Cases from California

Superior Court of the State of California
Zynga Alleges Ex-Employee Used a Personal Dropbox Account to Steal the Company's Trade Secrets

On October 12, 2012, Zynga Inc. (“Zynga”) brought suit in California Superior Court against former employee Alan Patmore for Misappropriation of Trade Secrets and Breach of Contract. The suits concerns theft of confidential information related to Zynga’s online games, and includes additional defendants (“DOES 1 through 50”) whom Zynga does not yet know the identity of, but who allegedly aided and abetted Patmore’s wrongful conduct.

Zynga, Inc. is a San Francisco-based online social gaming company, responsible for popular games such as CityVille and Words With Friends. Patmore was the General Manager for CityVille at Zynga, and signed a Confidentially Agreement with Zynga pursuant to his employment. The contract obligated Patmore to protect Zynga’s confidential, proprietary, and trade secret information. However, on August 16, 2012, Patmore resigned from Zynga. Zynga alleges that at that time (if not earlier), Patmore had been recruited by, and agreed to join, Zynga’s competitor Kixeye. On the day of his departure, Patmore allegedly transferred 760 confidential Zynga files to his personal Dropbox account without Zynga’s consent, which he intended to provide to Kixeye. During Patmore’s exit interview, he refused to sign a Termination Certification that he had complied with his prior contractual obligations.

Zynga alleged that the stolen information – which includes “unreleased game design documents” and other “strategic roadmaps”– could be used to improve Kixeye’s “internal understand and know-how of core game mechanics and monetization techniques, its execution, and ultimately its marketing standing to compete more effectively with Zynga.” According to the complaint, Patmore attempted to cover up his conduct by uninstalling Dropbox. However, Patmore’s attempts were apparently unsuccessful, and “he left a forensics trial of his wrongful conduct.” Both the relatively new subject matter of the claim (i.e. “free-to-play online social games”), as well as the defendant’s alleged use of cloud technology to misappropriate his employer’s trade secrets, make this an interesting case and one to follow as the litigation moves forward.

UPDATE: Kixeye's CEO Will Harbin fired back at Zynga: "Zynga is burning to the ground and bleeding top talent and instead of trying to fix the problems -- better work environment and better products -- they are resorting to the only profit center that has ever really worked for them: their legal department." Two weeks after making that statement, Zynga expanded the suit to include Kixeye as named Defendants.

Superior Court of the State of California
Former Stage Designer Sues Mötley Crüe Over Idea For "Tommy Lee Loop Coaster"

On September 20, 2012, Howard Scott King brought suit against popular rock band Mötley Crüe (itself, its touring company and bassist Tommy Lee as an individual, collectively “MC”), for misappropriation of trade secrets in the Superior Court of California. The suit relates to MC’s allegedly unlawful use of King’s proposal for a “Tommy Lee Loop Coaster” (“Coaster”).

According to his complaint, King developed the idea for the Coaster as part of his now defunct business “Stages ‘N’ Motion.” King described it as “a track on which [Tommy Lee] would play his drums on a platform on wheels which follow the track until Lee was in an upside down position playing the drums and he would continue playing the drums as the platform followed the track in a complete loop.” On or about November 21, 1991, King alleged that he discussed a proposal for the Coaster with Top Rock Development Corp. (MC’s agents). King claims that both the proposal, as well as a signed confidentiality agreement (which has since been lost or misplaced), expressly stated that the ideas were confidential, and that King was to be compensated should MC implement the Coaster. In June 2011, MC begin using the Coaster, or a substantially similar device, as a centerpiece for concerts, as well as in commercials and other promotions.

(link to video of device in question)

King brings trade secret misappropriation actions under both the California Uniform Trade Secret Act (CUTSA), as well as common law. The key difference between the claims is that the CUTSA claim seeks relief in the form of actual damages ($400,000), or in the alternative, a “reasonable royalty”; conversely, the common law claim does not seek a reasonable royalty damages award. Both claims seek injunctive relief, as well as punitive damages in light of MC’s alleged “willful and malicious” conduct.

Court of Appeal of California, Division One, Fourth District
Angelica Case Discusses California State Laws

The plaintiff, Angelica Textile Services (Angelica), sued Jay Park, its employee since 1982, who helped found Emerald Textiles (Emerald) beginning in 2008 and left Angelica in 2010. Emerald won the business of two key Angelica customers, Sharp Healthcare and Scripps Health. The trial court dismissed the case, and the appellate court remanded non-trade secrets claims on appeal, awarding costs to Angelica. This case is important to practitioners in California because of its discussion of state law claims.

First, it found that California's Business and Professions Code section 16600, which forbids restrictive covenants (subject to enumerated exceptions), did not apply where the employee violated the employer's trust during employment instead of after employment.

Second, it found that California's Uniform Trade Secrets Act (CUTSA) did not pre-empt claims that were based on contract, not trade secrets. Thus, the lower court was wrong to dismiss Angelica's claims for breach of contract, breach of fiduciary duty, unfair competition, interference with business relations, and conversion because they "each have a basis independent of any misappropriation of a trade secret." In footnote three, the appellate court admitted that Angelica initially only asserted trade secret claims but noted that after Emerald filed a motion for summary judgment, Angelica asserted additional claims about Park's conduct while Park was still an employee of Angelica. The appellate court said that the trial court was wrong to "simply ignore the additional theories of liability advanced by Angelica and the additional evidence it produced."

District Court for the Central District of California
California district court held that reverse engineering proprietary software in breach of a consumer form contract does not constitute misappropriation

On February 13, 2012 the United States District Court for the Central District of California held that Plaintiff Aqua Connect, Inc. (“Aqua Connect”) failed to state a claim of misappropriation where defendant Code Rebel, LLC (“Code Rebel”) reverse engineered its software in breach of an end user license agreement (“EULA”). Aqua Connect argued that the EULA created a “duty to maintain secrecy” which was breached when Code Rebel reverse engineered the software. The district court, however, pointed out that California courts defined the “duty to maintain secrecy” to exist in the context of a fiduciary duty or an employment agreement, and the duty does not arise from a form license agreement. It stated that “nowhere has it been recognized that a party wishing to protect proprietary information may employ a consumer form contract to…change the statutory definition of ‘improper means’ under trade secret law to include reverse engineering.” See DVD Copy Control Association, Inc. v. Bunner, 31 Cal. 4th 864, 901 n.5 (2003) (quoting).

The dismissed the trade secrets claim without leave to amend, because "no additional facts [could] be alleged to support a legally cognizable misappropriation . . . claim."

District Court for the Eastern District of California
District Court for the Eastern District of California held that concepts, designs, ideas and workflow shared during a business partnership were not trade secrets

On September 13, 2011, Chief Judge Anthony W. Ishii of the District Court for the Eastern District of California refused to enjoin Plaintiff’s former business partner, the Trizetto Group, Inc. (“Trizetto”), from using concepts, designs, workflow processes and flows, and other insights developed during their partnership.

Plaintiff, Agency Solutions.com, LLC (“Agency Solutions”) and Trizetto had entered into an agreement to develop software to service the administration of insurance companies. However, the parties’ relationship soured and the agreement was terminated before the software was completed. Agency Solution’s product never entered the market. Agency Solutions then filed suit against Trizetto after learning that Trizetto was marketing a similar software product to its competitors. Plaintiff sought a preliminary injunction to prevent Trizetto from marketing the product, alleging that Trizetto misappropriated 26 “trade secrets” mainly pertaining to 1) conception and design; 2) workflow processes and flows; and 3) rating and underwriting.

Judge Ishii found that the allegedly misappropriated information, consisting of ideas and general experience from software development, did not qualify as “trade secrets.” Significantly, the Court explained that a trade secret did not consist of “conceptual datum,” such as ideas, concepts, or general knowledge, but “empirical datum,” such as “customer’s preferences, or the location of a mineral deposit.”

Plaintiff filed a notice of appeal of the Court's refusal to grant a preliminary injunction, and Judge Ishii agreed to stay the proceeding pending the appeal's resolution. However, during the pendency of the appeal, Plaintiff voluntarily dismissed the action on January 4, 2012. However, the Court denied Defendant's motion for attorney's fees.

County of Los Angeles, Superior Court of the State of California
Clash between Hollywood talent agency and competitor over stolen client information

Hollywood talent agency Diverse Talent Group, Inc. sued three of its former agents who left for a competitor, but not before allegedly stealing confidential information to poach clients. In the suit, filed August 23, 2011 in Los Angeles Superior Court, Diverse alleged misappropriation of trade secrets, intentional interference, breaches of duty and contract, conversion, and slander. The agency also sought a temporary restraining order prohibiting the disclosure or use of proprietary information. According to its website, Diverse represents actors and directors from TV shows like "Mad Men" and "Lost."

The complaint alleges that former Diverse employees Isam Durzi, Ehab Durzi and Wendy Morrison left Diverse to join Function Talent Group (also named as a defendant) and diverted business to their new employer by using confidential client information misappropriated from Diverse and by falsely claiming their former agency was closing. The three supposedly used the confidential materials, such as customer lists and the personal and financial information of clients, to poach those clients for Function. "Defendants have taken the confidential information without the permission of Diverse and have used it for their own financial gain and business purposes," the suit said. "Despite demands to cease and desist from using this information, defendants continue to use the confidential information." Diverse demanded that the files be returned, but the employees refused, according to the complaint.

Diverse claims that the Durzis and Morrison agreed as a condition of their employment that the agency's client list and other customer information were property of the agency. According to the complaint, the three accepted positions at Function earlier this year, but before they started their new jobs, the employees sent letters to Diverse customers soliciting them to take their business to Function. The letters made "false, defamatory and damaging statements," including that Diverse was going out of business, according to the complaint. The complaint goes on to say that they had some success, causing the termination of some of the plaintiff’s client representations.

The complaint also asserts that the employees "hacked into Diverse's computer system and changed the agency's contact information," and sent messages to clients instructing them to contact Ehab Durzi using the newly-diverted number.

The suit seeks unspecified damages, an injunction barring the employees from disclosing Diverse's confidential information and an order compelling them to arbitrate the dispute. According to the complaint, Diverse expects the dispute to be headed to arbitration as a result of employment agreements with the three former agents, but the company says it was forced to seek provisional remedies to deter the diversion of its clients.

The talent agency says on its website that its "highly valued clientele" includes "Academy Award winners, top sitcom actors, one-hour drama directors, editors and producers." The site states that the agency's clients have worked on shows including "The Big Bang Theory" and "Battlestar Galactica" and movies including "Transformers" and "Good Night and Good Luck."

The parties are scheduled to appear before Judge Meiers for a case-management conference on January 10, 2012.

United States District Court for the Northern District of California
Federal prosecutors indict a state-owned Chinese company and its executive on charges of conspiracy to steal DuPont’s trade secrets

On February 7, 2012, in a rare action, federal prosecutors indicted Pangang Group Limited Company (“Pangang”), a state-owned steel manufacturer in China, and a Pangang executive on charges of conspiracy to steal DuPont’s trade secrets about titanium dioxide technology in violation of the Economic Espionage Act (EEA), 18 U.S.C. §1831 et seq. This indictment supercedes a 2011 indictment in which federal prosecutors originally charged Californians Walter and Christina Liew with witness tampering and making false statements in a federal criminal investigation into the alleged trade secrets theft. DuPont is the world’s largest manufacturer of chloride-route titanium dioxide, a white pigment used in paint, plastics and paper, and defendants allegedly made a “long-running effort” to obtain DuPont’s trade secrets about the process to benefit Chinese companies. Arraignment is scheduled for March 1, 2012.

United States District Court for the Northern District of California
Man sentenced for theft of Trade Secrets from DuPont

Walter Liew was sentenced to 15 years in prison, and fined $28 million following his conviction under the Economic Espionage Act. The conviction arose from the theft of trade secrets from DuPont, particularly information and documents pertaining to the production process of a white pigment, titanium dioxide (TiO2). The pigment is what DuPont uses to achieve its whitest whites in everything from cars to paper.

Judge White, writing in the Northern District of California on a post-conviction motion for acquittal, explained that the evidence demonstrating the intent to injure Dupont, and intent to benefit a foreign government was sufficient for a rational juror to find Liew guilty. It was also noted that the money was tracked to various accounts in Singapore and China, but could not be recovered.

United States District Court for the Northern District of California
Tech company’s suit against former employee for misappropriation of trade secrets related to Twitter account survives motion to dismiss

PhoneDog is a company that delivers news about mobile phones, and provides information about them for consumers to use when comparison shopping. The company had employed Noah Kravitz to write online reviews of phone products using a variety of online mediums; one such medium was Twitter, where Kravtiz’s handle was “@PhoneDog_Noah.” However, after Kravitz left the company, he refused relinquish use of the Twitter account, and instead changed the handle to “@noahkravitz,” and installed a new password. Whether an exiting employee can take his Twitter followers with him, and the potential trade secret implications involved, is a case of first impression.

PhoneDog sued Kravitz in the United States District Court for the Northern District of California on July 15, 2011. The suit claimed misappropriation of trade secrets, interference with economic advantage, and conversion. On November 8, 2011, the court denied Kravitz’s motion to dismiss the trade secrets and conversion claims, noting that PhoneDog had described the elements of trade secrecy in sufficient detail. The case received publicity for potentially determining “ownership” of an employees Twitter account and followers. However, the alleged trade secrets at issue is actually the Twitter account password itself. Although PhoneDog’s conversion claim explicitly asserted ownership of the Twitter account, courts have interpreted the California Uniform Trade Secrets Act to preempt common law claims (such as conversion) if they are based on the same nucleus of facts as a concurrent trade secret misappropriation claim. Thus, the court can decide the case without analyzing the parties’ competing ownership claims. Moreover, even if the court finds in favor of PhoneDog, the specific remedy and calculation of damages could influence whether it would be cost-effective for parties to bring these types of claims moving forward.

The case exemplifies the complex challenges companies face when trying to protect their confidential information in the digital era, and more specifically, the dangers of not instituting explicit internal policies for employees and their social media accounts.

On or around December 19, 2012, the parties settled. Although the actual details of the settlement were confidential, it appears Kravitz has been permitted to retain ownership of the Twitter account.

United States District Court for the Northern District of California
Contrary to California’s public policy against non-competes, the District Court for the Northern District of California narrowly construes an ambiguous non-compete to find it enforceable

Although California Business and Professions Code §16600 generally voids non-compete provisions, the District Court for the Northern District of California narrowly construed an ambiguous non-compete provision to find it enforceable in Richmond Technologies, Inc. v. Aumtech Business Solutions. Richmond Technologies, Inc. (“Richmond”) provides software for financial service companies who provide credit card terminals to merchants. In 2007, Richmond entered into a Memorandum of Understanding with Aumtech Business Solutions (“Aumtech) and in 2009, the same parties entered into a Confidentiality and Non-Disclosure Agreement (“NDA”). The NDA contained three broad provisions regarding non-solicitation, non-interference and non-competition. These provisions broadly prohibited Aumtech from doing business with Richmond’s clients or employees, or competing with Richmond, for a year unless that client or employee had ceased his business relationship with Richmond for at least six months. Richmond alleged in its complaint that in 2010, Aumtech solicited and worked with a former employee to market competing services to Richmond's clients.

In its analysis, the Richmond court acknowledged a non-compete may be enforced to protect a former employer’s trade secrets. It declared that the non-solicitation and non-interference clauses in the NDA were unenforceable because they were drafted more broadly than necessary to protect Richmond’s trade secrets. However, it construed the non-compete to bar the use of Richmond’s trade secrets, such as “confidential source code, software or techniques developed for [Richmond’s] products or clients" and therefore found it enforceable.