Recent Decisions and Case Developments

October 9, 2019 | U.S. District Court for the Northern District of Illinois
Attempted Theft of Trade Secrets Upheld Even if Not Trade Secrets Stolen

At issue here is whether Defendant Robert O’Rourke's post-conviction motion for a new trial should be granted in a case involving attempted and actual trade secret theft. O’Rourke argued that he could only be convicted of attempted trade secret theft if the information at issue actually constituted a trade secret. However, the Northern District Court of Illinois denied the motion and upheld the conviction, affirming that one can be convicted of attempted trade secret theft if one believed the information to be a trade secret, regardless of whether the information actually constituted a trade secret; it is the intent of the alleged theft that is judged.

Background: O'Rourke was an engineer at Dura-Bar, a cast-iron manufacturer. He accepted a position as vice president of Hualong, a competing cast-iron manufacturer, without Dura-Bar's knowledge. On a Sunday prior to his last day at Dura-Bar, O'Rourke entered Dura-Bar with his key and downloaded over 1,900 documents onto his personal hard drive. After his last day of at Dura-Bar, O'Rourke went to drinks with coworkers and informed them for the first time he was going to work at Hualong. The coworkers informed Dura-Bar management which contacted law enforcement for emergency search warrants. About 5 days later, O'Rourke was boarding a flight where he was stopped and searched by the U.S. Customs and Border Patrol. They found the hard drive with all of Dura-Bar's documents in his checked baggage. In July 2017, a grand jury returned a 13-count Indictment against O’Rourke, charging him with stealing, downloading, and possessing trade secrets (and attempting to do the same) in violation of 18 U.S.C. § 1832.

The charges against O’Rourke proceeded to trial in February 2019. At trial, O’Rourke did not contest that he took materials without Dura-Bar’s permission. But his counsel contended that the documents in question were not trade secrets and that he did not believe them to be so when he took them. Following a three week trial, the jury found O'Rourke guilty of attempting to steal, stealing, downloading, and possessing certain, but not all of the documents. The mixed verdict suggests that the jury questioned whether some of the documents constituted trade secrets and if O’Rourke considered them to be trade secrets. O’Rourke appealed for this new trial based on, among other reasons, the Government's requirement to prove whether or not the documents were trade secrets.

Analysis: O’Rourke took issue with the Court’s decision to allow the Government to pursue an “attempt” theory of criminal liability at trial, arguing that § 1832 only allows for an attempt violation when a defendant tries and fails to misappropriate actual trade secrets, so he could only be held responsible for committing the substantive offense and not for attempting to commit that offense. The Court looked to U.S. v. Hsu, 155 F.3d 189, 198 (3d Cir. 1998) and reasoned that the attempt violations for which O’Rourke was charged do not require proof that a trade secret exists; instead, they require proof that O'Rourke believed that information to be a trade secret.

The Court held "an attempt charge allows the Government to charge not only individuals who are unsuccessful in stealing actual trade secrets, but also those who successfully steal information that they believe to contain trade secrets but in fact do not." Judge Wood analogized the situation to one involving attempted distribution of illegal drugs, explaining that “a would-be cocaine buyer cannot avoid criminal responsibility even if the only substances he managed to purchase were fakes planted by police officers.” Therefore, if the jury concluded that O’Rourke believed a document was a trade secret when he took it, he is guilty for attempted theft even if the document ultimately was not a trade secret.

As a note, it was undisputed that O’Rourke went to Dura-Bar’s facility, placed copies of Dura-Bar’s documents on his personal hard drive, and attempted to take that hard drive with him overseas. The issue at trial was whether the documents that O’Rourke took were actually trade secrets and whether he also believed them to be so. O'Rourke also appealed the conviction order based off of alleged errors in the jury instructions, which we do not mention in this summary as it is outside the scope of our forum. However, the Northern District Court of Illinois ultimately denied O'Rourke's motion for a new trial, including his allegedly erred jury instruction claims.

For Judge Wood's entire Memorandum Opinion and Order, please see below.

February 25, 2019 | United States Court of Appeals for the Third Circuit
Employer Granted Injunctive Relief Against Former Employee After Searching Facebook

At issue here is whether a former employer that suspects trade secrets theft has taken place can log in to the former employee’s personal social media account to search for the potentially incriminating evidence. While the initial reaction for many would be a resounding “no”, in Scherer Design Group v. Ahead Engineering LLC, the Third Circuit held that the unclean hands doctrine did not bar an employer’s claims against its former employee for trade secret misappropriation though the employer had previously installed and used software that allowed for the monitoring prior to the termination of employment.

The court looked to decide how far an employer can go to protect their potentially misappropriated trade secret and where the line may be drawn. Here, Chad Schwartz, a senior direction of engineering at Scherer Design Group, left the company following a failed plan to obtain partial ownership. Schwartz made it clear that if he was not made an owner, he would start his own competing company. Scherer requested that Schwartz sign a noncompete agreement to which Schwartz declined and left to begin his own companies – Ahead Engineering LLC and Far Field Telecom LLC – and hired others from Scherer to join him.

After his, and his co-workers including David Hernandez, departure from Scherer, a network administrator from his former employer inspected Hernandez’s company laptop where he was able to gain access to Hernandez’s Facebook account that had allegedly been left logged in. While this allegation is debated, it is undisputed that Scherer installed a monitoring device on Hernandez’s company-issued laptop during his employment and was able to uncover alleged plans to steal client information and intellectual property to bring to their next company.

Scherer brought suit against the former employees claiming trade secret misappropriation under state and federal law. Defendants argued that injunctive relief was inappropriate because of the doctrine of unclean hands and argued that there was a violation of Hernandez’s privacy.

The U.S. District Court for the District of New Jersey granted the preliminary injunction against the defendants which prevented them from contacting Scherer’s clients, and the Third Circuit agreed. In order to invoke the unclean hands doctrine, the party must establish that the opposing party committed an “unconscionable act”, and the act is related to the claim in which equitable relief is sought. The unclean hands doctrine was one of many factors that the court must consider when deciding on injunctive relief. The Third Circuit decided “on balance” that they would not be allowing for the continued misappropriation.

In Judge Ambro’s dissent, he wrote that this was a clear violation of New Jersey’s privacy law, arguing that the company “went on an external fishing expedition rather than merely conducting a review of activity on its own physical assets.” This strong dissent further called into question the completeness of the analysis by the majority of the unclean hands doctrine.

September 27, 2018 | United States District Court for the Northern District of California
China-US Trade Secrets Tensions Heighten

As China and the United States continue to spar over trade-related issues, the current administration has escalated protections for misappropriation of trade secrets by Chinese-related companies.

A China-backed Taiwanese company is in the United States government’s crosshairs as an increase in espionage has begun to mount. This spawned from the most recent indictment naming the company United Microelectronic Corporation (UMC), Fuijan Jinhua Integrated Circuit and three individuals named Stephen Chen, JT ho, and Kenny Wang in a scheme to steal trade secrets valued at up to $8.75 billion. Attorney General Jeff Sessions has reached a boiling point with Chinese espionage stating, “[w]e are here to say enough is enough”.

The individuals named in the above-mentioned indictment worked for Micron’s Taiwanese subsidiary, eventually working for UMC. The allegation states that the individuals planned to steal trade secrets from Micron (a United States chip-making company) through Micron’s MMT subsidiary. The United States is taking all necessary measures to address this issue. Attorney General Sessions explained the impact on United States companies and how the U.S. plans to move forward. In response to the indictment, senior VP and general counsel of Micron, Joel Poppen, stated “Micron has invested billions of dollars over decades to develop its intellectual property. The actions announced today reinforce that criminal misappropriation will be appropriately addressed.”

The trade tensions between the United States and China have increased as technology secrets have become more valuable and the misappropriation of these products and processes have gotten out of hand.

September 24, 2018 | Superior Court of the State of California
Qualcomm Incorporated v. Apple Inc. and DOES 1 through 25

Apple is no stranger to legal disputes involving their innovative products. Recently, Apple was the subject of controversy as it was alleged to have stolen trade secrets from Qualcomm and shared them with Intel Corporation after Qualcomm allowed Apple access to its source code and tools for LTE modem chipsets. Qualcomm is claiming Apple misappropriated their trade secrets in an attempt to preserve the quality of the chips Apple purchases, but change the supplier of the chips from Qualcomm to Intel Corporation for their new iPhones.

A complaint was initially filed in November by Qualcomm claiming that Apple breached a software-licensing contract by sharing confidential details regarding Qualcomm’s chips with engineers at Intel Corporation. A motion to amend the complaint filed on Monday accuses Apple of stealing trade secrets “for the purpose of improving lower-quality modem chipsets, including those manufactured by Intel, a competitor of Qualcomm, to render such chipsets useable in Apple devices with the ultimate goal of diverting Qualcomm’s Apple-based business.”

While the lawsuit is scheduled to be heard in April 2019, the proposal of an amended complaint might push back the anticipated date.

September 17, 2018 | United States District Court for the District of Hawaii
WHIC LLC v. NextGen Labs., Inc., 2018 U.S. Dist. LEXIS 158380

In a recent decision, the United States District Court for the District of Hawaii granted Aloha Toxicology's motion for a preliminary injunction against defendant, NextGen Laboratories, Inc. Aloha Toxicology's allegations included, possessing, using, or disclosing Aloha Toxicology's "confidential/proprietary/trade secret information," and unfairly competing with Aloha Toxicology. Id. at *2.

Aloha Toxicology contracted with Summit Diagnostics, which hired a Sales and Operations Manager, Maki, for the purpose of increasing Aloha Toxicology's sales. Upon resigning from Aloha Toxicology and accepting a position with NextGen Laboratories, Inc., Maki contacted her former clients to encourage them to leave Aloha Toxicology, and become clients of NextGen Laboratories.

In balancing the Winter factors, the Court stated that it was a "close call" whether there was a "serious question going to the merits of the case." Because Maki "possessed such confidential information, which was developed over years with the company," and the other three Winter factors weighed strongly in Aloha Toxicology's favor, the Court held that a preliminary injunction was appropriate.

This decision highlights the delicate balancing test courts engage in when determining whether to grant a preliminary injunction. Please see the full decision below for more details.

March 16, 2018 | U.S. District Court California Northern District (Oakland)
Real-estate data analytics startup, HouseCanary Inc., alleges that Quicken Loans Inc. attempted to steal its data and technology through a sham licensing agreement so it could develop competing appraisal software
October 4, 2017 | County of Santa Clara, Superior Court of the State of California
Eli Attia Brings Racketeering Charges Against Google

Santa Clara Superior Court of California recently granted a motion for leave to file an amended complaint that allowed Eli Attia and Eli Attia Architect PC (“Plaintiffs”) to successfully bring racketeering claims under the Racketeer Influenced and Corrupt Organization Act (“RICO”) in addition to the trade secret misappropriation and breach of contract claims against Google, Inc. (“Google”). Attia originally filed suit on December 5, 2014.

Eli Attia (“Attia”) is an architect who developed a technology that enables creation of more sustainable buildings faster and with lower cost. He called the technology, “Engineered Architecture” (“EA”). Google X, an affiliate of Google, approached Attia in 2010 and signed a Non-Disclosure Agreement (“NDA”) permitting Google to use Attia’s confidential information “to facilitate technical discussions concerning existing or future product development efforts by the parties.” Shortly after, the parties entered into an Inbound Services Agreement (“ISA”) and a Statement of Work (“SOW”) to build a software system capable of implementing the EA technology using Attia’s trade secrets and his “pre-existing property.” This was dubbed the “Genie Project.”

Attia alleged in the complaint that Google plotted to “squeeze out” Attia from the Genie Project and misappropriated his trade secrets by continuing to use EA and his pre-existing property without permission and compensation. Attia alleged that Google pretended to kill the Genie Project and spun it off into a new company called “Flux Factory” to further develop Attia’s technology.

In the fourth amended complaint filed on July 24, 2017, the Plaintiff’s legal team added racketeering charges against Google by claiming a pattern of trade secret thefts. The complaint uncovered six other cases in which Google engaged in a similar pattern of activity where the tech giant sought inventors, signed an NDA, boxed them out, and misappropriated their trade secrets. In the October 4, 2017 Order after hearing, the Superior Court permitted the addition in the amended complaint. Trial is scheduled for September 2018.

The case is Eli Attia et al. v. Google, Inc. et al., case number 2014-1-CV-274103, in the Superior Court of the State of California, County of Santa Clara.

Fourth Amended Complaint: http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/attia-v-google-inc/20170724fourth-amended-complaint.pdf
Order After Hearing: http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/attia-v-google-inc/20171004order-after-hearing.pdf

June 6, 2017 | 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

April 19, 2017 | County of Santa Clara, Superior Court of the State of California
Tesla Settles Trade Secrets Lawsuit with Ex-Chief of Autopilot Program

In Jaunary 2017, Tesla Motors, Inc. ("Tesla") filed a breach of contract lawsuit against former employee Sterling Anderson, former chief of the company’s Autopilot Program, and Chris Urmson, former CTO of Alphabet Inc.’s self-driving technology. Tesla alleged that Anderson and Urmson attempted to recruit multiple Tesla engineers to their new company, Aurora, and for allegedly stole “hundreds of gigabytes” of confidential Tesla information.

Anderson’s and Urmsons’s goal for Aurora is to develop driverless cars and improve safety for self-driving technology. Tesla claimed in the suit that Anderson violated his employment contract and breached a duty of loyalty to Tesla by recruiting Tesla engineers and using company information to form Aurora.

On April 19, 2017, the parties settled the lawsuit when Tesla agreed to withdraw its suit without damages, attorneys’ fees, or any finding of wrongdoing. Aurora agreed to reimburse Tesla for future ongoing audits conducted to establish that Aurora did not in fact misappropriate Tesla’s trade secrets. Aurora also agreed to pay Tesla $100,000. As per the settlement, Anderson’s contractual obligations to Tesla will remain intact and will also extend to Aurora.

The case is Tesla Motors Inc. v. Anderson et al., case number 17-CV-305646, in the Superior Court of the State of California, County of Santa Clara.

April 13, 2017 | United States District Court for the Southern District of New York
Former Susquehanna International Group Engineer Charged with Theft of Trading Code

Defendant Dmitry Sazonov ("Defendant" or "Sazonov"), age 44, was arrested on April 13, 2017, whereupon a criminal complaint was filed against him in United States District Court for the Southern District of New York by a Special Agent of the Federal Bureau of Investigation ("FBI") and federal prosecutors. The government alleges that Sazonov "attempted to steal valuable proprietary computer code that took his employer years to develop," according to Acting U.S. Attorney Joon H. Kim. Sazonoz was employed for thirteen years by Susquehanna International Group ("Susquehanna"), a financial services firm headquartered in Pennsylvania with offices in Manhattan. Susquehanna's principal line of business is securities trading and other financial products. Sazonov allegedly attempted to steal "proprietary computer code for a trading platform" that Susquehanna developed. The Feds report that "the trading platform Sazonov worked on trades $300 million in options daily." The FBI's investigation revealed that "Sazonov allegedly took elaborate steps to conceal his attempted theft, including camouflaging pieces of source code within harmless-looking draft emails on his work computer." The criminal complaint alleges that Sazonov efforts to steal the code began in February 2017 when he learned his supervisor had resigned.

The Defendant is charged with one count of attempted theft of trade secrets, which carries a maximum sentence of ten years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The charges contained in the complaint are merely accusations, and the Defendant is presumed innocent unless and until proven guilty.

Complaint: http://src.bna.com/nVJ