Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past couple of weeks: Noteworthy Trade Secret and Non-Compete Posts and Cases:
  • A California federal jury has ordered Best Buy Co. Inc. to pay $22 million for unjust enrichment after finding the retailer willfully stole TechForward Inc.’s trade secrets and breached a confidentiality agreement concerning an electronics buy-back program, reports Law360. Best Buy’s efforts at an electronic buy-back program had been unsuccessful, so it approached TechForward, signing a NDA in 2008, and collaborated on a pilot program that rolled out in April 2010 in a dozen Best Buy stores in southern California. Several months after the pilot launch, however, Best Buy allegedly ended the relationship “hastily and unexpectedly,” saying it planned to move forward on a buy-back program by itself, according to TechForward. When Best Buy unveiled its national program in January 2011, it was “nearly identical in its key components to TechForward’s,” the suit said.
  • The arbitratability of non-compete and trade secret disputes are in the news this week.  Josh Salinas has an excellent post for Seyfarth Shaw’s Trading Secrets Blog on a recent federal decision out of California affirming that an arbitration provision may properly exclude injunctive relief for trade secret and similar emergency proceedings, in my view a correct result. (Anyone who has had to deal with the delays accompanying arbitration should know this and should check out one of my first posts on why companies, especially small companies, should make sure that they carve out injunctions for trade secret and IP disputes from any arbitration provision).
  • Similarly, a non-compete arbitration/case out of Oklahoma has made its way to the U.S. Supreme Court, which has decided that any decision as to the enforceability (or validity) of the non-compete should be made by the arbitrator, not the court. Both Kenneth Vanko’s Legal Developments in Non-Competition Agreements Blog and Epstein Becker’s Trade Secrets & Noncompete Law Blog have posts on this decision. Again, I cannot emphasize this enough: if you truly want to screw up your own trade secret and non-compete case, make sure that you have an arbitration provision that does not clearly carve those disputes out. You have been warned.
  • “Chinese Professor Asserts Chinese Companies are Victims of Unfair Espionage Laws – And Then Argues China Should Adopt Similar Laws To Avoid Victimization,” writes Todd Sullivan’s Trade Secrets & Employee Defections Blog.
  • “Will Tolling Provisions Gain Popularity?”  in non-competes asks Jackson Lewis’ Non-Compete & Trade Secrets Report Blog.
  • In a decision that will have ripple effects in many trade secret and IP disputes, the federal magistrate in the Apple v. Samsung case has ordered that Apple’s license with HTC be produced to Samsung in connection with the discovery for the upcoming permanent injunction hearing.
  • For the latest on IP ownership agreements between employers and employees, check out “Ex-IBM Worker Can’t Get High Court Review In Patent Row” in Law360.
  • Healthcare non-competes appear to be rise, sparking an article “Negotiation Tips For Non-Compete Clauses In Physician Employment Contracts” by the Pennsylvania Medical Society.
  • “How Public Interest May Limit Enforcement of a Non-Compete Agreement” advises John Paul Nefflen for Burr & Forman’s Non-Compete Trade Secrets Blog.
  • For “Common Defenses to Enforcement of a Non-Compete Agreement in Florida,” see Fox Rothschild’s South Florida Trial Practice Blog.
  • Russell Beck’s Fair Competition Law Blog has issued its always superb and comprehensive monthly “Issues and Cases” Update which has a wealth of information. If there is one link to check out this week, it is this one.
  • For more on the recent Trade Secret Clarification Act by the U.S. Senate, see Ryan Davis’ article, “Senate Bill Could Bring More Criminal Trade Secrets Cases” for Law360. My post on the recent bill can be found here.
Computer Fraud & Abuse Act Posts and Articles:
  • Are you in the Fourth Circuit or Ninth Circuit and looking for a federal statute to protect your trade secrets? Then see “An Employee Downloaded Our Trade Secrets. Can I Make A Federal Case Of It, Part II” in Poyner Spruill’s Under Lock & Key Blog. The post analyzes the viability of the EEA and NSPA for potential claims.
Cybersecurity Articles and Posts:
  • “When It Comes to Security, We’re Back to Feudalism” laments Bruce Schneier for Wired.
  • “Patent trolls and their effect on security” writes Eugene Kaspersky for SC Magazine.
  • For a good summary of President Obama’s recent cybersecurity directive, see The Washington Post’s article, “Obama signs secret directive to help thwart cyberattacks.”
  • “When Banks are Left on the Hook for Cybertheft” reports Joe Palazzolo for The Wall Street Journal’s Law Blog. 
News You Can Use:
  • “The Rising Science Of Social Influence — How Predictable Is Your Online Behaviour” advises Ferenc Huszár for TechCrunch.

Readers of this blog will recall that the Trade Secret Litigator was most unhappy with the U.S. Court of Appeals’ recent decision in U.S. v. Aleynikov, a decision that in this humble author’s view unduly narrowed the categories of trade secrets protected under the Economic Espionage Act (EEA).  In response to criticism over the Aleynikov opinion, on November 27, 2012, the U.S. Senate unanimously approved S. 3642, the Theft of Trade Secrets Clarification Act, authored by Senate Judiciary Chairman Senator Patrick Leahy.  This bill is intended to clarify a provision of the EEA with respect to trade secret theft following the Aleynikov case last February. (A PDF showing the changes to bill and the proposed language can be found below).

In Aleynikov, the Second Circuit vacated the conviction of former Goldman Sachs’ programmer, Sergey Aleynikov, under the EEA. A New York jury had convicted Aleynikov in December 2010 of stealing source code for Goldman’s high frequency trading (HTF) program.  On appeal, however, the Second Circuit concluded that the trade secrets relating to the source code Goldman’s HTF program were not related to a product “produced for . . . interstate or foreign commerce” under §1832(a) of the EEA and therefore not entitled to protection.   My criticisms of this opinion and its reasoning can be found here.

S. 3642 seeks to remedy that statutory 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 previous language was limited to trade secrets “related to or included in a product that is produced for or placed in interstate commerce,” which the Second Circuit narrowly construed to mean in an actual product that was either in interstate commerce or intended ultimately to be placed in interstate commerce.  Because Goldman’s HTF trade secrets were not part of an actual product being sold, the Second Circuit concluded that those trade secrets fell outside the EEA’s protections.

The bill is a welcome development to remedy an unduly narrow view of the statute.  This should serve to protect a broader range of trade secrets, including products and now services that are simply intended for use in interstate commerce.  This language should cover significantly more types of trade secrets so long as they have some relationship to a product or service that is intended for some kind of interstate use.
 
Judiciary Committee Ranking Member Senator Charles Grassley and the members and staff of the Senate Judiciary Committee were also instrumental in passing this bill.  A shout out goes out to Senator Leahy, Senator Grassley and the other members of the Senate for moving promptly to try to remedy this construction and let’s hope the U.S. House of Representatives moves promptly as well. Now, let’s get some momentum behind Senator Kohl and Senator Coons’ bill to amend the EEA to include a civil remedy for trade secret owners.

18 USC Sec 1832 Redline.pdf (13.09 kb)

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past couple of weeks:    Noteworthy Trade Secret and Non-Compete Posts and Cases:
  • A Kansas City jury has awarded $31.3 million to Hallmark Cards in a trade secret dispute against Boston-area private equity firm Monitor Clipper Partners LLC, reports Todd Sullivan’s Trade Secrets & Employee Defections Blog. According to Todd, the jury awarded approximately $21.3 million in compensatory damages and $10 million in punitive damages to Hallmark.  Hallmark had claimed that Monitor violated a NDA and misappropriated its trade secrets in connection the private equity firm’s bid for a rival of Hallmark’s.
  • The U.S. Department of Justice (DOJ) is claiming that eBay entered into an improper agreement with Intuit to not compete for the other’s employees, reports The Wall Street Journal.  Kenneth Vanko also has a post on this filing; he reports the DOJ has sued eBay under the Sherman Act, claiming that the no-hire agreement is both illegal under a per se and rule of reason analysis. 
  • The former CBS producers accused of stealing trade secrets from CBS’s “Big Brother” reality show have filed an action seeking a declaration that CBS has waived its right to pursue arbitration against them for their alleged misappropriation.  Alleging that CBS has waged the “legal equivalent of war” against them, the former producers are arguing that CBS waived its arbitration rights when it sought and failed to get a TRO attempting to restrain the producers from launching the show “Glass Houses.”  For more on this dispute, see my earlier post.
  • Does “friending” a customer on Facebook amount to a violation of a non-solicitation agreement? Not according to a Massachusetts Superior Court in Invidia v. DiFonzo, which recently found that merely having friends who are also customers, without more, does not constitute solicitation. Evan Brown’s Internet Cases and Eric Goldman’s Tech & Marketing Blog both have posts on this case. For more on this issue of social media and solicitation, see my post last year on the TEKSystems v. Hammernik case out of Minnesota.
  • Can’t get enough about China being bashed about its theft of trade secrets?  Then check out Press Millen’s post for Womble Carlyle’s Trade Secrets Blog.  Press cites to a recent article from Foreign Affairs that concludes that China is the number one purveyor of corporate espionage today.
  • The Trade Secrets Institute has a nice post about whether the increasing number of disputes arising out of the supposed misappropriation of “ideas” for television reality shows should include trade secrets claims.
  • “How to Fight a Non-Compete Agreement” advises Pamela Chung for the upcounsel blog.
  • Anticipating a dispute with a California employee over a non-compete? Then you should check out the post entitled “Enforcing Non-Compete Agreements Against California Employees — Part 1” by Shepard Davidson and Renee Inomata for The In-House Advisor.
  • Two of my favorite trade secret/non-compete bloggers, Kenneth Vanko and Rob Dean, have combined for a Podcast that can be found on Kenneth’s Legal Developments in Non-Competition Agreements Blog.
IP and Technology Posts and Articles of Note:
  • Criticism of the U.S. patent system continues to swell.  Wired had an opinion piece aptly named “The Patent Problem.”  And in Forbes, Robert Jordan has penned an article, “The New Patent Law: End of Entrepreneurship?” that expresses concern that large companies will be favored under the new “first to file” patent system because they have the resources to muscle through more patent applications than smaller innovators.
Cybersecurity Articles and Posts:
  • In a cover story for Wired, Mat Honan argues that the password is effectively useless.  In “Kill the Password: Why a String of Characters Can’t Protect Us Anymore,” Mat details how hackers disrupted his life last summer.  On a similar topic, Mat also has criticized The New York Times in an article entitled, “The New York Times Is Wrong: Strong Passwords Can’t Save Us.”  The Times article in question, “How to Devise Passwords that Drive Hackers Away,” had apparently been its most popular of the past week.
  • “Security researcher found guilty of conspiracy and identity fraud in ‘hackless’ AT&T iPad hack” reports The Verge.
  • “Your Phone Has Been Hacked. Here’s What You Need to Know” advises Elise Ackerman for Forbes.
  • “Send Document, Get Breached? Tightening Security in Document Exchanges” reports Charlie Magilato for the attorney at work blog.
  • “Cybersecurity Act of 2012 Dies Again in the Senate” reports Misty Blair for Seyfarth Shaw’s Trading Secrets Blog.
News You Can Use:
  • Want to make good decisions at critical junctures? Then check out Joel Peterson’s recent article, “Decide or Perish: How to make the right call” for Forbes.

One of the most hotly-contested issues in any trade secret and non-compete case is the scope of permissible discovery to determine to what extent a former employee may have misappropriated trade secrets.  An important battleground that does not receive much attention, however, is whether a former employer can inspect the personal mobile devices of the former employee. 

A recent case out of the Appellate Court for the First Department of New York (Manhattan), Alliance Bernstein, L.P. v. Atha, provides some guidance on how courts are attempting to balance the many thorny issues that arise in these requests.  As I explain below, in that case, the appellate court ordered that the iPhone be turned over to the trial court so that it could conduct its own inspection to determine whether the forbidden information was on the phone. (A PDF of the opinion can be found below).

Why is this Case Noteworthy?  Because they generally arise in the context of emergency injunctive proceedings, trade secret and non-compete cases involve not only expedited discovery (i.e., fast-paced document requests and immediate depositions) but also what might potentially be intrusive forms of discovery directed at finding out whether confidential information or trade secrets have been taken. 

Sometimes requests directed to the employee’s personal devices are unnecessary because the former employee has left a digital trail behind, having either emailed documents to his or her personal email account or clearly deleted files.  In cases where a technically savvy employee may have left no obvious digital trail behind, former employers will generally retain the assistance of forensic computer consultants who will inspect the former employee’s company-owned computer, laptop or mobile device to find out what might have been accessed, copied or deleted.  The results of that investigation can greatly assist the former employer’s counsel in demonstrating, either directly or circumstantially, that confidential information was taken.

Of course, that search for information may not end there. Consequently, one of the frequent flash points in discovery is whether a former employer can inspect the personal laptop, mobile device or phone of an employee to find out whether information was taken.  In the era of “Bring Your Own Devices” (BYOD), this request may become critical in trade secret or non-compete cases, given the interface between the employer’s servers and databases and the former employee’s personal smartphone. 

As you might expect, former employees are resistant to these requests, generally citing privacy concerns as well the potential trade secrets of their new employer that might be uncovered and misused by their former employer.  With the exponential growth of smartphones and tablets and the fact that so many people now also perform work on these personal devices, these issues loom even larger today.

To my surprise, however, decisions laying out guidelines or rules in this area are exceedingly rare.  This is probably due to the fact that courts routinely direct the parties to reach some type of compromise or because courts don’t have the opportunity to issue lengthy written opinions on discovery disputes in these expedited proceedings.  In any event, there is not much recent authority to guide employers and employees in these disputes.

Background and Analysis of the Case:  In this case, AllianceBernstein sued one of its former financial advisors, William Atha, claiming that he had breached his employment agreement by, among other things, allegedly stealing his former employer’s confidential client contact data so that he could solicit those clients at his new firm.  AllianceBernstein sought and received a TRO preventing him from using that information, and it then sought discovery as to Atha’s personal iPhone, arguing that Atha had serviced its clients over that phone and that the device contained the contact information for those clients. The trial court agreed and directed Atha to deliver his iPhone within five days so that AllianceBernstein could obtain the contact information it requested.

Atha secured what amounted to an emergency interlocutory appeal and successfully reversed the trial court’s order in part.  The First Department engaged in a somewhat hasty balancing test (understandable under the circumstances), finding that the TRO in place adequately protected AllianceBernstein and attempting to balance the privacy and commercial interests of Atha against the need for relevant information sought by AllianceBernstein. 

The First Department found that ordering production of the iPhone, with its “built-in applications and Internet access, is tantamount to ordering the production of his computer.”  However, the First Department acknowledged the former employer’s right to the information but was concerned about giving an adverse party too much “irrelevant” information.  As a result, the appellate court struck a compromise, ordering that “the iPhone and a record of the device’s contents shall be delivered to the trial court for an in camera review to determine what if any information contained on the iPhone is responsive to plaintiff’s request.”

The Trade Secret Litigator’s Takeaway:  On its face, the First Department’s decision is Solomon-like, allowing the employer to get the contact information that it sought but still protecting the privacy and commercial interests of the former employee and his new employer.  My only concern with the decision is whether the trial court has the expertise or resources to conduct the in camera inspection.  Assuming it does not, who will bear the costs of the forensic consultant engaged by the court?

As a general matter, I can’t emphasize enough how the landscape has changed over the past 5 years over these types of discovery requests.  Prior to the advent of the smartphone and tablets, in my experience, courts generally ordered the discovery of personal computers, reasoning that trained forensic consultants from each side would figure out a reasonable compromise on the protocols for search terms and devices.  However, in the era of BYOD and the blurring of the personal and professional, I sense that there is a greater reluctance by courts to tread into these areas because of that profoundly greater overlap.  Frankly, the analysis should be the same:  can the plaintiff make a prima facie showing that there has been misappropriation and that evidence of that misappropriation exists on the personal mobile devices? 

However, my experience and everything that I have heard and read tell me that courts are far more careful with these requests.  Expect more decisions like this one, as courts and parties grapple with these issues and try to strike a balance between discovery of relevant information and protecting the privacy interests of the former employee.

AllianceBernstein v. Atha.pdf (33.35 kb)

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past couple of weeks: Noteworthy Trade Secret and Non-Compete Posts and Cases:
  • Zynga has expanded its high profile trade secrets dispute against a former employee to include his new employer, competitor Kixeye, according to All Things Digital. In response, Kixeye has filed a counterclaim seeking a declaration that it has neither misappropriated the trade secrets of Zynga nor improperly interfered with any relationships or contracts with that former employee, Alan Patmore. As Todd Sullivan notes in his post over this recent development, Kixeye freely admits that Patmore shared Zynga’s information with Kixeye but denies that any of that information qualified as a trade secret. (Seyfarth Shaw also has a post on this recent development). An aggressive strategy, to be sure, and the Trade Secret Litigator will keep a close eye on this one. 
  • In another high profile trade secrets case, sports agent Aaron Mintz and his former employer, Mark Bartelstein & Associates Inc., have secured dismissal of competing claims against one another, according to Law360. U.S. District Judge Stephen V. Wilson dismissed the former employer’s trade secret claims against Mintz and his new  employer, Creative Artists Agency, but also dismissed Mintz’s claims alleging violations of the Computer Fraud & Abuse Act and the Electronic Communications Privacy Act in connection with alleged email hacking. The case started as a declaratory judgment action filed in March by Mintz, who sought a ruling that two portions of his employment contract — a two-year non-compete clause and a requirement that he provide 14 days’ written notice of his resignation — were unenforceable, and has morphed into a cause celebre in sports agent circles. 
  • Alnylam Pharmaceutical has paid $65 million as part of a licensing agreement settling a lawsuit that accused it of misappropriating Tekmira’s trade secrets related to gene-silencing therapeutics, Law360 is reporting.
  • Caveat angry employers, the Illinois Supreme Court has recognized a claim for intrusion of seclusion for an improper investigation into whether an employee was violating his non-compete, reports Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • Can an employer condition severance payments on a non-compete?  Kenneth Vanko strikes again and reports that an Illinois federal court has said “no way.” In Pactiv Corp. v. Rupert, the Northern District of Illinois held that the employer had failed to provide the requisite notice under ERISA to justify that attempt. Epstein Becker’s Trade Secrets & Noncompete Blog has a post on the case as well.
  • For those looking for cases involving choice of law clauses in non-compete disputes, check out Jonathan Pollard’s post from the non-compete blog on a recent decision from a federal court in Missouri.
  • For those asking the same question about forum selection clauses in North Carolina, see Jason B. James’ recent post for Poyner Spruill’s Under Lock & Key Blog.
  • “Global Corporate Fraud is Down, Data Theft a Stubborn Threat” reminds Catherine Dunn for Corporate Counsel.
  • “Winning the final fight against international trade secret thieves: Five steps to overcome a defendant’s aggressive post-verdict actions and obtain compensation” advises Kent Gardner and William Sauers for Inside Counsel.
IP and Technology Posts and Articles of Note:
  • Can a judge dangle a reduction in damages in exchange for compliance with its injunction?  Perhaps the better question is, should it have to? According to a November 11, 2012 post by Venkat Balasubrami for Eric Goldman’s Technology & Marketing Blog, in North American Recycling, LLC v. Texamet Recycling, LLC, Judge Michael C. Watson of the U.S. District Court for the Southern District of Ohio has made such a proposal to the defendant if it agrees to remove certain defamatory content from its websites and forbears from doing it again in the future.
  • Interested in “Genetic Data, Patents, and Trade Secrets”? Then see this article by Antoinette Konski of Foley & Lardner for JDSupra.
Computer Fraud & Abuse Act Cases and Posts:
  • Seyfarth Shaw’s Trading Secrets Blog reports on a recent case out of Nebraska dismissing a CFAA claim for failure to plead the requisite damages.
Cybersecurity Articles and Posts:
  • “Cybersecurity Bill Fails To Move Forward In The Senate (Again)” reports techdirt.
  • “Legal Risks with BYOD” cautions Peter Vogel in his Internet, Information Technology & e-Discovery Blog.
  • “A Break in the Clouds – What’s Trending in Cloud Computing?” asks Tim Wright of Pilsbury in a contribution to JDSupra.
  • “Email: the forgotten security problem” warns Julian Bhardwaj for nakedsecurity.
News You Can Use:
  • “How to Devise Passwords That Drive Hackers Away” advises The New York Times Bits Blog.
Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past couple of weeks: Noteworthy Trade Secret and Non-Compete Posts and Cases:
  • The Trade Secrets Institute is reporting that tablet maker FUHU’s request for a TRO against Toys “R” Us has been denied. FUHU had accused Toys “R” Us of using a marketing agreement to steal FUHU’s trade secrets and marketing concepts when it launched a rival product in September. According to the post, FUHU failed to demonstrate a likelihood of irreparable harm because the information identified by FUHU as trade secrets were considered “general business concepts and broad marketing ideas” that do not fit within the definition of trade secret under New Jersey Law (the NDA between the parties stipulated to New Jersey law).
  • The criminal trial against a Michigan couple accused of stealing GM’s trade secrets for a Chinese competitor is now underway, reports Business Week. Shanshan Du, the ex-GM employee, is alleged to have copied the GM’s private information on the motor control of hybrids and provided those documents to her husband, Yu Qin. According to prosecutors, Qin then used the confidential data to seek business ventures or employment GM’s competitors, including the Chinese automaker Chery Automobile Co. GM contends the stolen trade secrets are worth more than $40 million, prosecutors said.
  • Todd Sullivan has an update on the ongoing Eaton trade secret case in Mississippi. According to Todd, Eaton has asked the judge who has presided over the dispute and many of the unfavorable rulings to recuse himself. Todd’s post links to Alison Grant of The Plain Dealer who has been following developments in the case closely.
  • Behaving badly will get you enjoined, warns Brian Bialas in a post this week for Foley & Hoag’s Massachusetts Noncompete Law Blog. In a recent case in federal court in Massachusetts, Harlan Laboratories v. Campbell, a court enforced a non-compete, reasoning the employee’s misconduct and destruction of evidence justified its enforcement. According to Brian, the employee, Gerald Campbell, downloaded his former employer’s confidential information, accessed it while working for a competitor after being emailed about a market analysis, and then pitched the flashdrive.
  • “China Cyber Threat: Huawei and American Policy Toward Chinese Companies” warns The Heritage Foundation. For a rejoinder, see the recent article in Slate, “The Manchurian Network: Don’t believe the U.S. government’s alarming claims that Chinese telecom firm Huawei is a danger to national security.”
  • “What the data says about trade secret protection in China” advises China IPR. (Hint: it doesn’t look good).
  • Looking for an “Update on Proposed Massachusetts Non-Compete and Trade Secret ‘Reform’ Legislation”? Then check out Ryan Malloy’s post for Seyfarth Shaw’s Trading Secrets Blog.
  • “Patent v. Trade Secret: Which is better?” weighs the International Technology Law Blog.
  • “Microsoft Wants Confidential Docs Sealed For Google Trial” reports Law360.
IP and Technology Posts and Articles of Note:
  • The recent outing of two controversial figures, one on Twitter and the other on Reddit, has sparked a debate about the conundrum of what to do about bad actors on the Internet. Two fine posts stand out: “When does community action against an anonymous troll become a lynch mob?” asks Mathew Ingram for Gigaom and “Truth, Lies, and ‘Doxxing’: The Real Moral of the Gawker/Reddit Story,” writes Danah Boyd in an opinion piece for Wired.
Computer Fraud & Abuse Act Cases and Posts:
  • Well it looks like the U.S. Supreme Court will have its chance, if it so desires, to resolve the growing conflict between circuit courts over the scope of the CFAA as WEC Carolina has filed a writ of certiorari seeking the Court’s review of the Fourth Circuit’s dismissal of its CFAA claim. As always, Robert Milligan has a thorough post looking at the decision and the odds that the Supreme Court will take the case.
Electronic Discovery:
  • “How to Preserve Data When You Can’t Trust Your Adversary” recommends Judy Selby, Brian Esser & Joshua Rogfor Law Technology News.
  • For tips on “Cloud considerations for E-Discovery” see this post by KL Gates.
Cybersecurity Articles and Posts:
  • BYOD: “Bring Your Own Disaster”? posits Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
  • Do Lawyers Understand Cloud Computing? asks LegalCurrent. Do you really want me to answer that?
  • “As the cloud expands, CSA offers guidance for Security as a Service” advises infosecurity.
News You Can Use:
  • “4 Simple Changes to Stop Online Tracking” advises the Electronic Frontier Foundation.

I have the privilege of having been invited to speak at the 37th Annual IP Institute for the California State Bar on “”Protecting and Maintaining Trade Secrets and Confidential Information In The Age of Social Media and Cloud Computing.”  The presentation is this Friday, November 9, 2012 at 9:45 a.m. at the Omni Hotel in San Diego.

I will be joining Intel Corporation’s Janet Craycroft and Seyfarth Shaw’s Robert Milligan on the panel.  Janet is the Director of Legal Counseling for Intel where she has coordinated a number of high profile trade secret cases, including the prosecution of former Intel engineer Biswamohan Pani; Janet is also the new Chair of the Trade Secrets Law Committee of the American Intellectual Property Law Association.  Robert is the editor of one of my favorite trade secret blogs, Seyfarth Shaw’s Trading Secrets Blog, and a leading trade secret litigator in Los Angeles.  I am truly honored by the opportunity to speak with Janet and Robert. 

Janet, Robert and I will be covering a number of intriguing issues in trade secret law, including recent developments and best practices in social media, emerging cybersecurity issues for law firms and legal departments, and the special challenges of managing your trade secrets in the world of cloud computing.  It should be a fun discussion with a great panel on fascinating issues that are fast developing in the trade secret area.

Registration for the IP Institute can be found here.  Look forward to meeting some of my California readers and seeing lovely San Diego.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well one or two that I missed over the past couple of weeks: Noteworthy Trade Secret and Non-Compete Posts and Cases:
  • As a repeat of the razor-close 2000 presidential election looms, should voting machine manufacturers be trusted with their trade secrets? In “Trade Secrets of Voting Machines? Elon University Law School’s David Levine Objects,” Todd Sullivan has an interesting post about whether public policy should trump the commercial trade secrets of those manufacturers. According to Todd, Professor Levine essentially argues that voting machine manufacturers should forfeit any claim to their trade secrets so that the public can ensure that the machines function properly and votes are truly counted.
  • Non-competes in the healthcare field continue to be a source of friction, as Seyfarth Shaw’s Paul Freehling writes about a recent case out of the U.S. District Court for the Northern Marianna Islands refusing to enforce a non-compete against two paramedics and their new employer, Priority Care, on public interest grounds. In August Healthcare v. Manglona, the court found the “public will be harmed if enjoining [the two employees] from working for Priority Care reduces Priority Care’s ability to serve its customers to the point of removing St. Michael’s only competitor from competition.”
  • “China Court to Weigh Corporate-Spy Case” reports The Wall Street Journal.  According to The Journal, American companies are closely watching this trade secrets case, brought by an American manufacturer AMSC against its Chinese customer Sinovel Wind Group, to see how China’s highest court treats an appeal by Sinovel challenging a lower court’s decision not to dismiss the case. AMSC’s dispute has generated headlines, as both Senator John Kerry and Vice President Joe Biden have drawn attention to its plight.
  • “When Do CEOs Have Covenants Not to Compete in Their Employment Contracts?” A recent article in The Vanderbilt Law and Economics Journal collected a random sample of nearly 1000 CEO employment contracts for 500 companies randomly selected from the S&P 1500 for the time period 1996 to 2010. Based on that sample, the study found, among other things, that non-competes were more likely in long-term contracts and by companies who had insisted on them for past CEOs.
  • In “The Difficulty of Proving Trade Secret Violations” by Chip Collins for Burr & Forman’s Trade Secrets & Noncompete Blog, Chip details a recent Georgia decision rejecting an employer’s effort to show trade secret misappropriation by circumstantial evidence. In Contract Furniture Refinishing & Maintenance Corp. v. Remanufacturing & Design Group, LLC, 730 S.E. 2d. 708 (Ga. App. 2012), the court granted a former employee’s motion for summary judgment where the employer could not directly refute the employee’s sworn affidavit denying misappropriation.
  • If you are a departing employee in Virginia, The Virginia Noncompete Law Blog’s Rob Dean has “4 Tips on How to Leave Your Job in Virginia.”
  • Curious about the “Effect of the Internet on Geographic Restrictions in Non-Compete Agreements”? Then check out this post by Ice Miller’s David Carr.
  • How important are exit interviews in protecting trade secrets? Very important, says Jackie Spivey for Poyner Spruill’s Under Lock & Key Blog.
  • Jonathan Pollard’s the non-compete blog provides the employee lawyer’s perspective on Amazon.com’s recent non-compete action against its former executive Daniel Powers.  (My take can be found here).
  • “Industry Voices: Biosimilars and Trade Secrets”by D’vorah Graeser summarizes the industry perspective for Fierce BioTech.
  • In “Permanent Injunctions and The Erie Problem,” Kenneth Vanko takes Judge Payne to task for not applying the doctrine of eBay v. MercExchange in his recent decision granting a permanent injunction in the DuPont v. Kolon case. Kenneth persuasively argues that no statute should dispense with the requirement of irreparable injury but notes an injunction was warranted under the facts (for what it is worth, I think Judge Payne did apply an irreparable injury analysis although his opinion professed not to do so, for more see my post on the decision).
Cybersecurity Posts and Articles:
  • “Industry groups issue web, mobile messaging best practices ” notes Danielle Walker for SC Magazine.
  • In an article entitled “Killing the Computer to Save It,” The New York Times details Peter G. Neumann’s efforts to redesign the computer to make it more secure.
  • “Cybersecurity Act Loses Steam” advises infosecurity.
Thought-Provoking Posts and Articles regarding IP or Technology:
  • Although October was ostensibly National Cybersecurity Month, perhaps it should have been dubbed National “Our Patent System Has Run Amok” Month with the number of articles criticizing the U.S. patent system. Timothy B. Lee’s article, “How a rogue appeals court wrecked the patent system” for ars technica caused a stir, inspring a spirited rebuttal by IP Watchdog’s Gene Quinn entitled “Lies, Damn Lies and Media Hatred of Patents (and the CAFC).” Likewise, The New York Times article “The Patent, Used As A Sword” provoked Quinn to write “What The New York Times Doesn’t Understand About The Patent System.” Gene has yet to respond to “Numbers don’t lie: Patent trolls are a plague” by Simon Phipps for Infoworld.
  • In light of the above criticisms, one might want to ask, as Patently O’s Dennis Crouch does, “Should we Move Toward More Fee Shifting in Patent Cases?”
News You Can Use:
  • Looking for “A Windows 8 Cheat Sheet”?  David Pogue’s post for The New York Times provides the help.
  • Care to join “The Mad Rush To Reserve Your Child’s Digital Future”? If so, check out this article by Alexander Taub for Forbes.

In what promises to be a high profile non-compete and trade secrets dispute, Geekwire is reporting that Amazon.com has sued its former vice president in charge of global sales for Amazon Web Services to enforce a non-compete and to prevent him from becoming Google’s director of cloud platform sales.  In that lawsuit filed in Kings County, Washington against Daniel Powers, Amazon has also cited a severance agreement in which Amazon paid Powers $325,000 as a further contractual basis for its claims.  A PDF copy of the complaint is attached below.

According to a post describing the lawsuit on TechCrunch, Amazon says it hired Powers from IBM and taught him the business from “top to bottom,” and provided him with Amazon’s strategic road map, customer information, and pricing strategies in Amazon’s cloud computing business.   Amazon claims that “[a]s a consequence, Powers, perhaps more than any other single employee, acquired extremely confidential, competitively sensitive information about Amazon’s cloud computing business.”

The complaint also hints at Powers’ likely substantive defense — that he and Google have undertaken steps to safeguard Amazon’s confidential information, at least according to Amazon’s account of its dialogue with Powers’ lawyer.  This defense has had some varying degree of success (see my posts regarding the use of this defense in IBM v. Visentin and Aspect Software v. Barnett). 

In addition, there may be a dispute over which law applies, which could determine who prevails.  Although the complaint alleges that Powers is a resident of Washington (a state that does enforce non-competes), Google is headquartered in California, a jurisdiction that rejects the enforcement of non-competes against employees in most circumstances.  Last year, for example, Cisco and HP tangled over whether Texas or California law applied in connection with the hire of a technologist named Paul Perez.  HP claimed Perez was a Texas resident but Perez had apparently moved to California and filed his own lawsuit to challenge the HP non-compete (Perez and his new employer Cisco ultimately prevailed).

Given the entry of many tech heavyweights into the cloud computing sector, this lawsuit will likely generate significant interest.  According to Amazon’s complaint, Google is marketing and selling its cloud computing offerings to many of the same market sectors and groups that are targeted by Amazon.  Amazon alleges that Google offers or has announced its intention to offer cloud computing products and services that will directly compete with Amazon’s offerings, including Google App Engine, Google Cloud Storage and Google Compute.

I will keep you posted on any further developments.

Amazon v. Powers.pdf (1.71 mb)

It has been said many times that every patent begins its life as a trade secret. That adage has taken on even greater truth today, with the changes wrought by the enactment of the America Invents Act (AIA), which has radically altered U.S. patent law. As lawyers and courts sort out the uncertainty put in motion by the AIA’s changes, it is becoming increasingly clear that non-disclosure agreements (NDAs) and confidentiality agreements are not just for trade secrets anymore but may be critical to protecting potential patents.

Why? There are three reasons.

1. The Shift to a “First to File” System. The shift from a “first to invent” patent system to a “first to file” patent system is probably the most significant reason for making sure you have NDAs for any sensitive disclosures. Under the old system, so long as an inventor could demonstrate that he or she was the first inventor of patentable subject matter, the fact that another filed an application for a patent first was not determinative of who was entitled to the patent. In other words, if patent applicants could demonstrate they were the original inventors, they would be protected against derivation of their invention as a result.

However, under the first to file system, an inventor now has to be doubly careful because if he or she discloses that invention to someone else before the inventor files his/her application, and that party decides to promptly file a patent application first, then the inventor could face a real battle as to who is entitled to a patent. Some are concerned that the AIA is unclear on exactly how protective its provisions will be in practice, particularly in cases where an applicant modifies the another’s original invention in some way. “Since the winner of a patent will generally be the one who is first to file, not the first to invent, someone who steals your invention — then modifies it — may able to get a patent nonetheless,” Ted Sichelman, as associate professor at San Diego School of Law, noted in a post last fall in The Tech Transfer Blog.

As a result, companies may need to be even more careful to keep their secrets close, even when it comes to employees, consultants and suppliers under non-disclosure agreements. A company should insist on strong language in the NDA to ensure that any modifications or improvements of the disclosed information remain the property of the inventor. Likewise, as to employees, a company needs to make sure that there are well-drafted “ownership and assignment” provisions to make sure that a former employee does not attempt to seek patent protection for work he or she previously performed for his/her employer. For more on the importance of these provisions, see my posts on recent decisions enforcing these provisions here and here.

2. The NDA May Extend the Time for Patentability. A second reason: a confidentiality agreement preserves the potentially patentable matter not only as a trade secret, but may now effectively extend the ability to patent that subject matter at a later time if the owner loses the trade secret status or elects to seek a patent.

As Robert Latta and I wrote last month, the legislative history of one of the new AIA provisions, the newly-modified 35 U.S.C. § 102(a)(1), makes clear that the election to preserve the subject matter as a trade secret does not result in the forfeiture of the inventor’s ability to protect that invention as a patent. Prior to the AIA, if an inventor maintained his invention as a trade secret and commercially profited from that invention for more than one year, the inventor forfeited the right to patent that invention. As Justice Learned Hand wrote long ago, “it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.” Metallizing Engineering Co. v. Kenyon Bearing and Auto Parts Co., 153 F.2d 516 (2d Cir. 1946).

Simply put, the rule of Metallizing Engineering may now be gone. In an October 10, 2012 Patently O post entitled “Did the AIA Eliminate Secret Prior Art?”, Dennis Crouch says that this view has been advanced by the United States Patent and Trademark Office (USPTO) in its recent proposed guidelines. Dennis further notes that this view has also been supported by leading patent organizations such as the American Intellectual Property Law Association (AIPLA), the IP Section of the American Bar Association, and the Intellectual Property Owners Association (IPO).

What does this all mean? The use of NDAs will better preserve a potential patent applicant’s claim that there has not been a public disclosure of the invention, and therefore preserve his/her ability to seek patent protection of a trade secret at a later time.

3. Uncertainty. While there are a lot of opinions out there about the fallout from the changes under the AIA, no one can be completely certain. Prudence, therefore, dictates that a company or inventor needs to err on the side of caution and treat every disclosure very carefully. Insisting upon the execution of a NDA is an important first step.