We are now down to the final three cases. Each one of them received significant media attention and generated important rulings that will impact other trade secret cases in the future. Each one could have been No. 1 in their own right in any other year.
3. U.S. v. Nosal (U.S. Court of Appeals for the Ninth Circuit, April 2012) and WEC Carolina Energy v. Miller (U.S. Court of Appeals for the Fourth Circuit, July 2012) These two cases heaved a significant split within the federal appellate circuit over the scope of the Computer Fraud and Abuse Act (CFAA) by narrowing its application to hacking cases as opposed to trade secret theft cases. Nosal in particular was remarkable because it was a 9-2 en banc decision from the influential Ninth Circuit that reversed a ruling last year issued by a 3-member panel of that court. In that earlier decision, that panel of the Ninth Circuit had followed the holdings of the Fifth, Seventh and Eleventh Circuit and essentially found the CFAA could be applied to violations of computer use policies.
Both cases involved situations where former employees had violated computer use policies to misappropriate trade secrets, and presented the question of whether the violation of those policies amounted to “access without authorization” as required for a claim under the CFAA. The decision in Nosal, which was issued in April, found that it did not apply and expressed concern that holding otherwise might lead to the criminalization of violations of other computer use policies (such as reading ESPN.com at work). The Fourth Circuit followed that reasoning in WEC Carolina Energy.
Like several of the cases in the Top 10, Nosal and WEC Carolina Energy received tremendous media attention, especially the Nosal holding. The New York Times even had an editorial applauding Chief Judge Alex Kozinski’s entertaining majority opinion. Concerns over the potential criminalization of violations of computer use policies had resonance with the public at large.
Unfortunately, the split between federal courts of appeal will remain for the foreseeable future as WEC Carolina Energy’s writ of certiorari to the U.S. Supreme Court was dismissed last week.
2. DuPont v. Kolon (E.D. Va. 2012). This epic trade secret case, which was the Trade Secret Litigator’s most significant trade secret case of 2011, would have been the winner again in almost any other year. As regular readers know, I have written extensively about this case as it moved from an important spoliation of evidence ruling on the eve of trial to a $920 million verdict last year. (Previous posts can be found here and here).
In August, U.S. District Court Judge Robert Payne granted a sweeping 20 year injunction banning Kolon from making Heracron, the synthetic fiber that he found incorporated the trade secrets misappropriated from DuPont. Judge Payne’s thorough opinion wrestled with the issue of whether irreparable injury was present and whether it was required for a permanent injunction under Virginia’s version of the Uniform Trade Secrets Act. As permanent injunctions become more and more difficult to secure (compare, for example, Judge Koh’s recent decision to reject a permanent injunction in the Apple v. Samsung case), this opinion may prove to be very important for trade secret claimants seeking permanent injunctive relief. (My thoughts on that opinion can be found here).
In October, the U.S. Attorney for the Eastern District of Virginia indicted a number of Kolon managers from South Korea for stealing DuPont’s trade secrets in connection with this case. Kolon has appealed Judge Payne’s ruling to the Fourth Circuit so unless the parties settle, this battle will continue to generate headlines in 2013.
1. U.S. v. Aleynikov (U.S. Court of Appeals for the Second Circuit, April 2012). Why did this case get my vote for the top trade secret case of 2012? Any case that directly causes Congress and President Obama to amend an important criminal statute, a criminal statute that might serve as the basis for a federal civil remedy this year, deserves that title.
For the uninitiated, in December 2010, a federal jury in New York convicted Sergey Aleynikov of stealing source code for Goldman Sachs’ proprietary high frequency trading (HFT) program under the Economic Espionage Act (EEA). The circumstances surrounding the charges were pretty egregious: Aleynikov was responsible for developing Goldman’s HFT computer programs for various commodities and equities markets. In April 2009, Aleynikov resigned from Goldman and accepted a job at Teza Technologies to help develop that firm’s own version of a computer platform that would allow Teza to engage in HFT. On his last day, Aleynikov transferred thousands of computer files, including source code to the HFT trading system, to a server in Germany that was not blocked by Goldman’s firewall. That evening, at his home, Aleynikov downloaded the material from the German server to his personal computer and then to his laptop and a thumb drive so that he could make it available to Teza.
The collective jaw(s) of the trade secret community dropped in April last year when the U.S. Court of Appeals for the Second Circuit issued the grounds for its reversal of Aleynikov’s conviction. Essentially, the Second Circuit imposed a requirement that the product be intended to be sold in an open market to qualify for prosecution under the EEA. Of course, this interpretation removed a number of potentially important trade secrets from the scope of the statute.
As a result, in late November, Senator Patrick Leahy approved the Theft of Trade Secrets Clarification Act, S. 3642, which specifically sought to remedy the Aleynikov construction by broadening the statute’s scope to cover trade secrets that are “related to a product or service used in or intended for use in interstate or foreign commerce.” The House approved the amendment, 388 to 4, and President Obama signed it into law on December 31, 2012. As this broader language will likely be part of any proposed amendment adding a civil remedy under the Protecting American Trade Secrets and Innovation Act, the Aleynikov decision has had an important impact beyond the criminal prosecution.
The Aleynikov and Goldman saga will continue into 2013, as the Manhattan District Attorney has also launched a criminal proceeding against Aleynikov and Aleynikov has filed a lawsuit in New Jersey against Goldman seeking indemnification for the criminal prosecutions brought against him.
In sum, 2012 was a fascinating year, and 2013 promises to be just as interesting as many of these cases will continue to unfold on different fronts.