Recent Decisions and Case Developments

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

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).