Many trade secret cases, especially those in the financial sector, arise out of the departure of important sales representatives who leave for greener pastures and try to take their former clients with them, typically in violation of a non-solicitation agreement. In these cases, one of the most hotly contested issues is figuring out which customers are covered by the non-solicitation agreement.  
 
A recent opinion from one of New York’s State Supreme Courts, Aon Risk Services v. Cusack, highlights the importance of the language of the actual non-solicitation provision, as well as the order enforcing it. This opinion arises in the context of a plaintiff’s request to have a former employee and his new employer held in contempt of a previous preliminary injunction order.  (A PDF copy of the court’s February 17, 2011 opinion is attached below).  As you will see below, the court followed the letter of the order and found no violation.
 
For those unfamiliar with non-solicitation agreements, they allow former employees to compete with their former employer provided the former employees do not contact or solicit their former customers. Courts are generally more receptive to enforcing these agreements than covenants not to compete because they strike a reasonable balance between protecting the legitimate business interests of the former employer in its customers but still allow the former employees to make a living. However, it is important to remember that, like any restrictive covenant, courts will generally provide no more protection than the plain language of the agreement provides. 
 
Back to the case at hand. Aon Risk Services Northeast sued Michael Cusack, a former Senior Vice President and Managing Director, and his new employer, Alliant Insurance Services, alleging that they had orchestrated a massive raid on the clients and employees of Aon’s Construction Services Group. After a preliminary injunction hearing last year, Supreme Court Judge Bernard J. Fried entered an order forbidding Cusack and Alliant from “soliciting business from or entering into any business relationship with, on behalf of Alliant, any Aon client or customer for whom any such former Aon employee was the producer or on whose account he or she worked during the twenty-four (24) months prior to June 13, 2011.” According to Judge Fried, the only “former Aon employee” covered by this language was Cusack, a determination that proved critical.
When two of Alliant’s other employees (who coincidentally, were also former Aon employees) sent emails to or contacted several of Aon’s clients, Aon filed an order to show cause why Alliant should not be held in contempt for violation of the order. Aon argued that those clients had been serviced by Cusack previously and fell within the intent of the order. 
 
Judge Fried rejected that argument and found, under the literal language of his injunction, that the provision did not apply to the other Alliant employees and questioned whether he even had jurisdiction over those employees.  In an interesting twist, Judge Fried noted that his interpretation was consistent with a press release issued by counsel for Aon that described the order as covering Aon clients “with whom Cusack might have had contact while employed at Aon.”
 
It is unclear why Aon (or Judge Fried) did not simply identify the clients that it believed should be subject to the order during the course of the preliminary injunction hearing.  This would have provided the requisite clarity to avoid future disputes about the scope of the order. In my experience, a list of customers covered by the order has the additional benefit of frequently promoting settlement of a dispute as the parties have the opportunity to try to negotiate who or what should be covered.
 
The takeaway? There are two: (1) To paraphrase former Arizona Cardinals coach Denny Green, the order (or the agreement) “is what it says it is.” As a result, don’t expect a court to enforce anything more than what the language of an agreement or an order expressly provides; and (2) In the context of a request for an injunction involving a solicitation dispute, consider proposing a list of customers to the court (or to the opposing party) to provide clarity to the order, minimize future disputes, and perhaps even facilitate a resolution of this issue.

The Toledo Intellectual Property Law Association has invited me to speak at its Spring Meeting for the presentation “The Addictive Nature of IP Issues” on Wednesday, March 7, 2012 at the Toledo University School of Law at 8:30 a.m. For those in Ohio in need of CLE credit and interested in attending, a brochure with further information about the presentation is attached as a PDF below. 

I will be speaking on “Trade Secrets: Recent Developments in 2011 and Trends and Predictions for 2012.” Professor Sam S. Han, Ph.D. and J.D., of the University of Dayton Law School and Patrick Anderson, J.D., President of Patent Calls, Inc. in Austin Texas, will be joining me and presenting as well. Sam will speak on “Biochemical Pathways: A Presentation on Substance Abuse” and Patrick will address “Patent Monetization:  Who, What and How?”

I spoke last summer in Toledo for the Ohio State Bar Association and it was a tremendous audience, very engaged and thoroughly on top of the IP issues we discussed that day. Those in need of 3.00 hours CLE, including 1.00 of substance abuse credit, should certainly join us.

2012 TIPLA Spring Seminar Brochure.pdf (121.11 kb)

It was a slower week in the trade secret and non-compete realm, so I had the opportunity to catch up on some recent decisions that had not made it into last week’s wrap-up: Trade Secret and Non-Compete Articles:
  • There were two major rulings in the Mattel v. MGA dispute last week, one in favor of Mattel and the other in favor of MGA. In a decision certain to please both MGA and its lawyers, the Southern District of California ruled that MGA’s insurers had a duty to defend MGA in its litigation against Mattel. In the other decision, Judge David Carter dismissed MGA’s anitrust counterclaim against Mattel, ruling it was barred by, among other things, the doctrine of res judicata under California law. Copies of both opinions are attached as PDFs below.
  • Speaking of antitrust counterclaims in high profile trade secret cases, Kolon continues to take it on the chin in its dispute with DuPont. Earlier this week, Judge Payne sanctioned Kolon for failing to timely contact its sales representatives and produce documents after providing DuPont and the Court assurances it would do so in a hearing last year. Judge Payne found the violation of the discovery order was in bad faith and as a result, awarded attorneys fees and held he would impose an adverse inference as to any missing documents.  A PDF copy of the opinion can be found below.
  • A license agreement’s provisions can’t trump the California Uniform Trade Secrets Act (UTSA) when it comes to a party’s right to reverse engineer a product. An article by Douglas Wickham of Littler details a recent decision by the Central District of California in Aqua Connect, Inc. v. Code Rebel, LLC holding that the violation of a license provision forbidding reverse engineering did not constitute “improper means” under the UTSA.
  • Alison Frankel’s On The Case Blog has an update on the University of Pennsylvania’s trade secret row with its former chief researcher, Dr. Craig Thompson. When I wrote about this dispute last month, I noted the absence of an employment agreement as a potential Achilles Heel in Penn’s claim that Dr. Thompson had taken its trade secrets for his research for his own company. However, according to Alison, Penn has filed a second action with a more detailed complaint that identifies an employment agreement with Dr. Thompson that confirms its ownership of the trade secrets at issue and supplies greater detail about his alleged duplicity.
  • A study commissioned by the National Science Foundation and the U.S. Census Bureau found that trade secrets are perceived as an increasingly important method of intellectual property protection. According to the study, more businesses reported that trade secrets were important or somewhat important (14%) than for patents (9%).
  • Littler’s Unfair Competition and Trade Secrets Counsel Blog writes about a recent decision reinforcing the severe consequences to a party who fails to preserve evidence. In Amron Diving Supply v. Hydrolinx Diving Communications, the Southern District of California sanctioned the defendant/former employee for violating a preservation order because he “destroyed computer data by using wiping software and destroyed and threw away hard drives,” installed “document destruction software on two computers to permanently eradicate data,” and allegedly “installed a new hard drive on a third computer after the court issued the preservation order and manipulated its system clock to make it appear older.”
  • “Are non-competes bad for innovation?” asks The Intangible Economy.  It is a question that has been asked a lot lately, and opponents of non-competes frequently point to the success of Silicon Valley (and the bar against non-competes in California) as evidence that innovation is spurred in their absence.  As the article notes, the academic community has certainly weighed in against them. I smell a future post…. 
Cybersecurity:
  • WikiLeaks is back!  The New York Times is reporting that WikiLeaks has published confidential emails from the security consulting firm, Stratfor. Stratfor had reported last December that Anonymous had hacked its servers. According to WikiLeaks, the emails show concerted attacks by the U.S. government directed at Julian Assange.
  • If you are negotiating a contract with the government, John Burd of Wiley Rein provides “Six cybersecurity questions for in-house counsel” to pose in those negotiations. 
News You Can Use:
  • For those still trying to preserve their privacy, the c/net article “How to prevent Google from tracking you” may help. Good luck.
MGA-Hartford Ins Order.pdf (166.95 kb) MGA v. Mattel dismissal order.pdf (122.12 kb) Kolon Industries v E I du Pont re Feb. 2012 Sanctions Opinion.pdf (318.10 kb)

Law360 is reporting that General Patent Corporation (GPC) is appealing an opinion denying its request to enforce a non-compete against its former General Counsel who joined the legal department of a competitor and former suitor, Wi-LAN, Inc., last fall.  Efforts to restrain in-house counsel are exceedingly rare, and I have to confess that Southern District of New York Judge John Kennan’s opinion slipped under my radar screen when he issued it last November.  Having now had the opportunity to read it, the opinion presents a number of very, very interesting issues, including one of great interest to many readers:  can in-house lawyers be restrained by a covenant not to compete?  (I have attached a PDF of the Opinion as well as GPC’s appellate brief below).
 
The facts are straightforward.  GPC partners with patent holders such as inventors, universities and small patent owners to license and enforce their patents. Defendant Paul Lerner served as GPC’s General Counsel and on its Board of Directors and Executive Committee up until his departure.  In 2004, he signed a covenant not to compete that precluded him from working for any of GPC’s competitors for 1 year.  The covenant did not apply, however, if Lerner’s employment was “terminated by [GPC] without Cause” or if he was constructively discharged.
 
In the Fall of 2011, Wi-LAN entered into discussions to acquire GPC and signed a confidentiality and non-solicitation agreement with GPC so that it could conduct its due diligence.  Wi-LAN later made an offer to acquire GPC in an April 2011 term sheet, but one week before the acquisition was scheduled to close in June, Wi-LAN decided not to proceed.  
 
At about the time those negotiations fell through, Lerner began discussing possible employment with Wi-LAN.  When he resigned and joined Wi-LAN in September 2011, GPC sought and secured a temporary restraining order preventing Lerner from working with Wi-LAN on business development and patents that he had worked on while at GPC.  At the preliminary injunction stage, however, Judge Kennan declined to enjoin Lerner or Wi-LAN any further.

Despite its misgivings about Lerner’s departure, the district court found that the covenant only applied if there was a termination for cause; since Lerner voluntarily resigned, the court found that the non-compete did not apply.  Frankly, the district court may have misconstrued the covenant and interpreted it backwards, at least based on the provision quoted in GPC’s appellate brief to the Second Circuit. However, the court was also unpersuaded that GPC had viable trade secrets, a more problematic ruling for GPC since that would be the legitimate business interest necessary to justify the non-compete. 
 
As for the non-solicitation agreement singed by Wi-LAN, the district court did not enforce it despite finding that Wi-LAN breached it by hiring Lerner.  The district court found that GPC had failed to demonstrate a sufficient protectable interest.  I would differ with this holding as well, as it it is difficult to see how a company doesn’t have some kind of protectable interest in preventing a senior officer from joining a competitor that was on the cusp of acquiring it two months before.  However, this battle was lost when the court found the non-compete did not apply and that GPC lacked trade secrets justifying protection. 
 
Can an in-house lawyer be restrained?  Surprisingly, Judge Keenan did not address this issue in his opinion. The extent to which a lawyer can be restrained, as well as to what extent he or she is bound by trade secret law, is a topic very much in the news these days.  Given the number of issues here, I’ll focus today on the ethical canons that are implicated and the ability of a lawyer to be contractually restrained from servicing a future client (I’ll address the other issues in a later post).  
 
The majority rule holds that lawyers cannot be restrained from representing their clients by a non-compete. The basis for this rule can be found in Ethical Rule 5.6 of the Rules of Professional Conduct and DR 2-108 of the Canons of Ethics.  Although 5.6 and 2-108 use language that might suggest that they only apply to agreements between lawyers (i.e., law firms), the ABA has concluded that they should be applied to in-house counsel as well.  And as Russell Beck notes in a recent article for New England In-House entitled “Are New England’s in-house counsel free to join competitors?, “as the New Jersey Advisory Committee on Professional Ethics (relying on Virginia, Illinois, Connecticut, Washington and Philadelphia bar opinions, as well as cases involving outside counsel) assayed, `the overwhelming majority of jurisdictions in the United States follow the ABA’s approach and hold that restrictive covenants affecting lawyers, whether employed by corporations or private law firms, generally violate state ethical standards.'” 
 
The takeaway?  While there might be some obstacles in some jurisdictions, an in-house lawyer should be able to move to a competitor and avoid imposition of covenant not to compete, so long as he or she is providing legal services in that new position and avoids disclosing privileged information and any trade secrets.

GPC v. Wi-LAN Order and Opinion.pdf (91.13 kb)

General_Patent_Corp._Brief[2].pdf (860.02 kb)

Here are this week’s noteworthy posts and articles on trade secrets, non-competes and cybersecurity:   Trade Secrets and Non-Competes:
  • The conviction of former Goldman Sachs’ programmer, Sergey Aleynikov, under the Economic Espionage Act (EEA) for stealing Goldman’s source code was overturned by the Second Circuit Court of Appeals within hours after oral argument last week. The Second Circuit issued a short order advising of a more detailed opinion later, but no grounds were provided. According to a thorough article in the New York Times, the Second Circuit likely focused upon “whether Goldman’s high-frequency trading system, and the code upon which it was built, was a ‘product produced for interstate commerce’ within the meaning of the statute.” This promises to be an important opinion under the EEA and I will post later when it comes out.
  • IBM used an unconventional defense — the plaintiff’s deceased mother — to prevail in a trade secret case in the Northern District of California. Alison Frankel’s On the Case Blog reports that in Bierman v. IBM, IBM successfully argued that the statute of limitations barred the plaintiff’s claims because he could not produce evidence that his deceased mother, to whom he transferred his technology for several years, was unaware of the alleged misappropriation.
  • In the latest salvo in the DuPont v. Kolon dispute, Eastern District Court of Virginia Judge Robert Payne denied Kolon’s request to have him recuse himself because of his role in a 1985 patent dispute for DuPont while he was a partner with McGuire Woods, one of the law firms representing DuPont. The decision, which was issued in the remaining antitrust portion of the case brought by Kolon, rejected Kolon’s arguments on the merits and as untimely. (A link to the opinion can be found below).
  • The Texas Employment Law Update Blog reports on a recent decision refusing to enforce a forfeiture provision in a stock incentive program that was triggered by a non-compete violation. The decision, Drennen v. Exxon Mobile Corp., found that the provision in question did not comply with the Texas Covenant Not to Compete Act.
  • Seyfarth Shaw’s Trading Secrets Blog has an outstanding post about a recent decision by the Southern District of California, Platinum Logistics v. Mainfreight, involving the Computer Fraud and Abuse Act (CFAA). This is a rare CFAA decision from a court within the Ninth Circuit, as the district courts and litigants await the Ninth Circuit’s en banc reconsideration of U.S. v. Nosal. According to Robert Milligan, the former employee’s breach of her non-disclosure agreements could qualify as a violation of the CFAA as it is currently interpreted.
  • For you compulsive test takers, take a crack at the hypotheticals offered up in a recent post entitled “Would You Know a Trade Secret If It Jumped Up and Bit You?” on Coatings World.
  • And for those who don’t think the issue of trade secret misappropriation in China has reached the tipping point, take a look at The Onion, which provides its own parody of the recent Hanjuan Jin conviction. In the post, The Onion reports that a Motorola engineer was convicted of stealing “the plots to the next three Droid commercials” and “closely guarded, highly advanced tablet and smartphone tech specs that Motorola originally stole from Apple and Samsung.” Ouch.
Cybersecurity:
  • Stroz Friedberrg, the renowned security firm, confirms in an article, “Securing Corporate Data in a Law Office’s Computer Network,” that lawyers and law firms are hacking targets. The article by Catherine Dunn in the Corporate Counsel site confirms a number of points in an earlier post of mine, including the use of “spear-phishing” to trick unsuspecting lawyers. It also provides an excellent checklist of steps a firm and its lawyers can take to protect themselves from these attacks.
  • According to Wired, Anonymous is promising regularly scheduled attacks on Fridays. Although Anonymous’ mastery of the news cycle may be suspect, the government is taking them seriously on other fronts.  According to the Wall Street Journal, National Security Agency director, Gen. Keith Alexander warns that Anonymous could have the ability within the next year or two to bring about a limited power outage through a cyberattack.
News You Can Use:
  • With all the news about app providers downloading personal information, you may want to take a look at “Smartphone Security Blankets,” an article that appeared in last weekend’s New York Times, as well as Smart Money’s “Keeping Prying Eyes Off Your Phone.”
EI Du Pont v Kolon Recusal Opinion.pdf (1.18 mb)

Given the kerfuffle over the recent admissions by Facebook, Twitter, Foursquare, Path and others that they downloaded personal information and/or uploaded contacts through, among other things, Apps on users’ iPhones, it was inevitable that someone would ask whether there might be trade secrets that could be misappropriated as well. Larry Magid recently wrote a post, “Privacy, Safety & Trade Secrets at Risk in Latest Apple App Flap,” for Forbes posing that very question. 

For the digitally unsavvy who missed last week’s news, Larry’s article presents a nice summary: On February 8th, a developer discovered that his “entire address book (including full names, emails and phone numbers) was being sent as a list to Path.” Path, an app that allows people to create and share their personal journals, quickly admitted it, apologized, and issued a new version that sought permission before uploading user data. Other companies, including Foursquare, Twitter, Facebook, Instagram and Voxer, later came forward and admitted uploading user data.
 
Larry’s post expresses concern that given the sheer number of Apps that now exist (over 500,00 for the iPhone and 400,000 for the Droid), it is conceivable that a developer with less-than-pure intentions (other than, of course, simply harvesting the data of its users) could use the interface with the iPhone or Droid to do so. Larry expresses concern that a list of a user’s contacts could confer some form of competitive advantage.
 
While there may be some legitimate concerns on the privacy front about these developments, I don’t think companies have much to worry about on the trade secrets front. The vast majority of users would face, at worst, disclosure of their contact information, which would exist in a fairly rudimentary form (email addresses, phone numbers) and which in some instances would already be available to the public (Twitter, for example, generally lists a user’s followers and the other users that he/she is following). Moreover, one would presume that a user would tread carefully with an App that he perceives competes with him or his employer; in fact, it would be tough to defend a trade secret claim where that information was shared with a competitor with no safeguards.
 
While it is possible, given the growing universe of Apps and the blurring of personal and professional lives on smartphones, that some form of trade secret could be uploaded or taken, it is tough for me to envision such a situation. And since contact information and customer lists are generally perceived as the red-headed stepchildren of the trade secret world, under these circumstances it would be tough to argue for any trade secret protection.

I’ve had the opportunity to consider the pros and cons of the Kohl/Coons Amendment to the Economic Espionage Act (EEA), an amendment that would add a civil cause of action to that criminal statute. (I wrote about the Amendment’s introduction last Fall and a PDF of it can be found here). For the four reasons below, the Amendment is worth supporting and those in the trade secret community should throw their weight behind its passage.

No. 1:  It provides a needed international remedy. Trade secret cases have an increasingly international component. As articles in the New York Times and Wall Street Journal this past week made clear, many companies are in need of a remedy to protect trade secrets misappropriated overseas. DuPont’s dispute with Kolon, Motorola’s dispute with Lemko, DuPont’s dispute with Pangang Group and Walter Liew, the TianRui Group case, the hacking directed at Nortel — all of these high profile cases involve international parties.

The Amendment’s express purposes is combatting international esponiage. As Senator Kohl has noted, “[t]he problem of economic espionage is not new, but it has grown and evolved as the information age has reached a point where trade secrets can circle the globe in the blink of an eye. U.S. corporations face intense competition at home and abroad. As much as 80% of the assets of today’s companies are intangible trade secrets. They must be able to protect their trade secrets to remain competitive and keep our economy strong.”

As Todd Sullivan’s Trade Secrets Blog noted last year, Senator Coons expressed the same concern: “When foreign companies and governments steal our ideas, they’re stealing more than just formulas and schematics — they’re stealing jobs. These amendments are rooted in specific concerns I have heard repeatedly from manufacturers in Delaware who operate in a constant state of fear that their innovations are going to be stolen and sold by a foreign company.”

No. 2:  The ex parte seizure order is a powerful tool. The Amendment provides for an ex parte proceeding that authorizes the seizure of misappropriated product or the preservation of evidence. While short in duration (the foreign party has to have notice within 72 hours), this provision could be very important in international trade secret disputes. 

This is the real wild card within the Amendment. As the facts of the DuPont v. Kolon and Walter Liew cases make clear, foreign parties may not be terribly concerned with the niceties of the preservation of evidence. Having the ability to seize and preserve critical evidence in the digital age is an important tool to have in your trade secret toolbox. As federal courts are some times loathe to grant ex parte remedies, having a statutory basis to do so will be a significant advantage for a litigant.

No. 3:  Nationwide service of process assists in injunctive proceedings. Nationwide service of process can be particularly important in a trade secret case. Anyone who has litigated a trade secret case knows proof of misappropriation is one of the biggest hurdle to overcome. Forensic evidence certainly helps but at the end of the day, a trade secret litigant will likely have to prove misappropriation by circumstantial evidence.

To build that case, third parties will need to be subpoenaed for documents and testimony. If they are located out of state or overseas, that will require a request for a commission or letters rogatory to seek enforcement outside that state. This process, in the best of circumstances, can take weeks and if it is opposed, it could take months.  As trade secret cases frequently arise in the context of injunctive relief and are, by their nature, very contentious, this can frustrate the gathering of important evidence and prompt relief.

The Amendment’s authorization of nationwide service of process would reduce that problem. To the extent that there would be need for international service, the EEA amendment would provide jurisdiction to federal courts to the full extent of Due Process. While service might still be necessary in some situations, it is an improvement over the status quo.

No. 4:  The EEA Amendment has great symbolic value. At the present time there is no federal cause of action available to companies or inventors to protect their trade secrets. Federal trademark, copyright and patent causes of action all exist for a party seeking to protect those rights. Given the increasing prominence of trade secrets as a measure of protection, coupled with the uncertainty over patent protection as a result of recent Supreme Court decisions and the newly-enacted American Invents Act, a federal statute should be in place to reinforce that federal commitment.

Is the Amendment perfect? Of course not. As David Almeling’s post last year with Patently O noted, the Amendment is confined to misappropriation related to products. While I would prefer to see a broader definition, there may not be another opportunity to get an Amendment like this passed. A narrow remedy, which hopefully can be improved, is better than no remedy at all.
 
Momentum is hopefully building in support of the Amendment. Last month, the Trade Secret Law Committee of the American Intellectual Property Law Association voted resoundingly in favor of a resolution supporting the Amendment to the AIPLA’s Board of Directors. The Committee’s Legislative Chair, Russell Beck, who has experience with legislation over Massachusetts’ Non-Compete bill, will be working with the staffs of Senator Kohl and Coons to help move the Amendment forward.

Let’s do what we can to support the Amendment. Contact your own Senators and House Representative and make it clear that you think this Amendment is important and deserves their support. Talk to your clients and urge them to contact their Senator and tell them that the Amendment needs to pass. We shouldn’t let this historic opportunity slip away.

02172012There is an important article in today’s online edition of Forbes entitled “10 Security Essentials For CIOs” by Kristen Lovejoy, Vice President of IT Risk at IBM. While the article is directed at CIOs, its recommendations equally apply to, and and should be used by, outside lawyers, in-house counsel and human resources managers to ensure that the trade secrets within their organization are protected. It is an easy and quick read, but a powerful one.

I won’t repeat each of steps that Kristen outlines but I will emphasize the first:  “Build a Risk-Aware Culture.” She uses a compelling metaphor to reinforce her point:

“Think of the horror that many experience if they see a distracted parent on a cell phone while a child runs into the street. That same intolerance should exist, at a company level, when colleagues are careless about  security. Management needs to push this change relentlessly from the very top down, while also implementing tools to track progress.”

We are inundated by new technology and the growing, and at times seemingly overflowing, risks presented internally and externally by those that might compromise it. That technology, however, has little value if the individuals within the organization do not use it and do not consistently enforce its use by others. 

I could search Bartlett’s Quotations or Google for an effective quote about the importance of culture in an organization but I think we all innately know that as human beings, through the process of osmosis, we respond to and are directed by the actions and directives of the organization around us. The actions of senior management and other influencers invariably filter down to others who take notice, consciously or unconsciously, and incorporate that behavior into their own. There are few things more corrosive to an organization than a leader or manager who violates the rules or fails to apply them to his or her own conduct.

Conversely, there is no more effective teaching tool than the actual conduct of a diligent manager or leader. If decision-makers act responsibly, others will invariably follow. Reinforce those actions with formal procedures and education, and you build a culture step-by-step over time. 

It is no different with security. I had the privilege of speaking last May at the American Intellectual Property Association’s Spring Meeting with Malcolm Harkins, Intel’s Chief Information Security Officer. When Malcolm got up to speak, I expected his presentation to be heavily oriented to the technical protections that a sophisticated company like Intel was using or advocating to others. Instead, Malcolm’s primary message was the importance of building and reinforcing a culture of security at Intel.

Take a look at the news this week. Nortel’s trade secrets were stolen from senior management over the course of a decade by hackers. Lawyers are increasingly the targets of cyberattacks because they are perceived to be less careful than their clients in their infrastructure. Like it or not, it is now the world in which we live. Focusing on security and envisioning how to make it part of your organization’s culture is the first and most important step to protecting trade secrets and confidential information.

Here are the noteworthy trade secret, covenant not to compete and cybersecurity stories from the past week; as you will see, it was an extremely busy week and a significant number of the posts address China, no doubt because of the U.S. visit of Chinese Vice President Xi Jinping:
Trade Secrets and Non-Competes:
  • Any reversal of the TianRui Group v. ITC decision will have to come from the U.S. Supreme Court as the Federal Circuit just declined to reconsider the decision en banc (thanks to Wil Rao for the update; Wil represented the American company that initiated the underlying ITC action). TianRui Group was one of the most significant trade secret decisions of 2011 as it provided for a remedy (a ban on importation) for products incorporating misappropriated trade secrets overseas.  (A copy of the order entering judgment is attached below).
  • The Delaware Non-Compete Law Blog describes a recent case, Chesapeake Insurance Advisors, Inc. v. Williams Insurance Agency, Inc., that confirms the Delaware Chancery Court’s unwillingness to “blue pencil” an overly broad non-compete or non-solicitation provision. Let this serve as a warning to anyone drafting an agreement governed by Delaware law.
  • Hanjuan Jin, a former Motorola Engineer, was convicted last week of stealing Motorola’s trade secrets but avoided the more serious economic espionage charges. (I have attached a PDF copy of the 77-page opinion below). In a story that borders on being an urban myth in trade secret circles, Jin was detained by federal agents at Chicago’s O’Hare International Airport in 2007 during a random security search before she could board a flight to Beijing on a one-way ticket. That discovery led to the subsequent litigation between Motorola and a number of its former employees, a case that settled last month after the district court denied the former employees’ motions for summary judgment and set it for trial.
  • Senator John Kerry apparently gave visiting Chinese VP Xi an earful about the experience of a Massachusetts company that believes its trade secrets were stolen in China and has been frustrated by the Chinese legal system. In a New York Times article entitled “U.S. to Share Cautionary Tale of Trade Secret Theft With Chinese Official,” the company, American Superconductors, “saw 70 percent of its business evaporate last year after a Chinese partner enticed one of its employees to steal the crown jewel of its technology.”
  • Seyfarth Shaw’s Trading Secrets Blog has a nice summary of the recent decision by the Illinois Appellate Court, Second District, in Hafferkamp v. Llorca retroactively applying the Illinois Supreme Court’s holding in Reliable Fire Insurance v. Arrendondo. As readers of this blog will recall, in Reliable Fire Insurance, the Illinois Supreme Court required that a court determine whether there was in fact a legitimate business interest in support of a non-compete.
  • Kenneth Vanko’s Legal Developments in Non-Compete Law Blog is reporting that the Illinois legislature is considering leveling the playing field for employees who prevail in non-compete disputes. According to Kenneth, House Bill 5198 would amend the Illinois Code of Civil Procedure to allow a circuit court to shift attorneys’ fees to a prevailing defendant if a contract under which a plaintiff sues allows for the plaintiff to recover fees.
  • The Connecticut Supreme Court has sided with the University of Connecticut’s decision to withhold information about its boosters. The university said lists naming its donors and other supporters qualify as trade secrets that other institutions could use to lure away its fans’ dollars and loyalty and are therefore exempt from public records requests under Connecticut law.
Cybersecurity:
  • Both the New York Times and Wall Street Journal ran stories this week about the present efforts within the Senate to move forward on the Cybersecurity Act of 2012. The New York Times wonders whether the ghosts of SOPA and PIPA will complicate passage of that legislation.
  • The New York Times’ Bits Blog entitled “How Much Have Foreign Hackers Stolen?” quotes Mike McConnell, the former director of national intelligence and now vice chairman at Booz Allen Hamilton, as estimating that foreign cyberthieves steal 867 terabytes of data from the United States, or “nearly four times the amount of data collected in the archives of the Library of Congress” on a daily basis. That, my friends, is a lot of data.
  • The Wall Street Journal also ran a major story (it was on the front page in the print edition) describing the nearly-decade long efforts of Chinese hackers directed towards Nortel. According to the article, “Chinese Hackers Suspected in Long-Term Nortel Breach,” the hackers had the passwords of Nortel’s CEO and six other senior executives and unfettered access to its trade secrets from 2000 to 2009. It is a chilling read.
News You Can Use:
  • Planning on traveling to China anytime soon? In an article entitled “Traveling Light in a Time of Digital Thievery,” the New York Times (who else this week?) quotes security experts that recommend leaving laptops, smartphones and other mobile devices behind and bringing “clean” loaner devices.
  • For those looking to protect their trade secrets in the cloud, David McGrath and Charles Stewart have an interesting article, “Minimizing the Risk of Data Theft Through Cloud Computing.”
TianRui Group v. ITC Judgment Issued as Mandate.pdf (85.46 kb) U.S. v. Hanjuan Jin Memorandum.pdf (2.16 mb)

Two high profile cases have drawn attention to a frequent problem in trade secret cases involving medical researchers, software developers and engineers: Who owns the trade secrets or inventions at issue, the employee or the employer? As one might expect, a well drafted employment agreement will go a long way to resolving this question.

The first case, Abramson Cancer Center of the Univ. of Penn. v. Craig Thompson, M.D., Case No. 11-cv-09108-LAK (S.D.N.Y.), highlights the problems that the absence of an employment or consulting agreement may create. Late last year, the University of Pennsylvania’s Abramson Cancer Institute sued its former research director, Dr. Craig Thompson, as well as the company that he formed after his departure, Agios Pharmaceuticals. Penn’s Institute claims that Dr. Thompson took an “innovative cancer metabolism research platform” with him that was the property of the Institute. The Institute claims it has been damaged to the tune of a whopping $1 billion. As Dr. Thompson is now the President of Memorial Sloan-Kettering Cancer Institute, this dispute has garnered a number of headlines.

I have attached the amended complaint below. As you can see, there is no claim invoking a specific employment contract (while there is an invocation to an Institute Agreement, there does not appear to be any allegation that Dr. Thompson signed it).  Instead, the amended complaint primarily relies upon statutory and common law claims that Dr. Thompson owed a duty to the Institute to disclose any of his inventions or research and that he failed to disclose his discoveries while he served as research director. One would expect that Dr. Thompson and his company will emphasize the absence of any written agreement on this issue, a fact that may complicate the question of owns what. We’ll obviously wait to see how things shake out.

Now compare the Northern District of Illinois’ recent decision in Motorola, Inc. v. Lemko Corp., Case No. 08 C 5427 (N.D. Ill.), where the existence of a provision establishing the employer’s ownership of the inventions proved critical.  (I have attached a copy of the opinion below). In Lemko, Motorola brought a trade secret action against a number of former employees who had formed a competing company, Lemko, to develop and sell devices that arose from their work on Motorola’s distributed mobile architecture. The employee agreements of two of the former employees, Shaowei Pan and Nicholas Labun, contained  a provision assigning to Motorola “the entire right, title and interest in all my inventions, innovations, or ideas developed or conceived by me solely, or jointly with others, at any time during my employment … related to the actual or anticipated business activities of Motorola.” 

Pan and Labun began doing work for Lemko while they were still employed by Motorola. In 2007, Hanjuan Jin, one of Motorola’s former employees, was stopped at O’Hare International Airport before boarding a one-way flight to China and it was discovered that she had documents containing Motorola’s trade secrets. (Jin was convicted last week of stealing Motorola’s trade secrets). Motorola later brought this action and asserted that various Lemko patents were the property of Motorola because they were related to inventions and innovations that Pan and Labun had developed for Motorola.
 
Lemko, Pan and Labun moved for summary judgment but that motion was denied because the district court found there were sufficient issues of material fact regarding whether Lemko’s inventions and technology fell within the relevant employment agreements. The case settled shortly after that ruling last month.

While an agreement should considerably strengthen an employer’s hand, it is important to remember that several states have specifically addressed this situation with legislation. California, for example, provides a safe harbor for employees who develop inventions or technology entirely on their own time without using their employer’s resources or equipment, so long as those efforts do not relate to work performed for their employer. That statute, California Labor Code § 2870, expressly trumps any employment agreement that purports to require an employee to assign an invention that would otherwise be his under this statute.

The takeaway? Make certain that every researcher, technician and developer has a written employment or consulting agreement that includes a provision defining who owns what intellectual property that he or she develops while employed. Also, make sure that there is a requirement that they disclose any inventions that they believe that they have independently derived so that the issue of ownership can be flushed out and resolved before they decide to go forward in any new venture. Finally, double-check your state’s law to see whether there are any statutes or authority addressing this situation.

The Leonard and Madlyn Abramson Family Cancer Research Institute at the Abramson Cancer Center of the University of Pennsylvania v Craig Thompson M D .pdf (416.45 kb)

Motorola Inc v Lemko Corp et al .pdf (1.23 mb)