Trade Secrets Trends

Trade Secrets Trends

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

IBM v. Microsoft, Part II: Decision Suggests Diversity Data May Be a Trade Secret

Posted in Non-Competes, U.S. Litigation

As first reported in a C&M Trade Secrets Blog Post last week, IBM filed a lawsuit in New York federal district court in early February against Microsoft’s newly hired diversity executive, Lindsay-Rae McIntyre. Ms. McIntyre had been at IBM more than 20 years, finishing her employment as its Chief Diversity Officer. She also signed a one-year non-compete and non-solicit agreement set to expire on January 29, 2019.

When Ms. McIntyre left IBM to join Microsoft, IBM filed the lawsuit and sought an order to prevent her from working at Microsoft until January 29, 2019. IBM argued that “it is inevitable” that McIntyre would use IBM’s confidential information and trade secrets to further Microsoft’s diversity practices. IBM further argued that McIntyre can work virtually anywhere except a direct competitor of IBM, so her move to Microsoft was “especially serious, and unnecessary.”

On February 12, 2018, the U.S. District Court granted IBM’s request to restrain Ms. McIntyre temporarily from commencing employment with Microsoft, setting a hearing date of March 12 to determine whether that restriction would become permanent through January 29, 2019 based on the non‑compete agreement.

However, on March 5, one week before the hearing on the preliminary injunction hearing, the parties filed a notice to the court that they had settled the case. No settlement details were immediately made public or provided to the court.

Is China Discriminating against U.S. Firms Related to Technology Transfer, IP, Trade Secrets, and Innovation?

Posted in Asia

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer initiated an investigation on August 18, 2017 pursuant to Section 301 of the Trade Act of 1974. The probe will determine whether acts, policies, and practices of the People’s Republic of China (PRC) related to technology transfer, intellectual property, trade secrets, and innovation are discriminatory towards U.S. firms by undermining the United States’ ability to compete fairly in the global market. Section 301 allows the President to retaliate by removing any act, policy, or practice of a foreign government that violates an international agreement.

The investigation began after PRC President Xi Jinping unveiled a cybersecurity law to “protect personal information and individual privacy,” as reflected in China’s Made in China 2025 initiative. The law requires foreign companies operating in China to store their data on local servers. U.S. companies are now also being instructed to participate in joint ventures with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

USTR allegedly finalized its report in December 2017, and the remedies are undergoing vetting in the interagency process. However, the U.S. may partner with the European Union and Japan to seek consultations through the WTO, rather than solve the issue unilaterally.

Pursuant to the Trade Act, Ambassador Lighthizer must determine within 12 months from the date of the initiation whether the Chinese government violated U.S. intellectual property laws. The retaliatory action proposed by USTR, if any, must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if the agency determines that substantial progress could be made by the foreign government. If the determination is affirmative, then USTR will decide what action to take.

If Ambassador Lighthizer recommends retaliation under Section 301, the President could impose sanctions on certain Chinese industries, specifically steel. The current administration has demonstrated a tough stance on overcapacity by imposing a 25 percent global tariff on imported steel products, and a 10 percent global tariff on imported aluminum products.

As expected, the Chinese government is already demonstrating “tit for tat” retaliation by self-initiating anti-dumping (AD) and countervailing (CVD) investigations on imports of sorghum from the United States. In addition, China is already among one of the countries that has requested consultations from the WTO regarding the safeguard measures on solar cells and residential washing machines.

The USTR is expected to release its findings to the President within the coming months.

Diversity is Important – But Is It A Trade Secret?

Posted in Non-Competes

On January 14, 2018, IBM’s Chief Diversity Officer resigned to go work for Microsoft in the same role. The caveat: she had a twelve month non-compete clause.

On February 12, 2018, IBM filed a lawsuit to enjoin its former diversity officer to honor her non-compete agreement with IBM and to recover damages. The suit, filed in Southern District New York court, alleges that the IBM non-compete agreement that the defendant signed has a New York federal and state choice of forum provision and is, therefore, enforceable. In addition to a breach of the non-compete agreement, IBM asserts a claim for misappropriation of its trade secrets. According to IBM, if its former diversity officer “is permitted to work for Microsoft, [she] will inevitably (if inadvertently) use and/or disclose IBM trade secrets for her own benefit and for the benefit of Microsoft.” In addition to injunctive relief (seeking an order requiring its former employee to honor the non-compete agreement), IBM is also seeking compensatory damages. It has also demanded that its former employee remit to them her equity compensation because of this alleged breach of her employment agreement. As to the demand that the employee return the equity compensation she had earned as an employee, IBM’s theory is that the employee is engaging directly in a business which is competitive with IBM. Furthermore, IBM asserts that this is considered a “detrimental activity” under the Long Term Performance Plan agreement in which the employee’s equity awards are governed by and, subject to cancellation and in certain circumstances like this, are subject to repayment. Continue Reading

Extending the Scope of a Search: Searching iCloud Storage

Posted in Data Protection, U.S. Litigation

On November 2, 2017, Foltz Welding LTD filed a motion for preliminary injunction against its former employee and operations manager in the United Stated District Court Southern District of Illinois. The company filed a nine-count complaint against its former employee and requested injunctive relief and damages. Foltz Welding claimed that the former employee may have trade secrets on his personal computers or iCloud storage that could be given to his new employer.

On February 12, 2018, the Court granted Foltz’s motion for preliminary injunction, ordering that the former employee allow a computer expert that Foltz chooses. Specifically, the Court noted that the expert would be allowed to go through the former employee’s personal home computer, his daughter’s laptop, his iCloud storage, any other electronic device and any other data storage and be permitted to remove any emails or files.

The Court noted that the files being searched for could include “Foltz’s trade secrets or other proprietary data consisting of bidding strategies, bid files, project estimation files, project pricing files, project cost information, project construction specifications and as-built construction information, pricing strategies, labor or equipment rate sheets, customer lists, profit margins and financial relationships with its suppliers and customers, sales strategies and competitive bidding.strategies.”

Self-Driving Car Dispute Comes to a Halt: Uber Settles with Waymo

Posted in U.S. Litigation

Uber and Waymo’s high-profile legal battle has come to an abrupt halt, as the parties agree to settle the case a mere five days into trial. For its part of the deal, Waymo will get a 0.34% stake in Uber, worth about $245 million based on Uber’s present valuation. In prior negotiations, Waymo had been seeking $1 billion and just earlier in the week  had proposed $500 million. Uber rejected both offers. But after four days of testimony there was scant evidence showing that Uber actually used Waymo’s trade secrets. The settlement was entered into late last Thursday and announced last Friday.

Please click here to read more.

Parties Settle $100M Trade Secret Case on Eve of Trial

Posted in Data Protection, U.S. Litigation

Fera Pharmaceuticals LLC, Akorn Inc., and Perrigo Co. PLC have settled a $100 million trade secrets case three weeks before trial was set to begin in the U.S. District Court for the Southern District of New York.  The case primarily involved trade secrets related to the production of erythromycin.  In its lawsuit filed in 2012, the plaintiff, Fera, alleged that defendant Akorn misappropriated trade secrets received from Fera under the guise of needing that information to fulfill a contract between the parties, in which Akorn was a supplier and manufacturer for Fera.  The complaint further alleged that Akorn used the trade secrets to begin its own production of erythromycin and that Akorn began selling the medicine in direct competition to Fera.  In its complaint, Fera sought compensatory damages in excess of $100 million, as well as punitive damages.

In 2015, Akorn filed counterclaims against Fera as well as Perrigo, alleging that those two entities had engaged in a conspiracy to keep Akorn out of the market for a separate Bacitracin ophthalmic ointment.  Had the parties not settled the matter, trial on all claims would have begun on February 20, 2018.

According to a letter submitted to the district court by legal counsel for Perrigo, the parties “reached an agreement in principle for a global resolution of all claims,” though the terms of the settlement were not disclosed.

When You Do the Crime, You Must Do the Time

Posted in Asia, U.S. Litigation

Sinovel Wind Group Co. Ltd. (“Sinovel”) was convicted on January 24, 2018 for stealing trade secrets from AMSC, a U.S. based company. In March 2011, Sinovel, a manufacturer and exporter of wind turbines based in the People’s Republic of China, contracted with AMSC to sell more than $800 million in products and services for its wind turbines.

On June 27, 2013, Sinovel was charged of conspiracy to commit trade secrets theft, theft of trade secrets, and wire fraud, along with Su Liying, Sinovel’s Deputy Director of Research and Development Department; Zhao Haichun, a technology manager for Sinovel; and Dejan Karabesevic, a former employee of AMSC Windtec Gmbh, a wholly-owned subsidiary of AMSC. The evidence presented at trial showed that Sinovel conspired with the other defendants to obtain AMSC’s copyrighted information and trade secrets in order to produce wind turbines and to retrofit existing wind turbines with AMSC technology without paying AMSC the more than $800 million it was owed under the contract.

Because of the theft of its information and trade secrets, AMSC lost more than $1 billion in shareholder equity and approximately 700 jobs, over half its global workforce. Sentencing is set for June 4, 2018. U.S. Attorney Scott C. Blader stated that the “verdict sends a strong and clear message that the theft of ideas and ingenuity is not a business dispute; it’s a crime and will be prosecuted as such.”

A Trade Secret Telenovela: Defendants Alleged to Have Misappropriated Trade Secrets, Engage in Tortious Interference, and Unfair Trade Practices

Posted in U.S. Litigation

Earlier this month, Sunbelt, a North Carolina Corporation, filed a federal lawsuit against Vortex companies and Vortex Turnkey Solutions (hereinafter named “Vortex”) alleging misappropriation of trade secrets, tortious interference, and unfair trade practices. In a case of follow the “footprints,” Sunbelt alleges that Vortex, through a serious of events, “willingly accepted information from Ghent, a former employee of Sunbelt that they knew or should have known to be Sunbelt’s trade secret and/or confidential information.” Furthermore, the complaint states that Vortex solicited, encouraged, or otherwise incentivized, through salary negotiations, said disclosures and breach of the agreement. Vortex and Sunbelt are direct business competitors in selling and renting industrial and construction equipment and providing services, such as turnkey pumping bypass solutions. There are two key parts to this complaint: 1) Can confidential materials including customer lists and rental histories, and other records and documents pertaining to business transactions be considered a trade secret?; 2) Can Sunbelt successfully prove that Vortex had actual or constructive knowledge of Ghent’s agreements with Sunbelt.