The Trade Secrets Vault

A blog of trade secrets news, verdicts, and resources
 

Trade Secret Tips From Recent Caselaw

Dana Finberg, The Recorder

Imagine your client calls you one day and tells you they have developed a great new idea for a software product and, because you are their trusted advisor, they want your help in devising a legal strategy for protecting this valuable intellectual property.
As you listen to them describe this great new idea, because you are a diligent IP practitioner and familiar with the U.S. Supreme Court's June 19 decision in Alice Corp. v. CLS Bank International, 573 U.S. __ (2014), it begins to sound suspiciously like what they have come up with is an "abstract" idea—an idea constituting a category of patent ineligible subject matter, including algorithms, mathematical concepts, chemical elements, naturally occurring biological products and methods that can be carried out in a person's head.

Since it appears your client cannot obtain a patent for their bright new idea for a software product, do they have any options for attempting to protect the fruits of their hard work?

Fortunately for your client, you have also been keeping up with recent developments in trade secrets law. In a decision filed in May, the California Court of Appeals held that ideas, if kept secret, can constitute information protectable by trade secret law. By so holding, the court in Altavion Inc. v. Konica Minolta Systems Laboratory Inc. went a long way in clearing up confusion created by a 2010 decision, Silvaco Data Systems v. Intel Corp., which stated that "[t]rade secret law does not protect ideas as such" and trade secret protection only extends to information tending to communicate or disclose ideas to another.

Keep it secret, keep it safe
In Altavion, the dispute arose when the defendant took the plaintiff's overall concept and specific design implementations for digital stamping technology—which it had received under a non-disclosure agreement executed in the course of business negotiations between the parties—and covertly incorporated them into patent applications in its own name. The trial court found for Altavion on its claims of trade secret misappropriation, and on appeal Konica Minolta Systems Laboratory (KMSL) argued that, under Silvaco, Altavion's concept was not protectable because "[g]eneralized ideas and inventions are protectable by patents and thus cannot be trade secrets."

The California Court of Appeals rejected this argument, relying on earlier precedent explaining the overlap between trade secret law and patent law, explaining that "a trade secret in the broad sense consists of any unpatented idea which may be used for industrial and commercial purposes." The court unambiguously declared "it is clear that if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law" and "trade secret law may be used to sanction the misappropriation of the idea the plaintiff kept secret."

The trade secret ideas at issue in Altavion were ultimately embodied in at least eight patents obtained by the defendant, so the information constituted patentable subject matter, at least before the recent U.S. Supreme Court decision in Alice Corp. However, the Court of Appeal's detailed explanation of the interrelationship of patent and trade secret law made clear trade secret law extends to inventions which, for whatever reason, may not be patent-eligible.

As the court explained, "[P]atentability is not a condition precedent to the classification of a trade secret. Thus it has been said that a trade secret may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement on a machine or device. Novelty and invention are not requisite for a trade secret as they are for patentability."

As long as a company's ideas and information meet the general requirements for trade secret status under the Uniform Trade Secrets Act, then trade secrets law will provide protection and powerful remedies for misappropriation. Those requirements include that the ideas and information are not generally known; derive independent economic value from their secrecy; and are the subject of reasonable efforts under the circumstances to protect their secrecy.

To read the complete article published in The Recorder, click here.

Cargill, in a lawsuit filed Thursday in the U.S. District Court in Denver, accused Jason Kuan of downloading hundreds of confidential and proprietary files detailing the agricultural conglomerate's meat-processing operations.

The lawsuit highlights the intense competition among the world's biggest meat-processing firms, which invest in technology and methods to produce meat as cheaply as possible and win business from fast-food chains, grocery stores and food service operations.

Cargill said Mr. Kuan had worked for the company for 20 years. Much of Mr. Kuan's tenure there involved managing the company's U.S. and Canadian "case-ready" meat businesses—meat that is processed and packaged at a plant and delivered to the meat departments of food retailers, according to the lawsuit. Mr. Kuan, who Cargill said joined JBS this month, was appointed to lead a similar business under development at JBS's U.S. division based in Greeley, Colo., Cargill alleged, citing an announcement that JBS had circulated.

According to the lawsuit, Mr. Kuan's abrupt departure prompted Cargill to carry out a forensic analysis on his Cargill-issued laptop, which showed that in early July he downloaded "hundreds of highly confidential and proprietary" files related to Cargill's prepackaged meat business, which he stored on an external hard drive.

To read the complete article from the WSJ, please click here.

A 49-year-old Kentucky man was sentenced Thursday by a federal judge in Yakima to three months in prison for selling trade secrets involving drone aircraft.

Stephen Martin Ward of Owensboro, Ky., was arrested in November 2011 in Indiana after giving a digital copy of an unmanned aircraft maintenance manual to an undercover agent for $10,000, according to a news release issued by Michael C. Ormsby, U.S. Attorney for the Eastern District of Washington in Spokane.

Ormsby said Ward was hired as a technical writer in August 2011 to create a maintenance manual for a drone, known as the RQ-21A Blackjack, which was developed by Insitu Inc.

The company, located in Bingen and owned by Boeing, employs about 800 people who develop unmanned aircraft systems.

When Ward’s employment was terminated about two months later, he told a former supervisor that he’d taken substantial amounts of data while working at the company, Ormsby said.

To read the complete article, please click here.

DETROIT, MI - The FBI has seized listening instruments, computers and financial records from an engineer at Ford Motor Co.'s headquarters in Dearborn, the Detroit News Reports.

The News says that the mechanical engineer was being investigated for allegedly stealing trade secrets of the automaker.

A lawyer for the engineer, who has not been charged with a crime, said that his client said she was using recording devices to transcribe meetings. She was not engaged in any kind of corporate espionage, he said. The engineer's home was also searched a few weeks ago, according to the News.

Read the full story here.

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