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J. Christopher Burch et al. v. Tory Burch et al.
May 12, 2012 | Court of Chancery of the State of Delaware
Fashion Designer Tory Burch Claims Ex-Husband Stole Her Trade Secrets to Create Knock-Off Brand

On November 5, 2012, fashion designer Tory Burch filed a counterclaim against ex-husband J. Christopher Burch in the Court of Chancery of the State of Delaware. Ms. Burch’s allegations include: Breach of Fiduciary Duty; Breach of Contract; Unfair Competition; and Misappropriation of Trade Secrets pursuant to the Delaware Uniform Trade Secrets Act (“DUTSA”). The counterclaim is in response to Mr. Burch’s original complaint that accused Ms. Burch of Breach of Contract and Tortious Interference.

The conflict stemmed from the October 2011 launch of Mr. Burch’s brand “C-Wonder,” which included a storefront in New York City near Ms. Burch’s original SoHo shop. Ms. Burch alleges that – although she original gave Mr. Burch her approval to launch C-Wonder – he had mislead Ms. Burch by claiming the store would be selling “an assortment of diverse products, including home goods . . . [and] nondescript apparel . . . .” However, Ms. Burch claims that Mr. Burch actually used confidential information that he obtained while serving as both Co-chairperson of, and consultant to, Tory Burch LLC to create a “knock-off” store that sold “cheapened, lower-quality version[s] of . . . Tory Burch brand [items].” Both positions (Co-chairperson and consultant) required Mr. Burch to sign agreements with explicit confidentiality provisions. Ms. Burch claims that her ex-husband personally admitted to “wrongdoing on several occasions.”

Pursuant to the DUTSA, the counterclaim alleges that Mr. Burch used improper means to acquire Tory Burch LLC’s trade secrets, which the company had taken reasonable efforts to protect. Ms. Burch alleges her trade secret information includes “highly confidential data compilations, business methods, techniques . . . .” She is seeking both injunctive and equitable relief.

On December 31, 2012, both parties agreed to a confidential settlement. Businessweek reports that Mr. Burch has agreed to sell half of his share in Tory Burch, LLC, and there's no indication he will be forced to close his C. Wonder product line.

CBS Broadcasting, Inc. v. American Broadcasting Companies, Inc., et al.
May 10, 2012 | U.S. District Court for the Central District of California
CBS Broadcasting sues ABC, Inc. and affiliates for misappropriating secret production processes for the hit CBS show, “Big Brother”

CBS Broadcasting, Inc. (“CBS”) filed suit against ABC, Inc. and the Walt Disney Co. on May 10, 2012 in the Central District of California, alleging trade secrets misappropriation amongst nine other claims. CBS claims that defendants, in developing a new series “Life in a Glass House,” misappropriated CBS’ trade secrets about several production processes for the “Big Brother” reality television show. CBS argues that these processes are unique in the industry and make the show successful by enabling the “Big Brother” staff to “prep, produce, edit and deliver each episode in two and a half days.” It adds that the defendants (and anyone else) could not have independently discovered the processes by merely watching the show. Rather, CBS believes that ABC improperly acquired knowledge about these processes from former “Big Brother” producers and staff who have signed non-disclosure agreements with CBS but are now working for ABC on “Life in a Glass House.”

CBS requested a preliminary injunction in order to stop ABC from premiering the show, however U.S. District Judge Gary Allen Feess said he is unlikely to grant it.

Silleck et al. v. PepsiCo, Inc.
May 3, 2012 | U.S. District Court for the Southern District of New York
In a fight over ownership of the Pepsi cola formula, heirs of formula creator seek to disclose documents regarding creation of formula

The heirs of Richard Ritchie, who created the Pepsi® cola formula in 1931, filed a declaratory judgment in the District Court for the Southern District of New York on May 3, 2012, requesting the court to declare that the documents relating to the creation of the soda formula are the Ritchie heirs’ personal property, which the heirs may publicly share. PepsiCo, Inc. (“Pepsi”) counters that the documents are the company’s trade secrets but the heirs argue in response that Pepsi has no claim for trade secrets misappropriation. Ritchie allegedly developed the Pepsi formula while working for a separate candy company and was not a Pepsi employee until 1939. He left Pepsi in 1951 and signed an agreement which only prohibited him from disclosing the formula to a competing beverage company but it did not cover his heirs’ use of the formula and did not require him to return the formula documents. Alternatively, even if the formula was Pepsi’s trade secret, the heirs argue that they have a First Amendment journalistic right to disclose the “historically significant, newsworthy” documents.

While the parties are currently in mediation, and by request of the court Silleck requested leave until September 28, 2012 to file an amended complaint.

In re Continental Tire The Americas LLC
February 13, 2012 | Supreme Court of Texas
Texas Court to Hear Arguments Over Scope of Protective Order for "Tire Trade Secrets"

On April 19, 2013, the Supreme Court of Texas agreed to hear whether a Houston trial court ordered an overly broad disclosure of Defendant's trade secrets, such that it constitutes a "constitutional taking."

In IN RE CONTINENTAL TIRE THE AMERICAS, LLC,, Plaintiffs' allege that a defect in Continental Tire the Americas' (CTA) tires is responsible for the fatal crash of Juan Hernandez, and his daughter and granddaughter. Plaintiffs are all members of the Hernandez family. CTA claims it possess trade secrets in the tire and its manufacturing process. Furthermore, the company argues that the trial court's flimsy protective order constitutes an abuse of discretion: it not only failed to protect CTA's alleged trade secrets in the present case, but allows potential litigants in other states to access the confidential information in order to promote "shared discovery." CTA claims the extent of disclosure, as proscribed by the trial court, is so egregious it constitutes a constitutional taking without just compensation.

Per CTA's brief, under Texas Rule of Evidence 507, trade secrets, even if relevant, are privileged and not discoverable, unless the requesting party makes a particularized, evidentiary showing that disclosure of the trade secrets is necessary for a fair adjudication of the case. When the requesting party satisfies that burden of proof, the trial court ordering disclosure must issue a protective order sufficient to safeguard the trade secrets from further disclosure. Tex. R. Evid. 507.

NCSoft Corporation, et al. v. Bluehole Studio, Inc., et al.
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.

Sean Morrison Entertainment, LLC et al v. Thompson et al
December 28, 2011 | United States District Court for the Northern District of Illinois - Chicago
Television producers allege court proceeding spoiled outcome of reality show

Contestants on a women's mixed martial arts reality show called "Ultimate Women's Challenge" were sued by the show's owners and investors for willful misappropriation of trade secrets and tortuous interference with prospective economic advantage. Each of the sixteen female contestants on the show signed a “Participant Agreement and Release from Liability” before filming commenced. However, seven of the contestants filed a lawsuit against the show's producer in Wisconsin circuit court and, in doing so, revealed the outcome of multiple matches and the ultimate winner of the series. The plaintiffs Sean Morrison Entertainment (SME) claimed that the lawsuit should have been filed under seal in order to prevent the events and outcome of the reality show from being revealed. Plaintiffs also claim that the contestants and their attorneys leaked details about "Ultimate Women's Challenge" to the media and various websites. The lawyers who represented the contestants in the Wisconsin lawsuit were also been joined as defendants.

On December 28, 2011, the Northern Illinois District court dismissed the owner-investor claims against the MMA contestants for lack of personal or specific jurisdiction. The court asserted that SME's alleged contacts were too attenuated for Illinois to be the proper forum for their claims. Further, citing only an "impact theory of minimal contacts," the court concludes that SME failed to allege activities by Thompson et al "that create a substantial connection with the forum state." (See Also Burger King v. 471 US at 475-476). Furthermore, the court found none of the individuals joined the action had any substantive connection to Illinois that would warrant personal jurisdiction for the court. Thus the Illinois court never reached the substantive issue of the trade secret misappropriation by the athletes in filing their separate Wisconsin matter, as the SME claim was dismissed for want of personal or specific jurisdiction.

Daou v. Huffington
October 25, 2011 | New York County, Supreme Court of the State of New York
Plaintiffs Claim Idea for Huffington Post Was Stolen From Them

Plaintiffs filed this action against Arianna Huffington and the HuffingtonPost.Com, Inc. to recover what they felt was unjust enrichment and fraudulant activity on the part of defendants. Plaintiffs contend that the idea for the democratic-leaning news and blogging site was theirs originally and that they communicated this idea to defendants, who then went ahead and created TheHuffingtonPost without any attribution to plaintiffs.

Document Security Systems Inc. v. Coupons.com Inc.
October 24, 2011 | United States District Court for the Western District of New York
Digital Document Security company DSS Sues Coupons.com for Alleged Theft of Coupon Technology

On July 13, 2012, the US District Court for the Western District of New York gave notice to the parties in Document Security Systems, Inc. (DSS) v. Coupons.com rescheduling the motions hearing set for October 9th, 2012 . Motions will now be heard on August 16th regarding DSS’s October 24, 2011 claims against Coupons.com for breach of contract, misappropriation of trade secrets, unfair competition and unjust enrichment. Specifically, DSS is a cloud-computing data integration company specializing in anti-counterfeiting, authentication, and mass-serialization technologies. The lawsuit alleges that Coupons.com misappropriated DSS’s proprietary digital copy protection technology, using said technology in their coupons without authorization. The business relationship between DSS and Coupons.com was centered around DSS’s secret “Blockout” technology that when placed onto an image, will render a print-out of the image unable to be copied or scanned by high-end electronic devices (Complaint ¶ 2). Coupons.com representatives signed non-disclosure agreements and were shown three kinds of DSS security technology including the proprietary Blockout software, for the purposes of “evaluating a potential business relationship (Complaint ¶ 24; quoting 2005 NDA ¶ 3). DSS alleges in its complaint that Coupons.com used the proprietary Blockout software in their digital coupons without paying for or being granted rights to commercial use of their proprietary product in any contract or otherwise.
In response, Coupons.com’s motion to dismiss filed early December 2011 argues that DSS’s trade secrets misappropriation and unfair competition claims must be dismissed as duplicative of the breach of contract for violation of the non-disclosure agreement. Furthermore, Coupons.com does not specifically deny violation of its NDA with DSS or use of the DSS Blockout software in its coupons, but instead asserts that the other claims must be thrown out under New York law. Citing Clark-Fitzpatrick, Inc. v. Long Island Railroad Co., Coupons challenges DSS’s tort claims arising from an alleged breach of contract, because DSS did not plead an independent legal duty extraneous to the contract. In other words, Coupons.com defends that without any further contractual obligation, they are liable only for damages arising under violation of the existing non-disclosure agreement.
Undoubtedly the Western District Court expedited the hearing schedule on this matter lay in anticipation of Coupons.com pending method patent (granted on July 17th) for a “System and Method of Augmenting Content in Electronic Documents with Links to Contextually Relevant Information. ” Such a patent will allow for the digitization of Coupons.com on handheld electronic devices for use by consumers, essentially eliminating the need the printable coupons and their electronic protections (like the DSS Blockout software). However, Coupons.com recent announcement of its new merchant self-service “Brandcaster Retail” coupon e-platform may imply Coupons.com continuing need for digital copy protection technology like the DSS Blockout software . Thus while early settlement was at one time possible, October 2012 mediation sessions failed to amicably settle the relevant and substantive legal issue of whether Coupons.com’s sole breach of their non-disclosure agreement with DSS (by way of unauthorized commercial use the Blockout software) bars subsequent trade secret misappropriation claims under the same cause of action. As such, the case is currently in pre-trial discovery posture as both parties adhere to the discovery schedule outlined by Hon. Marian W. Payson on December 12, 2012.

Groupon, Inc. v. Hanna et al.
October 21, 2011 | Circuit Court of Cook County, Chancery Division
Three employees sued by Groupon for breach of a non-compete agreement counter Groupon's lawsuit is a "sham litigation"

The three employees whom Groupon, Inc. (“Groupon”) sued on October 21, 2011 filed a counterclaim against Groupon on January 25, 2012. The three former employees, Nikki Dorough, Brian Hanna and Michael Nolan, countered that the coupon company pursued a "sham litigation" and requested the Illinois state court to void the noncompete provisions in their Groupon employment contracts.

The employees now work Google Offers, a directly competing discount service started by Google, Inc. (“Google”) after Groupon rejected Google’s buy-out. Groupon alleged in its complaint that the employees, were provided with proprietary and confidential information relating to Groupon’s business practices and strategies, such as Groupon’s price structures and deals with merchants, its timing of the deals and its list of current and potential merchants.

Dorough, Hanna and Nolan began work for Google Offers allegedly in breach of their non-compete agreement with Groupon which bars them from working with a direct competitor for 24 months after leaving the company. Groupon does not claim that Hanna and Nolan already disclosed the above trade secrets to Google or stole any trade secrets, in violation of the Illinois Trade Secrets Act. Rather, it alleges that Hanna and Nolan would inevitably disclose the trade secrets to Google because Google Offers directly competes with Groupon. According to Groupon, the “ongoing and/or threatened” disclosure by Hanna and Nolan would cause the company irreparable harm if the two employees are not enjoined from continuing their activities at Google Offers.

The inevitable disclosure doctrine is preemptively used by a court to prevent disclosure of a trade secret where a former employee’s “new employment will inevitably lead him to rely on [a former employer’s] trade secrets.” PepsiCo, Inc. v. Redmont, 54 F.3d 1262, 1269 (7th Cir. 1995). The doctrine is not universally adopted and even limited in some jurisdictions. See , e.g., EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299 (S.D.N.Y. 1999). The doctrine may prevent a former employee from working with a direct competitor even if the employee was never subject to a non-compete agreement and attempts in good faith to prevent using his knowledge of a former employer’s trade secrets. See PepsiCo, 54 F.3d at 1270 (finding that even though no trade secrets were stolen or misappropriated, defendant, PepsiCo, Inc.’s former employee, could not help but rely on Pepsi’s confidential and proprietary information on how to price, distribute and market sports drinks in his work for Quaker Oats Company’s competing GATORADE branded sports drinks).

United States v. Yang
September 28, 2011 | United States District Court for the Northern District of Illinois
Rash of EEA Prosecutions Continues with Indictment of Boeing Engineer Accused of Transmitting Trade Secrets to China

In yet another indictment in the continuing trend of prosecution of trade secret theft under the Economic Espionage Act, the government has indicted Chunlai Yang with two counts of trade secrets theft in the United States District Court for the Northern District of Illinois (Chicago). The government asserts that Yang stole proprietary source code from his employer, CME Group Inc., in order to start his own futures exchange software company. Yang pled not guilty to both counts.

CME brought the case to the U.S. Attorney with evidence that Yang had downloaded over 1,000 source code files from the secure company computer system to his unsecure work computer. Yang then moved the files to his own personal computer. His apparent intent was to use the source code of CME’s own Globex trading system as the backbone for his own company’s system. His company was to be entitled Tongmei Futures Exchange Software Technology Co.

The potential repercussions for Yang are up to 10 years in prison and a $250,000 for each count. In addition, the government seeks to take control over Yang’s computers and other equipment and any proceeds from his actions.

The fact that CME brought the case directly to the U.S. Attorney has been touted by the U.S. Attorney’s office as a good example of corporate and law enforcement cooperation on the protection of trade secrets.

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