Recent Decisions and Case Developments

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

March 8, 2017 | Court of Appeals of Texas (San Antonio)
Having a Position to Use Trade Secrets Sufficient to Grant Temporary Injunction

The San Antonio Court of Appeals recently held that having a position to use trade secrets is sufficient to grant temporary injunctions. Under the Texas Uniform Trade Secrets Act, an applicant for a temporary injunction is not required to present evidence of trade-secret use; mere possession and opportunity to use is sufficient.

The case involves AGE Industries, Ltd. (“AI”), a manufacturer of corrugated boxes and packing materials. Christopher Michael Hughes was a general manager and limited partner of AI for nearly 20 years until he resigned in June 2016 and joined a newly formed competitor, Diamondback Corrugated Container, LLC (“Diamondback”). On August 30, 2016, AI sued Hughes for misappropriation of trade secrets under the Texas Uniform Trade Secrets Act. The trial court granted AI’s application for temporary injunction requiring Hughes to produce a list of all documents and proprietary information belonging to AI in Hughes’s possession and enjoining him from using or disclosing AI’s proprietary or trade secret information.

Hughes appealed the trial court’s grant of temporary injunction, and contended, among other arguments, that AI failed to show evidence of a probable, imminent, and irreparable injury. Hughes asserted that AI only expressed fear of possible injury. However, AI presented evidence during the temporary-injunction hearing that showed Hughes downloaded a large amount of data from AI prior to his resignation. Additionally, some of AI’s financial information that Hughes maintained could not be found after his resignation. Hughes admitted having AI’s confidential information in his personal computer. Hughes stated that he could not testify under oath that his emails to an employee of Diamondback did not contain AI’s proprietary information.

The Court of Appeals of Texas (San Antonio) affirmed the temporary injunction and reasoned that because there was some evidence that “Hughes was in a position to use AI’s trade secrets to gain an unfair market advantage,” the trial court did not abuse its discretion in concluding that AI established a probable, imminent, irreparable injury.

The case is Hughes v. Age Industries, Ltd., 04-16-00693-CV, in the Court of Appeals of Texas (San Antonio).

http://tsi.brooklaw.edu/cases/hughes-v-age-industries-ltd/filings/hughes-v-age-industries-ltd

February 24, 2017 | United States District Court for the Eastern District of Pennsylvania
Jury Awards Fig Jam Maker Millions in First DTSA Verdict

On February 24, 2017, a federal jury handed down the first verdict under the Defend Trade Secrets Act (DTSA). Dalmatia Import Group and Maia Magee (“Plaintiffs”) develop and sell various flavors of high quality fig jam. After their business relationship deteriorated, Plaintiffs sued their former distributors, Foodmatch, Inc. and Lancaster Fine Foods, Inc. (“Defendants”). In the suit, Plaintiffs alleged that Defendants’ competing fig jam impersonated Plaintiff’s product, more specifically, that Defendants stole the recipe for Plaintiff’s fig jam. Furthermore, Plaintiffs claimed that Defendants sold and distributed rejected jars of Plaintiff's fig spread, using Plaintiff’s trademark, without consent.

Plaintiffs brought claims for breach of contract, trademark infringement, counterfeiting, and misappropriation of trade secrets. After a four-week trial in the United States District Court for the Eastern District of Pennsylvania, the jury found Defendants liable for misappropriation of trade secrets, trademark infringement and counterfeiting. The jury awarded Plaintiffs $2.5 million in damages, which Plaintiffs’ attorneys estimate will double to roughly $5 million after the damages are trebled. Plaintiffs' attorneys also stated the court will issue an injunction enjoining Defendants from using Plaintiff’s trade secrets in the future.

The case is Dalmatia Import Group v. Foodmatch, Inc. et al., 16-cv-02767 (E.D. Pa. Feb. 24, 2017).

February 23, 2017 | United States District Court for the Northern District of California
Battle of Self-Driving Cars

Waymo LLC, a self-driving car startup under Alphabet (originally known as Google’s Self-Driving Car Project), filed a complaint in California’s Northern District accusing Uber of violating the Defense of Trade Secrets Act and the California Uniform Trade Secret Act, as well as patent infringement. Waymo alleges that a former Google employee, Anthony Levandowski, secretly downloaded 14,000 files of “highly confidential data” from Google’s hardware systems before resigning a month later and launching a self-driving truck startup called Otto. Uber acquired Otto in August 2016 and put Levandowski in charge of its self-driving efforts. Waymost alleges that Levandowski used the information from Google’s system to launch Otto.

The complaint very specifically names the ways in which Levandowski stole the data. The data revolves around a key piece of technology called LiDAR ("Light Detection and Ranging"), which uses high-frequency, high-power pulsing lasers to measure distances between one or more sensors and external objects to build a detailed map of the environment around the car. Waymo has invested millions in its own LiDAR hardware and alleges that Levandowski misappropriated this data in developing Otto and working for Uber.

Filed complaint: http://nyti.ms/2mMwBcA

January 24, 2017 | Appellate Division, First Department, New York State Supreme Court
Sergey Aleynikov Found Guilty (Again) of Stealing Software from Goldman Sachs

On January 24, 2017, the New York State Supreme Court Appellate Division, First Department, reinstated defendant Sergey Aleynikov's ("Aleynikov") guilty conviction for stealing trading software from Goldman Sachs ("Goldman"). The decision came after a series of litigation that sought to determine whether Aleynikov violated federal or state law by making an electronic copy of the software on an external hard drive just before he left Goldman to work at a competing company.

Aleynikov was formerly an employee of Goldman Sachs, where he worked as a computer programmer. During his time with Goldman, Aleynikov wrote and maintained software for high frequency trading computer programs, which are central to Goldman's business. Goldman took several measures to safeguard the software, some of which included increasing security, limiting employee access, and requiring all employees to sign a confidentiality and nondisclosure agreement. In 2009, Aleynikov left Goldman to work for Teza Technologies, one of Goldman's competitors. Before he left, he transferred a digital copy of Goldman's trading software to a hard drive outside the company's server. As a result, he faced criminal charges in federal and state court.

In February 2010, Aleynikov was charged with violating the National Stolen Property Act and the Economic Espionage Act. In December 2010, the United States District Court for the Southern District of New York convicted him. However, on appeal the US Court of Appeals for the Second Circuit reversed his conviction in April 2012.

Shortly after, in September 2012, Aleynikov was charged by the state of New York in New York County with two counts of unlawful use of secret scientific material and one count of unlawful duplication of computer related material. After trial in July 2015, the jury acquitted Aleynikov on the unlawful duplication of computer related material charge, and the court dismissed the charges for unlawful use of secret scientific material. The People appealed, and on January 24, 2017, the New York Supreme Court Appellate Division reversed, and reinstated his conviction with respect to the unlawful use of secret scientific material charge.

The Appellate Division reasoned that the evidence was sufficient to establish that Aleynikov misappropriated scientific information. According to the court's decision, Aleynikov did not challenge the People's contention that he electronically copied the Goldman software, nor did he deny that the software constitutes secret scientific material. Furthermore, the court rejected Aleynikov's arguments that he did not possess requisite intent to commit the offense and that he did not make a tangible copy of the software.

The case is The People of the State of New York v. Sergey Aleynikov, New York State Supreme Court, Appellate Division, First Department, No. 4447/12. A copy of the court's opinion can be found here: http://tsi.brooklaw.edu/cases/people-state-new-york-v-sergey-aleynikov/filings/sergey-aleynikov-found-guilty-again-stealing-

December 20, 2016 | 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

December 6, 2016 | U.S. Supreme Court
Samsung Electronics Co. Ltd. Et al v. Apple Inc.

On Tuesday, December 6, 2016, In the Samsung Electronics Co. Ltd. Et al v. Apple Inc. case, case number 15-777, the U.S. Supreme Court, reversed a Federal Circuit ruling that found that Samsung must pay its profit from the entire phones found to infringe Apple’s design patents, which covered the front face of the phones and the arrangement of icons on the home screen.

Justice Sonia Sotomayor said that owners of design patents are not always entitled to the total profits from the infringing product sold to consumers. In this case, the device has multiple components and thus the award may be limited to those specific features that infringed.

Chief Justice John Roberts also commented that “It seems to me that the design is applied to the exterior case of the phone. It’s not applied to all the chips and wires… so there shouldn’t be profits awarded based on the entire price of the phone.”

Apple did not dispute that it is entitled to profits only from the infringing articles of manufacture, but said that Samsung bared the burden to prove that the relevant article of manufacture was something less than the entire smartphone and failed to do that. The Supreme Court did not resolve whether, for each of the design patents at issue in the case, the article of manufacture was the smartphone or a component of the phone. This issue has been left to the Federal Circuit on remand.

The patents-in-suit are U.S. Patent Numbers D593,087, D604,305 and D618,677. The case is Samsung Electronics Co. Ltd. et al. v. Apple Inc., case number 15-777, in the U.S. Supreme Court.

November 17, 2016 | Austin Division, United States District Court for the Western District of Texas
Texas Agency Sued in Trade Secrets Lawsuit

On November 17, 2016 pharmaceutical giant Pfizer, Inc. (“Pfizer”) sued Texas’s Health and Human Services Commission (“HHSC”) in federal court. Pfizer alleges that the HHSC misappropriated confidential information regarding its prices and rebate information for Texas Medicaid when it revealed the information to state lawmakers.

Pfizer claims the HHSC sent confidential detailed information regarding its drug prices and rebate protocol to two state senators. In its complaint, Pfizer argues this was a violation of 42 U.S.C. §1396r-8(b)(3)(D), which, in part, states that information disclosed by manufacturers or wholesalers is confidential, and cannot be disclosed a state agency. Furthermore, Pfizer alleges the HHSC violated a Texas law, which also prohibits the unauthorized disclosure of information obtained by the HHSC regarding drug rebate negotiations or other related trade secrets. Pfizer also claims that the HHSC has refused to specifically disclose which company information it released to the senators. Pfizer expresses concern in its complaint that the pricing information released would give competitors an unfair advantage in bidding situations.

Pfizer seeks a declaratory judgment in its favor and injunctive relief to prevent further release of its confidential information.

The case is Pfizer, Inc. v. Texas Health and Human Services Commission et al.

Pfizer’s complaint can be found here:
http://tsi.brooklaw.edu/cases/pfizer-inc-v-texas-health-and-human-services-commission-et-al/filings/pfizer-inc-v-texas-healt