Recent Decisions and Case Developments

Zylon Corp. v Medtronic, Inc.
March 3, 2016 | Appellate Division, First Department, New York Supreme Court
Zylon Raises Triable Issues of Fact in its "Zero-Fold" Catheter Suit

A New York state appellate division court affirmed the lower court’s ruling that rejected a motion to dismiss trade secrets misappropriation and unfair competition claims where such claims raised triable issues of fact about the alleged trade secrets.

Plaintiff Zylon Corp. is a company that focuses on developing new technologies relating to medical materials, medical devices, and catheters. Defendant Medtronic, Inc. is a medical device designer and manufacturer. In 2005, the parties entered into an Evaluation Agreement whereby Zylon Corp. would create a “zero-fold” balloon to be used in angioplasty catheters for Medtronic. As part of the Agreement, all information and processes developed through the course of the project were to be confidential and the property of Medtronic.

In 2008, Zylon brought suit against Medtronic, alleging that after disclosing the Zylon design and manufacturing process of creating the “zero-fold” balloon to Medtronic as a part of their confidential relationship, Medtronic misappropriated trade secrets and confidential information related to the process to create a balloon component for a different product, the Sprinter® Legend Semicompliant Rapid Exchange Balloon Catheter. Zylon argued that the information provided to Medtronic included Zylon trade secrets, outside of the Agreement’s confidential information.

The appellate division court affirmed the decision because Zylon raised triable issues of fact about the trade secret process for creating “zero-fold” balloons and whether a protectable trade secret existed. Medtronic failed to demonstrate that the information it used to create its own catheters was the same confidential information pursuant to the Agreement. As such, the court affirmed the lower court, rejecting Medtronic’s bid to dismiss Zylons claims.

United States of America v. Yihao Pu
February 24, 2016 | United States Court of Appeals for the Seventh Circuit
7th Circuit Overturns Trade Secret Theft Damages Calculation

The 7th circuit vacated a $760,000 restitution penalty and three-year prison sentence against Yihao Pu. Pu allegedly used two employers’ proprietary stock trading programs for personal trading and lost $40,000.The U.S. Sentencing Commission’s guidelines permit district courts to determine the “intended loss” to the victim of trade secret theft when no “actual loss” occurs. However, on February 24, 2016, the 7th Circuit held that if a district court holds that the “intended loss” holds the same value as the cost of development of the trade secret, the court must have evidence that the defendant “intended to cause a loss to the victims that equaled the cost of development. On remand, the district court will have to reconsider Pu’s evidence that the loss to his employers was at most, $2,000. The 7th Circuit also held that the district court could consider Pu’s gains in determining an “intended loss” figure, but here it appeared that Pu did not have any financial gains from the use of the software.

Part of the original $760,000 included costs incurred to conduct an internal investigation to uncover Pu’s theft, including attorney’s fees for over 300 hours of work by lawyers, paralegals and legal assistance, 1,818 hours of forensic analyst work, as well as divers to retrieve hard drives from a canal. The Circuit court also held that plaintiff Citadel failed to give a complete accounting to support these figures used to calculate the $760,000 restitution. Without giving a further explanation through evidence “of how each professional’s time was spent investigating the data breach,” Citadel will not be awarded the full $760,000 restitution. For more details, read the full decision below.

Adidas America, Inc. et al v. Skechers USA, inc.
February 12, 2016 | Oregon, U.S. District Court in Portland
Adidas Files Patent Infringement Suit Against Skechers

On July 11, 2016, Adidas filed suit against Skechers in the U.S. District Court in Portland, Oregon for willful infringement of two patents related to Springblade, a shoe design intended to help propel runners move forward. Adidas accused Sketchers of developing its Mega Flex shoes as "takedowns" that copy the Springblade technology without the cost of creating it. Adidas is seeking an injunction against any infringement and triple damages.

This is Adidas' second lawsuit against Skechers in less than a year. Last September, Adidas filed suit against Skechers for illegally copying the design for its classic white Stan Smith tennis shoes. Adidas was awarded a preliminary injunction in February 2016 and it scheduled for a jury trial in May 2017.

The patents at issue are U.S. Patent Nos. 9,339,079 and 9,345,285, both issued in May 2016.

Updates to follow.

Ironworkers District Council of Philadelphia & Vicinity Retirement & Pension Plan v. Lamberto Andreotti, et al., and E.I. DuPont De Nemours and Company
January 28, 2016 | Supreme Court of the State of Delaware
Delaware Supreme Court Says Trade Secret Violation Can Be A Valid Business Judgment

When DuPont wasn’t able to create a product that could compete with “Roundup Ready,” it created a product that combined its own technology with that of Monsanto, the original “Roundup Ready” manufacturer. Monsanto sued DuPont for patent infringement, resulting in a settlement in which DuPont agreed to pay Monsanto $1.7 billion over ten years in exchange for a licensing agreement. One of DuPont’s stockholders, a Pennsylvania pension fund, brought a derivative suit against DuPont for breach of fiduciary duty in connection with DuPont’s “combined technology” product. In May 2015, the Delaware Chancery Court dismissed the derivative lawsuit, but another investor attempted to revive the derivative suit. The Chancery Court said the investor failed to show that the board’s refusal to take legal action was an invalid exercise of business judgment. On January 28, 2016, the Chancery Court affirmed the dismissal of the derivative suit.

United States of America v. Alberto Valle
December 3, 2015 | The United States Court of Appeals for the Second Circuit
Second Circuit Limits CFAA in Cannibal Cop Case

About two years ago Alberto Valle, later known as the “Cannibal Cop,” was convicted of being involved in a criminal conspiracy to kidnap and violating the CFAA by using his work access as a New York City Police Officer to further his conspiracy. After his jury conviction, Valle filed a motion for acquittal on both charges. The district court granted his motion on the kidnapping charge, finding that there was a lack of sufficient evidence to establish the kidnapping conspiracy, but denied the motion on the CFAA charge. The Second Circuit then reviewed the case and found in favor of Valle because the language of the CFAA was ambiguous.
“The CFAA imposes both criminal and civil liability for anyone who ‘intentionally accesses a computer without authorization or exceeds authorized access,’ and in doing so ‘obtains…information from any protected computer.’”18 U.S.C. §1030(a)(2)(C). The crux of the decision and the circuit split is based on the meaning of the phrase “exceeds authorized access.” The First, Fifth, Seventh and Eleventh Circuit Courts have all held that the language in the CFAA is clear and has broader application- that “under the statute you’re not entitled to use your company access to obtain information for a purpose not permitted by your employer.” However, the Second Circuit in Valle joins the Fourth and Ninth Circuit in holding that the CFAA has a much narrower application- Valle’s activity does not violate the CFAA because Valle was authorized by his employer to access the information he accessed- it doesn’t matter that Valle’s purpose for seeking the information was outside the scope of his employer’s authority. Though the Second Circuit saw the merit in the view adopted by the First, Fifth, Seventh and Eleventh Circuits, the Second Circuit decided it must find in favor of Valle, the criminal defendant, because of the rule of lenity.
Read the full decision here. It looks probable that this issue will be analyzed by the Supreme Court due to the circuit split that has occurred. Stay tuned for more developments on the interpretation of the CFAA.

Orthofix, Inc. v. Eric W. Hunter
November 17, 2015 | United States court of Appeals for the Sixth Circuit
Sixth Circuit Protects Confidential Information Under Non-Disclosure Agreement

On November 17, the Sixth circuit held that Orthofix, Inc.’s (Orthofix) non-disclosure and non-compete clauses protected Orthofix’s confidential information regardless of whether the information achieved trade secret status or not. The defendant, Eric Hunter (“defendant” or “Hunter”) was a medical device salesman for Orthofix from 2000 to November 2012. Hunter sold bone growth stimulators and Orthofix was among the three main competitors for this type of product. Upon his hiring with Orthofix, Hunter signed an employment agreement that contained both a non-compete and non-disclosure provision. During his time with Orthofix, Hunter developed relationships with prescribing doctors and acquired valuable information about their “schedules, prescribing habits, and preferred brands of bone growth stimulators.”
In July 2012, Hunter and a fellow employee began negotiations to join DonJoy Orthopedics with an area vice president of DonJoy Orthopedics, Orthofix’s competitor. In the course of the negotiations Hunter provided DonJoy with information he had acquired over his past twelve years at Orthofix which he would use if he became employed with DonJoy, “including his Orthofix employment agreement, his W-2 wage statement, copies of his Orthofix sales reports, and an account-by-account breakdown of some of his sales of bone growth stimulators.” Hunter, his fellow Orthofix employee, and DonJoy made a plan for Hunter and his fellow employee to join DonJoy and begin selling DonJoy bone growth stimulators to Orthofix customers. Additionally, Hunter introduced other DonJoy salesmen to Orthofix customers. Hunter also “maintained Orthofix confidential information in the form of documents and spreadsheets on his personal laptop and memory,” including “customer lists, wholesale price information, sales data, staff contacts, physician schedules and preferences, and physicians’ prescribing habits.” Orthofix claimed these materials are protected as a trade secret or as “confidential information” under Hunter’s employment agreement.
In considering the Non-disclosure agreement, the Sixth Circuit applied Texas state law holding that the “confidential information” covered by the agreement was not limited to only trade secrets. Further, the court found that when Hunter promised in the non-disclosure agreement “that he would ‘never use or disclose any confidential information which [he]… acquired during the term of his[] employment with [Orthofix],’” the referenced “confidential information” includes “Orthofix ‘customer lists or identification,’ ‘business and trade practices,’ ‘sales or distribution methods and techniques,’ ‘business strategies,’ ‘and ‘other confidential information pertaining to [Orthofix’s] business or financial affairs.’” The court also found that the non-disclosure agreement was not an unreasonable restraint of trade under Texas law, despite its absence of geographical or durational limits. Since Orthofix’s confidential information is protectable under the non-disclosure agreement and the information is not publicly available or the subject of Hunter’s general knowledge, the non-disclosure agreement is not an unenforceable non-compete agreement under Texas law.

AliphCom Inc. d/b/a Jawbone v. Fitbit Inc. et al.
October 13, 2015 | County of San Francisco, Superior Court of California
Jawbone Obtains Preliminary Injunction Against Rival Fitbit in Trade Secrets Dispute

On October 13 2015, San Francisco Superior Court Judge Harold Kahn issued a preliminary injunction, ordering five Fitbit employees who had formerly worked at Jawbone to return Jawbone confidential information they took before leaving. Judge Kahn agreed with Jawbone that the information taken constituted confidential information and that these employees likely breached their confidentiality agreements with Jawbone when they provided the confidential information to their new employer, Fitbit.

This is the first opinion in the ongoing legal battle between rival wearable fitness tracker makers, Fitbit and Jawbone. Since May 2015, Jawbone has filed three complaints against Fitbit, and in turn, Fitbit has filed two complaints against Jawbone.

In May 2015, Jawbone owner Aliphcom Corp. sued rival Fitbit after its announcement of its initial public offering in California State Court. In an effort to “decimate” Jawbone, Jawbone alleged that Fitbit poached its employees and stole its trade secrets. Per the initial Complaint, Jawbone alleged that Fitbit contacted roughly 30 percent of its workforce in early 2015 and of those contacted, at least five employees had left Jawbone to work for Fitbit. Before leaving, Jawbone alleged that these employees downloaded sensitive information - which included business plans, research, product plans, services, customer lists and data - stored it on thumb drives, and then provided it to their new employer, Fitbit.

In June 2015, a week before Fitbit’s IPO, Jawbone filed a second lawsuit in California federal court, alleging that each of Fitbit’s products infringed at least one of three Jawbone patents. Then, in July 2015, Jawbone petitioned the U.S. International Trade Commission to block imports of Fitbit’s products, alleging patent infringement. In August 2015, the ITC posted a short notice online stating that the agency will investigate whether Fitbit has been importing infringing fitness tracking devices.

In response, on September 3rd, Fitbit Inc. accused Jawbone of patent infringement in a suit filed in Delaware federal court and then on September 8th, Fitbit filed another patent infringement suit in California federal court.

Schroeder v. Pinterest Inc.
October 6, 2015 | Appellate Division, First Department, Supreme Court of New York
NY Appellate Court Revives Claim Against Early Equity Investor in Pinterest

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.

USA v. Huang
October 2, 2015 | United States District Court for the Western District of North Carolina
Huang Pleads Guilty to Theft of Trade Secrets

On October 1, 2015, Chinese businessman, Xiwen Huang, pled guilty to theft of trade secrets under 18 U.S.C. 1835(a)(2). According to the Bill of Information, between September 2006 and May 2015, Huang "schemed and stole trade secrets from companies within the United States and intellectual property from the United States government...to further his aspirations of forming and operating his own company in the People's Republic of China." Huang received his Bachelor's of Science and Masters Degrees in chemical engineering from Tianjian University in China, and then came to the United States to obtain a doctorate in chemical engineering from Auburn University. According to the Bill of Information, while an undergraduate student, Huang wrote that he "'had a dream of learning more advanced technology to serve [his] homeland' China and decided that to 'fulfill [his] wish' he needed to go abroad and then 'return to China with [his] newly acquired methodology and research skills to teach in China.'"

In 2009, Huang became a naturalized citizen of the United States. Huang worked for numerous companies in the United States as well as a research facility operated by the United States government. Beginning in 2012, Huang incorporated a company in North Carolina and began negotiating with various Chinese companies to bring the technology he learned back to China. Huang engaged in a joint venture arrangement with a Chinese company where Huang was responsible for providing the technology, including the stolen United States intellectual property, and the Chinese company was responsible for supplying the necessary capital. In April of 2014 Huang moved back to China to work for the newly created company, taking stolen confidential and proprietary information with him. Upon attaining his previously stated goals, Huang wrote a document titled, "Trip of Dream Realization" in which he described his "scheming" and "planning" to steal United States Intellectual Property. Huang also stated that "As the main thrust during [China's] development, it is necessary and obligatory for our generation to fulfill our share of responsibility in contributing towards the societal progress of China." Huang was arrested in May of 2015 when he returned to the United States.

The stolen trade secrets are valued between $65 million and $150 million. During the plea agreement hearing, "prosecutors revealed that Huang has also agreed to now help the U.S. government," though Huang's attorneys would not comment on how Huang will help.

U.S. v. Christina Liew et al.
September 29, 2015 | Northern District of California
After Husband Convicted in Dupont Economic Espionage Case, Wife Gets Probation

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.