Last week, I reported on Nos. 10 through 8 of the Trade Secret Litigator’s Top 10 Trade Secret and Non-Compete of 2012. Here are Nos. 4 through 7, with the top three to follow this weekend:
7. PhoneDog v. Kravitz (U.S. Dist. Ct. for Northern Dist. of Cal.), Eagle v. Morgan (U.S. Dist. Ct. for Eastern Dist. of Penn.) and Christou v. Beatport (U.S. Dist. Ct. Col. May 2012). As employers continue to grapple with managing their employees’ use of social media, these three cases illustrate the consequences that can flow from uncertainty over who owns social media property such as a Twitter handle, a LinkedIn account or password log-in information. As trade secret claims are tougher and tougher to assert because of the inherent visibility of social media information, employers can be expected to rely more on traditional claims of ownership for social media as a result of these cases.
PhoneDog v. Kravitz and Eagle v. Morgan have both received considerable media attention as they are among the first cases to address ownership of LinkedIn and Twitter accounts. However, because they arose in situations where the employers failed to have formal policies or written agreements establishing the parameters for the ownership of social media, the employers were unable to secure conclusive determinations and forced to litigate the cases. Indeed, in the PhoneDog case, the employee was able to keep the disputed Twitter handle as part of the settlement. Ultimately, disputes like these will be less frequent as employers recognize the importance of policies and written agreements in ensuring that their social media accounts and log-in information remain their property. For more on these cases, please see my posts here and here.
6. Acordia of Ohio v. Fishel (Supreme Court of Ohio) and DePuy Orthopaedics, Inc. v. Waxman (1st App. Dist. Florida). In a year in which it became more difficult to enforce non-compete agreements, these decisions stood out because they held that in the context of a merger, non-compete provisions would survive and be enforced to the benefit of the new company. The Acordia of Ohio case raised eyebrows here in Ohio because the Ohio Supreme Court initially declined to enforce the non-compete on the grounds that the covenants at issue did not specifically provide for assignment or have language establishing that they would benefit any successor or assign of the employer. However, in a highly unusual development, the Ohio Supreme Court agreed to reconsider the decision and reversed itself in October.
5. U.S. v. Liew (U.S. Dist. Ct. for Northern Dist. of Cal.). Why is a criminal case that has not even gone to trial and in which one of the major defendants was dismissed No. 5 in the Trade Secret Litigator’s Top 10? The timing of this case and the willingness of the U.S. Department of Justice to indict a company (Pangang Group) owned by officials of the Chinese government are the reasons for its inclusion, as this case may ultimately be remembered as the tipping point in cementing the perception that China was a threat to the trade secrets of American companies.
It is important to remember that the unprecedented indictment of Pangang Group took place in February when Chinese Vice President Chair Xi Jinping was visiting the United States. Prior to that visit, complaints about the misappropriation of the trade secrets were largely perceived as anecdotal. In my view, there seemed to be a hesitancy on the part of many to complain about the perceived lack of protection of trade secrets in China, perhaps because raising these concerns might result in retaliation or that those raising them might be accused of racism.
However, about the time of that visit, leading media, including The Wall Street Journal and The New York Times ran a number of articles highlighting the complaints of many U.S. companies about the failure (or in some cases, the active participation) of the Chinese Government in cases of trade secret theft. During that visit, Vice President Joe Biden and Senator John Kerry both were reported to have expressed concern about, among other things, the complaints of their constituents about the theft of trade secrets.
In this context, the announcement of the indictment of Pangang Group signified an acknowledgement of the federal government to not only recognize the problem but take forceful action to combat it. It also served as a catalyst for media attention, which in turn brought concerns about protection of trade secrets in China to the surface.
4. American Chemical Society v. Leadscope (Ohio Supreme Court), SASCO v. Rosendin Electric (California 4th App. Dist.), MPI Release, LLC v. Loparex LLC (U.S. Dist Ct. for Southern Dist. of Indiana), and Best Medical Int’l v. Spellman (U.S. Dist. Ct. for Eastern Dist. of Pa.). These four cases highlight the increasing dangers that can arise from an ill-advised trade secret case as they all involved awards against plaintiffs who were essentially found to have brought their trade secret cases in bad faith.
The American Chemical Society case resulted in a jury verdict of over $26.5 million in compensatory and punitive damages in favor of the defendants, former employees who counterclaimed and successfully argued the underlying trade secret litigation against them was brought maliciously to destroy their company (it ultimately settled for about $20 million). In SASCO, a California appellate court affirmed a significant award of attorneys fees after a plaintiff dismissed a weak trade secrets case.
The increasing frequency of these cases should serve as a powerful reminder that companies considering trade secret claims need to carefully evaluate those claims and remember the power of the “David v. Goliath” narrative in trade secret cases.
Stay tuned for Nos. 1 through 3 this weekend.