Recent Decisions and Case Developments

February 27, 2012 | Supreme Court of Connecticut
Connecticut high court rules that UConn’s donor lists are trade secrets

On February 27, 2012, the Connecticut Supreme Court ruled that the University of Connecticut’s donor list is a trade secret and not subject to easy access through a Freedom of Information request. The court reasoned that UCONN spends resources to acquire the information and that other institutions could use that information to lure away dollars and loyalty from those on the list.

In 2009, the Connecticut Freedom of Information Commission (FOIC) had received a complaint alleging that the University of Connecticut (UConn) improperly refused a request for disclosure of the names and addresses of (1) purchasers of tickets to the school's athletic events held by the University Athletics Department and to performing arts events at the Jorgensen Auditorium, (2) persons who made inquiries about programs at the Center for Continuing Studies, and (3) donors to the University Libraries Division. UConn claimed that the requested records were "customer lists" that were exempt from the disclosure requirements of the freedom of information act as trade secrets.

The FOIC ordered the records disclosed, finding that a public entity such as UConn cannot maintain its own protected trade secrets because UConn is largely subsidized by public funds and is not engaged in a trade or business dependent on earned income for its continued existence. On appeal, the trial court found that nothing in the statute suggests that a public agency cannot maintain trade secrets, noting that the university competed with other institutions that operate performing arts, sporting events, and educational programs for a profit, and that compiling these lists had cost UConn much time and effort.

Although the trial court found that the list of donors to the University Libraries Division does not constitute a customer list under the trade secrets exemption because donors are not purchasing goods or services, the court remanded the matter to the FOIC for findings as to whether the records qualify as another type of "information" protected as a trade secret and as to whether the records do not qualify for exemption because they are readily ascertainable from other sources. The FOIC appeals from the decision to the Supreme Court.

In oral arguments to the Supreme Court, the appellant (Connecticut's Freedom of Information Commission, represented by its attorney Clifton Leonhardt) argued that it is conceivable that the University of Connecticut could hold trade secrets, even though the Commission's brief contended the public institution could not. The Commission argued two other factors should make the lists public: because general interest outweighs UConn's need for confidentiality, and because UConn never showed the records were unavailable elsewhere. Later, Leonhardt said in an interview that he does not believe the commission, in its final decision, definitively settled the question of whether UConn can maintain trade secrets. If the commission had found definitively against UConn, he said, such a finding would contradict state law authorizing UConn to create and own intellectual property and to enter into research contracts with private businesses.

On February 27, 2012, the Connecticut Supreme Court ruled that the University of Connecticut’s donor list is a trade secret and not subject to easy access through a Freedom of Information request. The court reasoned that UCONN spends resources to acquire the information and that other institutions could use that information to lure away dollars and loyalty from those on the list.

February 13, 2012 | United States District Court for the Central District of California
Allegations of misappropriation of TS countered by antitrust claims in C.D. Cal case

A United States District Court for the Central District of California trade secrets misappropriation case will become more complicated as it progresses, as Judge Wright recently allowed five of the defendants' antitrust-based counterclaims to survive motions to dismiss. The core allegations in the case, Yardi Systems, Inc. v. RealPage, Inc. et al., concern RealPage’s acquisition of a firm that formerly consulted for Yardi (DC Consulting, also named as a defendant). Yardi and RealPage are rivals in the real estate management software industry. Through the acquisition of the consulting firm, Yardi alleges that RealPage was able to gain information that allowed it to hack in to its servers. Yardi accuses RealPage of thereby accessing pricing data and customer lists with an eye towards courting Yardi customers to run Yardi’s software on RealPage’s cloud computing services. RealPage deflected these claims with an antitrust defense, founded upon “customer interference and intimidation” embodied in Yardi’s practice of forcing its software users to sign licensing agreements that disallow use of its software on RealPage’s cloud servers. The judge held in a Feb. 13, 2012 order that RealPage had sufficiently stated a counterclaim that Yardi was attempting to create a monopoly, allowing the antitrust argument to advance to the next stage of litigation. This decision serves as a reminder that antitrust claims are available as affirmative defenses and counterclaims to trade secrets misappropriation allegations.

February 13, 2012 | District Court for the Central District of California
California district court held that reverse engineering proprietary software in breach of a consumer form contract does not constitute misappropriation

On February 13, 2012 the United States District Court for the Central District of California held that Plaintiff Aqua Connect, Inc. (“Aqua Connect”) failed to state a claim of misappropriation where defendant Code Rebel, LLC (“Code Rebel”) reverse engineered its software in breach of an end user license agreement (“EULA”). Aqua Connect argued that the EULA created a “duty to maintain secrecy” which was breached when Code Rebel reverse engineered the software. The district court, however, pointed out that California courts defined the “duty to maintain secrecy” to exist in the context of a fiduciary duty or an employment agreement, and the duty does not arise from a form license agreement. It stated that “nowhere has it been recognized that a party wishing to protect proprietary information may employ a consumer form contract to…change the statutory definition of ‘improper means’ under trade secret law to include reverse engineering.” See DVD Copy Control Association, Inc. v. Bunner, 31 Cal. 4th 864, 901 n.5 (2003) (quoting).

The dismissed the trade secrets claim without leave to amend, because "no additional facts [could] be alleged to support a legally cognizable misappropriation . . . claim."

February 7, 2012 | United States District Court for the Northern District of California
Federal prosecutors indict a state-owned Chinese company and its executive on charges of conspiracy to steal DuPont’s trade secrets

On February 7, 2012, in a rare action, federal prosecutors indicted Pangang Group Limited Company (“Pangang”), a state-owned steel manufacturer in China, and a Pangang executive on charges of conspiracy to steal DuPont’s trade secrets about titanium dioxide technology in violation of the Economic Espionage Act (EEA), 18 U.S.C. §1831 et seq. This indictment supercedes a 2011 indictment in which federal prosecutors originally charged Californians Walter and Christina Liew with witness tampering and making false statements in a federal criminal investigation into the alleged trade secrets theft. DuPont is the world’s largest manufacturer of chloride-route titanium dioxide, a white pigment used in paint, plastics and paper, and defendants allegedly made a “long-running effort” to obtain DuPont’s trade secrets about the process to benefit Chinese companies. Arraignment is scheduled for March 1, 2012.

January 30, 2012 | District Court for the District of Massachusetts
Marketing vendor alleges that Procter & Gamble misappropriated its strategic marketing plan

On August 2008, Electronic Arts (“EA”) launched Procter and Gamble’s ("P&G") joined together to promote P&G’s subsidiary Gillette. The strategic alliance is now the subject of a lawsuit filed by Alternative Productions, Inc. (“API”) against P&G in Massachusetts federal court on August 23, 2011.

API alleges that a former P&G marketing consultant, Michael Fuccillo, approached it in June 2007 to discuss a strategic plan for a Nascar promotional campaign for Gillette. API delivered a marketing plan which included the “novel idea of establishing online, console-based gaming tournaments” through a partnership with EA. Fuccillo, however, informed API that Gillete had rejected the plan, which nonetheless became integrated into a larger marketing campaign produced by Gillette’s principal advertising agency.

API asserts that Fuccillo shared its strategic alliance plan with other P&G employees, in breach of his non-disclosure agreement with API. Additionally, it argues that P&G knew or should have known that the alliance plan with EA did not originate with Fuccillo, whose duties at P&G did not include creating marketing ideas.

Defendant's motion to dismiss the case for lack of jurisdiction is currently pending before the Court.

January 30, 2012 | California Court of Appeal, Second Appellate District, Division Eight
Ex- game co. employee did not sufficiently keep his list of industry contacts secret to survive summary judgment in trade secrets action against former employer

The Second Appellate District, Division Eight of the California Court of Appeal, in Blackwell v. Blizzard Entertainment, Inc., recently upheld the lower court’s summary judgment dismissal of Blackwell’s claim against his former employer Blizzard. Blackwell, who worked as a sound engineer for the popular video game developer, claimed that Blizzard had raided his list consisting of contact information for voice actors that he assembled over many years working as a freelancer. Blackwell had previously freelanced for Blizzard as well, but eventually became a full employee. Once he joined Blizzard’s staff full-time he was required to turn over his list of contacts. The court, in upholding the dismissal of Blackwell’s claims, noted that he utterly failed to indicate that his list was in any way intended to be confidential. Blackwell did not have discussions regarding the trade secrets status of his list, make any steps towards establishing non-disclosure agreements, or cease "routinely forwarding" contact information from his list to other Blizzard employees. Thus Blackwell could not conceivably meet the “reasonable efforts to maintain secrecy” requirement of trade secrecy under California’s version of the Uniform Trade Secrets Act.

January 23, 2012 | United States Court of Appeals for the Fifth Circuit
Fifth Circuit finds that conduct that may cause market disruptions for a trade secret owner constitutes “use” of a trade secret in a claim of misappropriation

In Bohnsack v. Varco, L.P. the Fifth Circuit revisited the meaning of “use” of a trade secret in a claim of misappropriation. The court concluded that the jury had sufficient evidence to find that Varco. L.P. (“Varco”) misappropriated and used information that Clyde H. Bohnsack, a drilling fluids engineer, developed for the “Pit Bull,” a device that increased the efficiency of the process for drilling fluid cleaning. Varco and Bohnsack entered into negotiations in 2003 to manufacture and market the Pit Bull but the deal broke down. Varco then sought a declaratory judgment holding that it did nothing wrong in its dealings with Bohnsack, who counterclaimed that Varco had misappropriated trade secrets relating to the Pit Bull.

In a de novo review, the court defined “use” as “any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant.” The jury therefore properly found that Varco “used” Bohnsack’s trade secrets because Varco’s actions would have 1) lowered the market value of the Pit Bull and 2) ensured that Bohnsack would be unable to find another manufacturer to compete with Varco. For example, Varco produced devices that could have competed with the Pit Bull for market share, if the Pit Bull was manufactured for sale. It also filed a patent application to the Pit Bull that would result in injury to Bohnsack by lowering the market value of Bohnsack’s invention.

January 18, 2012 | United States District Court for the District of Oregon
Oregon Food Co. Reser's Claims Former Business Partner Stole Trade Secret Baking Technique

In a complaint filed mid-January 2013 in Oregon Federal District Court, Oregon company Reser’s Fine Foods Inc. (Reser) claimed former corporate partner Bob Evans Farms (BEF) misappropriated Reser trade secret baking techniques. The law suit comes in the wake of the two companies’ split last year, and BEF’s subsequent development and market for sale of a competing line of pre-made meal side dishes. According to the complaint, Reser and BEF had a business partnership since the mid 1990’s, in which Reser sold private label food products for BEF to re-sell. Reser alleges that through this relationship, BEF was able to access confidential information of Reser innovative product lines, processing of products, packaging techniques, market research and analysis. The Reser allegations include counts of trade secret misappropriation, breach of non-disclosure and confidentiality agreements, and conversion under Ohio and Oregon state law. The suit was accompanied by an application by Reser for a protective order, granted January 18, 2013, and Reser’s motion for a preliminary injunction against BEF filed the same day.

Reser is Oregon’s 6th largest company, having prepared refrigerated food since the 1950’s, selling their products locally and nationally to restaurants and supermarkets. In part of their seventeen-year business relationship, Reser and BEF parties executed a Mutual Confidentiality and Non-Disclosure Agreement in January 2008, forbidding BEF from using Reser proprietary information to make and sell imitation or comparable products. The agreement terms applied to both parties and outlined a mutual information sharing arrangement “enabling Reser and BEF to freely engage in discussions and information sharing to benefit their mutual business interests and relationship on the condition that such information and technology be kept confidential and not be used except as provided” (Complaint, 8). The agreement also made specific reference to “recipes and formulas” as potential proprietary information contemplated under the mutual agreement. Accordingly, the crux of Reser allegations stem from a proprietary and innovative “Baked process,” to which BEF gained access through this mutual relationship. Reser contends that the “Baked process” is innovative and uniquely creates refrigerated food items with a crunchy, caramelized, browned top layer over a creamy bottom layer when reheated. When the Reser-BEF business relationship dissipated in August 2012, Reser notified BEF it would no longer accept orders for BEF side-dishes, but instead purchased the “Kettle Creations” company to produce similar food items. After this acquisition, Reser claims that BEF continued to manufacture and sell its own side-dishes, using the same UPC codes that were used for Reser products. For Reser, this act is significant because UPC codes are product and ingredient-sensitive and cannot be changed without notification to the retailer, demonstrating that the new BEF side-dishes were identical to the Reser “Baked” products.

While Reser ‘s complaint takes important measures to outline their company history, financial objectives, and proprietary “Baked process” at issue, the filing may fall short of some elements required for a valid trade secrets misappropriation claim under Ohio State law. Specifically, the complaint lacks specific examples showing that their “Baked process” was actually kept secret, or that reasonable measures were taken to maintain its secrecy. Moreover, Reser contends that it “relied on protections of the signed NDA” when it disclosed its confidential information to BEF, and that the information was secret because the Reser “employee manual expressly prohibits Reser employees from divulging company trade secrets and makes clear that an employee who does will be subject to discipline for doing so” (Complaint, 10). However, the complaint makes no specific reference to how the “Baked process” technology was kept secret by Reser, and instead highlights several instances where this technology was shared and made readily available for BEF executives.

The lawsuit is active and pending in front of Chief Judge Ann L. Aiken United States District Court for the District of Oregon in Portland.

January 9, 2012 | United States District Court for the Southern District of New York
After battling a rival video-game developer for over two years in Korea, NCSoft now brings the fight to U.S. courts

Having launched a criminal investigation and a civil litigation in the Republic of Korea, NCSoft Corporation and NC Interactive, Inc. (collectively, “NCSoft”) now bring their court battle against rival, Bluehole Studio, Inc. (“Bluehole”) and its U.S. subsidiary, En Masse Entertainment, Inc., to the Southern District of New York. NCSoft alleges that the founders of Bluehole Studio—former employees of NCSoft—took “copious amounts” of confidential and proprietary NCSoft information, computer software, hardware and artwork relating to a popular “massive multiplayer online role-playing game” (“MMORPG”), Lineage 3. NCSoft continues to state in its complaint that the former employees planned to create a competing product using the same work they did for developing Lineage 3 while at NCSoft.

In 2009 the former employees were convicted by a Korean criminal court for the theft of valuable trade secrets from NCSoft and the convictions were upheld in part by the appellate court. A year later, a Korean civil court held that the same employees misappropriated NCSoft’s trade secrets and awarded NCSoft damages in addition to an injunction preventing the employees and Bluehole from further using NCSoft’s trade secrets. On appeal, a Korean appellate court upheld the injunction but reversed on damages. Currently, the criminal convictions and civil judgment are pending on appeal before Korea’s highest court.

NCSoft and Bluehole’s court battle now crossed the seas into the U.S. since Bluehole announced plans to release in the spring of 2012 an English-language version of a 2011 Korean MMORPG, TERA, which was allegedly developed using NCSoft trade secrets, notwithstanding the injunction from the Korean civil court.

NCSoft is seeking a preliminary and permanent injunction to prevent Bluehole from launching TERA in the U.S. Alternatively, it seeks damages for the “substantial harm that such a launch will inevitable cause NCSoft.” NCSoft’s other claims in the complaint include copyright infringement, breach of confidence, unfair competition and unjust enrichment.

January 9, 2012 | United States District Court for the Western District of New York
WDNY denies summary judgment to defendants seeking to avoid enforcement of “anti-raiding” provision in employment contracts

The Western District of New York recently denied summary judgment to defendants Jarrett and Kurtz, former employees of plaintiff Renaissance. Renaissance, a company working within the dairy industry to provide vitamin and mineral supplements for cows, alleged that the defendants conspired to resign simultaneously to form a competitive company, “Cows Come First,” and to take several former Renaissance employees with them. Renaissance asserted that this was in violation of a “non-recruitment” or “anti-raiding” clause incorporated into the defendants’ contracts. The clause essentially prohibited any attempts to “solicit, divert or take away” employees of Renaissance to competitive ventures for 5 years after leaving. The court denied the defendants' motion, stating that the plaintiff had a legitimate interest in protecting client relationships developed at its expense, and that it had provided enough supporting facts regarding the alleged breach to survive summary judgment. The court also noted that other defensive arguments, such as geographic and temporal overbreadth and coercion, were accompanied by insufficient preliminary evidence and would be best left to a trier of fact.