Cases from Other federal statute

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.”

American Arbitration Association
Halliburton Served with $300 Million Demand for Arbitration over Trade Secret Theft

On February 21, 2013, Ecosphere Technologies, Inc. (“Ecosphere”) put industry giant Halliburton Energy Services, Inc. (“Halliburton”) on notice of a Demand for Arbitration ("Demand") that Ecosphere filed with the American Arbitration Association. The Demand alleges that “Halliburton took and disclosed Ecosphere’s trade secrets and proprietary technical, business and strategic information.”

Ecosphere is a water engineering, technology licensing and innovative manufacturing company that develops non-chemical water treatment solutions for industrial markets throughout the world. According to a press release from Ecosphere's counsel, Haliburton misappropriated Ecosphere's trade secret information related to hydro-fracking liquids, in violation of a non-disclosure agreement between the companies. Ecosphere had initially contracted to share the information with Haliburton. However, after Haliburton made a failed attempt to purchase Ecosphere outright, Haliburton continued to use Ecosphere’s trade secrets without authorization “to immediately market itself as an environmentally friendly company . . . .” The Demand claims $300 million in damages.

The issue of trade secrets in hyrdo-fracking has become a hotbed for litigation and legislation. TSI recently covered state attempts to legislate the issue. It was also a main topic at the 2012 TSI Symposium, “Private Data/Public Good: Emerging Issues in Trade Secrets Law.

District Court of Oregon
Ninth Circuit Continues Narrow Interpretation of CFAA

Plaintiffs in the Ninth Circuit may want to avoid claims that an employee violated the CFAA after a court rejected a principal’s lawsuit against an online student prank. In Matot v. CH, the District Court of Oregon dismissed the suit, finding that the students’ use of the principal’s name and likeness gave no standing for a suit against the student perpetrators or their parents.

The court cited the Ninth Circuit’s decisions in LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009) and United States v. Nosal, 676 F.3d 854, 862 (9th Cir. 2012), which held that claims under the CFAA fail where the court can “construe criminal statutes narrowly so that Congress will not unintentionally turn ordinary citizens into criminals.” Citing numerous press reports, the court held that lying on social media is common and can serve the purpose of law enforcement.

The court did admit that lying on social media can have serious consequences. Perhaps the most famous example of such consequences arose in United States v. Drew, 259 F.R.D. 449 (C.D. Cal. 2009), in which a mother posed as a teenage boy in order to cyber-bully her daughter's classmate, who ultimately committed suicide.

For more on this case, see Creating Parody Social Media Accounts Doesn't Violate Computer Fraud & Abuse Act – Matot v. CH on the blog of Eric Goldman, Professor of Law at Santa Clara University School of Law and director of the school’s High Tech Law Institute.

D.C. Cir.
Dog Breeders Lose Reverse FOIA Suit

Missouri dog breeders sued the U.S. Department of Agriculture (USDA) to prevent the release of business information to the Humane Society. The Humane Society had filed a Freedom of Information Act (FOIA) request in 2009 and the USDA made the decision to release the information in March, 2011. At that point, the Missouri dog breeders sued in a reverse FOIA action to prevent the release of the information.

The business information (known as block 8 from the form in which it is filed with the USDA) consists of: "(1) the total number of animals purchased and sold in the last year; (2) the gross revenue from regulated activities; and (3) for dealers that are not breeders, the difference between the purchase price and sale price of the animals sold."

The only trade secrets issue raised was 5 U.S.C.A. § 552b(c)(4) (West), which forbids an agency from releasing information that is "trade secrets and commercial or financial information obtained from a person that is privileged or confidential." This exemption is broader than the definition of trade secrets under UTSA or the common law. But once the USDA had determined that it could release the information, the agency's decision was subject only to arbitrary or capricious review by the court. The court noted that 1) Humane Society is not a competitor of the dog breeders, 2) that the information was stale and incomplete, and 3) that release would not significantly assist competitors in gauging the scale of a licensee’s operation because similar information was already in the public domain.

United States District Court N.D. Georgia (Atlanta Division)
Software Experience as a Trade Secret Claim Survived a Motion to Dismiss

The Northern District court of Georgia (Atlanta Division) denied a motion to dismiss a trade secret claim based on an end user license agreement (EULA). Plaintiff AirWatch provided sufficient evidence (for the purpose of defeating a motion to dismiss) that defendants, employees of Mobile Iron, had electronically signed a contract for a free trial that incorporated the EULA by reference. The EULA said, “the Software is provided to User for evaluation purposes,” that it was a “license to use the software solely for the purposes of testing and evaluating the software,” and that the user “shall not engage in competitive analysis.”

The court refused to dismiss all of plaintiff’s five claims. In addition to the breach of contract claim concerning the EULA, plaintiff brought claims under the Computer Fraud and Abuse Act (CFAA), under the Georgia Trade Secrets Act, under the California Unfair Competition Law, and a tort claim for fraudulent misrepresentation.

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.

United States Court of Appeals for the Fourth Circuit
Fourth Circuit says CFAA does not apply to an employees unauthorized use of information where access to that information was authorized.

The Fourth Circuit has become the most recent Federal Court of Appeals to take a stance on the scope of the "without authorization" language of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. Following the Ninth Circuit's recent en banc decision in Nosal, the Fourth Circuit concluded that the CFAA does not apply where an employee is authorized to access a company computer system but is not authorized to use the information he accessed in the manner in which it was used (against the employer's interest). The ruling narrows the scope of the CFAA, a statute that is often used to obtain jurisdiction in federal courts by plaintiffs asserting trade secret misappropriation or other state law-based claims.

In WEC Carolina Energy Solutions, LLC v. Miller, No 11-1201, July 26, 2012, the Fourth Circuit upheld the trial court's dismissal of the plaintiff's CFAA claim. Defendant Miller had downloaded his employer's files onto his personal computer before resigning and used them in a presentation made on behalf of a competitor to a potential WEC customer. WEC claimed that because company policies did not permit the downloading of confidential and proprietary information to a personal computer, and because Miller had breached his fiduciary duties, Miller either lost all authorization to access the information or exceeded his authorization, both of which are violations under the CFAA. The Fourth Circuit held that in the absence of a restriction of access to the company's computers, the alleged acts did not violate the CFAA. The Court rejected the view held by the Seventh Circuit that by violating the duty of loyalty to an employer, the employee's agency relationship is terminated and the employee consequently loses any authority to access company computers. The Court also declined to adopt the Ninth Circuit interpretation of the CFAA, which they considered a harsher approach that could lead to unwarranted criminal liability. Ultimately, the Court held that improper use of information validly accessed from a computer does not violate the CFAA.