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Reser's Fine Foods Inc. v. Bob Evans Farms Inc. et al
January 17, 2013 | 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.

Charles Schwab & Co. Inc. v. Douglas Castro
January 7, 2013 | United States District Court for the Eastern District of New York
Ex-Charles Schwab employee Alledgedly Recruits Former Clients to Join New Competing Financial Group

Securities brokerage firm Charles Schwab & Co. Inc. has filed suit against former financial consultant Douglas Castro, employed in the brokerage’s Garden City, New York office from until December 2011, when he allegedly abruptly left Schwab and immediately began work at ADC Wealth management, Castro’s newly formed wealth management firm. Schwab’s complaint alleges that Castro was responsible form managing a portfolio worth neatly $275 million, and possessed voluminous information about his former clients and access to extensive amounts of client account information, assets and tax information, as well as investment objectives and other client financial records. The Schwab brokerage complaint includes allegations of Castro’s breach of contract, misappropriation of trade secrets, breach of duty of loyalty, and unfair competition. According to Schwab, Castor utilized Schwab trade secret customer information without authorization, and therein misappropriated said information by soliciting Schwab clients for his newly formed competing firm ADC Wealth Management (ADC).

Not surprisingly, Castro executed confidentiality, non-solicitation and assignment agreements that barred him from using Schwab customer information to divert Schwab business to a new company or solicit Schwab clients to transition their accounts outside the brokerage. In the terms of his agreement with Schwab, Castro agreed not to solicit Schwab customers upon the termination of his employment, to protect the confidentiality of customer information, and not to use or disclose Schwab's confidential information for any purpose aside from performing his duties and responsibilities on behalf of Schwab” (Complaint, 5). According to Schwab, Castro violated the terms of this agreement after he quit and subsequently contacted Schwab clients with accounts he managed, in attempts to have these individuals transfer their accounts to Castro’s new firm. The case against Castro presents a familiar factual import where a former employee is alleged to have violated previous contractual and statutory obligations not to utilize investor-client information for financial or personal gain. Here, Schwab asserts that Castro could not have possibly learned of the identities of the individual he solicited for ADC’s business services without the information Castro obtained through Schwab.

However, somewhat unique to the case at bar is that both the identities of the Schwab customers themselves, in addition to their respective financial portfolio and wealth management information are seemingly claimed as Schwab trade secrets in this matter. While simply customer names themselves are likely not considered trade secret information, generally customer lists developed by a business through substantial effort and kept in confidence may be treated as a trade secret and protected at the owner's instance against disclosure to a competitor, provided the information it contains is not otherwise readily ascertainable. See North Atlantic Instruments v. Haber, 188 F.3d 38 (2d Cir. 1999). Determination of whether the Schwab customer information is trade secret will include a consideration of the cost, energy, and time taken by Schwab to cultivate their customer information, a question of fact rather than law. Importantly, the complaint goes to great lengths to outline the steps taken by Schwab to maintain the secrecy of their client information, an essential element for client-lists to be considered trade secrets under common law and count III of the complaint at bar. No answer has been filed by Fisher and Phillips LLP, the New Jersey firm representing Douglas Castro.

National Jewish Health v. WebMD Health Services Group, Inc. et al
October 25, 2012 | United States District Court of the District of Colorado
Colorado Hospital Sues WebMD for Missappropriating Trade Secrets Related to "Tobacco Cessation and Weight Management" Software Programs

On October 25, 2012, National Jewish Health (“NJH”) brought suit against WebMD Health Services Group, Inc. and WebMD Health Corp.(collectively “WebMD”) in the United States District Court of the District of Colorado. The suit claims copyright infringement and contributory copyright infringement, misappropriation of trade secrets, tortious interference with prospective business relations, conversion, and unjust enrichment under Colorado law, and breach of contract under New York law.

NJH is a Colorado-based nonprofit hospital; U.S. News & World Report has ranked NJH the #1 respiratory hospital in the nation for fifteen consecutive years. According to the Complaint, between 2002 and 2008, NJH developed “a set of software implemented wellness programs, including its FITLogix® and QuitLogix® programs.” (collectively “Programs”) The Programs help assist users with obesity and tobacco addiction, respectively. On February 4, 2010, NJH entered into a non-disclosure agreement (“NDA”) with WebMD related to “Tobacco Cessation and Weight Management programs.” (“T&W programs”) Pursuant to the NDA, NJH presented WebMD with “Confidential Information” related to the Programs, including “operations, finances, plans and trade secrets . . . .” – all of which were proprietary information not known to the public.

In May 2010, NJH began negotiations with Lowes, Inc. (“Lowes”) to implement one or both of the Programs. After a “trial period,” during which NJH satisfied all of Lowes “approval criteria,” Lowes opted not to implement the Programs. NJH later learned that Lowes contracted with WebMD to implement WebMD’s program “My Lifetrack,” which “highly resemble(s)” the Programs. NJH alleges “My Lifetrack” uses “substantial portions of the [Programs’] sequencing, screen displays, textual material, and other content." Prior to its agreement with NJH, WebMD did not “offer either stand-alone obesity or smoking cessation programs.”

In its NDA with NJH, WebMD was only permitted to use the Confidential Information related to the Programs for an “Authorized Purpose” – this was loosely defined in the Complaint as relating to “a potential business relationship or transaction [between NJH and WebMD] related to [T&W programs].” NJH’s misappropriation of trade secrets claim is based on WebMD’s alleged use of NJH’s Confidential Information (including its trade secrets) for unauthorized purposes, including “enter[ing] into the market for [T&W programs] . . . .” NJH seeks to enjoin WebMD from further implementing “My Lifetrack,” and also seeks damages (including punitive), and reasonable attorney’s fees.

This is the second trade secret misappropriation suit that WebMD is currently litigating. The first, WebMD Health Corp. v. Anthony T. Dale, is pending trial in the Eastern District of Pennsylvania. It features WebMD in a reversed role - suing a former employee for alleged misappropriation of WebMD's trade secrets.

A.R. Schmeidler & Co., Inc. v. Michael Kahn and UBS Financial Services, Inc.
October 18, 2012 | Supreme Court of the State of New York
ARS Accused Ex-Employee of Breaking "Code of Ethics" and Stealing Trade Secrets for New Employer UBS

On Thursday, October 18, 2012, investment firm A.R. Schmeidler & Co. Inc (“ARS”) brought suit against its former Senior Vice President Michael Kahn, as well as Kahn’s new employer UBS Financial Services, Inc. (“UBS”) (collectively “Defendants”). ARS alleged Defendants stole and unfairly utilized confidential and proprietary information related to ARS’ clientele. In addition to its common law claim for Misappropriation of Trade Secrets, ARS also brought causes of action for: Breach of Contract; Unfair Competition; Breach of Duty of Loyalty; Tortious Interference; and Conversion.

In its complaint, ARS alleged that after Kahn abruptly resigned from UBS, he “systematically contacted ARS’s clients” to discuss “their specific account and performance,” as well as “ different investment opportunities available at UBS.” His conduct – if true – could be in violation of a “Code of Ethics agreement” that Kahn had agreed to as part of his employment with ARS. The agreement requires Kahn to “maintain ARS’s confidential client information and not divulge such information to third parties” after termination. ARS asserts its client list is also a trade secret, as evidenced by the amount of resources ARS expended to compile the non-publicized list of “high net worth individuals in need of investment management and services.”

In addition to damages, ARS seeks both preliminary and permanent injunctive relief against Defendants. The proposed injunctions would enjoin Defendants them from using “ARS’s trade secrets or confidential client information, including client lists, client account values, performance, investments and holdings or by soliciting any of ARS’s clients that were procured by ARS . . . .”

Zynga Inc. v. Alan Patmore et al.
October 12, 2012 | Superior Court of the State of California
Zynga Alleges Ex-Employee Used a Personal Dropbox Account to Steal the Company's Trade Secrets

On October 12, 2012, Zynga Inc. (“Zynga”) brought suit in California Superior Court against former employee Alan Patmore for Misappropriation of Trade Secrets and Breach of Contract. The suits concerns theft of confidential information related to Zynga’s online games, and includes additional defendants (“DOES 1 through 50”) whom Zynga does not yet know the identity of, but who allegedly aided and abetted Patmore’s wrongful conduct.

Zynga, Inc. is a San Francisco-based online social gaming company, responsible for popular games such as CityVille and Words With Friends. Patmore was the General Manager for CityVille at Zynga, and signed a Confidentially Agreement with Zynga pursuant to his employment. The contract obligated Patmore to protect Zynga’s confidential, proprietary, and trade secret information. However, on August 16, 2012, Patmore resigned from Zynga. Zynga alleges that at that time (if not earlier), Patmore had been recruited by, and agreed to join, Zynga’s competitor Kixeye. On the day of his departure, Patmore allegedly transferred 760 confidential Zynga files to his personal Dropbox account without Zynga’s consent, which he intended to provide to Kixeye. During Patmore’s exit interview, he refused to sign a Termination Certification that he had complied with his prior contractual obligations.

Zynga alleged that the stolen information – which includes “unreleased game design documents” and other “strategic roadmaps”– could be used to improve Kixeye’s “internal understand and know-how of core game mechanics and monetization techniques, its execution, and ultimately its marketing standing to compete more effectively with Zynga.” According to the complaint, Patmore attempted to cover up his conduct by uninstalling Dropbox. However, Patmore’s attempts were apparently unsuccessful, and “he left a forensics trial of his wrongful conduct.” Both the relatively new subject matter of the claim (i.e. “free-to-play online social games”), as well as the defendant’s alleged use of cloud technology to misappropriate his employer’s trade secrets, make this an interesting case and one to follow as the litigation moves forward.

UPDATE: Kixeye's CEO Will Harbin fired back at Zynga: "Zynga is burning to the ground and bleeding top talent and instead of trying to fix the problems -- better work environment and better products -- they are resorting to the only profit center that has ever really worked for them: their legal department." Two weeks after making that statement, Zynga expanded the suit to include Kixeye as named Defendants.

National Oilwell Varco LP v. Ceram-Kote Inc. et al.
October 4, 2012 | 234th Judicial District Court of Harris County, Texas
Trade Secret Holder Files for Injunctive Relief After Employee Confesses to Accepting Bribe from Competitor

On October 4, 2012, National Oilwell Varco LP (“NOV”) petitioned for a Temporary Restraining Order (TRO) and Injunction against its competitor Ceram-Kote, Inc., (“Ceram-Kote”), Ceram-Kote’s President Kevin Freeman, and former NOV employee Nelson Calderon (collectively “Defendants”). NOV brought the suit in Texas State court to stop Ceram-Kote from producing a “knock-off blast unit” that Ceram-Kote allegedly misappropriated from NOV.

NOV claims that “Ceram-Kote along with its president, Kevin Freeman, secretly recruited and paid Nelson Calderson – while he was still working at [NOV] --to build a knock-off of a . . . sophisticated piece of [NOV] industrial machinery,” which was an NOV trade secret. Calderon had access to highly confidential information by virtue of his employment with NOV, and had signed multiple confidentially agreement with the company. After NOV received an anonymous tip about a possible knock-off blast unit at Ceram-Kote, it approached Calderon, who confessed to accepting a bribe from Freeman and providing him with confidential designs.

Per NOV’s filing: “Rather than investing in research and development themselves, they decided to cheat — by paying a [NOV] employee $40,000 to design a large scale blast unit for them by using [NOV's] proprietary technology.” In addition to NOV’s claim for misappropriation of trade secrets pursuant to the Texas Uniform Trade Secrets Act, NOV brought additional causes of action for breach of contract[s], tortious interference with a contract, conversion, conspiracy, unjust enrichment and constructive trust.

King v. Mötley Crüe, Inc. et al.
September 20, 2012 | Superior Court of the State of California
Former Stage Designer Sues Mötley Crüe Over Idea For "Tommy Lee Loop Coaster"

On September 20, 2012, Howard Scott King brought suit against popular rock band Mötley Crüe (itself, its touring company and bassist Tommy Lee as an individual, collectively “MC”), for misappropriation of trade secrets in the Superior Court of California. The suit relates to MC’s allegedly unlawful use of King’s proposal for a “Tommy Lee Loop Coaster” (“Coaster”).

According to his complaint, King developed the idea for the Coaster as part of his now defunct business “Stages ‘N’ Motion.” King described it as “a track on which [Tommy Lee] would play his drums on a platform on wheels which follow the track until Lee was in an upside down position playing the drums and he would continue playing the drums as the platform followed the track in a complete loop.” On or about November 21, 1991, King alleged that he discussed a proposal for the Coaster with Top Rock Development Corp. (MC’s agents). King claims that both the proposal, as well as a signed confidentiality agreement (which has since been lost or misplaced), expressly stated that the ideas were confidential, and that King was to be compensated should MC implement the Coaster. In June 2011, MC begin using the Coaster, or a substantially similar device, as a centerpiece for concerts, as well as in commercials and other promotions.

(link to video of device in question)

King brings trade secret misappropriation actions under both the California Uniform Trade Secret Act (CUTSA), as well as common law. The key difference between the claims is that the CUTSA claim seeks relief in the form of actual damages ($400,000), or in the alternative, a “reasonable royalty”; conversely, the common law claim does not seek a reasonable royalty damages award. Both claims seek injunctive relief, as well as punitive damages in light of MC’s alleged “willful and malicious” conduct.

United States v. Kolon Industries, Inc. et al.
August 21, 2012 | United States District Court for the Eastern District of Virginia
Department of Justice Brings Criminal Trade Secret Misappropriation Charges Relating to Alleged Theft of DuPont's Kevlar™ Technology

On October 18, 2012, the Department of Justice unsealed an August 21st indictment against Kolon Industries, Inc. and five its executives (“Kolon”) in relation to Kolon’s alleged theft of E.I. du Pont de Nemours and Company’s (“Dupont”) Trade Secrets. The government brought criminal trade secret misappropriation charges pursuant to the Economic Espionage Act, accusing Kolon of engaging in massive industrial espionage over a six-year period in an effort to steal Dupont’s proprietary Kevlar™ technology.

DuPont had previously brought civil charges against Kolon in relation to the same alleged misconduct, which resulted in a damage award of almost $920 million and injunctive relief. In a statement responding to the charges, Kolon’s counsel accused the DOJ of “effectively assist[ing] DuPont in improperly extending [the company’s] monopoly over [Kevlar] technology beyond the limited term provided by the U.S. Patent laws.”

Baker Hughes Inc. v. Tian
August 6, 2012 | 295th Judicial District Court of Harris County, Texas
Baker Hughes Accuses Departing Scientist of Leaving Confidential Information

On August 6, 2012, Plaintiffs Baker Hughes Incorporated and Baker Petrolite Corporation (collectively “Baker”) filed an application seeking a temporary restraining order, and a temporary and permanent injunction against its former employee, Defendant Jun Tian (“Tian”). Plaintiffs allege Defendant misappropriated “confidential information and trade secrets, resigned from [Plaintiffs’ company], and went to work for a direct competitor, Multi-Chem Group LLC (‘Multi-Chem’).” Defendant has refused to return said information, and Plaintiffs seek to enjoin Tian from every using or disclosing it.

Plaintiffs offered specific details regarding the events leading up to the lawsuit. Tian was a Senior Development Engineer on Plaintiffs’ “Flow Assurance” work group, as part of which he played “a critical research and development role,” had access to confidential information and was “a listed inventor on several patents and patent applications.” Tian entered into an explicit “Employment Agreement” with Plaintiff that barred him from disclosing Plaintiffs’ confidential information. After resigning, Tian allegedly acted “suspiciously” and was “tight-lipped” at his exit interview. This, combined with reports from fellow employees that Tian had downloaded work files to an external harddrive prior to his departure, lead Plaintiffs to perform a forensics investigation of Tian’s harddrive. At the close of the investigation, Plaintiffs concluded that Defendant had transferred proprietary information to an external harddrive without authorization.

In addition to the trade secrets misappropriation claim, Plaintiffs also allege causes of action for breach of contract, threatened misappropriation/inevitable disclosure, breach of fiduciary duty, unjust enrichment and conversion.

One of the first issues that will likely arise is the fact that Plaintiffs did not specify exactly what confidential information Tian allegedly took. Plaintiffs are understandably hesitant to commit this information to public record, and will likely seek a protective order and/or in camera review by the Judge. Interestingly, even if Plaintiffs fail to prove that Tian took confidential information, the court could still bar Defendant from working at Multi-Chem through the inevitable disclosure claim.

AFA Dispensing Group B.V. et. al. v. Anheuser-Busch InBev S.A. et al.
July 10, 2012 | Circuit Court of St. Louis
Designing Group Claims Anheuser-Busch Pilfered Group's Confidential Design For a Home Beer Tap

AFA Dispensing Group B.V. and Dispensing Technology (collectively "plaintiffs") have brought suit against Anheuser-Busch InBev S.A., Anheuser-Busch InBev Worldwide, Inc. and Anheuser-Busch, LLC (collectively "defendants"), claiming violation of the Missouri Uniform Trade Secrets Act, as well as Breach of Contract. The basis of the claim is plaintiffs' allege trade secret in a "Confidential Dispensing Technolog[y]" dubbed a "'bag-in-bottle' dispensing system."

According to the Complaint, the parties had engaged in preliminary talks for defendants to license the technology. During these talks, plaintiffs took extensive efforts to alert defendants that the dispensing technology in question was a confidential trade secret. At some point, defendants broke-off negotiations, and proceeded to patent plaintiffs' confidential bag-in-bottle technology, which it eventually marketed under the name "Draftmark." Moreover, plaintiffs allege that this was not the first time that defendants engaged in such inscrutable behavior; a high-ranking executive at defendants' company allegedly bragged about stealing other companies intellectual property, using vulgar and obscene metaphors to describe its actions.

This situation -- in which confidential information is misappropriated through licensing negotiations -- is not uncommon, and often hinges upon the specific facts of the case, the precautions taken by the trade secret holder, and the relative industry standards. Since this claim is based in Missouri (a state with a Uniform Trade Secrets Act), plaintiffs will not have to prove the trade secret was "continuously used" in its business, which is required under the Restatement of Torts definition for a trade secret. The requirement can be an obstacle for companies that bring trade secret claims based on the misappropriation of a new product idea. However, given that the design would have lost secrecy as soon as it was sold to the public at large (or patented), it will be interesting to see how the court levies damages, assuming plaintiffs succeed on their claim.

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