06252012On Thursday, the U.S. Court of Appeals for the Fifth Circuit affirmed sanctions against a plaintiffs’ law firm, Smith & Fuller, for inadvertently disclosing confidential and trade secrets documents that were covered by a protective order in a lawsuit against Cooper Tire & Rubber Company.  The ruling provides a cautionary tale that should serve as a reminder to every outside lawyer to be very careful about sharing or using information gathered in other lawsuits.  (A copy of the opinion is attached as a PDF below).
 
Smith & Fuller had represented a family in a products liability lawsuit against Cooper Tire that ultimately resulted in a jury verdict in favor of Cooper Tire.  Prior to the trial, the district court entered a Protective Order to protect Cooper Tire’s trade secrets and confidential information that were produced during discovery.  The Protective Order limited access of protected information to “authorized persons, solely in the performance of their duties in connection with the trial preparation of [that] case.”
 
In August 2010, Smith and his firm inadvertently disseminated Cooper Tire’s trade secrets and confidential information to a number of other personal injury lawyers during a conference sponsored by the Attorneys Information Exchange Group, Inc. which coordinates the sharing of discovery from, among others, Cooper Tire.  Someone from Smith & Fuller mistakenly copied the confidential information onto compact discs that were then distributed to attorneys attending that conference.  Cooper Tire discovered the violation when its counsel received those documents from a plaintiff’s attorney in another lawsuit against Cooper Tire.
 
Although it found that Smith & Fuller did not willfully violate the protective order, the district court nevertheless imposed sanctions in the form of attorneys fees of nearly $30,000 for Cooper Tire’s motion practice and follow up on the improperly disclosed documents. The Fifth Circuit affirmed, finding the district court was well within its discretion and noting that Smith & Fuller had been previously sanctioned for willfully violating another protective order.  It probably did not help Smith & Fuller’s cause that it had previously held itself out as a “clearinghouse” for Cooper Tire documents for other firms suing Cooper Tire.
 
The Takeaway?  For outside counsel, make sure that any time that you are going to use or share a document from another litigation that you (1) double-check whether the document is designated confidential; (2) cross-reference the document against the protective order from that case to make sure you can share it; and (3) personally make sure no documents are inadvertently produced, or have a trusted colleague familiar with the case do so.  The safest course is not to share anything and remove the risk altogether.
 
On the flip side, if you are going to be producing confidential or trade secret information in a case, insist on a protective order that requires the return of all copies of confidential information when the case ends, or, at minimum, a certification of its destruction when the case is complete.  I prefer the return of all copies to remove any doubt.
 
As virtually every trade secret and non-compete case involves the discovery of confidential information and a protective order to safeguard that information, these are important lessons for us all to remember.

Smith Fuller v Cooper Tire.pdf (106.53 kb)

Here are the noteworthy posts, articles and cases of the past week: Trade Secret and Non-Compete Cases and Posts:
  • Capital One has squeezed $20 million from former executives John Kanas and John Bohlsen on the eve of a jury trial that might have prevented their new employer’s expansion into New York, reports Reuters’ Alison Frankel in her On The Case Blog. As readers of this blog may recall, I posted Kenneth Vanko’s fine report on this case when U.S. District Court Judge Liam O’Grady of the Eastern District of Virginia enforced the former executives’ non-competes after taking into account their sophistication and commercial expertise. The two men had signed an agreement that awarded restricted stock deals worth $24 million for Kanas and $18 million for Bohlsen in exchange for the non-compete clauses.
  • Alliant has scored a big victory in its ongoing dispute with Aon over allegations that former Aon employees had improperly poached clients. In June 2011, Alliant and former Aon employees Peter Arkley, Ken Caldwell and Michael Parizino sued to challenge the enforceability of the non-competes the men signed while at Aon.  Last Wednesday, Judge Dale Fischer of the U.S. District Court for the Central District of California struck down the non-compete provisions in Aon’s employment agreements. 
  • Don’t identify your general counsel (GC) as a witness in a trade secret case cautions Womble Carlyle’s Trade Secrets Blog in a recent post. After an unsuccessful injunction against its competitor Logoplaste, the plaintiff Portola was ordered to produce its GC’s damaging emails because he was listed as a witness.  The emails revealed he had urged Portola to sue just to hurt Logoplaste’s business interests and had hired Logoplaste’s regular counsel in an unrelated matter to create a conflict. Finally, although Portola claimed that its confidential documents were used to lure an employee away, the emails showed the very opposite — that the GC  knew the employee approached Logoplaste first. As a result, the court ordered Portola to pay all of Logoplaste’s attorneys’ fees for the three years of litigation.
  • In another post about a trade secret case gone wrong, Foley & Hoag’s Massachusetts Non-Compete Law Blog reports that the counterclaim arising from the unsuccessful case brought by Brocade Communications against its former employee, David Cheung, has been dismissed. The court dismissed the counterclaim because the only evidence in support of the claim arose from settlement discussions and was therefore inadmissible. Law 360 has since reported that the parties have agreed to dismiss their respective claims against one another.
  • In an article entitled “Arbitrators Slam SunTrust’s Legal Tactics In Non-Solicitation Case Against Former Employee,” Forbes‘ Bill Singer writes about a recent FINRA arbitration decision scaling back a covenant because of the “hardball” tactics of SunTrust’s counsel. According to Bill, the panel was unhappy with the fact that SunTrust secured an ex parte TRO despite knowing the former employee had an attorney who had requested notice of any legal proceeding.
  • Burr & Forman’s Non-Compete and Trade Secrets Blog has a good post about the benefits of a seldom-used provision called a “Full Time and Attention” provision. This provision requires that an employee dedicate his or her full efforts to her job up until departure. As many employees may use the bulk of their final weeks planning and readying to leave, this provision could provide another arrow for the employer to have in its quill for a breach of contract claim in a potential lawsuit.
  • Good news for employees in New Hampshire, reports Seyfarth Shaw’s Trading Secrets Blog. Beginning July 14, 2012, employers in New Hampshire will have to disclose that they will require a non-compete or anti-piracy agreement as a condition of employment prior to making offers of new employment and to existing employees with an offer of change in job classification.
Computer Fraud & Abuse Act Cases and Posts: 
  • Covington’s Inside Privacy Blog details the recent dismissal of CFAA and trespass claims against Amazon. In Del Vecchio v. Amazon, a district court in Washington dismissed the claims that Amazon “exploit[ed]” browser controls in Internet Explorer by publishing a “gibberish” P3P compact policy and using Flash cookies for tracking. The court found, among other things, that the plaintiff failed to meet the requisite $5,000 showing for damages.
Cybersecurity Posts and Articles: 
  • In an article entitled “The promises and perils of the cloud” for Inside Counsel, James Kunick explains things in-house counsel should consider before making the big move to cloud computing.
  • “Negotiate a Source Code Audit to Resolve Software Theft Disputes” advises Daniel T. McClosky for Corporate Counsel.
  • “BYOD wave sparks big security concerns” warns Barb Darrow for Gigaom. 
  • “Insider threat: The game has changed” writes Bill Anderson for SC Magazine.
News You Can Use: 
  • David Donoghue’s Chicago IP Litigation Blog’s recent post, “Rocky Mountain IP Institute: Judge Kozinski’s Advocacy Lessons for IP Lawyers,” is a good, quick reminder for all of us.
  • “Reading This Might Just Preserve Your Identity and Reputation” advises Baker & Hostetler’s Data Privacy Monitor Blog.

Yesterday in Los Angeles, U.S. District Court Judge Gary Feess advised that he was unlikely to grant CBS’ request for a Temporary Restraining Order to forbid ABC from airing its new reality show, The Glass House. While he did not issue a formal opinion or written order, the throngs of media assembled have reported on his statements before a packed court house. (I have attached the minute order and parties’ respective briefs in PDF format below). Given that The Glass House show is set to premiere on Monday, June 18, it is highly unlikely that Judge Feess will change his mind and restrain ABC from rolling out the show.

CBS brought the lawsuit last month, contending that a team of 19 individuals who had worked on its Big Brother reality show were using its trade secrets and violating its copyrights by working on ABC’s new show. The template of of the two shows was very similar — i.e., a show following a group of unrelated people living together in a house all summer, with individuals being eliminated until a finalist wins a prize. For more background on the show, please see my earlier post.

The minute order (which is a short filing in which federal courts simply memorialize that a conference or hearing took place with a brief description of the subject matter) does not provide any insight on the court’s inclination.  However, the many media reports indicated that Judge Feess applied an appropriate balancing test, by looking at the relative strength of the trade secret and copyright claims, the harm to CBS, and the harm to ABC and other third parties (such as the contestants).

The Hollywood Reporter, The New York Times and other media have reported that the judge was unimpressed with CBS’ claims. According to The New York Times, Judge Feess started the Friday hearing “by saying he was not inclined to accept CBS’s arguments that it would win a copyright lawsuit against ABC and its corporate owner, Walt Disney. At the conclusion of the argument by lawyers from each side, the judge said he was not granting CBS the injunction request Friday and was unlikely to do so before the start of ABC’s show on Monday. He said he would read the accompanying materials before making a final decision.”

As for the trade secrets claim, CBS’ Motion for TRO emphasized that its production process, multiple camera feeds, and its production manual outlining the manner of maintaining the show’s fast pace were trade secrets. The Hollywood Reporter reported that Judge Feess rejected those claims, reasoning that “he did not see that there were trade secrets being stolen because CBS has allowed tours of the Big Brother set and control room, and much of what is being done is common industry practice.” As for the copyright claims, the media quotes the judge as stating that many of the elements of the show were “generic” and that while there were similarities between the two shows, “the idea, in my view, cannot be copyrighted.”

Judge Feess was apparently also unpersuaded that CBS would be irreparably harmed and was quoted as saying he believed that ABC would be damaged by an injunction because ABC would lose its investment in the show, the crew would lose their jobs, and the contestants would lose the time and effort they put into the show.

CBS has announced its intention to fight on (after waging such a high profile campaign, it really cannot say anything else at this stage). However, as a practical matter, the loss of an important and contested injunction at the outset of a case is generally fatal to a trade secrets claim. In the normal course, an unsuccessful trade secret claimant will quietly dismiss the case at an opportune time. However, as ABC has apparently filed a counterclaim against CBS, that option has been taken off the table.

CBS TRO Motion.pdf (332.51 kb)

ABC Opposition.pdf (92.71 kb)

CBS v ABC Minute Order.pdf (8.33 kb)

Here are the noteworthy posts, articles and cases of the past week: Trade Secret and Covenant Not to Compete Cases, Articles and Posts:
  • What was the value of Georgia House Bill 173, a bill that sought to update Georgia’s non-compete law after a voter referendum approved those agreements in 2010? Not much, according to the U.S. Court of Appeals for the Eleventh Circuit which found that the law was unconstitutional and therefore could not support a claim that Georgia’s public policy favored non-competes. In Becham v. Crosslink Orthopaedics, LLC, the Eleventh Circuit elected to apply what it found to be existing Georgia law at the time of the contract that disfavored non-competes (rather than Pennyslvania law, which the covenant had identified as the governing law) and ultimately affirmed the district court’s decision not to enforce the covenant at issue. The Georgia General Assembly has since enacted HB 30, which replaced HB 173, but for non-competes in Georgia that pre-date May 11, 2011, it remains an uphill battle for enforcement. (A copy of the decision is attached as a PDF below).
  • It’s like watching a car wreck, you want to avert your eyes, but you . . . just . . . can’t . . . stop. The media frenzy over the CBS v. ABC kerfuffle over the Glass House reality show continues unabated: “CBS throws legal stones at ‘Glass House’: Eye claims ABC reality show a ‘Big Brother’ ripoff” reports The Chicago Tribune, “CBS Demands ABC Hand Over Tons of Internal ‘Glass House’ Documents,” claims The Hollywood Reporter, among others. Glass House is supposed to debut on Monday, June 18, so a ruling may be issued by the court by the end of this week.
  • “Under Armour former employee sues over non-compete agreement,” reports the Baltimore Business Journal. A former employe has taken the unusual step of a pre-emptive action to declare her non-compete unenforceable so that she can take a job in Vancouver. 
  • For more on the latest battle in the Mattel v. MGA saga, see, “MGA Insurer Takes Bratz Defense Dispute To 9th Circuit” as reported by Law360. 
  • The Virginia Supreme Court continues to be hostile to trade secret and non-compete claimants. In a post by Epstein Becker’s Trade Secrets & Non-Compete Blog, the Virginia Supreme Court reduced a $14 million trade secrets award to $1.4 million on the grounds that the evidence did not support that verdict. 
  • “One Year after Marsh and No Non-Compete Answers” notes Texas lawyer Rob Radcliff about the fallout from the big Texas Supreme Court decision last year in his Smooth Transitions Blog. 
  • “It’s Never Too Early to Start Protecting Trade Secrets and IP” emphasizes Shannon Green in Corporate Counsel. 
  • “Six Steps to Prevent Data From Walking Out the Door” by Charles T. Graves and Laura M. Merritt in a guest article for Law Technology News.
  • “Could Siri Be Stealing Your Trade Secrets?” asks Sheldon Mak & Anderson’s EyeonIp Blog.
  • “How Does Apple Keep Trade Secrets So Well?” asks Kim Scheinberg. 
  • Russell Beck has his always exhaustive summary of recent trade secret and non-compete developments.
Cybersecurity Articles and Posts:
  • “Cloud Computing: Understanding Security and Jurisdictional Issues,” advises Skadden Arps in JDSupra.
  • “The Importance of Knowing Where in the World Cloud Data is Stored,” another fine article by Catherine Dunn of Corporate Counsel.
News You Can Use:  Becham v. Crosslink.pdf (93.14 kb)

On Thursday, LinkedIn announced that over 6.5 million of its members’ passwords were taken and posted on a Russian hacker’s site. If you were one of the 6.5 million (I was apparently one, according to the sites LeakedIn and Lastpass), you should know that ComputerWorld is reporting that more than 60% of the unique hashed passwords that were accessed and posted online this week have already been cracked, according to security firm Sophos. They have also been posted online for other hackers to exploit. 

What happened? LinkedIn’s user credentials were apparently compromised because it stored log-in information on its main Web servers instead of isolating those files on separate, secure machines whose only function would have been to verify log-in details. As ComputerWorld’s report on the LinkedIn attack explains, there are multiple steps for hackers seeking to snatch and reveal users’ passwords. First, they must gain access to the passwords on a company’s computers. Once a hacker has gained access, he or she must overcome the next obstacle — encryption, as most companies encrypt their passwords using protocols designed to protect users’ passwords from hackers’ incursions. 

That said, programs designed to defeat these protocols are ubiquitous. Once a hacker has his or her hands on the encrypted password bank, he or she merely uses the encryption breaking program to reveal the plain text of the passwords.

In order to defend against hackers and the encryption-defeating programs, organizations have developed a process known as “salting,” which strengthens the passwords before they are encrypted (by adding characters, for example), thus effectively creating a second layer of protection. It is at this stage that LinkedIn’s security methods are being criticized for being lax; rather than “salt” their passwords, LinkedIn apparently relied on a well-known encryption protocol that offered little resistance once the hackers had gained access to the passwords. 

This leak is not the first time that LinkedIn has been criticized for this kind of laxity. According to The Daily Mail, the LinkedIn mobile application was sending calendar entries, including phone numbers and passwords (when contained in the entry), to the LinkedIn servers without encrypting the data. 

Not suprisingly, criticism of LinkedIn continues to come from all quarters. For example, as a sign that LinkedIn does not take these security issues seriously enough, LinkedIn has been criticized because it does not have a C-level executive in charge of information or information security (it does have a Senior Vice-President, Operations).

Unfortunately, the perceived problem of weak corporate protection of users’ passwords is not unique to LinkedIn. According to the UK’s International Business Times, the problem is endemic, particularly in softer targets like social networks. Throw in the rise of spearphishing and whaling (i.e., targeted cyberattacks that use social media and other publicly available information to deceive unwary users) and you have the proverbial witch’s brew over the Internet.

What Should You Do?  If you are one of the 6.5 million:
 
1.  Change your LinkedIn password immediately.

2.  Change all of your other passwords. Yes, I know it is a hassle, but I began doing it after learning that my password was leaked. In fact, if you have used your LinkedIn password or a simple variation of that password for other accounts or sites, you can bet that someone has or will try to access that account using that password.
 
What Can You Do to Protect Yourself and Your Company? Even if your password was not breached, the LinkedIn incident serves as an important reminder of password protection. Here are some basic steps that we all should be taking:

1.  Change your passwords every three months. Make it part of your quarterly routine.

2.  Don’t use the same password for sensitive accounts, for the reasons noted above.

3.  Don’t use the dictionary for passwords and avoid simplicity. Avoid favorite sports teams, pet names and other information that might be easily gleaned from social media. Slate has a nice article detailing techniques for coming up with hard-to-crack phrases and ideas for passwords.

4.  Choose your security questions wisely. As I noted last fall, cyberthieves are willing to spend the time trolling through your social media pages and if you have revealed information (anniversary dates, high school mascot, etc.), the answers to typical security questions can be provided through this publicly-available information.

5.  Store your passwords safely, preferably through a password manager. With all this password activity, it will be tough to keep track of all of your ever-changing passwords, so you should consider using a password manager, which is password-protected software that enables you to store all your usernames and passwords in a single place. The New York Times Bits Blog article on the LinkedIn attack identifies a number of password managers that work across platforms, including Splash Data, which offers password-management software for Windows, Macs and mobile devices, and Agile Bits with its 1Password software. Also, see Top Ten Reviews which has reviews of password managers for PCs.

6.  For employers, encourage your employees to follow these guidelines and have your IT staff force employees to change their passwords quarterly or face getting locked out.

A special thanks to my colleague Michael Shoenfelt, who helped me assemble this information quickly for this post. 

Here are the noteworthy posts, articles and cases of the past week: Trade Secret and Non-Compete Cases and Posts:
  • Automobile dealers from around the U.S. have sued India-based truck manufacturer Mahindra & Mahindra, Ltd. and its U.S. affiliate for trade secret theft and fraud. The lawsuit alleges that Mahindra defrauded hundreds of U.S. auto dealers and walked away with more than $60 million in cash and trade secrets. “Mahindra told the dealers that its light trucks and SUVs were ready for delivery to the US market,” said the plaintiffs’ lawyer, Michael Diaz. Diaz also says that Mahindra intentionally delayed certification of its vehicles after it obtained the dealerships’ fees and trade secrets, and that it then began pursuing other partners in the U.S. and elsewhere in violation of its commitments.
  • Kenneth Vanko asks “What is in John Kanas’ Wallet?” after the U.S. District Court for the Eastern District of Virginia enforced Capital One’s non-compete against the senior executive restricting him from working in New York, New Jersey and Connecticut. According to Kenneth, the court was persuaded by Capital One’s emphasis on the sophistication of the parties and the significant compensation provided to Kanas in deciding to enforce the agreement.
  • Last Friday, the Delaware Supreme Court rejected Martin Marietta’s expedited appeal from Judge Leo Striner’s 130+ page opinion barrring Martin Marietta from its hostile bid for Vulcan Materials because of its breach of the parties’ non-disclosure agreements. The short order indicated that a more comprehensive opinion would be forthcoming. For more, see my earlier posts here and here. 
  • CBS and ABC continue to brawl over ABC’s “Glass House” show. The Hollywood Reporter has a breathless summary of the latest discovery and motion practice in that trade secrets and copyright dispute.  (For more on the complaint, see my earlier post).
  • A Chinese scientist employed by one of that country’s primary pharmaceutical research firms was found guilty of stealing and selling medical compounds owned by Merck, according to The Wall Street Journal. The court sentenced the junior scientist, Wang Hu, to the equivalent of 18 months probation and ordered him to pay $7,000 in restitution.
  • The Wall Street Journal is also reporting that hedge fund Citadel LLC is arguing its diminished profits in the division weakened by departures to rival Jump Trading are proof that its trade secrets were stolen. In an article entitled “Citadel Says Other Firm’s Profit Shows Strategy Theft,” Citadel has claimed that if a rival were to copy even part of its trading model, Citadel could lose hundreds of millions of dollars.
  • “Trade Secret Theft: Businesses Need To Beware And Prepare” advises Pamela Passman, the CEO and Founder of CREATe, for Forbes. 
  • Frith & Ellerman’s Virginia Non-Compete Blog has a “Podcast: Non-Compete Agreements for Virginia Doctors.” 
  • Sound advice from Susan Stobbart Shapiro who recommends “Non-Competes: Get More by Asking for Less.”
  • Strasburger’s Noncompete Blog also provides some good advice on the importance of including geographical limitations in the post “Noncompete Lessons from Late Night TV: Does Geography Matter?”
  • Not to be outdone, Fisher & Philips Noncompete and Trade Secrets Blog has a practical post for small businesses, “Eight Reasons Small Businesses Should Use Non-Competes.” 
  • “APIs, Trade Secrets and Law Suits: one of these things is best avoided” notes the software blog The Issues List.
Cybersecurity Posts and Articles: 
  • The big news was yesterday’s revelation that a Russian hacker had stolen 6 million passwords for LinkedIn accounts. In an article, “That Was Fast: Criminals Exploit LinkedIn Breach For Phishing Attacks,” The New York Times Bits Blog reports that spearphishing attacks were launched shortly after the hacking was reported, using malware to cause even more problems.
  • “Should a Corporation Report the Risks of a ‘Cyber Theft’?” wonders Peter Toren.
  • “FBI Issues New Warning on Social Networking Risks” advises Baker & Hostetler’s Data Privacy Monitor Blog.
  • Judge sentences Cybercriminals to Jail and Orders $39.1 Million in Restitution” reports Peter Vogel’s Internet, Information Technology & e-Discovery Blog.
  • “Secret memo warns of Canadian cyber threat after Nortel attack” proclaims The Financial Post’s Tech Desk.
  • Finally, “Google Starts Showing Users Alerts For Accounts Hacked By ‘State-Sponsored Attackers'” according to Forbes’ Andy Greenberg. Just let that headline sink in. Wow.
News You Can Use: 
  • “32 Innovations That Could Change Your Tomorrow” announces The New York Times. Say “hello” to the The Shutup Gun.

Are U.S. businesses ready to face the growing cybersecurity threat right now? Well, according to Preet Bharara, the U.S. Attorney for the Southern District of New York, things are pretty grim.
 
In an Op/Ed piece in the Sunday edition of The New York Times entitled “Asleep at the Laptop,” Bharara emphasizes that the cyber threat is real and has not been exaggerated. Unfortunately, while he believes that authorities are moving to confront the threat, the private sector’s response has been wanting. Bharara recounts a number of anecdotes to bear this out:

“Recently I met two executives from major companies who did not even know whom in law enforcement to contact in the event of a hack or intrusion. A few weeks ago, after a speech I gave about cybercrime, a board member of a significant Internet-based company took me aside and admitted, with some horror, that his company’s board had not spent a single minute discussing cybersecurity.”       

Bharara has considerable credibility in this discussion, as his office has aggressively pursued trade secret and economic espionage cases, including the U.S. v. Aleynikov and the Starwood/Hilton trade secret prosecutions. We should heed what he says.

What can companies do? First, Bharara urges that companies adopt a culture of disclosure, meaning that companies need to be willing to acknowledge attacks when they occur and promptly partner with federal authorities to address them.        

Second, in a point that I have emphasized in the past, Bharara recommends that companies create and foster a culture of security. Bharara cites a recent Verizon study concluding that 97% of recent security breaches were avoidable. Bharara argues that we are “overthinking the threat” and rather than focusing on elaborate defenses to ward off attacks by Anonymous, companies should be focusing on fundamentals. Bharara believes that “the more mundane reality is that companies are most often breached by hackers walking down virtual hallways, looking for a single unlocked door. And the proverbial unlocked door can mean entry into the entire data network.”

Third, “the most important step is the most obvious and fundamental one: understanding the threat in a comprehensive, serious manner.” According to Bharara, companies need to commit the same resources to coming up with a plan and audits, the way they would for any other crisis or serious threat.

On Thursday, the U.S. Court of Appeals for the Federal Circuit issued an important ruling that will have significant repercussions for foreign companies that choose to ignore injunctions issued in the U.S. that forbid them from infringing, misappropriating or misusing the intellectual property of U.S. companies.   In Merial Ltd. v. Cipla, Ltd., 2012 U.S. App. LEXIS 10982 (Fed. Cir., May 31, 2012), the Federal Circuit upheld a Georgia district court’s finding of contempt against an India-based company that had actual notice of the underlying case but elected not to appear.  Given the increasingly international nature of many trade secret disputes and the importance of injunctions in many trade secret cases, this ruling will force a foreign party to contest jurisdiction sooner rather than later or face the consequences of ignoring a U.S. injunction — namely, a finding of contempt.

The facts and procedural history are fairly involved, so I will do my best to summarize them briefly.  Merial is the exclusive licensee of patented compositions for protecting dogs and cats from flea and tick infestation and marketed under the brand name Frontline and Frontline Plus.  In 2007, Merial sued Cipla, an India-based company headquartered in Mumbai, for infringing its patent when it sold infringing formulations under the brand “Cipla Protektor” and “Cipla Protektor Plus” in the U.S.  When Cipla did not appear in the case, Merial secured a default judgment in 2008 which included a permanent injunction forbidding Cipla from selling infringing products.  Shortly after the default judgment, Cipla filed an “informal” communication referencing the default and seeking dismissal of the action, which the district court rejected.

In 2011, Merial initiated contempt proceedings against Cipla and a company called Velcera, a competitor formed by former Merial employees.  Cipla and Velcera had entered into agreements to sell “PetArmor Plus,” a flea and tick remedy that contained the same compositions as Merial’s Frontline Plus.  The Georgia district court found Cipla had been subject to its jurisdiction in 2008 when it issued the injunction, found the PetArmor Plus product was not colorably different from Cipla’s previously infringing product, and found Cipla and Velcera had acted in concert to knowingly violate the 2008 permanent injunction.  As a result the court issued an injunction forbidding the sale of any competing products in the U.S. with the assistance or participation of Cipla.

The Federal Circuit’s Opinion:  To put it bluntly, the Federal Circuit had no sympathy for Cipla and its partner Velcera.  Judge Alan Lourie, writing for the majority, rejected Cipla’s arguments that it had not been served, that the court lacked personal jurisdiction over it, and that it should have been given another opportunity to battle over these and other issues.  Notably, the Federal Circuit found “it is beyond dispute that Cipla had actual notice of the suit and chose to risk a default judgment, based on its subjective assessment of the complaint.”  

In particular, the Federal Circuit took Cipla for task for belatedly arguing that it was essentially entitled to a mulligan if it consented to another federal district court under Federal Rule of Civil Procedure 4(k)(2) (Cipla argued that had it been sued in Illinois in 2007, it would have consented to service and jurisdiction there).  Judge Lourie reasoned that “the incentives for gamesmanship” would be “particularly acute because the defaulting party could use a simple, unilateral statement of consent not only to achieve transfer into a forum it considers more convenient (or less convenient for its opponent) but also undo an adverse final judgment for the chance to litigate from a clean slate.”

Judge Lourie also rejected Cipla’s claim that the district court overextended U.S. law to penalize Cipla for conduct that occurred entirely overseas.  He held that “where a foreign party, with the requisite knowledge and intent, employs extraterritorial means to actively induce acts of direct infringement that occur within the United States, such conduct is not categorically exempt from redress under [35 U.S.C.]  § 271(b).”   He noted that the record supported the district court’s finding that Cipla induced infringement of the patent at issue through the PetArmor Plus product with Velcera.

Finally, the Federal Circuit rejected Velcera’s arguments that it should not have been found in contempt of the 2008 order because it had not been a party to that case.  Judge Lourie emphasized the fact that Velcera was fully aware of the previous default and understood that acting in concert with Cipla to market an infringing product would violate the injunction.

The Takeaway?  Foreign defendants accused of misappropriating trade secrets or infringing U.S. patents will have to think long and hard about ignoring complaints filed, and court orders issued, in the U.S.  If a foreign party truly feels that service of process is defective or that the court lacks personal jurisdiction over it, that company is now incentivized to respond and take those issues head on, rather than wait for a later opportunity to try to contest them in another proceeding or in a contempt proceeding.  The ruling also serves as a powerful lesson to other companies who may want to do business with a defaulting foreign company, as they may find themselves bound by the same injunction for having acted in concert with that foreign party.

June 5, 2012 Update:  At the time I wrote this post over the weekend, I could not access and post the Federal Circuit’s opinion.  For those that would like to review the opinion firsthand, a link to it can now be found in this article in The National Law Journal that appeared earlier today (shameless plug:  I was interviewed for my take, which appears at the end of the article).  For those who do not subscribe to that publication, the opinion can be found in the PDF below.

Here are the noteworthy posts, articles and cases of the past week: Trade Secret and Non-Compete Cases and Posts:
  • Google did not steal search engine trade secrets from a sales pitch over coffee, a California appellate court has ruled. Eric Goldman’s Technology & Marketing Blog has a fine summary of the case, Booloon, Inc. v. Google, Inc. Eric notes that the absence of a non-disclosure agreement, conclusory descriptions of the trade secrets at issue, and the plaintiff’s inability to refute Google’s evidence that it did not misappropriate the alleged trade secrets doomed what appears to have been a pretty weak trade secret case. Eric’s takeaway? Make sure that ground rules are established in even the most informal settings to minimize any future dispute (and don’t forget that NDA).
  • The wrestling may be fake but the trade secrets are for real. Total Nonstop Action Wrestling (TNA) has filed a lawsuit in Nashville against World Wrestling Entertainment (WWE) and former TNA and WWE employee Brian Wittenstein for, among other things, violations of the Tennessee Uniform Trade Secrets Act and breach of fuduciary duties owed by Wittenstein to TNA. TNA claims that Wittenstein, who worked for TNA for three years and handled third-party booking for TNA talent to work independent shows before he left for WWE, provided WWE with inside information about those TNA contracts.
  • “IBM’s Siri ban underscores important business concern over trade secrets” writes Evan Brown in his Internet Cases Blog. IBM’s policy grows out of its concern that Apple may store and use sensitive IBM data. According to Evan, Apple’s data usage policy that governs how it treats Siri inquiries says that Apple can use the information it collects to, among other things, improve the service. 
  • Eaton Corporation has fired two in-house lawyers involved in a botched Mississippi trade-secrets case that was dismissed last year amid allegations that Eaton and its counsel had improperly attempted to influence the previous judge. The Cleveland Plain Dealer says that the two lawyers, Vic Leo, vice president and chief litigation counsel, and Sharon O’Flaherty, litigation counsel, were recently required to file affidavits explaining why certain emails were not produced earlier in the case. In a related post, Law360 is reporting that Mississippi prosecutors are dropping criminal charges against the former Eaton engineers at the center of this dispute.
  • “Espionage on Campus: It’s Not All Keggers Parties — Spies May Be Watching!” warns Vanson Soo of the Asia Sentinel.  Vanson notes an unclassified FBI report, “Higher Education and National Security: The Targeting of Sensitive, Proprietary, and Classified Information on Campuses of Higher Education” recently warned American administrators that foreign intelligence services use universities for their intelligence and operational needs because the open environment of US colleges is “an ideal place to find recruits, propose and nurture ideas, learn, and even steal research data, or place trainees.”
  • For those in Ohio, there is plenty of commentary this week about the Ohio Supreme Court’s decision in Acordia of Ohio v. Fishel barring the transfer of a non-compete after a merger if the agreement fails to provide for assignment to successors or the new company (I wrote about this case last week). Former Appellate Judge Marianna Brown Bettman, who has followed the case closely, has a thorough post in her Legally Speaking Ohio Blog. For the take of other lawyers on this important case, see Jon Hyman’s Ohio Employer’s Law Blog post, Kenneth Vanko’s post, and Epstein Becker’s post.
  • For those in Florida, Burr & Forman’s Non-Compete & Trade Secrets Blog has a post about a recent decision rejecting a company’s trade secrets claim against a former employee.  According to the post, in Duchame v. Tissuenet Distribution, Florida’s Fifth Circuit Court of Appeals upheld the dismissal of the claims due to the absence of a non-compete agreement and because the chemicals used for the allegedly stolen process were well known within the industry.
  • The think-tank CREATe has issued a white paper entitled “Trade Secret Theft: Managing the Growing Threat in Supply Chains” to assist multi-national corporations in better protecting their trade secrets overseas. CREATe was formed last fall by former Microsoft Deputy General Counsel Pamela Passman to, among other things, protect IP rights and drive responsible business practices in global supply chains and business networks.
Computer Fraud and Abuse Act Posts:
  • Seyfarth Shaw’s Trading Secrets Blog has a post about a recent Computer Fraud and Abuse Act (CFAA) case from the U.S. District Court for the Eastern District of Michigan narrowly applying the statute. In Ajuba International , LLC v. Saharia, the court elected to follow the approach recently applied by the Ninth Circuit in U.S. v. Nosal and found that the former employee had authorized access to the information at issue by virtue of his employment.
Cybersecurity Articles and Posts:
  • “IBM stung by BYOD pitfalls” writes Barb Darrow of gigaom. 
  • “BYOD savings may be lost by security and admin costs” warns Rainer Enders for SC Magazine. Rainer cites a recent study as having found companies adopting BYOD spend 33% more than companies adopting a company-owned policy. 
  • Naked Security asks “How long would it take to crack your password?”
  • The New York Times provides some help on how to “Build Up Your Phone’s Defenses Against Hackers.”
News You Can Use:
  • “Malicious E-Mail Attachment on Olympics Making Rounds on the Internet” advises The New York Times Bits Blog.

The FBI has been busy on the trade secret front over the past few weeks, unveiling a trade secret protection awareness campaign on billboards in 9 major cites and, more recently, providing tips on spotting a potential trade secret thief in the workplace. 

In a news release entitled “How to Spot a Possible Insider Threat,” the FBI has identified the following “warning signs that may indicate that employees are spying and/or stealing secrets from their company:

  • They work odd hours without authorization.
  • Without need or authorization, they take proprietary or other information home in hard copy form and/or on thumb drives, computer disks, or e-mail. 
  • They unnecessarily copy material, especially if it’s proprietary or classified. 
  • They disregard company policies about installing personal software or hardware, accessing restricted websites, conducting unauthorized searches, or downloading confidential material. 
  • They take short trips to foreign countries for unexplained reasons. 
  • They engage in suspicious personal contacts with competitors, business partners, or other unauthorized individuals. 
  • They buy things they can’t afford. 
  • They are overwhelmed by life crises or career disappointments. 
  • They are concerned about being investigated, leaving traps to detect searches of their home or office or looking for listening devices or cameras.”

While most of these clues are fairly obvious, they nevertheless highlight something that companies need to do a better job of doing — namely, identifying those employees most likely to breach their fiduciary or contractual duties. 

In a presentation that I attended last year, Intel’s Janet Craycroft noted the importance of identifying potential red-flag employees in advance of any breach. She illustrated her point by describing the many missed opportunities with PFC Bradley Manning, the soldier who allegedly copied and released approximately 250,000 classified files to WikiLeaks in 2010 (and who now faces court martial and an assortment of charges, including aiding the enemy).

What everyone came to learn after Manning’s arrest was that he was, in the words of The Washington Post, “a lonely and disconsolate young man.” Janet went through a litany of behavioral and security “red flags” for Manning that were apparently ignored: a police report that he threatened his mother with a knife, near-discharge from the Army because of concerns about his stability, a reprimand for assaulting an officer, discipline for previous security lapses, the list goes on. Many of these and other incidents are documented in the thorough Wikipedia biography of Manning for those interested in reading more (if you are wary of Wikipedia as a source, check out the links to the established media sources within that bio as they are consistent with what I have heard and read else where).

The Takeaway? Identify the problem employees before they can become trade secret thieves. Look for unusual behavior, monitor employees who have had security lapses in the past, and above all, be proactive. (Thanks to Nixon Peabody’s Mark Halligan for alerting me to the FBI’s article).