Cases from 9th Circuit

Northern District of California
After Husband Convicted in Dupont Economic Espionage Case, Wife Gets Probation

On September 29th, 2015, Judge White of a California federal district court accepted Christina Liew’s plea agreement, sentencing her to three years of probation and restitution to the IRS in the amount of $6 million. As part of the plea agreement, Ms. Liew pled guilty to conspiracy to tampering with evidence. Her Husband, Walter Liew, was the first person to be convicted of economic espionage by a U.S. jury in March 2014 and was sentenced to 15 years in prison.

Walter Liew was found guilty of economic espionage and trade secret theft after selling DuPont's coveted titanium dioxide (TiO2) recipe to Chinese state-owned entities. The highly guarded DuPont recipe was used for both the Oreo cream recipe, as well as the manufacturing of paper and plastics.

United States Court of Appeals for the Ninth Circuit
Criminal Conviction Affirmed for Trade Secret Theft

Reminding all that misappropriating a trade secret can not only constitute a crime, but also that the intent to reap an economic benefit is sufficient to sustain a conviction under 18 USC Section 1832, the Ninth Circuit upheld the criminal conviction of Suibin Zhang for the theft of Marvell Semiconductor Inc.’s trade secrets.

After a bench trial, Zhang was found guilty and sentenced to three months in prison followed by three months of supervised release, 200 hours of community service, and $75,000 in restitution. Zhang appealed, challenging the sufficiency of the evidence and contending that his Sixth Amendment right to a public trial was violated.

On appeal, the Ninth Circuit held that there was, in fact, sufficient evidence, beyond a reasonable doubt, that Marvell took “reasonable measures” to protect its trade secrets. Marvell did so by advising users of the existence of their trade secrets and by limiting access on a need to know basis and controlled access through passwords. The Court also held that, although Zhang did not personally sign the Marvell non-disclosure agreement, he accepted a limited license agreement that incorporated its terms.

The Court further held that even though Zhang never sold the documents or sent around economically valuable secrets, sufficient evidence established that he intended to reap an economic reward. The Court held this same evidence established an intent to injure Marvell, enough to uphold the criminal conviction. Intent, this case, was key.

E.D. Cal.
Court Finds CUTSA Preemption Issue Must be Raised at Summary Judgment, not Motion to Dismiss

U.S. Legal Support, Inc., a provider of court reporting services, sued two of its former employees and their new employer for misappropriating its customer lists in order to set up a competing business in the area of Northern California.

In a decision that may be reviewed by the circuit court, the E.D. Cal found that defendants' motion to dismiss some claims based on the pre-emption of common law trade secrets claims by California's Uniform Trade Secrets Act (CUTSA) was premature. The court said that the question turned in part on whether plaintiffs had succeeded in showing that defendants had violated a common law property right that was based "on grounds that are qualitatively different from the grounds upon which trade secrets are considered property" (citing Bryant v. Mattel, Inc., No. CV 04–9049 DOC (RNBx), 2010 WL 3705668 at *22 (C.D. Cal. Aug. 2, 2010)). Because this was a question of fact rather than law, "[d]efendants can determine in discovery whether Plaintiff’s contentions have any merit, and when appropriate, bring a summary judgment motion as to the issue of supersession."

U.S. District Court for the Central District of California
CBS Broadcasting sues ABC, Inc. and affiliates for misappropriating secret production processes for the hit CBS show, “Big Brother”

CBS Broadcasting, Inc. (“CBS”) filed suit against ABC, Inc. and the Walt Disney Co. on May 10, 2012 in the Central District of California, alleging trade secrets misappropriation amongst nine other claims. CBS claims that defendants, in developing a new series “Life in a Glass House,” misappropriated CBS’ trade secrets about several production processes for the “Big Brother” reality television show. CBS argues that these processes are unique in the industry and make the show successful by enabling the “Big Brother” staff to “prep, produce, edit and deliver each episode in two and a half days.” It adds that the defendants (and anyone else) could not have independently discovered the processes by merely watching the show. Rather, CBS believes that ABC improperly acquired knowledge about these processes from former “Big Brother” producers and staff who have signed non-disclosure agreements with CBS but are now working for ABC on “Life in a Glass House.”

CBS requested a preliminary injunction in order to stop ABC from premiering the show, however U.S. District Judge Gary Allen Feess said he is unlikely to grant it.

United States Court of Appeals for the Ninth Circuit
9th Circuit: No Competitors Needed for Trade Secrets to Exist Under the EEA

United States v. Chung, 659 F.3d 815, 826 (9th Cir. 2011)
Docket No. 10-50074
Federal Court of Appeals for the 9th Circuit
Decided: September 26, 2011, Judge Susan P. Graber

In a 2011 opinion, the Court of Appeals for the Ninth Circuit affirmed the first trial court conviction under the Economic Espionage Act. Notably, the appellate court in United States v. Dongfan Chung addressed the independent economic value requirement under 18 U.S.C §1839(3)(B) as either actual or potential. In line with the statutory language, the Court asserted that the owner of secret information need not have actual competitors in order to rightfully protect its economic value.

In US v. Chung, the defendant Dongfan “Greg” Chung, a former engineer for the US-contractor Boeing, was found in possession of over 300,000 Boeing documents, including six documents containing Boeing trade secrets. On appeal of his conviction, Chun argued insufficient evidence as to the existence of any Boeing trade secrets within the documents he possessed. The court looked specifically at four Boeing documents relating to a NASA space-shuttle antenna. Judge Graber found that Boeing maintained the secrecy of the particular Boeing information and enacted reasonable protective measures to maintain secrecy. Most notably, the Court endeavored in an extensive analysis of he economic value required for such information to be trade secrets. While the EEA’s definition of trade secret is grounded upon the standard outlined in the Uniform Trade Secrets Act (UTSA), the text of §1839(3)(B) further defines the economic value of trade secret information as either actual or potential, and does not mention the existence of competitors.

The court reasons that such information “could assist a competitor in understanding how Boeing approaches problem-solving and in figuring out how best to bid on a similar project in the future, for example, by underbidding Boeing on tasks at which Boeing appears least efficient.” Thus the Court held Boeing’s secret information independently valuable not for Boeing’s potential use, but for use of such information by any potential Boeing competitor. Thus the Ninth Circuit held that under the EEA, companies need not have actual competitors in order to derive economic value from maintaining the secrecy of certain information.

U.S. District Court for the Western District of Washington
Court Decides Several Motions to Seal Trade Secret Information in Microsoft Suit Against Motorola

On November 12, 2012, the Court decided a number of motions filed by both parties, as well as some non-parties, seeking to seal over 200 trial exhibits in relation to Microsoft Corp. v. Motorola, Inc. et al., in which Microsoft alleges that Defendants (collectively “Motorola”) breached its commitment to the Institute of Electrical and Electronics Engineers Standards Association (“IEEE-SA”) and International Telecommunications Union (“ITU”), as well as those organizations’ members and affiliates. Specifically, Microsoft alleges that Motorola broke its promises to offer licenses to its “essential” patents in the areas of wireless and video-coding technologies, as required by Motorola’s participation in the two organizations, respectively.

In deciding the motions, the court noted a strong presumption against sealing trial exhibits, recognizing the public interest in understanding the bases for adjudicatory decision-making. This presumption is rebuttable when the information at issue is either a trade secret, or where disclosure of the information might “harm a litigant’s competitive standing.” In addressing the different types of information included in the motions, the court drew a distinction between exhibits having little relevance to the underlying issue of the case, and those exhibits more directly related to the ultimate issue. For the former, the Court granted the motions to seal entirely. For the latter, the Court provisionally sealed the exhibits, meaning that such exhibits would not become public unless their contents were discussed by a testifying witness, or used as a basis for the Court’s ruling. The Court could not address all exhibits included in the motion, and agreed to hold daily conferences to determine requests to seal exhibits on a rolling basis throughout the trial.

The decision is important because it shows that companies can go to court to enforce their rights without necessarily losing trade secret protection. The court was generally receptive to the motions to seal, considering that some of the information did not rise to the level of trade secrets. That said, this decision also shows the uncertainty over trade secret protection that can accompany litigation, as the court's provisional seal leaves open the possibility for disclosure through testimony.

United States Court of Appeals for the Ninth Circuit
The Court of Appeals for the Ninth Circuit decides to rehear United States v. Nosal en banc, ordering district courts to ignore panel decision

On April 10, 2012, Chief Judge Alex Kozinski, writing for the Ninth Circuit Court of Appeals (en banc), issued a final decision in the case United States v. Nosal, narrowly interpreting the scope of the Computer Fraud and Abuse Act (CFAA). Chief Judge Kozinski’s opinion made clear his unwillingness to expand the reach of the CFAA for fear of criminalizing a wide range of seemingly innocuous behavior that Congress did not intend.

The particular facts of this case are not nearly as significant as the question of law and statutory interpretation presented, but briefly, the United States government brought charges against defendant David Nosal and his alleged accomplices for violations of the CFAA. Nosal was a former employee of executive search firm, Korn/Ferry International, while his suspected co-conspirators were current employees of the firm. The twenty-count superseding indictment alleged that current Korn/Ferry employees transferred confidential and proprietary information to Nosal from a confidential database of executives and companies, which was developed and maintained by Korn/Ferry and considered to be of great value to the company as against competitors.

The legal question presented was whether the employees “exceeded [their] authorized access” to the company computer system, within the meaning of the CFAA, when they transmitted confidential Korn/Ferry information to Nosal in violation of their employer’s computer use restrictions. The district court denied Nosal’s motion to dismiss the indictment at first, but later dismissed most of the counts against him after granting his motion to reconsider in light of the holding in LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009). However, a 2-1 panel decision of the Court of Appeals for the Ninth Circuit reversed the district court and reinstated counts of the indictment. The majority found factual distinctions from the present case to Brekka and held that “under the CFAA, an employee accesses a computer in excess of his or her authorization when that access violates the employer’s access restrictions.” 642 F.3d at 789.

On October 27, 2011, the Ninth Circuit Court of Appeals granted Nosal’s petition for rehearing en banc, clarifying that the previous three-judge panel decision would hold no precedential value. Oral arguments were heard on December 15, 2011, and despite the circuit split now created over the scope of the CFAA, the en banc court affirmed the district court’s dismissal of several counts of the indictment. The April 10, 2012 decision held that “exceeds authorized access” in the CFAA pertains to violations of restrictions on access to information, and not restrictions on its use.

United States District Court for the Central District of California
Doll Designer Alleges Hasbro Violated DTSA with “My Little Pony”

Plaintiff Elinor Shapiro (“Shapiro”) alleges that Defendant Hasbro, Inc. (“Hasbro”) misappropriated her trade secrets regarding new versions of the popular doll “My Little Pony.” Shapiro works as a doll creator and made a submission to Hasbro for a new line of pony dolls that are clear, filled with glitter, and light up. The submission included a presentation, marketing plan, and prototypes. Roughly 17 months later, Hasbro released a new line of “My Little Pony” dolls that are clear, light up and filled with different colored glitters. Shapiro argues that this was a misappropriation of information she presented, and has filed two lawsuits against Hasbro.

Shapiro’s first lawsuit, Shapiro v. Hasbro Inc. et al.,, No. 2:15-cv-02964, which is set to go to trial in September 2016, alleges multiple claims including copyright infringement, breach of contract, and multiple California trade secret law violations. Shapiro filed the second lawsuit, Shapiro v. Hasbro Inc. et al., No. 2:16-cv-05750, on August 2, 2016. The second suit drops the copyright infringement claims and focuses more on trade secrets, including a claim under the Defend Trade Secrets Act (DTSA), which took effect in May 2016.

The complaint for Shapiro’s latest lawsuit can be found here: http://tsi.brooklaw.edu/cases/shapiro-v-hasbro-inc-et-al/filings/shapiro-v-hasbro-inc-et-al