Cases from California

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.

Santa Clara County, Superior Court of California
PayPal files suit against Google for misappropriation of trade secrets after Google woos over a former PayPal senior executive

Paypal, Inc. (“PayPal”) and eBay, Inc. (“eBay) sued Google, Inc. (“Google”) and Osama Bedier, a former PayPal senior executive, alleging that Bedier and Google misappropriated PayPal’s confidential marketing research, point-of-sale (“POS”) technology and services for retailers, and mobile payment strategies and procedures.

Before the suit, PayPal sought to serve as a payment option for mobile app purchases on Google’s Android market. Bedier was then the senior executive leading negotiations between PayPal and Google to set up the business relationship. However, during the final steps of the negotiations, Bedier interviewed for a position at Google without notice to PayPal. He terminated employment at PayPal and began work for Google’s Mobile Payments division on January 24, 2011. PayPal alleges that Bedier left the company with knowledge of its trade secrets for retail POS technology and services and mobile payment. Additionally, it claims that Bedier transferred and possessed upon departure PayPal’s and eBay’s confidential information on his personal computers.

United States District Court for the Central District of California
Botox manufacturer successfully obtains injunction blocking competitor’s product release on allegations of trade secrets misappropriation

Allergan, Inc., makers of the famous anti-wrinkle medication Botox, successfully obtained an injunction against the release of its competitor Merz Pharmaceuticals, LLC’s rival product Xeomin, immediately ahead of its planned nationwide launch. Allergan claimed in the United States District Court for the Central District of California that seven former employees had stolen volumes of customer information before defecting to Merz. The information consisted of spreadsheets with customer details and contact information for over 24,000 Botox customers in the United States. Merz then used this information to create anticipation for its competing product among these customers.

The terms of the injunction prohibit Merz from: “retaining, disclosing, or using” the trade secrets; selling Xeomin or soliciting its purchase for 10 months in the “facial aesthetics” market; doing the same in the “therapeutics market” for specific customers; and selling “dermal filler” products for 10 months. Some exceptions are provided for customers that seek out Merz with no solicitation. Merz is also ordered to search for and destroy all Allergan trade secrets in its possession and then follow up with a report to the court. The remedy is noteworthy because of the judge’s willingness to completely block a product’s release, instead of disgorging profits, for example.

Update: Defendants requested a modification of the injunction order to also add an exception for “customers who are provided or purchase dermal filler products, or who are solicited to purchase dermal filler products, from a company other than” Merz. Judge Guilford issued an in camera order denying this amendment on April 12, 2012, noting that the defendants had not complied with his instructions to keep the order as-is and to “solve the problem” as applied to co-defendant Amber Prumer, a salesperson for Allergan who went to work Merz after sending sensitive sales information to her personal e-mail account. (Ostensibly the injunction, as is, would be too broad to apply properly to Prumer, but the reasoning is not clear from the judge’s order.)

The parties are conducting post-injunction discovery, and the court has scheduled the jury trial to commence on March 26, 2013.

Central District of California (Western Division - Los Angeles)
Employer alleges concerted defections to competitor by former employees, sensitive information in hand

Ikon Office Solutions Inc. ("Ikon") filed a notice of settlement in this case on September 23rd, 2011, but details of the settlement are currently unknown.

Ikon sued two former employees, John Kolacinski and Robert Hornbeck, along with their current employer, Myriad Litigation Solutions LLC, for allegedly stealing client contacts and trade secrets. Ikon Legal Document Services, a division of Ikon Office Solutions, provides litigation support to law firms and in-house counsel. According to the complaint, Kolacinski and Hornbeck coordinated their November 2010 resignations from Ikon to go to work for Myriad, a direct competitor, and copied sensitive business information, such as pricing and contract details, onto flash drives before leaving the office. Ikon alleges that this was done in direct violation of nondisclosure agreements that the employees signed while under its employ.

Ikon filed a motion for Preliminary Injunction on February 17, 2011, but withdrew its Motion on March 28, 2011.

Central District of California (Western Division - Los Angeles)
Start-up TechForward alleges Best Buy misappropriated trade secrets to copy successful buyback program

TechForward Inc., a California based start-up, has filed suit in U.S. District Court for the Central District of California, alleging that Best Buy illegally modeled its buyback program after the startup's own “Guaranteed Buyback Plan” and misappropriated TechForward’s trade secrets to do so. Under the buyback plan at issue, customers can trade in electronic devices that they purchased for store credit. According to the suit, Best Buy had tried to design its own buyback program but failed. After seeking a collaboration with TechForward, the two companies signed a confidentiality and nondisclosure agreement in February 2008. Although a Los Angeles-based pilot program was successful in April 2010, TechForward contends that Best Buy abruptly terminated the relationship in October 2010 and launched its own buyback program on January 10, 2011. According to the suit, successful implementation of an electronics buyback program requires data that TechForward considers highly confidential and proprietary.

In its answer to the amended complaint, defendant Best Buy denies the existence of any trade secrets under California law. Additional motions, including Defendant's motion for summary judgement, have been sealed pursuant to a protective order issued on October 6, 2011.

While ajury trial has been previously set for November 6, 2012, the parties recently petitioned for an accelerated settlement conference now scheduled for September 26, 2012.

United States District Court for the Central District of California
Allegations of misappropriation of TS countered by antitrust claims in C.D. Cal case

A United States District Court for the Central District of California trade secrets misappropriation case will become more complicated as it progresses, as Judge Wright recently allowed five of the defendants' antitrust-based counterclaims to survive motions to dismiss. The core allegations in the case, Yardi Systems, Inc. v. RealPage, Inc. et al., concern RealPage’s acquisition of a firm that formerly consulted for Yardi (DC Consulting, also named as a defendant). Yardi and RealPage are rivals in the real estate management software industry. Through the acquisition of the consulting firm, Yardi alleges that RealPage was able to gain information that allowed it to hack in to its servers. Yardi accuses RealPage of thereby accessing pricing data and customer lists with an eye towards courting Yardi customers to run Yardi’s software on RealPage’s cloud computing services. RealPage deflected these claims with an antitrust defense, founded upon “customer interference and intimidation” embodied in Yardi’s practice of forcing its software users to sign licensing agreements that disallow use of its software on RealPage’s cloud servers. The judge held in a Feb. 13, 2012 order that RealPage had sufficiently stated a counterclaim that Yardi was attempting to create a monopoly, allowing the antitrust argument to advance to the next stage of litigation. This decision serves as a reminder that antitrust claims are available as affirmative defenses and counterclaims to trade secrets misappropriation allegations.

Superior Court of California
TCW and Gundlach settle their dispute over allegedly stolen trade secrets

TCW Group Inc. and Jeffrey Gundlach, its former chief investment officer, announced on Thursday, December 29, 2011, that they had settled a lawsuit over Gundlach’s firing in 2009 and allegations he stole trade secrets to set up his own firm. The terms of the settlement agreement were said to be confidential and the parties would not discuss them. Litigation and damages assessments had not concluded at the time of the settlement, but a jury had previously made preliminary findings.

On August 20, 2011, after seven weeks of trial and two days of deliberation, the California jury in the case between TCW and Jeffrey Gundlach, a former employee, concluded that Mr. Gundlach did technically misappropriate trade secrets and breach his fiduciary duty to the company. But the jury awarded his former employer nothing in damages, finding that Mr. Gundlach’s breach of duty had caused no harm to his former employer. The jury also found that Mr. Gundlach had intentionally interfered with contracts, but that TCW had not been harmed; they awarded no damages on that issue, either.

However, the jury determined TCW had withheld wages from Mr. Gundlach in violation of the state labor code, and found TCW liable to Gundlach for nearly $67 million in back-pay.

TCW may yet recover damages on the trade secrets count; damages for the jury’s finding of misappropriation will be determined by Judge West. TCW is seeking about $89 million for the trade secrets theft. However, the jury’s determination that the theft had not been willful and malicious ruled out an award of punitive damages.

TCW had filed an amended complaint for misappropriation of trade secrets, conspiracy and aiding and abetting in the theft of trade secrets, and common law unfair competition, among other claims, on February 09, 2011. The amended complaint followed a January rejection by Judge West of TCW's claims that the DoubleLine Fund Trust and its trustees had stolen trade secrets and engaged in unfair competition, saying the firm had failed to state a factual basis to support the allegations in its complaint.

TCW's first complaint in this action came nearly a year after the company originally sued Gundlach for breach of fiduciary duty, unfair competition, misappropriation of trade secrets and civil conspiracy, among other claims. Gundlach was TCW's former investment chief who launched DoubleLine Capital LP after being fired from TCW in December 2009.

The second lawsuit targeted a trust associated with Gundlach's investment firm. Like the previous suit, the second complaint claimed that Gundlach worked to steal TCW's data, including contact and holdings data for clients. If printed out, the allegedly stolen information would amount to roughly 9 million pages, according to TCW's suit. The trustees are also named in the second suit based on allegations that they knew that Gundlach and his co-conspirators had stolen confidential, proprietary information from TCW and that DoubleLine would use that material to manage the trust's mutual funds. The complaint included allegations of misappropriation of trade secrets, unfair competition, conspiracy to steal trade secrets, unjust enrichment and other related state law claims.

United States District Court for the Northern District of California
N.D. Cal.: Free Exercise Clause Does Not Preclude Evaluation of Asserted Trade Secrets of Spiritual Nature

The Northern District of California recently held that its involvement was not so “entangled” with the Free Exercise Clause of the First Amendment that it should be precluded from evaluating a plaintiff’s trade secrets claim.

The Art of Living Foundation brought an action for copyright infringement and misappropriation of trade secrets under the California UTSA against former members of its movement who turned to blogs to voice their criticism under the monikers “Skywalker” and “Klim.” The organization provides courses on “healthy living” topics such as yoga and controlled breathing that are embodied in manuals and teaching notes. As part of their criticism, the bloggers posted some of these teaching notes and other materials on their blogs and/or linked to other sites that hosted them.

Defendants asserted that the court should be barred from assessing the plaintiff’s trade secrets claim due to excessive entanglement with the Free Exercise Clause. Specifically, as the plaintiffs had argued that they had added novel elements to traditional Hindu concepts, the defendants claimed that this necessarily involved an adjudication of what is traditionally religious or not and therefore would ensnare the court in impermissible evaluation of religious doctrine. The court rejected this, noting that even though the nature of the work is religious, it could still evaluate the trade secrets claim as it would any other: by comparing the allegedly novel portions to what is generally known to the public and then assessing the value of nondisclosure of those elements.

After a lengthy discussion that concluded that the training materials might be eligible for trade secret status, the court dismissed the motion to strike as to Skywalker, as he had personally posted some of the materials on his blog, constituting enough evidence of potential misappropriation for the case to move forward. However, the motion to strike was granted as to Klim because there was no evidence that he posted any materials to his blog.

United States District Court for the Northern District of California
Settlement reached in dual-screen eReader technology misappropriation case

In January 2011, a federal judge in San Jose, California ruled that Spring Design, Inc., an electronic reader (or eReader) development company, could proceed to trial over its claims that Barnes & Noble stole confidential information to create its Nook eReader device. In 2006, Spring Design developed a patent pending, dual-screen eReader design. Barnes and Noble expressed interest in Spring Design’s dual-screen design. In October 2009, after eight months of discussions between Spring Design and Barnes & Noble over a possible collaboration, Barnes & Noble independently launched the Nook, an Android-based, dual-screen eReader. Spring Design has sued the bookseller's website division, Barnesandnoble.com, LLC, for misappropriation of trade secrets and unfair competition. Barnes & Noble has argued that Spring Design's information does not qualify for trade secret protection because the information at issue was publicly available and because Spring Design failed to take reasonable steps to protect the secrecy of its design, among other defenses.

The case was settled on March 3, 2011. Pursuant to the settlement, Spring Design will grant Barnes & Noble a non-exclusive, royalty-free license to its patent portfolio. Other terms were not disclosed.