhou wants the U.S. government to release her on bond to travel to China while she awaits trial on charges she conspired to steal American seed corn trade secrets. Attorneys for Mo Yun say the case against her is "exceedingly thin" and that she's not a flight risk.

Mo was arrested July 1 at Los Angeles International Airport. Documents say she was in the U.S. with her 12-year-old son and 5-year-old daughter on a vacation to Disneyland. Her children had to fly back to China alone.

Prosecutors allege she helped employees of her husband's company, DBN Group, steal seed corn from Iowa and Illinois.

To read more about this story, please click here.

The Eighth Circuit of the U.S. Court of Appeals has upheld a $31.3 million verdict in favor of Hallmark Cards Inc.

Hallmark had hired Boston-based consulting firm Monitor Co. Group LP in 2001 to research consumer behavior in the greeting cards market. Monitor was closely affiliated with private equity firm Monitor Clipper Partners LLC, but agreed to sign a confidentiality agreement.

When Clipper became interested in purchasing Recycled Paper Greetings Inc., a greeting cards manufacturer, it asked Monitor to share the market information it had compiled for Hallmark. Monitor agreed and provided the information, which Clipper then used to price its bid for RPG and obtain financing.

Hallmark became suspicious after Clipper announced its purchase and asked both companies to institute litigation holds on all materials related to the purchase. Instead, Monitor and Clipper began destroying evidence and erasing hard drives, Judge Roger Wollman wrote in the court's decision.

To continue reading this interesting article from the Kansas City Business Journal, please click here.

In the latest legal battles raging across Silicon Valley and the tech world, ZeniMax Media is taking Oculus VR to court. The lawsuit deals with trade secrets being exchanged and instrumental to the Oculus Rift VR headset becoming a reality while game programmer John Carmack is blamed for acting as the middleman.

The issue is whether ZeniMax had some sort of contribution to Oculus technology without getting credit for it. However, the bigger issue has to do with Carmack being blamed for making Oculus the way it is using knowledge or patents he worked with while he was still a ZeniMax employee.

Carmack was hired by Oculus in August of 2013 and worked with Oculus founder Palmer Luckey. Previous to this time, he was still employed by ID Software and later ZeniMax, which acquired ID Software in 2009, a company he co-founded that was responsible for games like the Quake and Doom series.

In order to finish reading this article from TechTimes, please click here

Mr. Ketankumar Maniar worked as an engineer at C.R. Bard, from 2004 to 2011, and at Becton, Dickinson and Co., from 2012 to 2013.

While working for the medical technology companies, Maniar downloaded files with product information onto computer storage devices, including external hard drives and thumb drives, court documents said. He also used his work email accounts to forward trade secrets to his personal accounts.

FBI agents seized at least one hard drive containing Bard and Becton trade secrets in a June 20, 2013 search of a New Jersey hotel room where Maniar stayed while planning a move back to India.

To finish reading this article, please click here.

Members of China’s People’s Liberation Army hacked into the systems of Westinghouse Electric, Alcoa and other corporations, U.S. officials allege. U.S. officials also linked the loss of jobs with China's aggressive practice.

"All around the country there has been a real and demonstrable loss of jobs in our communities," said David Hickton, the chief federal prosecutor in Pittsburgh, where the indictments were brought.

He cited plants that had been shut or hit with large layoffs as a result of espionage that allowed Chinese competitors to flood the U.S. market with below-cost products, including steel pipe.
Hickton joined Attorney General Eric Holder and other Justice officials at a Washington press conference where they disclosed the names of the five Chinese while claiming the intent to haul them into a U.S. court of law.

To read the complete news article from NY Daily News, please click here.

Defend Trade Secrets Act

WASHINGTON, D.C. – U.S. Senators Orrin Hatch, current member and former Chairman of the Senate Judiciary Committee, and Chris Coons, a member of the Senate Judiciary Committee, introduced legislation to help combat the loss of an estimated $160 billion to $480 billion each year in the United States to the theft of corporate trade secrets.

Ideally, the Defend Trade Secrets Act would empower companies to protect their trade secrets in federal court by creating a federal private right-of-action.

Sen. Hatch said: Current federal criminal law is insufficient. Although the Economic Espionage Act of 1996 made trade secret theft a crime, the Department of Justice brought only 25 trade secret theft cases last year. State-level civil trade secret laws alone have not been sufficient to stop interstate theft. Federal courts are better suited to working across state and national boundaries to facilitate discovery, serve defendants or witnesses, or prevent a party from leaving the country. Laws also vary state-to-state, making it difficult for U.S. companies to craft consistent policies.

To read the proposed bill, please proposed Defend-Trade-Secrets-Act-.pdf.

The company that got the multimillion-dollar contract to run the call centers for the health care exchange Access Health CT -- called Maximus -- is refusing to release invoices and contracts to show exactly how much they are paid by the state.

WNPR filed a freedom of information request for the information, but Maximus said the invoices and contracts could reveal trade secrets. Maximus values its contract with Connecticut at $15 million over three years, and that's all the company would say.

Last year, WNPR reporter Jeff Cohen asked for the contract between Maximus and the state, as well as invoices, to find out what the state paid for and how much it paid. What he got was heavily redacted information. Cohen filed a complaint, and then went to a formal hearing before Connecticut's Freedom of Information Commission. WNPR argued that the documents are public.

An attorney for Maximus said, "If... one of our competitors learns of how we priced, for example: what is our staff makeup, what is tech we are using ,what is the start-up cost... then they have an advantage that they have not earned."

To read the complete article by CT's WNPR, please click here.

Pizza Business Secrets

Little Caesars and its southern franchise operator, Bravo Food Service LLC, have accused ex-manager Steven Ward and his prospective restaurant Ready To Go Pizza Inc. of stealing trade secrets related to the production and sale of inexpensive pizza.

According to the complaint, Steven Ward worked at Bravo locations in Alabama and Georgia for over five years, where he was given access to Little Caesars' alleged "confidential system".

The system includes information on preparing pizzas and special sauces, creating distinctive decor, managing inventory, training employees, launching advertising campaigns and managing sales information, among other trade secrets, Little Caesars states.

The court will have to determine whether or not the method to operate the franchise was kept under lock and key, like you would keep something you deemed to be your secret. If not, there's always other remedies for Little Caesars but one thing is for sure, even if the Mr. Ward is found not liable, Ready To Go Pizza will suffer the financial hit litigation brings.

DES MOINES, Iowa (AP) — More than four months after his arrest, one of six men from China charged with conspiring to steal valuable seed corn from U.S. companies has been has been released after posting a $50,000 cash bond.

U.S. Magistrate Judge Ross Walters on Tuesday approved the release of Mo Hailong, who is known as Robert Mo. He said the conditions of release agreed to by federal prosecutors and defense lawyers would "reasonably assure" his appearance at future court hearings.

Mo is one of six men facing charges in Des Moines after an FBI investigation determined patented seed corn was being taken from test fields containing highly valuable seed owned by Pioneer Hybrid and Monsanto. He was arrested in Miami, where he lived, in December. The others remain fugitives in China and Canada.

Mondaq

DuPont De Nemours & Co. v. Kolon Industries, Inc. No. 12-1260 (4th Cir. Apr. 3, 2014).

This case demonstrates that standard efforts taken by a company to ensure secrecy of trade secrets. The final outcome of this case will also be instructive in informing companies about the extent to which confidential information disclosed in a misappropriation trial prevents the information from qualifying as confidential in the future.

The Fourth Circuit held that the District Court for the Eastern District of Virginia, "abused its discretion and acted arbitrarily" when it excluded evidence defendant Kolon Industries sought to introduce at trial to defend against allegations that it stole the plaintiff's trade secrets pertaining to Kevlar, a strong para-aramid fiber used, for example, in body armor and ballistics. This case will have a new trial before a different judge.

The defendant asserted that one or more of 42 trade secrets at issue in the case did not meet the elements of a protectable trade secret because the alleged trade secrets involved information the plaintiff made publically available when it engaged in prior intellectual property litigation in the 1980s against a former top competitor. Specifically, the defendant argued that the plaintiff disclosed details pertaining to Kevlar's production process that were "strikingly similar" to numerous trade secrets at issue in this case.

The Uniform Trade Secrets Act adopted by nearly all states, including California, and applied in this case, defines a "trade secret" as information that "derives independent economic value . . . from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Since the defendant could not be held liable for misappropriating information that is not considered a trade secret, it was material to the defense whether information the plaintiff asserted was a protectable trade secret was readily ascertainable and whether it undertook reasonable efforts to protect the information's secrecy.

In granting the plaintiff's pre-trial motion to exclude all evidence related to prior litigation against its former competitor, the Fourth Circuit found the district court committed prejudicial error by applying too stringent an admissibility standard. The court held that the defendant was not required to show that a trade secret at issue was actually disclosed in previous litigation. Instead, a "strikingly similar" standard of relevance was sufficient to allow the jury to consider whether the information retained the level of confidentiality required to be deemed a protected trade secret. While agreeing with the district court's finding that evidence from prior litigation may cause some jury confusion and delay, the Fourth Circuit ultimately determined these risks were far outweighed by the probative value of the evidence.

Finally, this case also reminds companies and practitioners alike of the importance of obtaining a protective order when engaged in unfair competition litigation and of properly and timely designating confidential information under the protective order as well as the necessity of filing confidential exhibits under seal to protect a company's trade secrets.

To read the complete news article by Dylan W. Wiseman and Danielle G. Eanet, click here.

Ellen Chen Yeh was found not guilty on all counts relating to allegations of theft of trade secrets from Texas Instruments (U.S. v. Ellen Chen Yeh et al., 3:08-cr-00096-P, U.S. District Court for the Northern District of Texas).

Yeh left Texas Instruments in 2005. She was en route to a new job in China along with her family when a pre-flight search by the FBI turned up a flash drive containing multiple files and documents from Texas Instruments. The drive was seized by the FBI and Yeh continued on to China. She was charged in 2008 with three counts of knowingly stealing and misappropriating TI trade secrets.

After several months of hearings, Yeh’s trial began on March 3rd, 2014. Defense attorney Mick Mickelsen argued that the defendant had kept the digital materials for anticipated future employment with Texas Instruments. After a two-week trial in front of Federal Judge Jorge Solis, Ellen Chen Yeh was found not guilty on all counts. “This was a case of extreme misunderstanding. The defendant’s intentions were never to distribute or sell trade secrets of Texas Instruments in China,” said the defense attorney.

To read the complete news story from PR Web, click here.

Former Microsoft employee Alex Kibkalo has pleaded guilty to theft of trade secrets.
Last month, Redmond accused the former worker of leaking early copies of Windows 8 to a French blogger in 2012.

The information in question included Windows 8 RT software updates, which were distributed only to manufacturing partners, as well as the Activation Server software development kit (SDK). Via a friend in Redmond, the Lebanon-based Kibkalo uploaded the documents to SkyDrive (now OneDrive) in August 2012, and provided the blogger with links.

Microsoft discovered it was Kibkalo leaking the data after it searched the Hotmail account of the French blogger. Redmond initially defended the move, but said later that it would change its policy surrounding email snooping.

Please click here to finish reading this article from PC Mag, written by By Stephanie Mlot

If You Have A Trade Secret, You Better Protect It

Mondaq reports:

Late last month, Judge Cornelius J. Moriarty of the Massachusetts Superior Court granted summary judgment for a defendant company and two individual defendants on a trade secret misappropriation claim because the plaintiff company did nothing to protect what it claimed were trade secrets. One element of a trade secret claim is that the plaintiff must demonstrate that it took sufficient actions to protect its trade secret from unauthorized disclosure. Among the factors the court considers is (1) whether the plaintiff had agreements with employees and others restricting disclosure, and (2) any security precautions to prevent unauthorized access to the trade secret. In this case, the plaintiff could produce no evidence that it had any policy to protect confidential information, and it never had any of the defendants sign a confidentiality agreement. In fact, certain information that the plaintiff claimed as trade secrets was freely available on the plaintiff's computers, and the plaintiff even publicly disclosed some of what it claimed were trade secrets on its websites.

So what's the lesson? If you have trade secrets or confidential information as part of your business, make sure you protect it. Make your employees, independent contractors, and vendors sign non-disclosure agreements if you will be disclosing confidential information to them, and restrict access to confidential information to those with a need to know it by using technological barriers to access, among other things. If you don't, your secrets might be exposed, and the legal system might not be able to help you.

Protecting Your Developments: Patent or Trade Secret

This topic was the favorite of UNH Law Prof. Karl Jorda who taught the "complimentariness" of the rights...

Biodiesel reports:

When you develop a new product, process or formulation, deciding how to protect this development can have long-lasting ramifications for you and your business. Two ways for protecting such developments are by patent protection and trade secret protection. Each option has advantages and disadvantages that must be weighed in determining which one is the better choice for a particular development. To understand which form of protection may be more appropriate in a given situation, it is best to understand what each one is and what are its advantages and disadvantages.

In general terms, a patent is a government grant of the right to exclude others from making, using, selling or importing the claimed invention. A patent is enforceable in the jurisdiction in which it is granted and expires after a predetermined time period. In the U.S., a patent is enforceable for 20 years from the filing date of the patent application. A patent can be viewed as a contract with the government. In order to obtain the government-granted exclusivity provided by the patent, an inventor must provide a detailed and enabling disclosure of the invention. Thus, once a patent is issued (or a patent application published), the inventor’s disclosure is publically available for all to see. There is no guarantee that a patent will be granted simply because an application has been filed. The claimed invention must meet all the requirements for patentability, including patentable subject matter, novelty and nonobviousness.

As defined by the Uniform Trade Secret Act, a trade secret is information, including a formula, pattern, compilation, program, device, method, technique or process that derives actual or potential independent economic value from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Unlike patents over which the federal government has exclusive authority, trade secret protection derives from state law.

Patent rights protect against all making and use of an invention whether copied, independently developed or reverse engineered and as such provide far more effective protection than trade secret protection can provide. Patent litigation can be expensive to defend against and can result in damages being tripled against a willful infringer. The cost of defending against a patent infringement suit and the chance of a substantial damages amount being awarded if unsuccessful deters many would-be infringers from ever attempting to compete with the patent holder.

Patents can be expensive to pursue and may not be granted if the claimed invention does not meet the requirements for patentability. Patents make public the details of how to make and use the protected invention, and, thus, provide a means for others to copy the invention when the patent expires.

Trade secret protection arises immediately upon taking the steps reasonably necessary to maintain secrecy and can extend indefinitely, unlike patents, which eventually expire. Trade secret protection can be far less expensive to implement and can keep would-be competitors from ever learning the details of the protected development.

Trade secret protection does not protect against independent development, reverse engineering, or copying of publically disclosed developments. Once a trade secret has become publically disclosed it is no longer protected; and recourse is available only against those who wrongfully disclosed or misappropriated the trade secret.

Inventions that have not been publically disclosed more than one year and are both novel and nonobvious are potential candidates for patent protection. In particular, those inventions that would be publically observable if used would be more difficult to protect as trade secrets, especially if they could be reverse engineered.

Certain types of information, articles and processes tend to be better candidates for trade secret protection than others. Developments that are not publically observable during normal use, nor are easily reversed engineered or likely to be independently developed are better candidates for trade secret protection than those that are. If time to implementation and initial cost are overriding factors, then trade secret protection may afford the more immediately effective alternative. If the development is such that its commercial utility has a limited life span, or its design can be easily ascertained in the course of its use, then patent protection may be the better alternative.

The most appropriate form of protection can be determined only after careful contemplation of all the technical and business considerations—and no form of protection is ideal in every respect.

Standard Reports:

A businessman in California has been convicted of selling stolen trade secrets to Chinese firms so they could develop a pigment used to whiten products.

US officials said the conviction of Walter Lian-Heen Liew, also known as Liu Yuanxuan, marked the first federal jury conviction on charges brought under the Economic Espionage Act of 1996.

Prosecutors said Liew paid former DuPont engineer Robert Maegerle to provide trade secrets to help China's state-owned Pangang Group develop the substance chloride-route titanium dioxide, which helps make white-tinted goods such as paper and plastic.

Maegerle and Liew's firm, USA Performance Technology Inc, were also convicted of stealing trade secrets from DuPont, among other charges.

After a seven-week trial, the men and the company were also found guilty of economic espionage, bankruptcy fraud, tax evasion and obstruction of justice.

Prosecutors said Liew sold the information for more than US$20 million (HK$156 million) to Pangang so its companies could develop large-scale production capability using the process in the mainland, including a planned factory in the industrial hub of Chongqing.

"Fighting economic espionage and trade secret theft is one of the top priorities of this office, and we will aggressively pursue anyone, anywhere, who attempts to steal valuable information from the United States," US Attorney Melinda Haag said.

Liew, 56, and Maegerle, 78, face a minimum of 25 years in prison for the two most serious charges. Pangang Group vice director Hou Shengdong was also charged but is on the run.

Winchester Sun reports:


David Lewis, 65, pleaded guilty in U.S. District Court in Lexington to conspiracy to commit theft of trade secrets for selling information about brake pad development from his employer, Brake Parts International, to a Canadian competitor.

According to court documents, Lewis worked for BPI in Winchester as a principal development engineer from 1998 through 2008. In 1999, he signed an invention and disclosure agreement in which he agreed not to disclose any of BPI’s confidential or proprietary information.

In September 2006, Lewis began corresponding with Robert Kahan, the executive vice president of Satisfied Brake Products. According to the plea agreement, Lewis was not satisfied with his employment at BPI and did not feel valued by his superiors. Consequently, Lewis agreed to become a paid consultant for Satisfied. Initially, the two met at a Cincinnati Motel in October 2006 and Kahan paid Lewis $8,000 in cash. Lewis said he was subsequently paid by check.

The two communicated by separate, specific email accounts to conceal their identities, through which Lewis sent trade information, including brake pad formulas and a BPI underlayer formula, on numerous occasions in 2006 and 2007.

According to the plea agreement, Lewis was terminated by BPI in 2008 and began working openly for Satisfied. Lewis also admitted to taking formulas he developed for BPI with him to Satisfied, even though BPI owned the formulas and the confidentiality agreement was still in place.

Lewis is scheduled to be sentenced July 7 in U.S. District Court in Lexington by Judge Joseph M. Hood. Lewis could receive up to 10 years in prison, a maximum fine of $250,000 and up to three years of supervised release.