Cases from Other state statute

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.

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.

S.D.N.Y.
New York Court Dismisses Inevitable Disclosure Claim

Alleging a stand-alone claim under the inevitable disclosure doctrine, plaintiff sued a former a sales associate and sought permanent injunctive relief barring the former employee from disclosing any of plaintiff's trade secrets or confidential information, and from working for its competitor. There were no allegations that the former employee breached a non-disclosure agreement, disclosed or misappropriated any trade secrets, or was subject to a non-compete agreement. The court granted defendant's motion to dismiss and declined to expand New York's application of the inevitable disclosure doctrine under this set of facts and outside of the preliminary injunction context.

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.

Court of Appeals of the State of Washington, Div. II
Attorney Obtains Rival's Prices and Customer List

Vincent Gresham, a securities attorney in Atlanta, prevailed in Washington State's Court of Appeals, Division 2, winning access to prices and customer lists of securities law firm Robbins, Geller, Rudman & Dowd. Robbins, Geller had provided the information to the State of Washington's Attorney General's Office (AGO) as part of a bid to represent the Washington State Insurance Board in litigation.

The trial court had permanently enjoined the state's attorney general from releasing the information. Gresham prevailed in his argument that the trial court wrongly decided that the information was a trade secret under Washington's UTSA. If the information were a trade secret, then under the state's Public Records Act (PRA), the state could not release the information.

The court found that the information was partially disclosed; that Robbins, Geller had agreed to the release of the information under the PRA when it made its bid; that Robbins, Geller had failed to take reasonable precautions to protect the secrecy of the information; and that Robbins, Geller had not proven that it would be harmed by the release of the information.

Supreme Court of the State of Wyoming
Wyoming Supreme Court Orders Reconsideration of Trade Secret Protection for Fracking Chemicals

On March 12, the Wyoming Supreme Court reignited the debate between green groups and energy companies regarding trade secret protections and disclosure of fracking chemicals. This case, Powder River Basin Resource Council et al. v. Wyoming Oil and Gas Conservation Commission, calls upon a lower Wyoming court to determine whether state public records laws are at odds with recent trade secret protection grants to Halliburton Energy Services and other entities for their fracking chemical recipes. According to the suit, the Wyoming Oil and Gas Commission (WOGC) has been protecting large energy companies at the expense of transparency and public good, using trade secret laws as a disguise to effectuate these protections, and had granted over fifty such trade secret protection orders in recent years.

Procedurally, this case was originally struck down since they mistakenly relied on the Administrative Procedure Act instead of the Wyoming Public Records Act. When this case is eventually presented at trial, Wyoming will have to set state law precedent on whether fracking chemicals constitute a trade secret under state law. Luckily, the Wyoming Supreme Court provided some guidance to the lower court in construing the breadth of available trade secret protection, directing the lower court to use the narrow definition of trade secret associated with the Freedom of Information Act (FoIA).

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.

Texas Court of Appeals
Texas Court Affirms Reasonable Royalty Damages Award

On July 10, 2013, a Texas Court of Appeals affirmed a jury’s award for damages in a trade secret misappropriation case stemming from proprietary data for natural gas extraction locations. The plaintiff, Toby Berry-Helfand, had conducted extensive geological research to determine locations likely to contain natural gas deposits. After sharing her findings under a confidentiality agreement with defendant Southwestern Energy Production Company (SEPCO) in hopes of forming a partnership, SEPCO declined to partner with Helfand, but commenced drilling in the locations recommended by Helfand’s research.

In affirming the jury’s award of $11,445,000, the court held that the jury had correctly applied the reasonable royalty approach in reaching this figure. Reasonable royalty, a measure of damages borrowed from patent law, is used in trade secret cases where there is no way to quantify the loss to the plaintiff. The approach attempts to determine what the parties would have agreed to as a reasonable licensing fee for the use of the trade secret, calculated at the time the misappropriation occurred.

Here, the court found that the damages awarded, roughly 3% of the revenue SEPCO generated from the drilling sites identified in Helfand’s research, represented a reasonable licensing fee for that information. While courts consider a number of factors in calculating a reasonable royalty, the court here gave particular weight to several factors. Specifically, the court noted that rates used in agreements between Helfand and other drilling companies for comparable information, the extent to which SEPCO made use of Helfand’s trade secrets, and the portion of the profit attributable to Helfand rather than to SEPCO were of particular importance.

While the court affirmed the jury’s award, it also held that the equitable remedy of disgorgement was not appropriate in this case since there was no fiduciary relationship between Helfand and SEPCO.

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.

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.