Cases from Federal Statutes

Northern District of California
Court Grants Ex Parte Seizure Order In Part under the Defend Trade Secrets Act (DTSA)

Defendants Richard Sultanov (“Sultanov”) and Paul Ostling (“Ostling,” collectively, “Defendants”) are former employees of OOO Brunswick Rail Management (“BRM”), a Russian limited liability company. In the Complaint, filed on January 4, 2017, BRM and Brunswick Rail Group Limited (“BRL”) (collectively “Brunswick”) allege that both Sultanov and Ostling misappropriated trade secrets throughout November and December 2016 citing the Defend Trade Secrets Act (DTSA) 18 U.S.C. Section 1836 et. seq. as a basis for federal jurisdiction. On this same day, Brunswick filed an ex parte application for a temporary restraining order (“TRO”) requesting seizure of Defendants' property containing Brunswick's trade secrets currently in Defendants' possession.

Brunswick alleges further that after observing Sultanov's behavior, which the court describes as “unusually secretive,” Brunswick reviewed his work email account and found that he had “sent several confidential documents to his personal email account without authorization; he then deleted the sent messages and emptied his trash folder.” In its ex parte application, Brunswick asserts that "Sultanov and Ostling have already disclosed and plan to continue to disclose the trade secrets to creditors in order to disadvantage Brunswick in its ongoing negotiations related to Brunswick’s debt restructuring." In reviewing Brunsick's ex parte application, the court found that the record reveals Sultanov was communicating by phone with Ostling (a former employee of Brunswick) and a new representative of one of Brunswick’s creditors, "whom Sultanov was explicitly prohibited from contacting." Brunswick's investigation also brought to light that Ostling received "unauthorized confidential materials at his personal email account (via his former personal assistant, who remained at Brunswick), which he then forwarded to the creditor’s representative and to Sultanov." Brunswick request return of its "company-issued mobile phone and laptop," but Sultanov has refused to comply.

In its decision, issued January 6, 2017, the court granted Brunwick's motion in part and denied in part. The court ordered Rackspace, Inc. and Google, Inc. to preserve all data in Defendants' email accounts. The court also directed Defendants to appear before the court to show cause why a preliminary injunction should not be issued against them and "to bring the electronic devices issued to [Sultanov] by Brunswick, including mobile phones and laptops" to surrender to the custody of the court.

UPDATE:
In subsequent motion practice, the court considered Sultanov's motion to dismiss filed on March 9, 2017. First, Sultanov argued that the court lacked both general and specific personal jurisdiction over him. Second, Sultanov asserted that his use of gmail did not confer specific personal jurisdiction over him, that his data is not in California nor would it matter if it were, and Google's terms of service also do not confer personal jurisdiction over Sultanov. Finally, Sultanov argued that exercising specific personal jurisdiction over him is not reasonable because he is a Russian citizen living in Moscow, Russia.

On June 6, 2017, the court granted Defendants' motion to dismiss without leave to amend because Brunswick failed to make a prima facie showing that personal jurisdiction exists. The court examined a $13,000 deposit in Sultanov's California checking account from Ostling around the same time as his alleged misconduct. The court posited that the "timing raises questions about the nature of the payment and its connection to the events underlying Brunswick’s allegations." In spite of this, the court held that "to establish personal jurisdiction in California, Brunswick must show more than the fact that Sultanov received a payment at a bank account that is associated with an address in Monterey. Despite having had the opportunity to conduct jurisdictional discovery— including discovery of Sultanov’s bank accounts and other financial information—Brunswick has not established that the claims in this case arise out of the payment from Ostling." Upon reaching its decision, the court directed the clerk to close to case.

Complaint: http://tsi.brooklaw.edu/cases/ooo-brunswick-rail-mgt-et-al-v-sultanov-et-al/filings/complaint
Seizure Order: http://tsi.brooklaw.edu/cases/ooo-brunswick-rail-mgt-et-al-v-sultanov-et-al/filings/ex-parte-seizure-order
Motion to Dismiss Order: http://tsi.brooklaw.edu/cases/ooo-brunswick-rail-mgt-et-al-v-sultanov-et-al/filings/motion-dismiss-order

US International Trade Commission
Jawbone Loses Fight to Ban Fitbit Imports

According to a ruling issued by the US International Trade Commission (ITC), Fitbit did not steal Jawbone's trade secrets, and the ITC will not revive Jawbone's efforts to seek an import ban on fitness-tracking devices by Fitbit for allegedly misappropriating trade secrets.

The trade secrets case between Jawbone and Fitbit began in July 2015 when Jawbone initially accused Fitbit of infringing six of its patents and of poaching its employees to use their knowledge of Jawbone's trade secrets. Jawbone hoped that the ITC would ban Fitbit from importing its products to the US from its overseas manufacturing partners. Fitbit manufactures its devices overseas and imports them to the US.

Administrative Law Judge Sandra Lord found in August 2016 that Fitbit had no violated the Tariff Act because "no party has been shown to have misappropriated any trade secret." Violating the Tariff Act would have given the commission the ability to block importation of products that infringe U.S. intellectual property. The ruling by the ITC in October 2016 confirms the previous ruling and is the full commission's third ruling in Fitbit's favor in the past five months.

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA-TAMPA DIVISION
DTSA Remedies Potentially Available Even When Misappropriation Began Before Its Enactment

A federal district court in Florida has ruled that in cases of continuous misappropriation where a plaintiff can establish that at least one occurrence took place after the effective date of the Defend Trade Secrets Act (May 11, 2016), that plaintiff is entitled to at least partially recover under the DTSA. Neither party raised the question of whether this butts against the notion that you cannot apply a statute retroactively.

In this case, Plaintiff Adams Arms, which specializes in military-grade rifles, alleges that Defendant Unified Weapon Systems, Inc. ("UWS") both improperly acquired and disclosed its trade secrets. Adams Arms says that its rifles’ unparalleled reliability is the result of certain mechanical processes, mixes of parts, and the vendors used to supply them. Plaintiff disclosed this information to Defendants because they had been working together to win a bid with the Peruvian military. They also granted a tour of their facility, and handed over pricing information. Prior to this exchange, in 2014, parties executed a "Mutual Confidentiality and Nondisclosure Agreement," which was to be binding upon the companies and their representatives and officers.

However, relations between the parties soured when Defendant began locking Plaintiff out of meetings with the Peruvian client, and—Plaintiff alleges—attempted to sell to the client UWS rifles that were actually retooled Adams Arms rifles, following Plaintiff’s mechanics and designs.

Plaintiff Adams Arms seeks to recover under the DTSA, while Defendants believe the trade secrets misappropriation claim (Count 5 of the complaint) should be dismissed because the UTSA governs all incidents prior to May 11, 2016. The Court rejected Defendants’ motion to dismiss. Judge Hernandez Covington said that UWS signed a contract with the Peruvian military after May 11th, using the Adams Arms designs, specifications, and processes, which enables Plaintiff’s disclosure claim to advance in court. However, all trade secrets were acquired pre-DTSA, so Plaintiff’s misappropriated acquisition claims cannot be remedied under that statute.

Read the full case here: https://www.bloomberglaw.com/public/desktop/document/Adams_Arms_LLC_v_Un...

United States International Trade Commission
International Trade Commission Quashes Jawbone's Requested Import Ban Against Fitbit

On August 23, 2016, the United States International Trade Commission (ITC) struck-down Jawbone's request for an import ban against Fitbit products. Judge Dee Lord determined that because the competitors' cross-filings for patent infringements had all been invalidated, there was no longer any basis for trade secret misappropriation and therefore nothing to substantiate a violation of section 337 of the Tariff Act of 1930, as amended 19 U.S.C. § 1337.

The ITC's initial findings will be made public within 30 days, after the parties have a chance to redact confidential information. Jawbone is expected to challenge these findings by asking for a review from the full Commission, with the aim of halting importation of Fitbit products in the U.S. (the ITC cannot award monetary compensation). Jawbone representatives also say the company will pursue a broader trade secrets case in state court. Check back for updates.

The ITC's official notice can be found here: https://www.usitc.gov/press_room/documents/337_963_id.pdf

Click here for additional coverage re: the ongoing Jawbone and Fitbit dispute: http://tsi.brooklaw.edu/cases/aliphcom-inc-dba-jawbone-v-fitbit-inc-et-al

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI
Defend Trade Secrets Act Takes a Bite Out of Fast Food Tussle

Panera, LLC (“Plaintiff”) has filed a complaint against Papa John’s International, Inc. and Michael Nettles (“Defendants”) for misappropriation of Panera’s trade secrets and other confidential information. Plaintiff alleges misappropriation under the Defend Trade Secrets Act and Missouri Uniform Trade Secrets Act, as well as raises counts of breach of contract and tortious interference with contractual relations regarding a non-compete which Nettles had signed. Plaintiff seeks immediate injunctive relief against Defendants.

Plaintiff Panera is a Delaware limited liability company with its principal place of business in Missouri. It serves made-to-order sandwiches, salads, soups, and other baked goods in its 2,000-plus branded stores across the United States and Canada. It considers its customer-facing technological innovations to be an integral part of its consumer appeal in a competitive market. Defendant corporation Papa John’s is also a Delaware company, but it is headquartered in Kentucky and—according to the complaint—likewise makes its “dough” products in a technology-driven, customer-centric environment. Co-defendant Michael Nettles recently moved from Missouri to Kentucky to begin work for Papa John’s. Previously, he had been Panera’s Vice President of Architecture in its Information Technology department from July 2012-July 2016, a position that allowed him access to Panera’s most sensitive and proprietary technologies.

Plaintiff alleges that Nettles misused or will misuse information including, but not limited to, Panera’s thought processes, visions, and schematics for its technology systems. Further, Plaintiff asserts Nettles has an intimate knowledge of Panera’s strategic plans for the next 2-4 years and that he is currently in violation of a non-compete agreement he (like all high-level executives at the company) signed in 2013, which prohibits him for working for a competitor company for a period of one year after ending his employment with Panera. According to the complaint, Nettles asked to be released from the non-compete when he was offered a job at Defendant company, but Panera’s CEO declined to do so. Instead, the CEO offered to help Nettles get a job with a company not in direct competition with Plaintiff. However, encouraged by Papa John’s—who Plaintiff asserts had actual knowledge of the strict non-compete—Nettles accepted the high-level position at Papa John’s. He then allegedly made copies of Panera’s sensitive information and stored them on his personal devices, where they remain.

Plaintiff seeks a preliminary injunction to restrict Nettles from disclosing or further disclosing trade secrets and confidential information to Papa John’s. If Plaintiff is successful in asserting its breach of contract claims under contract theory and also as a matter of public policy, Nettles would be enjoined from beginning employment with Defendant corporation for a period of one year from July 1, 2016. Plaintiff seeks a permanent injunction after trial, prohibiting disclosure of trade secrets and requesting the return of any such information to Panera. Plaintiff asks that Defendants cover its reasonable costs and attorney’s fees.

The complaint can be found here: https://www.scribd.com/document/318937409/Panera-lawsuit-vs-Papa-John-s-...

Update: August 15, 2016
A federal judge ordered Michael Nettles to discontinue working at the Louisvlle-based pizza chain. According to the order, Nettles must cease and desist "advising, consulting, or working for Papa John's," either directly or indirectly. The order also restricts Papa John's from seeking advice, consulting or employing Nettles and requires Nettles to pay a $200,000 security bond.

Additionally, according to the judge's order, a third-party forensic analyst will analyze Nettles' personal devices including his personal laptop. Nettles and Papa John's have been ordered to pay half of the analyst's cost and Panera will cover the remaining half.

United States District Court for the Northern District of California
California Court Renders First Decision Under Defend Trade Secrets Act

A federal district court in California handed down the first decision made under the Defend Trade Secrets Act (DTSA) since Congress signed it into law in May 2016. The court granted plaintiff Henry Schein, Inc.’s (“HSI”) motion for a Temporary Restraining Order (TRO) to enjoin defendant Jennifer Cook from accessing and disclosing any of its confidential data or accepting business from its customers.

Cook worked for HSI as a sales consultant, and entered into a confidentiality and non-solicitation agreement when HSI hired her in 2005. HSI alleges that prior to leaving the company, Cook began to collect confidential information and trade secret documents in several ways, some of which included forwarding emails to her personal account, keeping her laptop for up to 2 weeks after she left the company, and illegally accessing the HSI computer system to obtain purchase data for HSI customers. HSI also claims that Cook tried to divert customers from the company and destroyed some of the company’s customer information.

On June 9, 2016, HSI applied for a TRO and filed a complaint alleging eight causes of action, one of which was for misappropriation of Trade Secrets under the DTSA. HSI brought additional claims under the California Uniform Trade Secrets Act and multiple common law claims. Furthermore, HSI moved for expedited discovery to immediately obtain data on Cook’s personal accounts and devices.

The court granted HSI’s motion for a TRO because (1) there was a likelihood of irreparable injury to HSI, (2) HSI was likely to succeed on the merits, (3) Cook was not likely to suffer undue hardship, and (4) public interest would be served by protecting trade secrets. The court denied HSI’s request for expedited discovery because HSI had not established that the circumstances warranted intruding on Cook’s personal data and property.

Northern District of California
Northern District of California Declines to Allow Plaintiffs to Use Computer Fraud and Abuse Act to Allege Misappropriation

In this case, Plaintiff, Koninklijke Philips N.V. (“Philips”), et al. brought ten causes of action alleging that Dr. Chen, who was an employee of Plaintiff Lumileds Lighting Company, downloaded thousands of files “containing Philips Lumileds’ trade secrets and confidential business information onto a portable storage device." Complaint, ECF 1 ¶ 5. Dr. Chen then became employed by Defendant, Elec-Tech international Co., Ltd (“ETI”) and only six months into this employment, ETI announced two “new high-energy LED lighting products, an amount of time Plaintiffs claim is ‘unprecedented’ in the lighting industry.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *1 (N.D. Ca. March 30, 2015). The Plaintiffs used one claim under the Computer Fraud and Abuse Act (“CFAA”) to bring the other nine state claims. The court here held that the Plaintiffs did not state a CFAA claim upon which relief can be granted and therefore dismissed the nine state law based trade secret claims as well as the CFAA claim.

The Plaintiffs in this case were creative in finding a way to try to get their Trade Secret claims into federal court. However, the court took a strict stand against using the CFAA for misappropriation purposes. The court pointed out that the CFAA is interpreted by courts as “an anti-hacking statute.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *3 (N.D. Ca. March 30, 2015) (citing United States v. Nosal, 676 F.3d 854, 858 (9th Cir.2012)). Additionally, in the past, the Ninth Circuit has expressly refused to expand this statute to cover misappropriation. Id. While this is a blow for Philips here, this does help the argument for federal trade secret legislation. If courts are going to hold the bar this high for federal statutes that could be expanded to include misappropriation, then federal trade secret legislation is necessary in order to afford trade secret protection by the federal courts as well as state courts.

U.S. District Court California Northern District (San Francisco)
Federal Jury Convicts On Espionage Act Charges Regarding Theft of Oreo Whitening Recipe

On March 5th, 2014, a federal jury convicted Walter Lian-Heen Liew and Maegerle of economic espionage, theft of trade secrets and other charges for theft of a coveted recipe developed by DuPont which is used to whiten the cream inside Oreos. This recipe for titanium dioxide (TiO2), which can also be used for the manufacture of paper and plastic products as well, had been a closely guarded DuPont secret despite longstanding efforts by Chinese to acquire a similar recipe. This process, which uses chloride, is highly regarded as a cleaner and more efficient process than the standard industry practice of using sulfates in the manufacturing process. Historically, DuPont has taken great measures to keep this formula as a trade secret.
According to testimony from trial, Mr. Maegerle, an engineer who had been with DuPont for 35 years, disclosed the recipe to Mr. Liew who had set up a California company with the intention of producing TiO2 and selling it to the Chinese. Mr. Liew had entered into contracts with Chinese state-owned entities regarding projects which involved the use of this TiO2 technology for manufacturing purposes. After obtaining the trade secret, the defendants sold it for over $20 million.
This is the first federal jury conviction under the Espionage Act of 1996 which provides no private cause of action, but offers the government a powerful weapon in protecting intellectual property interests in the U.S. Sentencing for these individuals is scheduled for June 10, 2014 and it will be interesting to follow since there is no precedent.

American Arbitration Association
Halliburton Served with $300 Million Demand for Arbitration over Trade Secret Theft

On February 21, 2013, Ecosphere Technologies, Inc. (“Ecosphere”) put industry giant Halliburton Energy Services, Inc. (“Halliburton”) on notice of a Demand for Arbitration ("Demand") that Ecosphere filed with the American Arbitration Association. The Demand alleges that “Halliburton took and disclosed Ecosphere’s trade secrets and proprietary technical, business and strategic information.”

Ecosphere is a water engineering, technology licensing and innovative manufacturing company that develops non-chemical water treatment solutions for industrial markets throughout the world. According to a press release from Ecosphere's counsel, Haliburton misappropriated Ecosphere's trade secret information related to hydro-fracking liquids, in violation of a non-disclosure agreement between the companies. Ecosphere had initially contracted to share the information with Haliburton. However, after Haliburton made a failed attempt to purchase Ecosphere outright, Haliburton continued to use Ecosphere’s trade secrets without authorization “to immediately market itself as an environmentally friendly company . . . .” The Demand claims $300 million in damages.

The issue of trade secrets in hyrdo-fracking has become a hotbed for litigation and legislation. TSI recently covered state attempts to legislate the issue. It was also a main topic at the 2012 TSI Symposium, “Private Data/Public Good: Emerging Issues in Trade Secrets Law.

United States District Court for the Eastern District of Virginia
Department of Justice Brings Criminal Trade Secret Misappropriation Charges Relating to Alleged Theft of DuPont's Kevlar™ Technology

On October 18, 2012, the Department of Justice unsealed an August 21st indictment against Kolon Industries, Inc. and five its executives (“Kolon”) in relation to Kolon’s alleged theft of E.I. du Pont de Nemours and Company’s (“Dupont”) Trade Secrets. The government brought criminal trade secret misappropriation charges pursuant to the Economic Espionage Act, accusing Kolon of engaging in massive industrial espionage over a six-year period in an effort to steal Dupont’s proprietary Kevlar™ technology.

DuPont had previously brought civil charges against Kolon in relation to the same alleged misconduct, which resulted in a damage award of almost $920 million and injunctive relief. In a statement responding to the charges, Kolon’s counsel accused the DOJ of “effectively assist[ing] DuPont in improperly extending [the company’s] monopoly over [Kevlar] technology beyond the limited term provided by the U.S. Patent laws.”