Chinese national and materials scientist Hongjin Tan has pled guilty to stealing from his former employer Phillips 66 (“Phillips”) more than $1 billion in trade secrets related to next generation battery technology.

DOJ announced Tan’s guilty plea this week which revealed that he copied substantial research and development files that he knew contained protected company trade secrets. Only one day after copying the confidential files, Tan submitted a notice of resignation to Phillips and informed his manager that he would be returning to his home country of China. Given these red flags, the next day, Phillips contacted the FBI whose investigation uncovered that Tan had downloaded restricted information onto a personal USB drive and was allegedly offered a director position at a Chinese technology company with a $110,000 per year salary plus a $55,000 upfront payment in return for information on an unidentified Phillips product for the energy market.

In addition to the growing number of data breaches and cyber security threats, employees continue to pose a threat when attempting to safeguard valuable intellectual property and highlight the importance of entering into strong confidentiality agreements with employees especially those who deal with sensitive company information.

On November 5, 2019, Black Knight Inc. brought suit in Florida state court against PennyMac Loan Services LLC (“PennyMac”) alleging breach of contract and trade secret misappropriation under the Florida Uniform Trade Secrets Act. PennyMac allegedly used its access to Black Knight’s trade secrets and other confidential information relating to its proprietary mortgage servicing software platform (“MSP”) to work with third party software engineers and improperly develop an imitation mortgage-processing system. PennyMac purportedly did so to replace the MSP system and thereby avoid paying Black Knight the contractually required fees and save it years and hundreds of millions of dollars in development costs. Black Knight seeks monetary damages and injunctive relief and declaratory judgment on ownership of loan service modules.

One day later, on November 6, 2019, PennyMac filed a lawsuit in the Central District of California against Black Knight alleging violations of the Sherman Act and Cartwright Act and unfair competition based on an alleged pattern of anti-competitive and discriminatory practices to maintain control over the loan servicing systems market. PennyMac claims that it paid “extraordinarily high prices and fees for an under-performing and antiquated product,” was subjected to unconscionable contract terms, and had to incur “extraordinary technology expenses” to independently develop modules to support customer needs when performing mortgage servicing obligations. PennyMac seeks monetary and punitive damages among other relief.

How these dueling lawsuits will play out remains to be seen…

Crowell & Moring invites you to attend the third installment of our “Safeguarding Your Secrets in the Digital Age” webinar series: How to Work with Third-Parties, Including Those Internationally, taking place on Tuesday, November 12th at 12:00 pm (EDT).

During this webinar, Crowell & Moring Counsel Raija Horstman and Associate Judith Bussé will highlight best practices for trade secret protection, especially for when companies are required to share them externally or when collaborating with third parties or across borders. They will discuss tips for drafting, monitoring, and enforcing Non-Disclosure Agreements with third parties, key considerations when working with the government or across international borders, and the consequences and changes introduced by the recently transposed EU Directive on the protection of Trade Secrets. To register, please click here.

And in case you missed the second installment of our three-part webinar series, Reasonable Precautions to Protect Trade Secrets in The Digital Age, you can listen to the webinar here.

Legal services company CBX Law, LLC doing business as Latitude (“Latitude”) brought a lawsuit against alleged copycat company Lexikon Services, LLC in Tennessee state court. Latitude is seeking damages and injunctive relief based on allegations of trade secret misappropriation under the federal Defend Trade Secrets Act and Tennessee’s Uniform Trade Secrets Act, breach of contract, intentional interference, and unjust enrichment.

Latitude alleged that it identified Austin, Texas as a primary target for expanding its operations and posted an advertisement for a potential attorney business partner in this market. Chris Murphy, who subsequently founded Lexikon, responded and entered into a confidentiality and non-disclosure agreement with Latitude. Latitude alleged that it relied on these protections when having in-person and telephonic discussions with Murphy during which it shared trade secrets and confidential information about Latitude’s analysis of the Austin legal market, pricing and expense data, sales and recruiting methods, and financial modeling information. Murphy ended these discussions without entering into a partnership, and a few months later, formed Lexikon which purportedly used Latitude’s confidential and trade secret information.

In response to the lawsuit, Lexikon filed a Motion to Dismiss asserting a lack of general and personal jurisdiction because Lexikon is a Texas-based company, does not have any contacts in Tennessee, and has not conducted business and is not registered in the statute of Tennessee.

Two South Korean competitors are locked in a heated battle over alleged theft of trade secrets relating to electric vehicle (“EV”) lithium-ion battery technology which is an industry expected by experts to generate over $23 billion in revenues by 2027.

The story starts back in April when LG Chem brought a lawsuit against SK Innovation in Delaware federal court and a parallel action before the United States International Trade Commission (“ITC”) alleging trade secret misappropriation based on SK’s hiring of over 100 former LG employees including 70 engineers who were purportedly asked to disclose confidential information during the recruitment process and downloaded 1,900 confidential documents from LG’s database. LG alleges that SK profited from this misappropriation based on a 14 fold increase in the value of its EV battery contracts during this time period. SK denies the allegations, claiming that its hiring was done through an open application process, that former LG employees were a large proportion of the applicant pool, and that SK hired only 10% of LG applicants of whom 95% held low managerial positions without access to the highly confidential information at issue. In May, in response to LG’s request to block US imports of SK’s lithium-ion batteries and related manufacturing equipment, the ITC instituted an investigation and plans to issue a determination in October 2020, which, if adverse, could block SK from importing equipment to outfit its new Georgia-based battery plant which in turn could jeopardize contracts with EV manufacturers like Volkswagen.

The battle heated up in June when SK brought a suit against LG in Korean court for defamation seeking over $800,000 in damages that could be even higher depending on the impact of the LG-lawsuit allegations. SK went on the offensive again in August, filing parallel patent infringement actions at the ITC against LG Chem and its US subsidiary, LG Chem Michigan, and Delaware federal court against LG Chem and LG Electronics. SK claimed it owned patents for core EV battery technologies at issue for a decade longer than LG given its work on large-size EV batteries in the early 1990’s but notably SK holds only 1,135 registered patents compared to LG’s 16,685 patents.

Another counterattack was launched on September 17, 2019 when Korean authorities conducted a raid of two SK facilities in Seoul and Daejeon on the same day that LG made a press release revealing that in early May it brought a criminal complaint against SK, several of SK’s human resources managers, and several former LG employees for alleged violations of domestic law which prohibit “divulgence and protection of industrial technology.” A few weeks later, on September 26, 2019, LG filed a second set of complaints against SK at the ITC and Delaware federal court, alleging SK infringed five of its patents.

The escalation of this trade secrets dispute reflects both the intense competition among South Korea’s largest EV battery manufacturers who seek control of the burgeoning EV lithium-ion battery market and evidences a larger trend as companies attempt to protect trade secrets at the international level. Both sides claim they have the upper hand with LG arguing that if “does not react strongly . . . global competitors will take advantage of trade secret leaks in the long run” and SK stating that it is taking firm action against LG’s attempts to harm national interests, consumer interests, fair competition, and innovation and growth by ensnaring both parties in litigation at a time when ongoing R&D is critical, and competition from around the world including Europe is growing.

Who will emerge victorious remains to be seen…

On September 23rd, 2019, the District Court for the District of Colorado awarded Atlas Biologicals, Inc. a total of $2 million against Defendant Thomas Kutrubes and his company, Peak Serum, Inc. Kutrubes, a part owner and former employee of Atlas, was found liable for trademark infringement, misappropriation of trade secrets, and breach of fiduciary duty.

Atlas holds trade secrets related to its bovine serum products, which are used for “cell culture and research in the medical, veterinary, and biological sciences.” While still an employee and part-owner of Atlas, Kutrubes founded Peak Serum, which would directly compete with Atlas. Kutrubes ultimately left Atlas, but prior to doing so, he sent a number of Atlas’ confidential documents to his personal email account, including, among other things, Atlas’s customer contact lists. Kutrubes also sent emails from his Atlas account to select Atlas customers, informing the customers that Atlas and Peak Serum were “sister companies” and that Peak Serum was “assuming Atlas’s international customers.”

Atlas discovered that Kutrubes had sent company documents to his personal email, and subsequently brought suit. After a bench trial, the court found Kutrubes and Peak Serum in violation of the Colorado Uniform Trade Secrets Act (CUTSA), finding that “the information contained in Atlas’s customer database, and documents that were created with the information it contained, constituted valid trade secrets under CUTSA.” The court awarded Atlas $681,946.81, the equivalent of Peak Serum’s profits from sales made to former Atlas customers. The court also awarded “an additional $681,946.81 in exemplary damages on this claim,” finding that “Kutrubes’s and Peak Serum’s misappropriation of the information in Atlas’s customer database was attended by circumstances of willful and wanton disregard of Atlas’s rights.” The court further awarded attorney’s fees, “in light of the Court’s conclusion that Kutrubes’s and Peak Serum’s misappropriation of Atlas’s trade secrets was willful and malicious.” The case is Atlas Bioligicals, Inc. v. Kutrubes, Peak Serum, Inc., and Peak Serum, LLC, 15-cv-00355-CMA-KMT (D. Colo. Sept. 23, 2019).

We invite you to join Crowell & Moring’s second installment of our “Safeguarding Your Secrets in the Digital Age” webinar series: Reasonable Precautions to Protect Trade Secrets in The Digital Age, taking place on Tuesday, October 8th at 12:00 pm (EDT).

During this webinar, Crowell & Moring Counsel Kate Growley and Julia Milewski will discuss the importance of taking reasonable precautions to protect trade secrets and best practices for doing so, including how to leverage common cybersecurity standards, such as those published by the National Institute of Standards and Technology (NIST). To register, please click here.

And in case you missed the first installment of our three-part webinar series, How to Work with Your Employees, you can listen to the webinar here.

Christopher M. Warman allegedly has some valuable fudge recipes. In his second action to protect what he claims to be a valuable trade secret recipe for fudge, Warman’s complaint does not sugar-coat the parties’ sticky situation. He and his company have sued his ex-wife, Christine Falvo, and her company for a myriad of claims—trade secret misappropriation, trademark infringement, tortious interference with a contractual relationship, breach of contract, unjust enrichment, civil conspiracy and defamation. In this case, these claims all centered on the recipe for “Chocolate Moonshine.”

The relevant facts begin before the parties’ relationship turned from sweet to bitter, when Warman allegedly shared all of his intellectual property with Falvo and their son. He apparently licensed the recipe to the defendant and provided her with his business contacts. Warman also alleges that he licensed the right in the “Chocolate Moonshine” trademark to his son. However, according to the complaint, Falvo never paid him any royalties on her sales as the parties had apparently agreed. Instead, Falvo allegedly claimed that she was using her own recipe and said that “Warman was crazy and that there was no trade secret.” Further, Warman says that Falvo has shared this information with another company as part of a “very good plan to take all of the business away from Warman.”

Warman is not new to defending his secret fudge recipes. In another case back in the mid-90s, Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1272, 1273 (Pa. Super. Ct. 1997), a Pennsylvania Superior Court found Warman’s fudge recipe to be a trade secret. In that case, Warman had another fudge recipe that he originally purchased for $140,000. He then developed the recipe for years, used it exclusively, and the recipe was known only to a few people in his company. Allegedly, a salty employee had taken Warman’s fudge recipe to a competitor.

In this new case, Warman makes similar allegations as in his first case—for example, he claims the recipe was “kept at all times confidential” and used procedures to keep the recipe a secret. As litigation progresses, the court will have to determine whether this fudge recipe meets the same standards as that in Warman’s previous case or whether the current claims are only half-baked.

Pennsylvania’s medical marijuana bill went into effect in 2016. In order to obtain a permit under that bill, potential medical marijuana grower/processors or dispensaries are required to provide detailed business information with their applications. However, under the state’s Right-to-Know Law (“RTKL”), applicants who can show that information about their security, storage and transportation are trade secrets can avail themselves of an exception to the RTKL and redact trade secrets from applications before they are released to the public.

In May 2017, a PennLive reporter sought all applications that the state had considered under the medical marijuana bill. At that time, six applications submitted by five companies had been approved. When applying for a permit, the company was required to submit redacted and unredacted versions of the applications so that redacted versions could be shared on the Pennsylvania Department of Health (“DOH”) website (along with additional redactions applied by the DOH). PennLive filed suit claiming that the DOH acted improperly in responding to the RTKL request, because it did not review the companies’ redactions and that the companies did not establish that the redacted information fell under an exception.

The Commonwealth Court agreed that the DOH erred in allowing the companies to decide on the redactions, and it is the DOH’s burden to redact—and justify—information that is not subject to disclosure. In order to qualify as a trade secret under the RTKL, the Court considers six factors: (1) the extent to which the information is known outside of the business; (2) the extent to which the information is known by employees and others in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and to competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Only one applicant, Terrapin, had produced sufficient evidence to show that the redacted information was protectable as trade secrets. Terrapin submitted affidavits showing: a)  the competiveness of the medical marijuana industry, the importance of having the correct nutrient, water and fertilizer combination to get the best growth, and the best methods to extract ingredients that were legal to use in Pennsylvania; and b) that they had taken steps to maintain the secrecy of that information. (The other companies failed to make the requisite showing that they had taken steps to maintain secrecy. They were, however, successful in asserting various other exceptions to the RTKL.)

This case is a good reminder that when submitting confidential and trade secret information to the government, a company should identify it and provide sufficient evidence to keep it confidential if the government receives a public records request.

On Monday, August 12, a Delaware federal jury found that L’Oreal USA Inc. misappropriated Olaplex LLC’s trade secrets, breached a nondisclosure agreement, and willfully infringed on two of Olaplex’s patents related to a hair-coloring product. The patents in question related to a three-step system that protects hair from damage during bleaching.

The jury deliberated for only half a day, granting Olaplex approximately $22.3 million in damages for L’Oreal’s willful infringement of its trade secrets, another $22.3 million for breach of contract, and $47 million for infringements of Olaplex’s patents. The court still has to verify the actual damages amount and ensure that damages are not duplicative. Olaplex estimates that it will likely receive closer to $37.4 million in damages, but the court may also decide to multiply the award because the patent infringement and misappropriation were willful in nature.

The circumstances giving rise to the suit date back to discussions between the two companies over L’Oreal’s potential purchase of Olaplex. L’Oreal decided not to pursue the acquisition. Olaplex argued at trial that L’Oreal learned of its trade secrets during these discussions and opted to steal the secrets rather than pay millions of dollars to purchase the company. In response, L’Oreal asserted that: 1) the alleged secrets were public knowledge, and 2) that it had independently developed its own version of the hair-coloring products Olaplex claims it stole.

This verdict is not likely to end the dispute between L’Oreal and Olaplex. L’Oreal plans to appeal, and Olaplex has another suit pending against L’Oreal. In July, Olaplex asked a Los Angeles federal court to reassign a L’Oreal patent that embraces Olaplex’s misappropriated secrets.