Cases from Other federal statute

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI
Defend Trade Secrets Act Takes a Bite Out of Fast Food Tussle

Panera, LLC (“Plaintiff”) has filed a complaint against Papa John’s International, Inc. and Michael Nettles (“Defendants”) for misappropriation of Panera’s trade secrets and other confidential information. Plaintiff alleges misappropriation under the Defend Trade Secrets Act and Missouri Uniform Trade Secrets Act, as well as raises counts of breach of contract and tortious interference with contractual relations regarding a non-compete which Nettles had signed. Plaintiff seeks immediate injunctive relief against Defendants.

Plaintiff Panera is a Delaware limited liability company with its principal place of business in Missouri. It serves made-to-order sandwiches, salads, soups, and other baked goods in its 2,000-plus branded stores across the United States and Canada. It considers its customer-facing technological innovations to be an integral part of its consumer appeal in a competitive market. Defendant corporation Papa John’s is also a Delaware company, but it is headquartered in Kentucky and—according to the complaint—likewise makes its “dough” products in a technology-driven, customer-centric environment. Co-defendant Michael Nettles recently moved from Missouri to Kentucky to begin work for Papa John’s. Previously, he had been Panera’s Vice President of Architecture in its Information Technology department from July 2012-July 2016, a position that allowed him access to Panera’s most sensitive and proprietary technologies.

Plaintiff alleges that Nettles misused or will misuse information including, but not limited to, Panera’s thought processes, visions, and schematics for its technology systems. Further, Plaintiff asserts Nettles has an intimate knowledge of Panera’s strategic plans for the next 2-4 years and that he is currently in violation of a non-compete agreement he (like all high-level executives at the company) signed in 2013, which prohibits him for working for a competitor company for a period of one year after ending his employment with Panera. According to the complaint, Nettles asked to be released from the non-compete when he was offered a job at Defendant company, but Panera’s CEO declined to do so. Instead, the CEO offered to help Nettles get a job with a company not in direct competition with Plaintiff. However, encouraged by Papa John’s—who Plaintiff asserts had actual knowledge of the strict non-compete—Nettles accepted the high-level position at Papa John’s. He then allegedly made copies of Panera’s sensitive information and stored them on his personal devices, where they remain.

Plaintiff seeks a preliminary injunction to restrict Nettles from disclosing or further disclosing trade secrets and confidential information to Papa John’s. If Plaintiff is successful in asserting its breach of contract claims under contract theory and also as a matter of public policy, Nettles would be enjoined from beginning employment with Defendant corporation for a period of one year from July 1, 2016. Plaintiff seeks a permanent injunction after trial, prohibiting disclosure of trade secrets and requesting the return of any such information to Panera. Plaintiff asks that Defendants cover its reasonable costs and attorney’s fees.

The complaint can be found here: https://www.scribd.com/document/318937409/Panera-lawsuit-vs-Papa-John-s-...

Update: August 15, 2016
A federal judge ordered Michael Nettles to discontinue working at the Louisvlle-based pizza chain. According to the order, Nettles must cease and desist "advising, consulting, or working for Papa John's," either directly or indirectly. The order also restricts Papa John's from seeking advice, consulting or employing Nettles and requires Nettles to pay a $200,000 security bond.

Additionally, according to the judge's order, a third-party forensic analyst will analyze Nettles' personal devices including his personal laptop. Nettles and Papa John's have been ordered to pay half of the analyst's cost and Panera will cover the remaining half.

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.

United States District Court for the Northern District of California
California Court Renders First Decision Under Defend Trade Secrets Act

A federal district court in California handed down the first decision made under the Defend Trade Secrets Act (DTSA) since Congress signed it into law in May 2016. The court granted plaintiff Henry Schein, Inc.’s (“HSI”) motion for a Temporary Restraining Order (TRO) to enjoin defendant Jennifer Cook from accessing and disclosing any of its confidential data or accepting business from its customers.

Cook worked for HSI as a sales consultant, and entered into a confidentiality and non-solicitation agreement when HSI hired her in 2005. HSI alleges that prior to leaving the company, Cook began to collect confidential information and trade secret documents in several ways, some of which included forwarding emails to her personal account, keeping her laptop for up to 2 weeks after she left the company, and illegally accessing the HSI computer system to obtain purchase data for HSI customers. HSI also claims that Cook tried to divert customers from the company and destroyed some of the company’s customer information.

On June 9, 2016, HSI applied for a TRO and filed a complaint alleging eight causes of action, one of which was for misappropriation of Trade Secrets under the DTSA. HSI brought additional claims under the California Uniform Trade Secrets Act and multiple common law claims. Furthermore, HSI moved for expedited discovery to immediately obtain data on Cook’s personal accounts and devices.

The court granted HSI’s motion for a TRO because (1) there was a likelihood of irreparable injury to HSI, (2) HSI was likely to succeed on the merits, (3) Cook was not likely to suffer undue hardship, and (4) public interest would be served by protecting trade secrets. The court denied HSI’s request for expedited discovery because HSI had not established that the circumstances warranted intruding on Cook’s personal data and property.

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.

Ramsey County District Court
Breaking News

Last week, Bryan Szweda, a former vice president at St. Jude Medical was charged with theft of trade secrets in Ramsey County District Court in Ramsey County, Minnesota. While at St. Jude Medical, Szweda filled the role of vice president of operations for global manufacturing of structural heart devices. Szweda presently works at Edwards Lifesciences, one of St. Jude’s competitors that manufactures artificial heart valves. In addition to five felony counts of theft by swindle, Szweda is accused of taking over 4,000 files related to his work at St. Jude before he was placed on administrative leave in September 2014. The stolen files included one of St. Jude’s most restricted documents- its strategic plan which detailed a roadmap of St. Jude’s research and marketing initiatives. Szweda had already moved out of state by the time investigators executed the search warrant on Szweda’s former home in Plymouth, Minnesota. Stay tuned for more developments in this case.

For more information on the case see here and here.

Northern District of California
Northern District of California Declines to Allow Plaintiffs to Use Computer Fraud and Abuse Act to Allege Misappropriation

In this case, Plaintiff, Koninklijke Philips N.V. (“Philips”), et al. brought ten causes of action alleging that Dr. Chen, who was an employee of Plaintiff Lumileds Lighting Company, downloaded thousands of files “containing Philips Lumileds’ trade secrets and confidential business information onto a portable storage device." Complaint, ECF 1 ¶ 5. Dr. Chen then became employed by Defendant, Elec-Tech international Co., Ltd (“ETI”) and only six months into this employment, ETI announced two “new high-energy LED lighting products, an amount of time Plaintiffs claim is ‘unprecedented’ in the lighting industry.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *1 (N.D. Ca. March 30, 2015). The Plaintiffs used one claim under the Computer Fraud and Abuse Act (“CFAA”) to bring the other nine state claims. The court here held that the Plaintiffs did not state a CFAA claim upon which relief can be granted and therefore dismissed the nine state law based trade secret claims as well as the CFAA claim.

The Plaintiffs in this case were creative in finding a way to try to get their Trade Secret claims into federal court. However, the court took a strict stand against using the CFAA for misappropriation purposes. The court pointed out that the CFAA is interpreted by courts as “an anti-hacking statute.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *3 (N.D. Ca. March 30, 2015) (citing United States v. Nosal, 676 F.3d 854, 858 (9th Cir.2012)). Additionally, in the past, the Ninth Circuit has expressly refused to expand this statute to cover misappropriation. Id. While this is a blow for Philips here, this does help the argument for federal trade secret legislation. If courts are going to hold the bar this high for federal statutes that could be expanded to include misappropriation, then federal trade secret legislation is necessary in order to afford trade secret protection by the federal courts as well as state courts.

Texas District Court
Fake Evidence Leads to Dismissal with Prejudice

One month into a complex case involving energy production in post-Soviet Russia, Moncrief Oil International abruptly dropped its $1.37 billion lawsuit that included a trade secret misappropriation claim against Gazprom after the Fort Worth company was accused of producing a falsified key document in the case. The company’s lawsuit hinged upon the allegation it had shared with Gazprom the secret details of an LNG plant it wanted to build with Occidental Petroleum in Ingleside, Texas in 2004.

State District Judge Melody Wilkinson dismissed the case with prejudice at the request of attorneys representing Moncrief Oil, which was suing the Moscow-based energy company for backing out of a deal for rights to develop a natural gas field in Siberia. During the trial last week, a document prepared by an accountant at Moncrief Oil International was found to include a key error, making it impossible to continue with the case

By dismissing the case with prejudice, Wilkinson prevents Moncrief Oil from continuing with any lawsuit on the same claims. This case shows the necessity of following all rules, both ethical and procedural, whilst litigating such claimes.

United States Court of Appeals for the Federal Circuit
Surviving A Motion to Dismiss in Trade Secret Cases

The Federal Circuit held that the dismissal of a trade secrets complaint for failure to state a justiciable claim was not warranted solely because the misconduct allegedly involved a number of wrongdoers and began many years before the complaint was filed. Remanded for further proceedings, ABB Turbo Systems, AG v. TurboUSA, Inc., Case No. 2014-1356 (Fed. Cir., Dec. 17, 2014) ABB’s pleading alleged various actions the company took to protect its trade secrets.

The trial court inferred that ABB’s efforts to protect secrecy probably would be deemed insufficient but the federal circuit held that only “reasonable” care is required, and “the complaint stage is not well-suited to determining what precautions are reasonable in a given context.”

Seeking the best chance for surviving a Rule 12(b)(6) motion, a complaint which alleges the relevant facts as the pleader understands them, and which aligns those factual allegations with the operative legal principles as ABB seemingly did in this case, is recommended. On appeal, ABB’s pleading was found to satisfy those minimum standards. Going forward, the parties will have an opportunity to perform some discovery before the trial court decides whether further litigation would be futile. Stay tuned for developments.

United States Court of Appeals for the Ninth Circuit
Criminal Conviction Affirmed for Trade Secret Theft

Reminding all that misappropriating a trade secret can not only constitute a crime, but also that the intent to reap an economic benefit is sufficient to sustain a conviction under 18 USC Section 1832, the Ninth Circuit upheld the criminal conviction of Suibin Zhang for the theft of Marvell Semiconductor Inc.’s trade secrets.

After a bench trial, Zhang was found guilty and sentenced to three months in prison followed by three months of supervised release, 200 hours of community service, and $75,000 in restitution. Zhang appealed, challenging the sufficiency of the evidence and contending that his Sixth Amendment right to a public trial was violated.

On appeal, the Ninth Circuit held that there was, in fact, sufficient evidence, beyond a reasonable doubt, that Marvell took “reasonable measures” to protect its trade secrets. Marvell did so by advising users of the existence of their trade secrets and by limiting access on a need to know basis and controlled access through passwords. The Court also held that, although Zhang did not personally sign the Marvell non-disclosure agreement, he accepted a limited license agreement that incorporated its terms.

The Court further held that even though Zhang never sold the documents or sent around economically valuable secrets, sufficient evidence established that he intended to reap an economic reward. The Court held this same evidence established an intent to injure Marvell, enough to uphold the criminal conviction. Intent, this case, was key.

United States District Court for the Western District of Pennsylvania (Pittsburgh)
U.S. Government Files Charges Against Chinese Officials for Cybertheft of Trade Secrets

In the first time charges have ever been brought against a state actor for cyber-espionage including theft of trade secrets, the U.S. government has alleged that five Chinese Officials stole valuable information from a number of U.S. companies. The indictment, filed in the Western District of Pennsylvania, enumerates the alleged conduct, including: stealing confidential and proprietary technical and design specifications for pipes, pipe supports, and pipe routing for a Westinghouse Power Plant; stealing confidential information from SolarWorld regarding their cash flow, manufacturing metrics, production line, and costs; installing malware on U.S. Steel computers in an attempt to identify and exploit vulnerable servers; stealing network credentials for nearly every ATI employee; stealing e-mails from senior USW employees containing sensitive information about USW strategies related to pending trade disputes with China; and stealing emails from Alcoa pertaining to an agreement between Alcoa and a Chinese State Owned Enterprise.

Estimating the cost of cyber-espionage on the U.S. economy is quite tricky, but some economists have claimed the damages are on the order of tens of billions of dollars. Over the past year, the U.S. has made it clear that they will intensify their efforts to put an end to the theft. John Carlin, the Assistant A.G. for National Security, stated that “State actors engaged in cyber espionage for economic advantage are not immune from the law just because they hack under the shadow of their country’s flag.”