Trade Secrets Trends

Trade Secrets Trends

Analysis and commentary on the latest developments in trade secrets protection, disputes, and enforcement

Whistleblower or Trade Secret Thief?

Posted in U.S. Litigation

In June 2018, Tesla brought suit against a disgruntled former employee, Martin Tripp, for trade secret misappropriation. Tesla claims that Mr. Tripp hacked Tesla’s computer system, distributed its proprietary and confidential data to third parties, and distributed photographs and videos of Tesla’s manufacturing facility. In its complaint filed in a U.S. District Court in Nevada, Tesla asserts federal and state trade secret misappropriation, breach of contract, and violations of the Nevada Computer Crimes Law claims against Mr. Tripp. Tesla’s complaint does not identify the specific trade secrets Mr. Tripp is alleged to have disclosed, but alleges that Tesla maintains various methods, systems, and processes as trade secrets and that Mr. Tripp’s conduct revealed unspecified “manufacturing systems.”

Mr. Tripp, on the other hand, tells a different story. Perhaps positioning himself to assert whistleblower immunity under the DTSA, Mr. Tripp claims he shared information with news outlets to expose “some really scary things” going on inside of Tesla after becoming disillusioned with the company’s practices. In particular, Mr. Tripp claims Tesla installed punctured batteries in Model 3 vehicles, improperly disposed of raw-material waste, and inflated sales numbers. Establishing whistleblower immunity under the DTSA, however, may be an uphill battle for Mr. Tripp. The DTSA limits whistleblower immunity to confidential disclosures to the government or attorneys as part of a complaint or other judicial document filed under seal, not leaks to the media. For its part, Tesla has denied Mr. Tripp’s allegations of misconduct.

We will be watching this case to see how it unfolds.

The Growing Trend For Full Disclosures: What’s in Your Cleaning Products?

Posted in Legislation & Policy

New York has recently enacted disclosure laws that could impact clean product manufacturers’ ability to protect their trade secret chemical formulations. While California was the first U.S. state to pass a law requiring disclosure of all substances contained in cleaning products, New York’s Department of Environmental Conservation (“DEC”) Household Cleansing Product Information Disclosure Program imposes stricter requirements than California on what must be disclosed.

Both laws require manufactures of cleaning products to disclose all chemicals used in household cleaning products on their websites, and identify any ingredients that appear on authoritative lists of chemicals of concern. However, the New York law also requires manufactures to identify any ingredient that is a nanoscale material.

While both laws have an exemption allowing trade secrets to not be disclosed there are some key differences:

California’s Cleaning Product Right to Know Act of 2017

New York’s Household Cleansing Product Information Disclosure Program

Disclose all intentionally added ingredients unless it is confidential business information (“CBI”) Disclose all intentionally added ingredients, including those present in trace quantities, PLUS all ingredients present only as an unintentional consequence of manufacturing and present above trace quantities (0.1%) where the manufacturer knows or should reasonably know of such ingredients, impurities, or contaminants, unless they are withheld as CBI
Provide CBI justification only on request for audit by the Attorney General Provide CBI justification only on request of the DEC for evaluation
Penalty: prohibited from selling product Penalty: prohibited from selling product PLUS an initial fine of up to $2500, and $500 for each additional day of violation

 

California’s requirements for manufacturers are a lot clearer than New York’s: the “knew or should have known” standard in New York may make full disclosure more difficult. But in either state, manufacturers are able to protect their trade secret information and withhold it from disclosure. What remains to be seen is how (and if) litigation arises challenging a company’s decision to withhold CBI, what kind of information falls within that scope, and what justification is required to maintain trade secret protection.

When You Commit the Crime, Not Only Will You Do the Time, But You Will Also Pay the Fine

Posted in Asia, Criminal Prosecution, Trial & Verdicts, U.S. Litigation

In July 2018, U.S. District Judge James Patterson imposed a $59 million penalty against China’s largest wind-turbine firm, Sinovel Wind Group LLC (“Sinovel”), for stealing trade secrets from a Massachusetts-based technology company, American Superconductor Inc. (“AMSC”). This fine was imposed as restitution to the American company, AMSC, after Sinovel was found guilty of stealing trade secrets in federal criminal court in January 2018. At trial, the court found that AMSC’s losses from the theft exceeded $550 million. The ordeal left AMSC in perilous financial shape. The U.S. Department of Justice said that the company lost more than $1 billion in shareholder equity and 700 jobs. Because of the severity behind Sinovel’s theft, the court ordered Sinovel to pay $1.5 million in fines and $57.5 million in restitution, and the company was put on probation for one year. The parties reached a settlement with Sinovel, which it agreed to pay the $57.5 million in restitution.

Acting Assistant Attorney General Cronan stated, “[a]s demonstrated by this prosecution, intellectual property theft poses a serious threat to American companies, and the Department of Justice is committed to aggressively investigating and prosecuting individuals and corporations who undermine American competitiveness by stealing what they did not themselves create.” This case further affirms the United States’ commitment to prosecuting the theft of intellectual property through criminal and civil penalties.

Those who perpetrated the thefts live abroad. One has been successfully prosecuted in Austria. U.S. charges are still pending against him, as well as two others who live in China.

Everything (including Trade Secrets Damages Awards) is bigger in Texas

Posted in U.S. Litigation

On March 15, 2018, HouseCanary, a data-analytics startup, was awarded $706 million in damages by a jury in Texas in its lawsuit against Title Source, an affiliate of Quicken Loans. The jury found Title Source misappropriated trade secrets including HouseCanary’s technology and appraisal analytics and breached both confidentiality and other agreements between the parties. While Title Source engineers were building the automated valuation model (“AVM”), HouseCanary alleged they helped themselves to other intellectual property, algorithms, analytics, and proprietary data without paying for it. In fact, an email from a Title Source employee encouraged colleagues to “think big and wide about how to maximize the value of the HouseCanary data to our business.” The jury found that a combination of lost profits and the benefit that Title Source obtained from the trade secrets misappropriation warranted $235 million in damages but tripled the damages due to a finding of deliberate conduct resulting in a final damages award to over $700 million. A big number indeed.

Theft of Jawbone Trade Secrets: Individuals Facing Criminal Charges After a Finding of No Civil Liability

Posted in Criminal Prosecution, U.S. Litigation

On June 14, 2018, six former and current Fitbit employees were indicted in the Northern District of California for alleged federal trade secrets offenses. The individuals are accused of either stealing market research regarding fitness tracker opportunities from Jawbone, or stealing internal studies – including a comparison study of consumer behavior in which consumers wore both Jawbone and Fitbit devices. The employees are charged with felony Possession of Stolen Trade Secrets (18 USC §1832(a)(3)), for which the maximum sentence is 10 years in prison.

This indictment is interesting because in 2015 Jawbone sued Fitbit, including these same individuals, for “systematically plundering” trade secrets, including over 300,000 confidential files. After a nine-day trial, the International Trade Commission (ITC) ruled in favor of Fitbit and the individuals. The federal administrative law judge determined on the merits that no Jawbone trade secrets were misappropriated or used in any Fitbit product. Nevertheless, U.S. federal prosecutors decided to move forward with a criminal prosecution. The indictment states that the defendants received confidential documents “knowing them to have been stolen and appropriated, obtained, and converted without authorization…for the economic benefit of someone other than Jawbone.”

This criminal case is worth following to see how it unfolds in light of the findings in the ITC proceeding.

Patent v. Trade Secret: Uncovering New Insights

Posted in Uncategorized

The dichotomy between patent and trade secret cases is as old as time. But, Lex Machina’s newest platform – trade secrets – reveals some interesting new insights on key differences between patent and trade secret cases that will matter to plaintiffs and defendants alike. In trade secrets cases, 71% of cases that resolve at trial are won by claimants whereas 29% are won by claim defendants. LexMachina Article. By contrast, in patent cases filed between 2000 to 2018, 7% were won by the claimant whereas 4% were won by the defendant while 68% of those cases resulted in a likely settlement and 14% resolved on a procedural resolution. This stark contrast in outcomes when comparing the different types of intellectual property is useful to clients who are assessing how best to protect these valuable resources. Lex Machina offers evidence about the success of different types of remedies in trade secret cases, revealing 51% of cases granted a temporary restraining order (“TRO”), 86% of cases granted a Permanent Injunction, and 63% of cases denied a Preliminary Injunction which can be further refined by jurisdiction to provide useful intel on case strategy when bringing these cases. Lex Machina also offers empirical data on the outcome of patent litigation, notably the relative proportion of infringement versus no infringement findings at trial. With this data, attorneys can make more informed strategic decisions for their clients for both patent and trade secret cases.

The Best Kept “Secret” in Trade Secret Litigation?: Lex Machina Launches New Platform

Posted in Uncategorized

Just last week, Lex Machina introduced its newest module which will cover trade secrets litigation – one of the most requested additions to this valuable analytical platform.

Lex Machina is an important tool for all trade secret litigators, drawing from nearly 10,000 trade secret cases in federal court since 2009 to provide in-depth strategic insights on cases with allegations ranging from state trade secret misappropriation to Defend Trade Secrets Act (“DTSA”) violations.

Lex Machina offers analytical data on key aspects of trade secret cases, including the size of damages awards in a given jurisdiction to the likelihood of securing a preliminary injunction to the most common law firms representing plaintiffs in trade secret cases. Lex Machina can be used to both track trends in trade secret cases over time and drill into specific cases and download copies of relevant pleadings or motions.

Lex Machina also can be a valuable tool both to advise clients who are interested in how long it takes to resolve a trade secrets case either on dispositive motions or at trial and develop a solid legal strategy on issues like whether to file in a certain jurisdiction based on a judge’s track record with trade secrets cases.

For anyone practicing in the trade secrets space who wants a leg up on the latest trends and authoritative insights backed by data, Lex Machina could be a game changer and won’t remain secret for long.

The DNC Tests the Meaning of Trade Secrets in the Political Arena

Posted in Defend Trade Secrets Act (DTSA)

Under the Defend Trade Secrets Acts (DTSA), 18 U.S.C. §1836 et seq., a “trade secret” is any type of “financial, business, scientific, technical, economic, or engineering information” that “derives independent economic value … from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

The Democratic National Committee (“DNC”) filed a lawsuit against Russia, Wikileaks, the Trump Campaign, and several individuals (including Julian Assange, Jared Kushner, and a hacker named “Guccifer 2.0”) on April 20, 2018 in Federal District Court for the Southern District of New York. The DNC alleges that Russia, Guccifer 2.0, Wikileaks, and Assange violated the DTSA, and that all of the defendants violated the Washington D.C. Uniform Trade Secrets Act, D.C. Code Ann. §§ 36-401-46-410. The complaint defines the stolen secrets as “confidential proprietary documents related to campaigns, fundraising, and campaign strategy.” Specific documents include:  (1) a DNC-authored opposition research report on Donald Trump from December 2015; (2) DNC strategy documents related to the DNC’s “counter-convention” to the RNC convention; (3) personal information-including social security and passport numbers-of individuals who communicated with or donated to the DNC; and (4) Clinton campaign chairman John Podesta’s hacked emails. Continue Reading

No Malice Shown in Texas Trade Secret Misappropriation Case

Posted in U.S. Litigation

On April 19, a divided Texas appellate panel reversed a jury’s $4.5 million award of exemplary damages, finding no evidence of malice in a hydraulic fracturing trade secret misappropriation case. Shale Exploration, an independent Oil and Gas Exploration company, accused Eagle Oil & Gas of breaching a confidentiality agreement and engaging in theft of trade secrets (Shale’s identification and compilation of mineral interest owners). However, the Court found no evidence of malice despite even testimony of Shale’s own President. The panel affirmed all other findings of the lower court’s decision.

District Court Grants Immunity under the Defend Trade Secrets Act

Posted in Defend Trade Secrets Act (DTSA), U.S. Litigation

In what is likely the first case of its kind, the United States District Court for the Eastern District of Pennsylvania dismissed a counterclaim for infringement of trade secrets, which the pharmaceutical company Lanett brought in the context of a wrongful termination suit initiated by a former employee. The Defend Trade Secrets Act was passed in May 2016 and allows the holder to a trade secret to bring suit in federal court when their trade secret has been misappropriated. However, in Christian v. Lannett Co., Inc., the alleged misappropriation happened during a document production made pursuant to a court order, which the court held is immunized by the Defend Trade Secrets Act.