Cases from California

California State Court of Appeal for the Fourth Appellate District, Division One
Appellate Court upholds injunction for California waterproofing company barring competing former employees from soliciting customers.

Plaintiff Wanke Industrial is a waterproofing systems installation company in Southern California, former employer of defendants Scott Keck and Jacob Bozarth, who left the company in order to form their own competing waterproofing company, WP solutions. While Bozarth was not named in the proceeding, Wanke filed a complaint against Keck and WP Solutions in 2008 for breach of confidentiality and misappropriation of Wanke trade secret information. The complaint pointed specifically to the significant amount of time, effort and money Wanke had spent in the “acquisition, development, compilation, and maintenance” of confidential customer business, and product information, including

The identity of Wanke’s existing and prospective customers, the objectives of each customer, the strategies developed for each customer, the identities of key personnel at those customers, the special needs and characteristics of Wanke’s existing and
potential customers, and the histories and account balances of existing customers. (Opinion 3-4).

After the former employees responded in cross-compliant against Wanke for unpaid compensation, both parties entered into a mutual release settlement agreement. In this stipulation WP Solutions et al agreed to pay Wanke $38,000.00 in damages, and to a stipulated injunction including a liquidated damages provision. In pertinent part, the stipulated injunction prohibited Keck, Bozarth, and WP solutions from contacting or soliciting any “person, entity, project owner, or representative on Wanke’s attached customer list for the purpose of gaining any business” (Op. 5) for five years, and from performing any work for named customers that solicited WP contracts for 18 months. Wanke subsequently filed an order to show cause in May 2010 seeking to find Keck and WP Solutions in violation of the agreement on eleven occasions.

On Wanke’s motion to enforce the settlement agreement, the trial court determined that although WP Solutions had violated the terms, the agreement itself was invalid “to the extent that it prohibited defendants from soliciting an entity merely because the entity appeared on the customer list attached to the stipulated injunction.” Simply, the trial court determined that Wanke failed to put forth evidence of the existence of a trade secret within the names and identifying information of it’s customers. Although the trial court acknowledged the potential existence of a trade secret within certain customer lists of information, the court emphasized that CA Bus. and Prof. Code §16606 recognizes the right of an employer to bar a former employee from soliciting existing customers of the employer if the employee is utilizing trade secret information to solicit those customers. However, the statute also will void any contract that subsequently restrains any former employee from engaging in an otherwise lawful profession or trade. (CA Bus. Prof. §16602.5). As such, the trial court determined that the stipulated injunction was overbroad and thereby “acquitted” the defendants on eleven counts. In addition, the court further modified the scope of the existing stipulated settlement to be within the bounds of the California unfair competition law. The trial court subsequently examined one count of a specific Wanke customer “AV Builders: Saratoga West” and determined Keck and/or Bozarth to have “obtained or undertaken” their employment contracts while employed by Wanke. Defendants objected on the grounds that the names and general information of perspective customers in their industry was not trade secret material, but the trial court entered an order awarding Wanke $58,000.00 in liquidated damages according to the stipulated injunction, and $8600 in attorney fees.

On appeal, Keck and WP solutions objected on two grounds: (1) in the awarding of attorneys fees to Wanke as a prevailing party, namely because as the trial court determined the stipulated injunction to have been invalid, and therein could not be in contempt of an invalid injunction; and (2) that the liquidated damages award was improper because Keck nor WP Solutions misappropriated Wanke trade secret information or committed any act constituting tortious unfair competition. Wanke followed with a cross-motion and a petition for writ of mandate, both asserting that the trial court erred in determining that the aforementioned stipulated injunction was invalid and unenforceable.

Upon review, the Appellate court fashioned its reasoning by first invoking the double jeopardy clause of the Fifth Amendment to the US Constitution to preclude Wanke’s writ of mandate to retry Keck and WP on the contempt charges. Interestingly, the court in dicta purposefully points to precedent to alleviate any concern of utilizing double jeopardy in a civil matter, first by citing the Dixon court’s determination that the double jeopardy clause applies to “nonsummary criminal contempt prosecutions.” (Op. 15). Further, the court notes the distinction between civil and criminal contempt, namely that civil contempt is and “remedial and for the benefit of the complainant,” and that the contempt at issue was not a forward looking remedy, but a procedure used to punish past conduct in violation of a court order. (citing Int'l Union v. Bagwell, 512 U.S. 821, 827 (U.S. 1994). As such, court determined that the Wanke matter was transformed into a criminal contempt proceeding “between the public and the defendant.” (citing In re Nolan W., 45 Cal.4th 1217, 1236-1237 Sup. Ct. CA 2009). Further, the alleged contempt in violating the stipulated injunction took place outside of judicial proceedings, and therein were deemed nonsummary in nature. As the opinion crafts the Wanke proceedings to fit within the bounds of double jeopardy application, Judge Aaron determined that the lower court validly found that Wanke failed to establish the violation of a valid court order, and therefore their evidence was previously factually insufficient to hold Keck and WP in contempt. This was deemed a sufficient acquittal on a nonsummary contempt claim for the appellate court to deny reexamination of the issue on double jeopardy grounds.

Notwithstanding this determination, the Appellate court concluded that the trial court in fact erred by invalidating the stipulated injunction and denying Wanke’s initial motion to enforce the settlement agreement. The Court reasoned that one could not conclude that the aforementioned stipulated injunction did not protect Wanke’s trade secrets on its face. Merely because the particular trade secret information related to the customers listed and annexed to the agreement did not, for this court, invalidate the existence of trade secret information. Thus, without a proper showing that language in the stipulated injunction actually does not protect Wanke trade secrets, the trial court erred in assuming an unlawful business restraint. Judge Aaron therein reversed and remanded the Wanke matter for further proceedings, while affirming the lower court’s prior order to enforce the settlement agreement as to Saratoga West.

United States District Court for the Southern District of California
Due to policy concerns, the Southern District of California required pre-discovery identification of trade secrets despite finding California Code of Civil Procedure §2910.210 inapplicable in federal court

     In Jardin v. DATAllegro, Inc., No. 10-CV-2552-IEG (WVG), 2011 WL 3299395 (S.D. Cal. July 29, 2011), the United States District Court for the Southern District of California considered whether the pre-discovery trade secret identification requirement of California Code of Civil Procedure §2019.210 also applies in California federal court. Section 2019.210 requires that trade secrets be identified with reasonable particularity before discovery commences, in an effort to prevent abuse of discovery and to enable defendants to form complete and well-reasoned defenses.

     Jardin concerns a patent dispute, in which plaintiff Cary Jardin alleged that defendant Stuart Frost stole nonpublic information while employed by Jardin. Frost then formed his own company, defendant DATAllegro, Inc., and allegedly used the misappropriated information to file for a patent. Although Jardin involves patent claims, the case implicates trade secrets law because Jardin’s patent claims were based upon the misappropriation of nonpublic information. Therefore, DATAllegro argued that discovery could not be conducted until Jardin identified the allegedly misappropriated information with reasonable particularity, pursuant to §2019.210.

     Magistrate Judge Gallo ultimately declined to apply §2019.210 in federal court. However, Judge Gallo was influenced by the policy concerns underlying §2019.210 and used his discretion under the Federal Rules of Civil Procedure to, nevertheless, order Jardin to identify the allegedly misappropriated information prior to discovery. Jardin objected to this order, but it was upheld by District Judge Irma Gonzalez on July 29, 2011. Judge Gonzalez held that Judge Gallo had committed no error in requiring pre-discovery identification and that he had broad discretion under the Federal Rules to consider policy concerns when granting his order.

United States District Court, Central District of California
District Court denies Mattel's motions for Judgment as a Matter of Law and a new trial, and reduces MGA's damages award to $85 million

Most recently, Mattel, Inc.’s (Mattel) asked a federal court of appeals in San Francisco to reverse the $310 million in damages and attorneys' fees the District Court for the Central District of California ordered Mattel to pay over in a prolonged battle over the ownership rights to the billion dollar “Bratz” doll empire against a former employee and Bratz designer, Carter Bryant, and MGA Entertainment (MGA). In particular, Mattel challenged the $17.25 million that MGA won on its counterclaims for trade secrets misappropriation by Mattel. It argued that the claims were time-barred. It added that MGA also failed to prove that its alleged trade secrets were really trade secrets.

Mattel's most recent action is not its first attempt to fight the heavy judgment. On August 4, 2011 the District Court denied Mattel’s motions for judgment as a matter of law (JNOV) and for a new trial. It found that the factual record supported an eight-person jury’s conclusions that MGA had used reasonable efforts to maintain its trade secrets for the Bratz dolls, which Mattel misappropriated by misrepresentation. Although the District Court remitted MGA’s damages award of $88.5 million to $85 million, it also ordered Mattel to pay an additional $139.9 million in attorneys’ fees and costs.

In 2004, Mattel first claimed copyright infringement and theft of its trade secrets by MGA and Bratz designer, Carter Bryant. Four years later, a federal jury awarded Mattel $100 million. However, the verdict was overturned on appeal and sent back for retrial on which the scope of Mattel's claims was limited. Mattel could only pursue the copyright infringement claims against the four original MGA dolls and two later models ("Formal Funk Dana" and "Ooh La La Cloe”), but could proceed with most of its trade secret theft claims.

However, an eight-person jury returned a verdict against Mattel on April 21, 2011. Specifically, the jury found that Mattel did not own a copyright in the creative designs behind the dolls. It also found that the ideas, designs and name of the doll collection were not Mattel’s trade secrets and, generally, MGA did not misappropriate any of Mattel’s trade secrets. The jury, however, found that Mattel misappropriated 26 of MGA’s trade secrets, awarding MGA $3.4 million for each misappropriated trade secret for an approximate total of $88.5 million.

California Court of Appeal, Second Appellate District, Division Eight
Ex- game co. employee did not sufficiently keep his list of industry contacts secret to survive summary judgment in trade secrets action against former employer

The Second Appellate District, Division Eight of the California Court of Appeal, in Blackwell v. Blizzard Entertainment, Inc., recently upheld the lower court’s summary judgment dismissal of Blackwell’s claim against his former employer Blizzard. Blackwell, who worked as a sound engineer for the popular video game developer, claimed that Blizzard had raided his list consisting of contact information for voice actors that he assembled over many years working as a freelancer. Blackwell had previously freelanced for Blizzard as well, but eventually became a full employee. Once he joined Blizzard’s staff full-time he was required to turn over his list of contacts. The court, in upholding the dismissal of Blackwell’s claims, noted that he utterly failed to indicate that his list was in any way intended to be confidential. Blackwell did not have discussions regarding the trade secrets status of his list, make any steps towards establishing non-disclosure agreements, or cease "routinely forwarding" contact information from his list to other Blizzard employees. Thus Blackwell could not conceivably meet the “reasonable efforts to maintain secrecy” requirement of trade secrecy under California’s version of the Uniform Trade Secrets Act.

Cal. Super. Ct.
Guardsmark Wins Noncompete Order in California

In a settlement, former employees of Guardsmark and their current employer agreed to not solicit Guardsmark's customers and to not use Guardsmark's trade secrets for a period of one year. Guardsmark sued Derick Bowman, the former manager of its San Francisco branch for founding a competing security company. The settlement agreement, published in May, came after the court granted Guardsmark a preliminary injunction in February.

Central District of California (Western Division - Los Angeles)
Are LinkedIn Contacts Protectable Trade Secrets?

In a recent District Court opinion in the Central District of California, Judge Pregerson denied a defendant's motion for summary judgment on the issue of trade secret misappropriation under the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civil Code § 3426 et seq. Central to the trade secret claim, is the controversial issue of whether and to what extent LinkedIn contacts are trade secrets.

In the opinion, Judge Pregerson explains that while a list of business contacts can be protected as a trade secret, certain conditions must be met. Essentially, the list must have been difficult to create, and the list cannot be easily obtained through public sources. In this situation, it remains unclear how difficult it was to obtain the information, since many of the individuals the Defendant had contacted, had already been contacted by competitors, and "LinkedIn suggested contacts to [the defendant] automatically."

Also unclear, is the issue of whether the contacts were permissibly made available to the public. Defendant argues the company encouraged him to have a LinkedIn account, and his LinkedIn contacts would have been viewable to "any other contact he has on LinkedIn." In contrast, Plaintiff argues that LinkedIn information is "only available to the degree that the user chooses to share it."

These issues will likely be decided when the case goes to trial, and could have a serious impact on the role that LinkedIn currently plays in the corporate world.

United States District Court Central District of California
LinkedIn Contacts May Be Trade Secrets

Operating under the California Uniform Trade Secrets Act, the Central District of California denied summary judgment in favor of the defendant and found that there was a material issue of fact regarding whether LinkedIn contacts that a former employee made while working for Cellular Accessories For Less (“Cellular”) are Cellular’s protectable trade secrets. The defendant argued that the LinkedIn contacts are not a trade secret because “Cellular encouraged its employees to create and use LinkedIn accounts, and [the defendant’s] LinkedIn contacts would have been ‘viewable to any other contact he has on LinkedIn.’” On the other hand, Plaintiff argued that the LinkedIn contacts are only available “to the degree that the user chooses to share it.”

The Central District found that the parties’ statements did not make it sufficiently clear whether and to what degree defendant’s LinkedIn contacts were public and if so, whether this was done with Cellular’s explicit or implicit permission. The court held that this dispute regarding the publicity of LinkedIn contacts was an issue of fact which a jury must decide.

For a primer on the development of social media and trade secrets click here.

Court of Appeal of California
California Supreme Court to Review Eligibility for Malicious Prosecution Claims

On October 14, the California Supreme Court agreed to review the Second District Appellate Court’s decision which held that the former employees of FLIR couldn’t sue FLIR’s former counsel, Latham & Watkins, for malicious prosecution because the trial court had denied the former employees’ summary judgment motion during the threatened trade secret misappropriation litigation.

In the underlying action, FLIR sued two of its former employees for threatened trade secret misappropriation because FLIR alleged a business plan that the two former employees authored and intended to carry to fruition could not be successful unless the former employees used trade secrets stolen from FLIR. FLIR was able to defeat the former employees’ summary judgment motion despite the former employees’ proof that they had submitted the same business plan to another company before working for FLIR. FLIR offered expert testimony at the summary judgment stage that purported to prove that no company other than FLIR had the technology necessary for the success of the former employees’ business plan. At trial, it was revealed that the expert opinions used to defeat the summary judgment motion were based on incomplete information and therefore could not prove that in order for the former employees’ business plan to be a success they would need to use trade secrets stolen from FLIR.

In addition to finding in favor of the former employees, the trial court also held that FLIR initiated and continued the action in bad faith and for anti-competitive motives. The former employees subsequently brought an action against Latham & Watkins for malicious prosecution, but Latham was able to defeat this claim by invoking California anti-SLAPP law. The Second District Court of Appeal affirmed this decision in June. Commentators who advocate for malicious prosecution claims point out that lawyers should not be able to use litigation as an intimidation tactic to deter defendants from moving for summary judgment. If the California Supreme Court affirms the Second District’s decision, it can effectively give a “free pass to lawyers for any decisions made after clearing the summary-judgment hurdle.”

For more information on the history of this litigation see here and here.

California Superior Court of San Francisco County
Employee Sues Google for Overbroad Confidentiality Agreements

Plaintiff “John Doe,” a project manager at Google, sued the company in California State Court, claiming they illegally require employees to sign broad confidentiality agreements. Doe filed the complaint in the California Superior Court of San Francisco County on December 20, 2016.

The agreements essentially state that Google employees cannot disclose any company information that is not generally known with anyone, including other Google employees. According to the complaint, these confidentiality agreements are contrary to state law because they can prevent employees from discussing their wages or disclosing information to government agencies. Furthermore, the complaint alleges that Google enforces its confidentiality policy through an internal program called “Stopleaks” which essentially asks employees to spy on each other and report any disclosure of confidential information.

Google defends the confidentiality agreements as an attempt to protect sensitive company information and maintains it is committed to maintaining an open culture within the company.

The case is Doe vs. Google Inc. et al., Docket No. CGC16556034 (Cal. Super. Ct. Dec. 20, 2016). A copy of Doe’s complaint can be found here: http://tsi.brooklaw.edu/cases/doe-vs-google-inc-et-al/filings/employee-sues-google-overbroad-confidentiality-agreements