Cases from Common Law (Restatement)

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.

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.

United States Court of Appeals for the Federal Circuit
U.S. International Trade Commission has authority to exclude from importation products manufactured using misappropriated trade secrets

The Federal Circuit held (2-1) on October 11, 2011 that the United States International Trade Commission (“USITC”) has the authority, pursuant to Section 337 of the Tariff Act of 1930 (19 U.S.C. §1337(a)(1)(A)), to ban importation of goods manufactured using “unfair methods of competition,” including misappropriation of trade secrets, where the importation could harm a domestic company. It found in this case that the USITC properly excluded under Section 337 railway wheels that were created using an allegedly misappropriated secret process, even though the misappropriation occurred in China. The decision, however, does not enjoin continuing manufacture of these railway wheels. Although the opinion focuses on whether a presumption against extraterritoriality applies to Section 337, it signifies that the U.S. Federal government is increasing protection of domestic companies' trade secrets.

Amsted Industries, Inc. (“Amsted”) is a domestic manufacturer of railroad components, including railway wheels made using the secret Griffin® and ABC processes. It licenses the manufacture of wheels using the ABC process to firms in China. TianRui Group Co. (“TianRui”) failed to obtain such a license from Amsted and, after failed negotiations, hired employees from another Amsted licensee firm, Datong ABC Castings Company, Ltd. (“Datong”). All of the Datong employees hired by Tianrui were trained in the ABC process and almost all signed confidentiality agreements. When TianRui imported railway wheels using the ABC process into the United States, Amsted filed a complaint with the USITC to exclude the wheels from importation. Amsted argued that continued importation would harm its business in the United States, even if the alleged trade secret misappropriation occurred in China. The USITC agreed with Amsted’s arguments and issued a limited exclusion order, which TianRui appealed to the Federal Circuit.

The Federal Circuit's opinion was reported at 661 F.3d 1322 (Fed. Cir. 2011).

4th Circuit, United States District Court - Eastern District of Virginia
Kolon Pays $360 Million in Settlement to DuPont for Trade Secret Misappropriation

On April 30, 2015, Kolon Industries Inc. ("Kolon"), a South Korean company, agreed to pay $360 million to E.I. du Pont de Nemours and Co. ("DuPont") after a lengthy trade secrets dispute over Kevlar technology.

On September 21, 2009, DuPont sued Kolon in the U.S. District Court for the Eastern District of Virginia. Subsequently, Judge Robert Payne issued a spoilation-of-evidence order, adverse-inference jury instruction and attorneys fees for DuPont in response to Kolon's intentional destruction of evidence. In 2011, the jury awarded $919 to DuPont. In 2014, the Fourth Circuit overturned the jury verdict on the ground that Kolon was wrongly prevented from presenting trial evidence and assigned the case to a new judge.

Meanwhile, two former DuPont employees plead guilty to the involvement with the trade secret misappropriation in 2009 and 2014, and five former Kolon executives and employees where charged in 2012. Kolon finally started settlement talks with DuPont in light of the parallel jury trials in both civil and criminal courts.

Kolon pled guilty to conspiracy for stealing the Kevlar trade secrets. In turn, the company was sentenced to pay $85 million in criminal fines and $275 million in restitution damages in Eastern District of Virginia court. This was a land mark case for the U.S. Department of Justice as the first instance where a foreign corporation without direct presence in the United States was directly served with a U.S. criminal process based on an international treaty.

County of Los Angeles, Superior Court of the State of California
Clash between Hollywood talent agency and competitor over stolen client information

Hollywood talent agency Diverse Talent Group, Inc. sued three of its former agents who left for a competitor, but not before allegedly stealing confidential information to poach clients. In the suit, filed August 23, 2011 in Los Angeles Superior Court, Diverse alleged misappropriation of trade secrets, intentional interference, breaches of duty and contract, conversion, and slander. The agency also sought a temporary restraining order prohibiting the disclosure or use of proprietary information. According to its website, Diverse represents actors and directors from TV shows like "Mad Men" and "Lost."

The complaint alleges that former Diverse employees Isam Durzi, Ehab Durzi and Wendy Morrison left Diverse to join Function Talent Group (also named as a defendant) and diverted business to their new employer by using confidential client information misappropriated from Diverse and by falsely claiming their former agency was closing. The three supposedly used the confidential materials, such as customer lists and the personal and financial information of clients, to poach those clients for Function. "Defendants have taken the confidential information without the permission of Diverse and have used it for their own financial gain and business purposes," the suit said. "Despite demands to cease and desist from using this information, defendants continue to use the confidential information." Diverse demanded that the files be returned, but the employees refused, according to the complaint.

Diverse claims that the Durzis and Morrison agreed as a condition of their employment that the agency's client list and other customer information were property of the agency. According to the complaint, the three accepted positions at Function earlier this year, but before they started their new jobs, the employees sent letters to Diverse customers soliciting them to take their business to Function. The letters made "false, defamatory and damaging statements," including that Diverse was going out of business, according to the complaint. The complaint goes on to say that they had some success, causing the termination of some of the plaintiff’s client representations.

The complaint also asserts that the employees "hacked into Diverse's computer system and changed the agency's contact information," and sent messages to clients instructing them to contact Ehab Durzi using the newly-diverted number.

The suit seeks unspecified damages, an injunction barring the employees from disclosing Diverse's confidential information and an order compelling them to arbitrate the dispute. According to the complaint, Diverse expects the dispute to be headed to arbitration as a result of employment agreements with the three former agents, but the company says it was forced to seek provisional remedies to deter the diversion of its clients.

The talent agency says on its website that its "highly valued clientele" includes "Academy Award winners, top sitcom actors, one-hour drama directors, editors and producers." The site states that the agency's clients have worked on shows including "The Big Bang Theory" and "Battlestar Galactica" and movies including "Transformers" and "Good Night and Good Luck."

The parties are scheduled to appear before Judge Meiers for a case-management conference on January 10, 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.

Santa Clara County, Superior Court of California
PayPal files suit against Google for misappropriation of trade secrets after Google woos over a former PayPal senior executive

Paypal, Inc. (“PayPal”) and eBay, Inc. (“eBay) sued Google, Inc. (“Google”) and Osama Bedier, a former PayPal senior executive, alleging that Bedier and Google misappropriated PayPal’s confidential marketing research, point-of-sale (“POS”) technology and services for retailers, and mobile payment strategies and procedures.

Before the suit, PayPal sought to serve as a payment option for mobile app purchases on Google’s Android market. Bedier was then the senior executive leading negotiations between PayPal and Google to set up the business relationship. However, during the final steps of the negotiations, Bedier interviewed for a position at Google without notice to PayPal. He terminated employment at PayPal and began work for Google’s Mobile Payments division on January 24, 2011. PayPal alleges that Bedier left the company with knowledge of its trade secrets for retail POS technology and services and mobile payment. Additionally, it claims that Bedier transferred and possessed upon departure PayPal’s and eBay’s confidential information on his personal computers.

United States District Court for the Eastern District of New York (Brooklyn)
GEO Group sues former executive for misappropriating its trade secrets to secure a multi-million dollar contract from the U.S. Government

On April 7, 2011, GEO Group Inc. (GEO), a corrections services agency, sued a former executive, Jack A. Brown III, claiming Brown misappropriated its trade secrets to secure a multi-million dollar government contract from the U.S. Department of Justice's Bureau of Prisons. Brown was employed at GEO as Vice President of Community Corrections from October 2005 to March 2009. During this period, he allegedly was running another business on the side, Community First Services Inc. (CFS), without GEO's knowledge. GEO claims that it planned to submit a bid for the Bureau of Prisons project, but Brown accessed GEO’s confidential proposal materials and information in order to compose a lower bid for CFS. Brown then abruptly resigned from GEO and submitted the CFS bid. CFS was awarded the contract by the Department of Justice. GEO claims that its proposal materials and information were a trade secret.

Southern District of New York
Injunction to enforce non-competition agreement denied in managerial transfer - Disclosure of trade secrets not inevitable at new job

The 2nd Circuit Court of Appeals, on November 3, 2011, affirmed the Southern District’s denial of a preliminary injunction for IBM, citing the lower court’s “thoughtful and well-reasoned opinion” in finding no evidence of abuse of discretion.

On Jan. 19, 2011, Giovanni Visentin, a senior executive at International Business Machines Inc. (IBM), announced his intention to leave IBM to become senior vice-president at Hewlett-Packard Company (HP). On Jan. 20, IBM filed a complaint alleging breach of contract and misappropriation of trade secrets, and moved for a preliminary injunction in the U.S. District Court for the Southern District of New York. Visentin had signed two non-competition agreements with IBM, one in 2009 and one in 2008, in which he agreed not to work for a competitor for the first year after the termination of his employment. IBM alleged that Visentin was in possession of trade secrets including “highly confidential and commercially sensitive information about the strategic plans and financial performance of the business he is leaving, competitive bidding strategies, internal price and cost models, new client opportunities and targets for 2011, perceived gaps in IBM’s products and services, and the proprietary tools processes and methods IBM uses to win client contracts…” The requested preliminary injunction would be to enforce the non-competition agreements as written.

A primary basis for IBM's trade secrets claim was the inevitable disclosure doctrine, which protects against misappropriation of knowledge when an individual changes employers and it is found to be "inevitable" that the individual will use the knowledge in his or her new position.

On Feb. 16, 2011, the court denied IBM's motion, finding that Visentin's position at IBM required general managerial expertise as opposed to highly technical, secret, or proprietary knowledge and that the likelihood that Visentin would disclose IBM's proprietary information to HP was minimal.

The doctrine of inevitable disclosure provides a three-factor test as to whether or not trade secrets will inevitably be disclosed after a change in employment: Whether (1) the employers in question are direct competitors providing the same or very similar products or services; (2) the employee's new position is nearly identical to his old one, such that he could not reasonably be expected to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; and (3) the trade secrets at issue are highly valuable to both employers. See Finding of Fact and Conclusions of Law at 41-42. In addition, the nature of the industry and the trade secrets at issue should be considered on a case-by-case basis. Id. at 42.

The court, evaluating these factors, noted that while the first prong is satisfied in that IBM and HP are direct competitors dealing in similar products and that the industry tends to produce many trade secrets, the second two factors “heavily weigh[ed]” in favor of Mr. Visentin. Id. at 43.

First, the scope of Mr. Visentin’s position was found to far exceed his previous post at IBM and included many geographic responsibilities that he didn’t have at IBM. While some overlap did exist, the court was confident that the non-competition agreement’s restrictions on working with former clients dealt with this satisfactorily.

Second, the trade secrets were not of such value to HP that Visentin would inevitably disclose them to HP. While IBM contended that Visentin would be eventually so pressured by HP that he would disclose the trade secrets, despite being legally bound not to do so, the court disagreed. His knowledge of IBM’s desired profit margins would not be so useful because he did not have any detailed documentation and could not possibly remember every detail. Additionally, his knowledge of pending deals would be marginally useful at best as his team was responsible for between 5000 and 9000 deals a quarter and therefore he was not in possession of many of the pertinent details.

Accordingly, the court denied IBM’s request for a preliminary injunction.

Southern District of New York
2FA's claims against Oracle for misappropriation of trade secrets is stayed pending partial summary judgment in a related action

In 2010, 2FA Technology sued Oracle Corporation and Oracle Systems Corporation, formerly Passlogix, a wholly-owned subsidiary of Oracle merged with Oracle Systems Corporation, for misappropriation of trade secrets and breach of contract. 2FA alleges that Passlogix's senior engineers misappropriated 2FA's source code and incorporated the code into Passlogix's products. 2FA alleges that Oracle continued to knowingly sell products containing misappropriated 2FA technology after it acquired Passlogix.

On January 31, 2011 the defendants filed a motion to stay the proceedings pending the outcome of a partial summary judgment motion filed by Passlogix in an earlier related action in the Southern District of New York, Oracle Systems Corporation v. 2FA Technology, LLC, docket number 08–cv–10986. There, the partial summary judgment motion seeks to dismiss each of 2FA’s counterclaims in the entirety, which could spell doom for the pending similar claims in this action. 2FA filed a memorandum in opposition to the motion to stay on March 17, 2011 but the motion was granted on April 6, 2011.

On July 25, 2011, the parties stipulated that the action be dismissed with prejudice, with each side bearing its own costs and expenses, including attorneys' fees, incurred in connection with the action. The related action was similarly dismissed.