In an important decision issued on Wednesday, a Massachusetts federal court has found that the absence of proof of actual use of the trade secrets was not fatal to claims brought by Advanced Micro Devices, Inc. (AMD) against four of its former employees. In AMD, Inc. v. Feldstein, Judge Timothy S. Hillman found that evidence that several of the employees downloaded and transferred significant data, coupled with other facts, was sufficient circumstantial evidence of misappropriation to justify an injunction. (A PDF of the court’s decision can be found below).
This decision cuts against other recent cases holding that a trade secret claimant must come forward with evidence of actual misappropriation to make its claim. I have detailed the forensic analysis below, because it was critical in making the circumstantial case that trade secrets were taken and likely being used, and rendered the versions presented by the employees implausible.
Background: AMD brought this case in January 2013 against former employees Robert Feldstein, Manoo Desai, Nicolas Kociuk and Richard Hagan, each of whom had each left AMD to join a competitor, Nvidia. AMD secured a temporary restraining on the strength of non-disclosure and non-solicitation clauses in the employees’ Business Protection Agreements that they had signed as a condition of employment with AMD and had moved for a preliminary injunction formalizing that TRO.
Feldstein, the most senior of the employees, was the first to leave and just before resigning in July 2012, he took a sabbatical during which time 8,148 files were copied from AMD’s intranet via Feldstein’s AMD-issued laptop. The files included a Gmail contacts file, a Microsoft Outlook inbox file and several business-strategy-related documents. He also downloaded a Technology Licensing Overview PowerPoint presentation that he later conceded was “problematic.”
Desai, a Senior Manager, joined Nvidia in December 2012 and forensic analysis showed that 7,899 documents were transferred from her AMD-issued laptop to a folder located on the external hard drive. The night before she left AMD, her husband downloaded all of these files at her request because she wanted to preserve “her personal files, including family photos, personal emails and tax information” and she claimed that she “instructed him not to take any confidential AMD information.” Desai accessed this information on her Nvidia-issued laptop later, but claimed she was searching for personal information. She obviously never returned the information.
Kociuk reported to Desai and was part of her integration team. Forensic analysis revealed that his user account was used to assist Desai in copying or transferring very large file systems for subsequent use (he said this was done only to help her erase her personal data from AMD). He admitted he used a utility application, Robocopy, to create duplicate images of the entire file structure of his two AMD-issued computers. More than — wait, let me lift my pinkie to my lips — one million files were copied onto a pair of external hard drives. Kociuk claimed that he did this to preserve copies of personal information and data. He left to join Nvidia on January 11, 2012, the event that triggered the lawsuit and TRO. After downloading the files, Kociuk signed an acknowledgement that he was not retaining any of AMD’s confidential information.
In addition, AMD presented evidence of some solicitation of then-current AMD employees by Feldstein, Desai and Hagan. None would admit that the conversations were actual solicitations but it appeared from emails and text messages that some informal solicitation may have taken place.
The District Court’s Reasoning: Judge Hillman addressed the split in authority in Massachusetts over whether acquisition of trade secrets by improper means is sufficient to establish misappropriation or whether, alternatively, a plaintiff is required to prove actual use above and beyond acquisition by improper means. He did not address the pros and cons of each line of cases, but instead, he simply elected to go with the line of cases permitting acquisition by improper means.
Judge Hillman recounted the forensic evidence outlined above and found that it was “compelling.” He noted that all of the former employees made copies of confidential information of AMD, retained that information, and immediately began working for significant competitor. He noted that Feldstein in particular had access to extremely sensitive business strategy and licensing agreement information which he acknowledged was “problematic.”
This circumstantial evidence, in the court’s view, destroyed the credibility of the alternative explanations offered by the employees as well as their other testimony that they did not intend to misappropriate the trade secrets or that they could not possibly use that knowledge to benefit Nvidia in their current position.
The Takeaways: From the employee side, what were these people thinking? Kociuk’s decision to copy one million files destroyed the believability of the employees’ protestations of misappropriation. The strength of the forensic evidence also spilled over into the issue of whether improper solicitations occurred, because the ambiguous signals and communications at issue there suddenly took on more sinister overtones against the backdrop of the massive downloading of these and other files.
On the employer’s side, forensic evidence saved the day here and was used to build a compelling story. Although there was no evidence of actual use of the trade secrets, the sheer amount of data transferred, the suspicious timing of the downloading and the timing of the employees’ departures to the same competitor led the court to conclude that these employees were likely already using or likely to use these trade secrets in the future.
As I noted at the outset, several courts have recently required parties to come forward with actual proof of misappropriation (a decision out of Georgia imposing this standard can be found here). This new standard, in my view, is incorrect and difficult, if not impossible, to meet. Evidence of the proverbial “smoking gun” rarely exists and it is unrealistic to expect a tortfeasor to fall to his or her knees and admit “I did it!” To the contrary, in the crucible of litigation, one can reasonably expect the tortfeasor’s story to harden now that he or she is confronted with tne consequences of his/her actions. Trade secret claims, like claims for fraud or unfair competition, are inherently based upon some degree of deceit and as a result, by their very nature, often can only be proven by circumstantial evidence.
Judge Hillman did not identify the particulars of the injunctive relief he was going to enter in the case, so I will keep you updated when he ultimately does issue that injunction.