Trade Secrets Trends

Trade Secrets Trends

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

No Soup for You! Panera Sues Papa John’s and Former Exec for Trade Secret Theft

Posted in Non-Competes, U.S. Litigation

Last month, Panera, the sandwich company perhaps best known for its “You-Pick-Two”® soup-salad-sandwich offering, brought suit under the Defend Trade Secrets Act (DTSA) against Michael Nettles, a former Panera executive who left the bread bowl purveyor for employment with Papa Johns. In its suit, Panera alleges that Nettles breached his employment agreement (which specifically identified Papa John’s as a competitor for whom Nettles could not work within one year after leaving Panera) and stole valuable trade secrets when he departed for Papa John’s.

According to the complaint, Panera and Papa Johns “compete with each other as a ‘food alternative’ … [and] fight for customers during the lunch and dinner hours … [by] selling products made from dough.” Nettles – Panera’s former Vice President of Architecture in its Information Technology department – took valuable trade secrets regarding Panera’s “Panera 2.0” initiative, Panera alleges. The initiative consists of “enhanced to-go and eat-in options enabled by a series of integrated technologies” and is designed to “reduce wait times, improve order accuracy, and minimize or eliminate crowding; and create a more personalized experience.” Simply put, Panera is seeking to protect its “strategic technology plan” which Nettles “intimately knows” and consists of “[Panera’s] use of technology to enhance guest experience, its successes in the delivery business, and its use of powerful and integrated systems and processes.”

Earlier this month, Judge John A. Ross of the Eastern District of Missouri granted Panera’s motion for a temporary restraining order . In its opposition to the TRO, Papa John’s had argued that Nettles’s non-compete agreement was unenforceable under Missouri law because Papa John’s and Panera are not actually competitors. Judge Ross was not persuaded – Panera demonstrated (through Papa John’s marketing materials) that both restaurant chains target a so-called “clean ingredient consumer” and that the chains compete in the market for carryout meals among this consumer base.

This case presents an atypical fact pattern: in a case between two restaurants, one might expect that a relevant trade secret would be a recipe or a new way of baking bread faster or more efficiently. This case demonstrates that sometimes the IP used to optimize delivery or consumer experience is just as valuable as the core product itself.

The preliminary injunction hearing is set for November 16, 2016 and the case is titled Panera, LLC v. Nettles and Papa John’s International, Inc., Case No. 4:16-cv-1181-JAR (E.D. Mo.).

 

United States v. Nosal: Keep Your Friends Close, but Your Passwords Even Closer

Posted in Criminal Prosecution, Data Protection, U.S. Litigation

On July 5, 2016, the Ninth Circuit affirmed the conviction of David Nosal, an ex-employee of Korn/Ferry, an executive search firm, who left to start a competing firm. With Nosal’s knowledge and encouragement, two other former employees of Korn/Ferry used a current employee’s credentials to gain access to the Korn/Ferry database and take confidential information. U.S. v. Nosal, No. 14-10037, 2016 WL 3608752 at 6 (9th Cir. July 5, 2016).

The prosecutors charged Nosal with violating section 1030 (a)(4) of the Computer Fraud and Abuse Act (“CFAA”), which criminalizes “knowingly and with intent to defraud, access[ing] a protected computer without authorization, or exceed[ing]authorized access, and by means of such conduct further[ing] the intended fraud and obtain[ing] anything of value.”1 Having failed to state an offense that Nosal “exceeded authorized access” by violating the company’s internal use restrictions (decided in Nosal I), the government filed a superseding indictment alleging Nosal violated the “without authorization” prong of the CFAA after his login credentials were revoked through his co-conspirators’ use of his former executive assistant’s login information to access Korn/Ferry’s database.

The jury convicted Nosal on all counts. On appeal, the Ninth Circuit analyzed the meaning of the words “without authorization.” The Court held that the phrase was unambiguous and its plain meaning encompassed the situation in this case where the employer rescinded permission to access a computer and the defendant accessed the computer anyway.

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4 Key Takeaways: What the New Federal Trade Secrets Law Means for Your Clients (June 15 Webinar)

Posted in Legislation & Policy, Non-Competes

On June 15, Crowell & Moring hosted a trade secrets webinar, “What the New Federal Trade Secrets Law Means for Your Clients.” The panelists, Mark Klapow, Mark Romeo, Mike Songer, and Vince Galluzzo provided an overview Defend Trade Secrets Act (DTSA), signed by President Obama in May. The panelists also discussed how the courts are likely to interpret certain provisions and provided best practice guidance how to use DTSA to your client’s advantage.

Key Takeaways:

  1. The DTSA creates the first federal civil cause of action for trade secret litigants. Litigants can now freely access federal courts, including technology savvy judges, broad subpoena powers, and straightforward discovery rules and procedures.
  2. There is no preemption, so Uniform Trade Secrets Act (UTSA)-based state law claims remain independently viable. The definition of trade secrets and the test for misappropriation remain largely unchanged from the UTSA.
  3. Ex parte seizures are available on a heightened showing to stop imminent threats and attach assets.
  4. Notice requirements need to be incorporated into new and amended employee agreements to obtain enhanced damages and fees.

Please click on a link below to access webinar materials. (Note: to listen to the full recording you will need to sign-in or register with ON24.)

Presentation Deck [PDF]

Webinar Recording [ON24]

If you have any questions or would like additional information, please contact our team.

 

DTSA Update: Alphabet and Google Accused of Misappropriation of Trade Secrets Under The DTSA

Posted in U.S. Litigation

In the highest-profile case filed to date under the recently enacted Defend Trade Secrets Act, Space Data has accused Alphabet and Google of misappropriation of trade secrets in the launch of their balloon-based wireless network code named Project Loon, in a complaint filed in the U.S. District Court for the Northern District of California.

Space Data alleges that Google and it engaged in discussions and negotiations concerning Google’s possible acquisition of shares or assets of Space Data in 2007.  Later, in February 2008, Space Data provided Google with access to confidential and trade secret information, including business concepts for the use of balloons to provide wireless service.  According to Space Data, Google then abruptly cut off further discussions later in the month.

A Google subsidiary, now named “X,” first tested Project Loon over New Zealand in 2013.

Space Data’s complaint includes claims for patent infringement and misappropriation of trade secrets under the DTSA and California state law.  It includes allegations that Google’s misappropriations are ongoing.

The DTSA creates a federal cause of action for trade secret misappropriation.  But the law only applies “to any misappropriation of a trade secret . . . for which any act occurs on or after the date of the enactment of this Act,” or May 11, 2016, when President Obama signed the law.  The DTSA is unclear as to what constitutes such an “act” where the alleged misappropriation began before May 11 and purportedly remains ongoing.

The case is Space Data Corp. v. X, No. 16-cv-3260 (N.D. Cal.).

Former Executives Seek Sanctions Against Company And Its Counsel For Alleged Failure To Disclose Insurance In Trade Secrets Dispute

Posted in U.S. Litigation

Former executives, who are accused of theft of confidential information, trade secrets, and other intellectual property, have asked a federal court to impose severe sanctions against their old employer and its counsel, including dismissal of the case, for their alleged failure to disclose the existence of insurance that could have covered the executives’ defense costs.

In May 2015, in Summer Infant, Inc. v. Bramson, No. 15-cv-218 (D.R.I.), Summer Infant, a company that designs and sells baby products, filed suit against its former CEO and five other executives, alleging that they stole company information to launch a competing business.

As part of Summer Infant’s July 2015 initial disclosures, the company stated that “there are no insurance agreements of the nature described in Fed. R. Civ. P. 26(a)(1)(A)(iv).”  Under Rule 26, a party must, without awaiting a discovery request, provide to the other parties “any insurance agreement [that] may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.”  Fed. R. Civ. P. 26(a)(1)(A)(iv). Continue Reading

When Customer Information Isn’t a Trade Secret – McCormack Auction Company, Inc. v. Hanks

Posted in U.S. Litigation

A California appeals court recently reversed a trial verdict that had found trade secrets in an auction house’s customer information. The case is notable because it demonstrates when customer information falls short of warranting trade-secret protection.

Background

The case McCormack Auction Company, Inc. v. Hanks involved a now-defunct auction house known as the McCormack Auction Company. Operating in southern California, McCormack handled large-scale auctions, both online and in person. It had acquired several repeat customers during its 30-plus years of operation, including bankruptcy trustees, community colleges, and public utilities. McCormack maintained its customer information in electronic databases on its computers. As an advertising tactic, McCormack identified on its website some satisfied customers that it had served in the past, but it did not display the customers’ contact information. Continue Reading

Texas Supreme Court Issues First Texas Uniform Trade Secrets Act Decision

Posted in Legislation & Policy, U.S. Litigation

The Texas Supreme Court on Friday issued its first decision interpreting the recently enacted Texas Uniform Trade Secrets Act (TUTSA), holding that a defendant’s corporate representative does not have an absolute right to remain in the courtroom while a plaintiff’s trade secrets are discussed.  In re M-I L.L.C. d/ba/ MI-Swaco, No. 14-1045 (Tex. Jan. 13, 2016).  The Court’s decision is significant both because it is the first time the Texas Supreme Court has addressed the relatively new legislation (TUTSA was passed in late 2013), but also because its signals the Court’s willingness to interpret TUTSA expansively.

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Defend Trade Secrets Act Gets Early Test In Florida Suit

Posted in U.S. Litigation

In M.C. Dean Inc. v. City of Miami Beach Florida et al., Case No. 1:16-cv-21731, in the U.S. District Court for the Southern District of Florida, a subcontractor for the Miami Beach Convention Center renovation project, sued the City of Miami Beach, accusing the city of improperly giving the International Brotherhood of Electrical Workers, Local 349 union confidential M.C. Dean employee records regarding their technical qualifications, which the company claims are valuable trade secrets not normally given out to unions.   Significantly, the plaintiff sued under the recently enacted Defendant Trade Secrets Act of 2016, in addition to a claim under the Florida Uniform Trade Secrets Act.  There were no other state law tort claims asserted in the complaint filed on May 16, 2016.

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Recent Case Highlights Circuit Split on Important Computer Fraud and Abuse Act Question

Posted in Legislation & Policy

Another court has rejected the broader interpretation of the Computer Fraud and Abuse Act (“CFAA” or “the Act”) as applying to employees who exceed their authorized use.  A recent decision in Minnesota highlights the issue of whether the Act imposes civil liability on employees who have permission to access their employers’ data, but do so with a wrongful purpose.  See TripleTree, LLC v. Walcker No. 16-609, 2016 WL 2621954 (D. Minn. May 6, 2016).

The court considered this question in the context of a trade secrets case.  A former employee of TripleTree, an investment banking company, was discovered to have accessed the Company’s confidential information and to have engaged in a series of suspicious activities just prior to leaving the Company for a competitor.  Id. at *1.  TripleTree filed claims against its former employee for, among other things, violating the CFAA and the Minnesota Uniform Trade Secrets Act.  Id. at 2. 

The court sua sponte considered whether it should dismiss TripleTree’s CFAA claim.  Id. at *3.  The CFAA sanctions a person who “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains  . . . information from a protected computer.”  18 U.S.C. § 1030(a)(2)(c).  Any person who suffers from a violation of the Act may bring a civil claim for damages.  18 U.S.C. § 1030(g).  As an employee of TripleTree, the Defendant was permitted to access the Company’s confidential information.  The court considered whether the Defendant’s malicious intent in accessing the information transformed an otherwise lawful act (using the Company’s computers) into a violation of the CFAA.

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