Trade Secrets Trends

Trade Secrets Trends

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

CloudFlare Seeks Attorneys’ Fees Following Swarmify’s Voluntary Dismissal of Trade Secret Misappropriation Claims

Posted in U.S. Litigation

In December 2017, Swarmify, Inc. filed a lawsuit against CloudFlare, Inc. in the U.S. District Court for the Northern District of California. The tech companies both have video streaming products. According to the Swarmify complaint, CloudFlare stole Swarmify’s trade secrets revealed during negotiations between the two companies. Specifically, Swarmify alleged that CloudFlare used its trade secrets to create a faster, more efficient video streaming service. After seven months of litigation, on June 21, 2018, and on the eve of the close of discovery in the case, Swarmify filed a motion to dismiss its claims. While Swarmify had initially sought dismissal without prejudice, when the Court informed Swarmify that it would not permit dismissal without prejudice, Swarmify agreed to a dismissal with prejudice. Swarmify’s request that its claims be dismissed was made after the trial court had ruled against it on its request for a preliminary injunction, the decision of which was entered on March 2, 2018.

After the dismissal with prejudice on Swarmify’s complaint was entered, on July 24, 2018, CloudFlare filed a motion for attorneys fees under the California Uniform Trade Secrets Act and Defend Against Trade Secrets Act, arguing that Swarmify had made its trade secret misappropriation claim in bad faith. Specifically, CloudFlare alleged that “Swarmify’s trade-secret claims were objectively specious and pursued in bad faith,” in particular after the Court had denied Swarmify’s motion for preliminary injunction. CloudFlare further alleged that Swarmify was using discovery costs in an improper attempt to obtain leverage for a settlement. CloudFlare asserted that Swarmify “made no realistic attempt to participate discovery or support its own claims” and “ignor[ed] the evidence” presented by CloudFlare, which proved that CloudFlare’s video streaming technology was both independently developed months before any negotiations between the parties had begun, and that the trade secrets at issue were also within the public domain from numerous sources. Further, CloudFlare pointed out that Swarmify’s request for dismissal came only after CloudFlare refused to capitulate to Swarmify’s settlement demands, which, according to CloudFlare, was further indication that Swarmify’s claims were independently baseless. In its motion for fees, CloudFlare claims to have incurred approximately $380,000 in attorney’s fees, but only requested $200,000 (the amount spent after the Court’s ruling on Swarmify’s preliminary injunction).

The federal district court is scheduled to hear CloudFlare’s motion for attorneys’ fees on September 13, 2018. While there is precedent for awarding attorney’s fees for pursuing misappropriation claims in bad faith under CUTSA, if the Court rules in favor of CloudFlare, it could be the first time an award of attorney’s fees is granted under DTSA.

Check back next month to find out how the Court rules.

Trade (Secrets) War with China?

Posted in Asia

On August 1, 2018, Xiaoqing Zheng was arrested for alleged theft of trade secrets belonging to General Electric (“GE”). Mr. Zheng, a graduate of MIT and an engineer who worked in the Power division of GE, is accused of stealing dozens of encrypted computer files related to turbine operation. In order to get the files out of the building, Mr. Zheng allegedly hid the data in the code for a picture of an “innocuous looking” sunset, which he then emailed to his personal email address. However, GE had been monitoring Mr. Zheng’s computer activity after it learned that he had downloaded 19,000 other files to an external hard drive. According to a company statement, GE had been in “close cooperation with the FBI for some time on this matter.” The statement continued, “At GE, we aggressively protect and defend our intellectual property and have strict processes in place for identifying these issues and partnering with law enforcement.” The FBI complaint alleges that Mr. Zheng was using the trade secrets to benefit an aeronautical company he owns in China. This isn’t an isolated incident. Just last month, China-based Sinovel Wind Group paid a $57.5 million dollar settlement related to stolen data regarding wind turbine technology that it took from Massachusetts-based technology company American Superconductor Inc.

Ex-Uber Manager Argues Defamation Case Against Him is Unrelated to Waymo v. Uber Trade Secrets Case

Posted in Cyberhacking, U.S. Litigation

Following the high-profile trade secrets litigation and settlement between Waymo and Uber in February 2018, covered previously in this blog, a defamation claim was filed by four Uber employees against Uber’s former global intelligence manager, Richard Jacobs. The case alleges that Jacobs defamed the four plaintiffs by accusing them — initially in an intra-office email, which was later broadcast to the world as part of the now-settled Waymo v. Uber case — of wiretapping, trade secret theft, and hacking.

The plaintiffs filed a motion earlier this month asking the federal judge hearing the matter to relate the defamation suit to the initial trade secret case, arguing that Jacobs’ statements received substantial attention in that matter. Jacobs responded by filing an opposition to this motion last week, arguing that there was no reason for the plaintiffs to have waited several months to file the motion, that the cases involve different facts, and that relating the cases would unnecessarily complicate matters. Whether the court agrees remains to be seen.

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.