Recent Decisions and Case Developments

Plaintiff Theodore F. Schroeder alleged that defendants Brian S. Cohen, New York Angels, Inc. (“NY Angels”), and Pinterest Inc. (“Pinterest”) misappropriated Schroeder's confidential ideas, technology and business plans in developing the popular social network bulletin board, Pinterest.com. In 2005, Schroeder had initially invited Cohen to participate in planning meetings for another project and during these meetings, Schroeder had shared confidential information, which Schroeder alleges Cohen then provided to Pinterest.

On October 6, 2015, the NY appellate court revived the trade secret misappropriation claim, stating that the Complaint provides sufficient support for the trade secret misappropriation claim against Cohen and NY Angels. The court noted that Cohen had indeed been exposed to the confidential information and had provided the confidential information whilst knowing the information must remain confidential. Further, the opinion notes Schroeder’s efforts in trying to maintain secrecy over the technology he worked on for roughly four years. However, the court did not extend the misappropriation claim to Pinterest, as there were no facts in the pleadings demonstrating that there had ever been a confidential relationship established between Plaintiff and Pinterest, let alone any contact between them at all.

Click here to read the full opinion.

On September 29th, 2015, Judge White of a California federal district court accepted Christina Liew’s plea agreement, sentencing her to three years of probation and restitution to the IRS in the amount of $6 million. As part of the plea agreement, Ms. Liew pled guilty to conspiracy to tampering with evidence. Her Husband, Walter Liew, was the first person to be convicted of economic espionage by a U.S. jury in March 2014 and was sentenced to 15 years in prison.

Walter Liew was found guilty of economic espionage and trade secret theft after selling DuPont's coveted titanium dioxide (TiO2) recipe to Chinese state-owned entities. The highly guarded DuPont recipe was used for both the Oreo cream recipe, as well as the manufacturing of paper and plastics.

On August 28, 2015, the Supreme Court of the State of Utah reversed the Utah trial court’s grant of summary judgment to defendant Amanda Mercer, holding that trade secret misappropriation under the Uniform Trade Secrets Act (UTSA) gives rise to a rebuttable presumption of irreparable harm.

In InnoSys Inc. v. Amanda Mercer, plaintiff defense industry technology company sued its former engineer, defendant Amanda Mercer, for violating her non-disclosure agreement and misappropriating the company’s trade secrets, protected material under the UTSA. Mercer had forwarded confidential emails to her private email account and copied a confidential business plan to her own personal external storage device. Further, after InnoSys ended her employment and she was later denied unemployment benefits, she submitted these protected documents into the administrative record of her appeal before the Department of Workforce Services.

The Utah trial court granted Mercer’s summary judgment motion based on InnoSys’ failure to establish any actual or threatened harm. Additionally, the lower court entered rule 11 sanctions against Innosys and awarded Mercer attorney fees. The lower court’s reasoning stemmed in part from the fact that Mercer had apparently destroyed the confidential documents that she misappropriated, thereby defeating the potential for harm to InnoSys.

The state’s Supreme Court reversed the lower court and remanded for further proceedings, reviving InnoSys’ claims against Mercer. Because it was undisputed that Mercer misappropriated these protected documents, the sole issue on appeal concerned the evidence of harm. The Utah high court reasoned that the instant facts demonstrated a prima facie case of misappropriation under the UTSA and thus, gives rise to a rebuttable presumption of irreparable harm. Judge Lee instructed that “trade secrets are a right of property”1 and upon proof of misappropriation, the “trade secret claimant is entitled to a rebuttable presumption of irreparable harm for the purposes of injunctive relief . . . .”2 Judge Lee observed that such a principle is widely accepted under UTSA caselaw and is considered a core standard of trade secret law. Additionally, even though Mercer had apparently destroyed the protected documents at the center of the case, such actions were not sufficient to rebut the presumption of harm to InnoSys. Judge Lee noted that injunctive relief would yield little harm to Mercer if she did indeed destroy the documents, and would provide great protection to InnoSys if she did not, and had intentions to continue misappropriating the confidential information.

1 InnoSys Inc. v. Amanda Mercer, 2015 UT 80U, ¶33.
2 Id. at ¶34.

On June 30, 2015, the Fifth Circuit affirmed the lower court's decision which found Spear Marketing's (SMI) Texas Theft Liability Act and trade secret misappropriation claims precluded by the Copyright Act.

Spear Mktg., Inc. v. Bancorpsouth Bank involved a dispute over cash management software. SMI, producer of the software VaultWorks, alleged that its competitor, Argo, had stolen both technical and business trade secrets related to VaultWorks. On April 1, 2010, SMI had approached Argo to measure Argo's interest in acquiring SMI. In the pursuit of this deal, SMI provided a demonstration of its software and sent Argo screenshots of its software interface. The instant controversy arose when Argo launched its own cash management software at the end of 2011 and SMI's client, BancorpSouth Bank (BCS), had informed SMI that it had no intention of renewing its licensing contract with SMI.

An issue of first impression for the Fifth Circuit, the court confronted the intersection of trade secrets and the preemption purview of federal copyright law. Because processes and methods are excluded from copyright protection per section (102)(b) of the Copyright Act, SMI argued that their trade secrets fell outside the scope of the Act. Thus, the court was presented with whether processes and systems that had been fixed in a tangible medium of expression may be copyrightable subject matter for purposes of preemption, even though such matter may not be copyrightable matter generally.

The court addressed the issue by noting the current circuit split and followed the majority of its sister circuits,* holding that ideas fixed within tangible matter falls within the scope of copyright subject matter for preemption purposes, even if some of the underlying matter is not copyrightable. The court first stated that the Copyright Act protects computer software as a tangible medium. Then the court noted that the ideas that were allegedly stolen were fixed within the provided screenshots and the overall computer software. Therefore, SMI's trade secrets were fixed within the software, falling under the scope of the Copyright Act's preemption provision.

*The Second, Fourth, Sixth, Seventh and Ninth Circuits recognize that the Copyright Act's preemption provision, § 301(a), covers ideas fixed in tangible media. See Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424 (2d Cir. 2012); U.S. ex rel. Berge v. Bd. of Trustees of the Univ. of Ala., 104 F.3d 1453 (4th Cir. 1997); Stromback v. New Line Cinema, 384 F.3d 283 (6th Cir. 2004); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Montz v. Pilgrim Films & Television, Inc., 649 F.3d 975 (9th Cir. 2011) (en banc). The Eleventh Circuit disagrees, finding that ideas are categorically excluded from copyright protection, even if the matter is fixed in a tangible medium. See Dunlap v. G&L Holding Grp., Inc., 381 F.3d 1285 (11th Cir. 2004).