The Trade Secrets Vault

A blog of trade secrets news, verdicts, and resources
 

A brilliant, young hedge fund worker who stole trade secrets from Citadel LLC was on Thursday sentenced to three years in prison by a federal judge who told him he’d been “naive.”

Yihao “Ben” Pu, was just 23 when he illegally downloaded information about algorithms developed for use in high-frequency trading by Citadel, the hedge fund and financial services firm founded by billionaire Ken Griffin, Illinois’ richest man.

Now 27 and working as a computer science teacher, Pu apologized in court Thursday to U.S. District Judge Charles Norgle, telling the judge he’d been “wrong” to steal.

“The errors that brought me here today are the most regrettable actions of my life,” he said.

Please click here for the news story from The Chicago Sun Times.

Procter & Gamble has filed a lawsuit against four former Gillette employees it accuses of sharing trade secrets.

The four work or have been retained by ShaveLogic, a Dallas-based company in the wet-shaving field. Gillette filed the case on Friday in Suffolk County Superior Court in Boston.

P&G said the former employees wrongfully used and disclosed highly confidential Gillette information and trade secrets and breached contracts with Gillette.

For the full artcle, please click here.

IP Nexus
In late 2014, Lyft, the smartphone-based car-hailing startup, accused its former Chief Operating Officer of taking sensitive company information after he left to join competitor Uber. In its lawsuit, Lyft claims that its computer forensics experts discovered that Travis VanderZanden downloaded confidential company information, including financial data, forecasts, and documents relating to growth strategy, to his personal Dropbox account before he left the company. Lyft also alleged that VanderZanden is soliciting Lyft employees. All of these actions, Lyft argues, are in violation of VanderZanden’s employee agreement, which includes a duty to not disclose Lyft’s confidential information even after employment ends.

VanderZanden and Uber of course deny the allegations.
The matter is still ongoing and it will be a while before we may discover what the truth really is, but the fact pattern described by Lyft is a common one. When we talk about intellectual property, trademarks, copyrights, and patents are what comes to mind, but this fourth form of IP, trade secrets, basically any form of information with business value that the owner has made reasonable attempts to keep secret, can be just as important.
Much of the information that Lyft claims was taken included things such as lists of drivers, data and analysis of how additional fundraising would affect equity holdings, and the company’s strategies for international growth, almost certainly qualify as trade secrets. More importantly, the success of the company will turn in large part on this information and the competitive advantage that Lyft can get from it.

And, though startups often (and wrongly) think of intellectual property protection as a luxury, or at least something to sort out sometime in the future, this dispute between Lyft and its former COO teaches us that IP protection is something that can and should be integrated into everyday best practices. To protect trade secrets, a company must make reasonable efforts to maintain the confidentiality of the information. This can mean everything from establishing procedures for limiting access to important information (for example, if your sales contacts are your trade secrets, setting up network permissions so that only sales people can access the information) to having well-written confidentiality agreements in place for all key employees.

So, while a company may think that they don’t have time to think about IP, the reality is that IP protection can and should be integrated to other parts of the business, including employee management and good information and workflow policies. Failure to do so may only lead to big headaches later on.

CHICAGO—A former futures trader at an unnamed trading firm in Chicago was indicted on federal charges for allegedly stealing trade secrets from the firm, including computer code for electronic trading and strategies and other intellectual property. The defendant, DAVID JACOB NEWMAN, was charged with three counts of theft of trade secrets in an indictment returned by a federal grand jury yesterday and made public today.

Newman, 32, of Chicago, began working at the trading firm as a clerk in 2004 and later as a trader until he left in March of this year, less than a week after he collected his 2013 bonus. Newman will be ordered to appear for arraignment on a date to be determined in U.S. District Court in Chicago.

According to the indictment, the trading firm’s trade secrets included custom-made software for pricing financial products, communicating and executing trades on public exchanges, and analyzing trading risk. They also included trading algorithms, trading profit and loss analysis, and the firm’s options modeling system. Most of the computer code the firm used for trading was custom-made by its employees or consultants, and the firm invested considerable time and money in developing its computer code and intellectual property. In 2011, Newman signed a document acknowledging that he understood the firm’s policies regarding protection of its trade secrets and proprietary information, and at no time was he authorized to copy or possess the firm’s trade secrets.

On Oct. 31, 2013, Newman allegedly accessed and copied computer files from a firm directory, containing trading algorithms, strategies, and analysis, onto a personal thumb drive. On Nov. 5, 2013, Newman accessed and copied additional files containing such information from four firm directories used by four specific traders onto a personal thumb drive, the indictment alleges. A week later, Newman established NTF LLC and was the sole owner and only member of the limited liability company.

On Feb. 24 of this year, Newman allegedly accessed and copied more than 400,000 computer files from the trading firm’s source code repositories onto a personal thumb drive. Three days later, Newman signed an agreement with the CME Group to allow NTF LLC to establish its own interface with CME online trading platforms.

A day after Newman resigned from the trading firm in March, he established an account enabling NTF LLC to trade speculatively in the futures markets, the indictment states.

Each count of theft of trade secrets carries a maximum penalty of 10 years in prison and a $250,000 million fine. If convicted, restitution is mandatory and the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Clifford C. Histed, deputy chief of the Securities and Commodities Fraud Section of the U.S. Attorney’s Office.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Please click here to view the original article by the FBI.

Nike Inc is accusing three of its former senior shoe designers of stealing its commercial secrets and making off for German rival Adidas AG , which announced in September the trio would staff its new urban footwear design studio in Brooklyn.

A lawsuit filed in Oregon where Nike is headquartered claims at least $10 million in damages. The world's largest sportswear maker said the former designers, Marc Dolce, Mark Miner, and senior design director Denis Dekovic, started consulting for Adidas while still working at the company, violating their non-compete agreements.

Nike said the designers hatched their plan last April, and pitched Adidas on a design studio that would help craft products while also bringing Adidas information about Nike's plans for the next few years in its running, sportswear and soccer lines.

The plans for the studio were essentially for a knockoff of Nike's own design lab, called the Kitchen, according to the complaint.

Adidas bought the studio idea and offered the designers lucrative employment contracts, Nike said. The project, called the Brooklyn Creative Design Studio, is set to open early next year.

Before leaving Nike, the complaint alleged, the designers copied sensitive design and business documents from their computers, including drawings for an unreleased shoe made for one of Nike's sponsored athletes.

Nike also claimed that Adidas knew of the non-compete agreements and promised to pay for any legal fallout. The agreements barred the designers from any connection with Adidas during their employment and for one year after.

The case is Nike, Inc v Denis Dekovic, Marc Dolce, and Mark Miner, in the Circuit Court of the State of Oregon for the County of Multnomah, No. 14-cv-18876.

To read the story from Reuters, please click here.

A jury decided favorably for FLIR Systems after Raytheon Corp. filed a lawsuit alleging that FLIR subsidiary Indigo Systems Corp. (now known as FLIR Commercial Systems) misappropriated trade secrets.

A jury in U.S. District Court for the Eastern District of Texas rejected Raytheon’s allegations that Indigo, prior to its acquisition by FLIR in 2004, and FLIR misappropriated 31 trade secrets that Raytheon owned

FLIR said the jury determined that 27 of the 31 alleged trade secrets were not Raytheon trade secrets and that neither FLIR nor Indigo misappropriated any of the 31 asserted trade secrets.

No damages were awarded against FLIR and Indigo. The court will decide whether or not to award FLIR and Indigo their attorney’s fees as the prevailing parties under the Texas Theft Liability Act.

Please click here to read more from Trade Only Today.

Intel, the world's largest manufacturer of computer chips, has called on the Indian government to strengthen protection for trade secrets under the intellectual property rights policy, raising concerns that the current regime is not strong enough. It has even asked for criminal sanctions to discourage theft.

Intel has a design and development centre in Bengaluru for key products and is expanding its high-end technology research and development efforts. It sought a tightening of the rules in its letter to the government and the panel that's drafting the country's intellectual property rights (IPR) policy.

"As India continues to grow in IT and innovation, it needs to depart from the British model of contractual protection and to elevate trade secrets to a genuine IP right with statutory protection with specific criminal sanctions," Intel said.

The Narendra Modi government is looking to attract foreign investment through its 'Make in India' drive and is also urging overseas companies to set up R&D facilities in the country.

The US Uniform Trade Secrets Act is a state law enacted by 47 states so far. Besides, the US expanded the jurisdiction of the federal courts last year over cases related to misappropriation of trade secrets by enacting the Theft of Trade Secrets Clarification Act.

Please click here to finish reading this interesting article from The Economic Times.

By Francesca Buzzi

This October, oilfield company Baker Hughes made a surprising announcement that the company would begin disclosing the contents of its frac fluid. Oilfield companies like Baker Hughes, Halliburton, and Schlumberger provide drilling and well completion support—including the creation of toxic frac fluid—to oil and gas companies. Last week, the company announced that they will merge with multinational giant, Haliburton – the very company after whom an infamous Safe Drinking Water Act exemption is named.

This 2005 exemption in the Safe Drinking Water Act allows oilfield companies to claim the contents of their frac fluid as “trade secrets” and are therefore exempt from disclosure. This exemption is now well known as the Halliburton Loophole. Because of these trade secret protections, it is difficult to know what pollutants to test for, making it harder to identify air and water contamination near fracking operations and identify its specific source.

Halliburton and Baker Hughes’ $34.6 billion merger would consolidate the second- and third-largest oilfield services companies in the industry, which are frequent rivals in both services offered and the geographic regions in which they operate. A Reuters analysis predicts that the combined firms would hold a whopping fifty-four percent market share of completion products and services, comprising thirty-nine percent of the market share of fracking services.

Of course, a merger of this scale is not unheard of in the oil and gas industry. In 1999, Exxon and Mobil’s megamerger reunited two of the most powerful facets of Rockefeller’s original behemoth, Standard Oil Company (Standard Oil of New Jersey and Standard Oil of New York, respectively), almost a century after they were broken apart for violating a law designed to protect competition. This is just the latest in a long line of oil industry megamergers, which have allowed the oil and gas industry to have undue influence over our elected officials.

To finish reading this article from Food and Water Watch, please click here.

A Delaware jury has ordered Hewlett-Packard Co. to pay $6.5 million in damages to a corporate security company for misappropriation of trade secrets, breach of the covenant of good faith and fair dealing, and defamation. The jury returned the verdict last week after a Delaware Superior Court trial before Judge Mary M. Johnston.

Professional Investigating & Consulting Agency Inc., a Columbus, Ohio, company focusing on brand protection, loss prevention, risk management and corporate security, filed a February 2013 lawsuit against technology giant HP. The lawsuit alleged HP contracted with PICA, used its trade secrets, ruined the company's reputation and ultimately terminated its relationship with the security business.

In 2002, PICA contracted to perform investigative loss prevention and brand protection services for HP in its Europe, Middle East and Africa regions, referred to in court papers as EMEA. PICA was later invited to bid on a contract handling HP's anti-counterfeit program in Latin America, but lost the contract to rival M. Morgan Cherry & Associates, or MMCA.

To read the complete article from Delaware Weekly, please click here.

Lyft, a San Francisco-based hail-a-car start-up, filed a lawsuit on Wednesday evening against a former executive, arguing that he stole confidential company information in the weeks before he left the company.

“We are disappointed to have to take this step, but this unusual situation has left us no choice but to take the necessary legal action to protect our confidential information,” said Erin Simpson, a Lyft spokeswoman.

The lawsuit accuses Travis VanderZanden, Lyft’s former chief operating officer, who left the company in August, of downloading important company information including financial data, information on future product plans and growth statistics. The lawsuit says that Mr. VanderZanden’s personal online storage account contained more than 98,000 files and folders after he left the company, according to a copy of the filing obtained by The New York Times. Mr. VanderZanden joined Uber, Lyft’s strongest rival, just two months after leaving Lyft.

To read the complete article on BITS, by The NY Times, please click here.

The North Carolina Department of Public Instruction has released to several media outlets including WWAY salary information submitted by a Leland-based educational management company for employees who work at four area charter schools even though it was submitted as confidential trade secrets.

Roger Bacon Academy submitted the information last week through Charter Day School, Inc., whose schools it manages.

The submission on Roger Bacon Academy letterhead begins with the header in red type "Proprietary and Confidential Privately Owned Business Information." It then includes bullet points about the nature of the information and why it should be protected under state statue from being disclosed under North Carolina's public record laws. It ends with red text that reads "Unauthorized release of this confidential information may result in incurring liability."

The information was disclosed to state regulators to satisfy an August request for the information. WWAY and other media outlets have requested the information from Charter Day School, Inc., in an attempt to help provide transparency in how public money is being spent on charter schools in North Carolina.

Due to the nature of the provisions of the submission, WWAY is withholding publication of the salary information until it can consult with an attorney, but salaries for assistant head masters at the schools is comparable to assistant principals at public schools in the area, while one of three headmasters cited appears to make more than a typical public school principal.

To read the complete article by WWAY, NewsChannel 3, please click here.

Mayo Clinic filed a lawsuit alleging misappropriation of trade secrets and breach of contract against Dr. Franklin R. Cockerill III, who was president and CEO of the for-profit Mayo Medical Labs for eight years. The case was filed Tuesday in Olmsted County District Court. Mayo Clinic released the lawsuit to the media this morning.

On July 17, an emotional Cockerill told his department that he was "retiring" to help his 85-year-old mother run her fertilizer business in Nebraska. Co-workers lauded his almost 30-year career with Mayo Clinic and gave him an appreciative send-off that built up to his final day of work on Sept. 30.

All of that changed on Oct. 1. Instead of retiring to Nebraska, Cockerill reportedly went to New Jersey to work for a major MML competitor, Quest Diagnostics Inc. He stepped into the position of vice president and chief laboratory officer for the multibillion-dollar public company.

Using emails as evidence, Mayo Clinic contends Cockerill had been talking to Quest about a job since February. He reportedly had a phone interview with Quest in March followed by a face-to-face interview in May, when Cockerill said he needed the time off to help his mother with a business problem. The lawsuit alleges he accepted the Quest position in June. Instead of informing Mayo Clinic, he continued to work at Mayo and attend confidential meetings, where issues were discussed that could cause irreparable damage to MML and Mayo Clinic in the hands of Quest.

Mayo Clinic alleges Cockerill left with at least seven clinic-owned USB memory drives and that he used four of them to "download information from Dr. Cockerill's computer in the days before … (he) started working for Quest."

Mayo Medical Labs and Quest vie for millions in medical test contracts. Mayo Medical Labs performs about 20 million tests for more than 4,000 hospitals annually. Quest says it does 1.5 billion tests a year. Many of the clinical tests conducted by both MML and Quest are proprietary and generate millions in revenue.

To read the complete article from Post Bulletin, please click here.

Top Agent Network Sues Zillow

Terry Garrison
Housing Wire
San Francisco-based Top Agent Network filed suit Monday in U.S. District Court for the Northern District of California against Zillow (Z), alleging theft of its proprietary trade secrets to create the highly touted “Coming Soon” feature.

The lawsuit claims that the online listing giant gained access to TAN’s confidential information by feigning interest in investing in the company when, in fact, it was simply interested in tapping into TAN's proprietary data and systems to launch a competing product.

The lawsuit alleges that beginning in early 2014, under the guise of a potential investment by Zillow, Zillow was granted access to TAN’s confidential and proprietary information as well as its business strategy, metrics and model. The lawsuit further alleges that TAN provided this information under the assurance that it would be kept confidential and would be used solely for evaluating a potential investment in TAN.

“Although many systems offer some version of a ‘Coming Soon’ tool to allow agents to announce pre-MLS listings, our particular version was developed and perfected over many years,” Faudman said. “Our proprietary system, the strategy behind it and the particular features and tools offered to our members are unique to TAN. They collectively explain why we have succeeded where other industry players have not.”

“We would never have met with Zillow and shared sensitive information about our business had they disclosed that they were working on a competing product or that they would use our knowledge and proprietary information to launch one,” Faudman says.

After months of accessing TAN’s confidential information, in May 2014, Zillow passed on the investment opportunity, informing TAN that this was “just not what we do nor have ever done.”

Not long after in June, Zillow rolled out what TAN alleges is a copycat product that incorporated much of the confidential and proprietary information taken from TAN.

In March, Realtor.com filed suit against Zillow for for breach of contract and misappopriation of trade secrets.

Protecting Trade Secrets in the Cloud

The business community’s growing use of cloud-based computing services provides great benefits due to cost-savings and mobile information access. However, business leaders should understand the risks of storing valuable trade secrets in the cloud. This article provides the business community tips on how to safeguard valuable trade secrets stored in the cloud from being freely disclosed to the public, thus putting the business at risk of losing protections that courts grant trade secrets.

As businesses’ profit margins have continued to shrink since the Great Recession, more companies have looked to reduce costs by reducing growing expenses related to their information technology departments.[1] The first line item to draw attention in the IT budget is frequently the rising costs associated with maintaining and upgrading system hardware. Businesses often find that housing and operating multiple servers stretches IT budgets thin by increasing maintenance, labor, and operational costs. The solution so many businesses have turned to is to move their valuable data to virtual servers, or the “cloud.”[2] A recent survey of IT executives provides that companies will triple their IT spending on cloud-based services in 2014 over 2011.[3] Cloud service providers have also seen demand increase as they increase their cloud capabilities.[4]

Although cloud-based servers provide businesses with substantial financial and operational benefits, businesses must recognize that there are perils to shifting data to the cloud. One of the key concerns businesses should consider before moving data to the cloud is the risk that its valuable trade secrets will lose protection as a result of insufficient safeguards to protect against disclosure. This article addresses that concern and provides businesses keys for seeking to protect valuable secrets in the cloud.

To finish reading this interesting article by The National Law Review, please click here.

A former engineer for medical technology giant Becton Dickinson and Co. of Franklin Lakes was sentenced Thursday to 18 months in prison for stealing trade secrets from BD and another New Jersey company.

U.S. Attorney Paul Fishmann said Maniar had worked as an engineer in Salt Lake City for C.R. Bard Inc., which is based in Murray Hill, from 2004 until 2011. He worked on catheters and ports, among other medical products.

Maniar then worked on syringes and pen injectors at BD in Franklin Lakes from February 2012 until May 2013, at a salary of $115,000, according to court documents.

At the two companies, Fishman said, "Maniar was able to steal secret information related to the companies' products," including BD's development of a self-administered disposable pen injector called Vystra.

A former engineer for medical technology giant Becton Dickinson and Co. of Franklin Lakes was sentenced Thursday to 18 months in prison for stealing trade secrets from BD and another New Jersey company.

Maniar downloaded Bard and BD files onto computer storage devices, and forwarded trade secrets from his work email accounts to his personal email accounts, Fishman said.

Prosecutors alleged that in the weeks before he left BD, Maniar downloaded more than 8,000 files of confidential information.

"At BD, we take very seriously the protection of our confidential information and trade secrets," the company said in a statement. "We have worked closely with the FBI and U.S. Attorney's Office with their investigation and enforcement of this matter."

BD had also filed a civil suit against Maniar, but the company said it decided not to pursue that case, "given the satisfactory resolution of the government's criminal prosecution."

Cases involving alleged theft of trade secrets have become more common, in part because digital files are easier to steal than boxes of paper documents.

To read the complete article by Kathleen Lynn, published in North Jersey, please click here.

The last time we checked on the Beckett v. COMC case, Beckett had requested permission to file an amended complaint to add a breach of contract claim against COMC. COMC opposed Beckett's request, which I theorized was a COMC strategy to re-argue its side of the case to the court, rather than an actual attempt to stop Beckett's motion.

As predicted, the court rejected COMC's opposition and allowed Beckett to amend its complaint.

In a minor backfire for Beckett, once it filed its amended complaint, COMC responded by adding a new claim of its own.

In its response, COMC asked the court to issue an order "that the Beckett Media data is simply an ordinary compilation of readily accessible materials that is not entitled to trade secret protection."

Legal translation: Judge, can you tell the world that everything Beckett has is freely available for everybody in the world to copy?

Click here for the complete article.

Can Your LinkedIn List Be a Trade Secret?

As a LinkedIn user, the decision concerning whether to share your entire list of connections with any individual connection can often implicate a number of strategic questions. As of May 2014, LinkedIn boasts 300 million users globally and access, or lack thereof, to such a vast network can depend to some degree on how an account is configured insofar as that configuration determines how information is shared amongst a user’s connection. The business implications are apparent, but such a decision has started to engender legal actions, as encapsulated by Cellular Accessories for Less, Inc. v. Trinitas, LLC, No. CV 12-06736 DDP (C.D. Cal. Sept. 16, 2014).

Plaintiff Cellular Accessories for Less, Inc. (Cellular) and Defendant Trinitas LLC (Trinitas) are both in the business of selling mobile phone accessories to businesses. Defendant David Oakes (Oakes) worked for Cellular as a sales manager from 2004 to 2010. In order to receive approbation to start, Oakes was required to sign an Employment Agreement (the Agreement) which included a clause that stated in relevant part that Cellular requested that the “proprietary information remain property of this organization, and may not leave, either physically or electronically, unless approved in writing” by the CEO of Cellular. Oakes similarly signed a “Statement of Confidentiality” (the Statement) in which he avowed to not “knowingly, disclose, use, or induce or assist in the use or disclosure” of the Cellular proprietary information or anything related thereto, without the express written consent of Cellular.

Proprietary information was defined in the Statement as “information (a) that is not known by actual or potential competitors of the Company or is generally unavailable to the public, (b) that has been created, discovered, developed, or which has otherwise become known to the Company … and (c) that has material economic value or potential material economic value to the Company’s present or future business.” Oakes signed the agreement, but disputed such signature created a valid contract.

By JD Supra. Click here to read the complete article.