Recent Decisions and Case Developments

October 6, 2016 | United States District Court for the Southern District of Iowa
Chinese National Sentenced to Three Years for Conspiring to Steal Trade Secrets

On October 5, 2016, U.S. District Judge Stephanie M. Rose sentenced Mo Hailong (“Robert Mo” or “Mo”) to 3 years in prison for conspiracy to steal trade secrets from DuPont Pioneer and Monsanto. Mo was a legal resident living in Florida at the time of his arrest.

In the plea agreement, Robert Mo admitted he participated in a long-term conspiracy to steal trade secrets from DuPont Pioneer and Montsanto. Mo stole genetically modified seeds from both companies and sent them to scientists in Beijing, China. He was one of three other men from China arrested in 2013 for sending stolen, genetically modified seeds to China to be counterfeited. The stolen seeds are for a strain of corn that is one of the agricultural industry’s most valuable secrets.

The Judge opted to sentence Mo to prison time rather than community service to deter Chinese companies from engaging in such criminal behavior. In addition to sentencing Robert Mo, the Court ordered the forfeiture of two farms in Iowa and Illinois that Mo purchased with others during the course of the conspiracy.

September 27, 2016 | 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...

September 26, 2016 | United States District Court for the District of Connecticut
Oil Company Files Federal Lawsuit After Former Employee Takes Position at Competitor

Maxum Petroleum (“Plaintiff”) filed a lawsuit in federal court for misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA) and Connecticut’s Uniform Trade Secrets Act. The complaint alleges that defendant Stephen Hiatt (“Hiatt”), a former employee, wrongfully accepted a position with a competing company that would inevitably cause him to disclose insider knowledge about Plaintiff.

Plaintiff is an oil company. Stephen Hiatt worked as the Vice President of Sales for Plaintiff’s energy department for 25 years. According to Plaintiff’s complaint, Hiatt agreed not to take a position with a competitor that would require him to share information about Plaintiff’s pricing and customers. Hiatt stopped working for Plaintiff on August 31 and took a position with Chemoil, a competing company, last week. Plaintiff learned about Hiatt’s new position through email.

Plaintiff contends that by accepting the position at Chemoil, Hiatt misappropriated trade secrets under the DTSA, the Connecticut Uniform Trade Secrets Act, and brought claims for breach of contract and a violation of the Connecticut’s Uniform Trade Practices Act. Plaintiff filed the suit in the United States District Court for the District of Connecticut.

A copy of Plaintiff's complaint can be found here:
http://tsi.brooklaw.edu/cases/maxum-petroleum-inc-v-hiatt-et-al/filings/oil-company-files-federal-lawsuit-after-former-emplo

September 16, 2016 | Superior Court of the State of California
Media Giants Fixated on Fixed-Term Employment Agreements

Twentieth Century Fox (“Plaintiff”) has lodged a complaint against Netflix, Inc. (“Defendant”) in California state court, alleging that Defendant fraudulently and maliciously interfered with the Fixed-Term Employment Agreements Plaintiff had with two of its executive employees: Marcos Waltenberg (formerly Vice President, Promotions) and Tara Flynn (formerly Vice President, Creative). Those agreements were to terminate in 2016 and 2017, respectively, with an additional two-year option period at their initial expiration. Waltenberg joined Defendant Netflix’s payroll, however, in January 2016 and Flynn joined before her option period expired in August 2016.

Netflix is accused of “soliciting, recruiting, encouraging, and inducing” Fox employees to terminate their employment with Fox early. For their part, Fox claims that Netflix’s actions have resulted in irreparable injury to Fox’s ability to contract for a stable workforce (especially with regard to corporate planning), and to its business reputation and goodwill. Twentieth Century Fox seeks compensatory and punitive damages, as well as a permanent injunction enjoining Netflix from interfering with any of its Fixed-Term contracts.
It is worth noting that the agreements at issue in this case are not non-competes.

California has taken the rare stance of voiding all non-compete agreements. California Business and Professions Code section 16600 provides that, “[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” This puts employers in the position of creating a workaround to employee retention and market advantage. In California, that is often accomplished through Fixed-Term Employment Agreements.

Check back for updates, and read the complaint here: https://www.scribd.com/document/324263613/Complaint-9-16

September 14, 2016 | Eastern District of Texas
Cellular Communications Equipment LLC v. Apple Inc.

Apple, Inc. must pay a subsidiary of Acacia Research Corp, a large patent licensing company, $22.1 million after a federal jury found that it had willfully infringed a cellular network-related patent. An Eastern District of Texas jury found that Apple Inc.'s iPhones and iPads infringe a patent on wireless communication technology owned by a subsidiary of Acacia Research Corp.

Plaintiffs, Cellular Communications Equipment, filed suit in 2014 alleging that Apple's mobile devices infringed six patents. At the time of trial, only one patent remained. The patent at issue (U.S. Patent No. 8,055,820) was acquired by Cellular Communications Equipment and covered technology for managing the resources used to send data over communications network and increasing the efficiency of communicating.

The jury said that Apple did not prove with clear and convincing evidence that any asserted claims of the patent are invalid as obvious or based on improper inventorship. Since the jury found that Apple's infringement was willful, the judge could ultimately award plaintiff Cellular Communications Equipment LLC three times the damages, or $66.4 million.

September 7, 2016 | United States District Court for the Fifth Circuit
Fifth Circuit Finds Copyright Act Does Not Preempt Trade Secrets Claim

Software company GlobeRanger Corporation (“GlobeRanger”) obtained a $15 million judgment from the United States District Court for the Northern District of Texas in a trade secrets misappropriation action against Software AG USA, Inc. (“Software AG”), a competing company. Software AG appealed, arguing that federal copyright law preempted GlobeRanger’s trade secret claim. The Fifth Circuit affirmed, finding no preemption.

GlobeRanger’s trade secret claim stems from its radio frequency identification (RFID) technology, which is most commonly used for electronic readers in tollbooths (e.g. E-Zpass). GlobeRanger uses RFID technology to manage its inventory. GlobeRanger claimed that Software AG misappropriated its RFID technology after taking over GlobeRanger’s subcontract with the NAVY to implement the technology. After a jury trial, GlobeRanger was awarded $15 million in compensatory damages.

On appeal, Software AG argued that federal copyright law preempted GlobeRanger’s trade secret claim. The United States Court of Appeals for the Fifth Circuit affirmed the judgment below, finding copyright law did not preempt GlobeRanger’s claim. The court reasoned that trade secrets claims seek to protect different rights than those protected under federal copyright law. The court explained that the claims are not based on Software AG copying the RFID technology, but that they did not have access to authorize it. Since a trade secret claim includes this element of unauthorized access, the court held it is different from copyright, and therefore not preempted.

The Fifth Circuit’s Opinion can be found here: http://tsi.brooklaw.edu/cases/globeranger-corp-v-software-ag-inc/filings/fifth-circuit-finds-copyright-act-does-not-preempt-

September 2, 2016 | Illinois Appellate Court
Illinois Court Addresses “bad faith” Under Illinois Trade Secret Act

In Conxall Corp v. ICONN Systems, LLC, at al. the Illinois Appellate Court determined what constitutes “bad faith” under §5 of the Illinois Trade Secret Act for purposes of awarding attorneys’ fees. In a divided decision, the court proposed two standards for defining “bad faith” under the statute.

Section 5 of the Illinois Trade Secret Act states that if “a claim of trade secret misappropriation is made in bad faith . . . the court may award reasonable attorneys’ fees to the prevailing party.” The majority held that Illinois courts should determine the meaning of “bad faith” by examining if the pleadings were frivolous or in some way abuse the judicial process. The concurring judge followed California’s approach, which held that a claim is made in “bad faith” under California’s Trade Secret Act if it consists of “(1) objective speciousness and (2) subjective bad faith." The majority noted that the California approach has been adopted in a number of federal courts.

Despite taking different approaches to defining “bad faith,” the judges all agreed to remand the issue to the lower court for consideration.

A copy of the opinion can be found here: http://www.tradesecretsnoncompetelaw.com/files/2016/09/Conxall-Corp-v-ICONN-Systems-LLC_-Illinois-App-Court-1st-Dist_opinion-from-court-site.pdf

September 1, 2016 | Santa Clara County, Supreme Court of the State of California
Former Palantir Employee Sued for Misappropriating Trade Secrets

Palantir, a data analytics company headquartered in Palo Alto, California, filed a lawsuit on September 1, 2016 alleging Marc Abramowitz (“the defendant”), one of its early investors, stole trade secrets and used them for his own benefit. Palantir filed the complaint in the Supreme Court of the State of California in Santa Clara County. It alleges that the defendant used confidential information to file false claims with the United States Patent and Trademark Office in order to obtain patents.

Defendant was an early investor with Palantir who regularly discussed some of the company’s sensitive business and trade secrets with company executives. The complaint states that the defendant used his position in the company to steal trade secrets by deceiving senior executives. Furthermore, Palantir alleges that defendant had his lawyers demand access to confidential information pursuant to Palantir’s Investors’ Rights Agreement with the defendant. The complaint states that the defendant then misappropriated this information for his personal gain by filing three patents based on the ideas he stole from Palantir.

Palantir requests a declaratory judgment that the defendant has no right to access the information he demanded under the company’s Investors’ Rights Agreement. The complaint includes multiple claims, some of which include misappropriation of trade secrets, breach of contract, and breach of the Implied Covenant of Good Faith and Fair Dealing.

A link to Palantir's complaint can be found here: http://tsi.brooklaw.edu/cases/palantir-technologies-inc-v-marc-abramowitz/filings/former-palantir-employee-sued-misappropria

August 31, 2016 | COMMONWEALTH COURT OF PENNSYLVANIA
No Lift-Off for Lyft's Trade Secrets Plea in Pennsylvania

The Commonwealth Court of Pennsylvania has ruled against Lyft, Inc.’s (Lyft) request to designate its aggregate trip data as a trade secret. This ruling comes out of two consolidated petitions for review filed by Lyft and Kim Lyons, a reporter for PG Publishing, Inc., d/b/a The Pittsburgh Post-Gazette (collectively, PG) from two orders of the Public Utility Commission (PUC).

In 2014, Lyft briefly attained experimental authority to operate as a transportation network company (TNC) in both Allegheny County and the entire Commonwealth. Shortly thereafter, the Bureau of Investigation and Enforcement (BIE) filed a complaint against the company, which prompted PUC to terminate Lyft’s authority to operate in the area. Administrative law judges for BIE have requested data from Lyft—including the number of rides utilized in certain areas before Lyft had full authority to operate—which Lyft objects to providing on the basis that this information constitutes a trade secret.

On review, PUC initially found and then reaffirmed that the data Lyft sought to protect merely constituted aggregate data, which rarely attains trade secret status from the Commission and did not here. Additionally, PUC found that the economic harm Lyft would face as a result of releasing such information did not outweigh the public’s interest. In fact, “the number of trips during the period before Lyft received authority to operate posed a risk to public safety.”

Speaking in the case at bar, Judge Simpson of the Commonwealth Court affirmed PUC’s determination. Judge Simpson notes that PUC properly analyzed what constitutes a trade secret pursuant to its own regulation, 52 Pa. Code §5.365, (Regulation), which differs from the definition of trade secret provided in Pennsylvania’s Uniform Trade Secrets Act. The differences between the Regulation and the Act had the effect of nullifying Lyft’s arguments in reliance on any state court precedent.

Specifically, PUC’s Regulation places the burden on the moving party (Lyft) to 1) prove that disclosure will result in substantial harm and 2) that the harm outweighs public interest in a transparent hearing. In balancing these two prongs, the PUC clearly supports an analysis of these factors: (1) The extent to which the disclosure would cause unfair economic or competitive damage. (2) The extent to which the information is known by others and used in similar activities. (3) The worth or value of the information to the party and to the party’s competitors. (4) The degree of difficulty and cost of developing the information. (5) Other statutes or regulations dealing specifically with disclosure of the information.

Judge Simpson ruled that the data requested by PUC is not detailed enough to trigger economic harm to Lyft as demanded by the factors above. He also denied Lyft’s argument that its competitors could extrapolate detailed information from the aggregate data to gain a competitive market edge. The Court called this argument “speculative and vague.” Therefore, Lyft had failed to prove the first prong of PUC’s Regulation, losing its opportunity to obtain a protective order for its ride data.

Finally, the Court denied PG’s request for an Interim Emergency Order to intervene in the case in the public interest, on the basis that PG’s aims have already been achieved. Judge McCullough, concurring in the majority’s ruling that Lyft’s aggregate data is not proprietary, dissents on this issue. Judge McCullough believes PG, as a conduit of information to the public, has the right to attain party status in this case, especially since Lyft is likely to repeat its attempts to keep certain vital information private as the case moves forward.

Read the full opinion here: http://www.pacourts.us/assets/opinions/Commonwealth/out/843cd15_8-31-16....

August 23, 2016 | 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