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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.

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.

On Monday, April 9, Facebook settled a trade secrets case brought against it in California federal court by BladeRoom Group Limited.

BladeRoom, a data center construction company, alleged that Facebook had used and divulged its trade secrets, specifically its methodology regarding efficient construction and implementation of pre‑fabricated data centers. BladeRoom had first presented to the social network giant in confidential discussions in 2011. BladeRoom sought damages in excess of $300 million.

After voluminous discovery and a week of trial, the parties settled the case, although BladeRoom’s case against another defendant based on similar allegations is still proceeding.

The settlement amount and terms were not immediately disclosed to the United States District Court for the Northern District of California, where the case was being tried.

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.

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.

On January 18, 2018, a former software developer for IBM Corp. was sentenced to five years in prison after he had pleaded guilty of theft of a trade secret and economic espionage.  As part of his work for IBM, Xu Jiaquiang had access to proprietary source code which facilitates faster computer performance by coordinating work among multiple servers.  Despite IBM’s precautions in place to protect the secrecy of the code, including a firewall and express authorization required for any employee to obtain access, Xu stole and used portions of the code as part of an attempt to sell the code to undercover FBI agents.

Xu pleaded guilty to the charges on May 19, 2017.  The Department of Justice’s press release from that same day provides further details regarding the circumstances of the FBI’s investigation and the allegations against Xu.  That press release is publicly available here.

On October 10, 2017, the U.S. Supreme Court denied a petition for writ of certiorari challenging the Ninth Circuit’s holding that Power Ventures, Inc. had violated the Computer Fraud and Abuse Act (“CFAA”) by accessing Facebook user accounts.

Power provided a platform whereby its members could access their various social media accounts in one place.  Power received authorization from Facebook users for this service after sending them messages through the social media platform.  Facebook responded by sending Power a cease-and-desist letter demanding that Power immediately stop its access of Facebook computers.  Power nevertheless continued, evading Facebook’s attempts to block it.

Facebook filed a lawsuit in federal court in 2008 alleging that Power had used Facebook trademarks to send upwards of 60,000 spam messages to Facebook users to deceive them into thinking the messages were from Facebook, then stored and saved user account information outside the reach and protection of Facebook. Continue Reading U.S. Supreme Court Rejects CFAA Appeal by Power Ventures against Facebook

In the hotly contested case of Calendar Research LLC v. StubHub, Inc. et al., which is venued in the Central District of California, the plaintiff alleges misappropriation of trade secrets. Recently, the federal judge overseeing the litigation ruled that a source code expert, who had served very early in the litigation as a neutral evaluator for the parties to determine whether the defendant’s source code was based on Plaintiff’s misappropriated code, was disqualified from being used as an expert witness by defendant, StubHub, at trial.

On September 22, 2017, Hon. Stephen V. Wilson of the U.S. District Court for the Central District of California ruled on plaintiff Calendar Research LLC’s motion to disqualify tech expert Dr. Cynthia Lee from serving as an expert witness for defendant StubHub, Inc. at trial.

The District Court noted in its opinion that early in the case, the parties had agreed to retain Dr. Lee as a neutral evaluator to analyze source code from all parties related to Calendar Research’s arguments that its former employee, Michael Gray, had stolen its trade secrets, including the source code of its primary product—a smartphone application called “Klutch.” That product purports to simplify scheduling of business meetings and meetups.  As part of her evaluation, Dr. Lee had entered into confidentiality agreements with the parties, received proprietary source code from the parties, and ultimately provided the parties with a written report of findings.  Months later, StubHub designated Dr. Lee as its expert for the case, a designation which Calendar Research immediately challenged. Continue Reading Trial Experts Must Pick a Lane – Source Code Expert Disqualified for Switching from Neutral Evaluator to Witness in StubHub Trade Secrets Matter

In addition to federal and state‑specific hurdles facing employers who wish to utilize non‑compete agreements, the Appellate Division of the New Jersey Superior Court has provided a warning to employers across the country that those agreements can be stricken for seemingly unrelated employment issues.

On September 22, 2017, in the case of SpaceAge Consulting Corp. v. Maria Vizconde et al. (case no. A-3444-15T1), the Superior Court of New Jersey, Appellate Division, held that an employer had no ability to prevent its former employee from working for its direct client despite the existence of a non‑compete agreement expressly covering that client.  The Court noted that the employee was not paid properly by the employer during her training period and thus found that because the employment and non‑compete “agreements violated federal law, they were void and unenforceable.” Id. at *12. Continue Reading Can Your Non Compete Agreement Be Invalidated Based on Wage-and-Hour Violations? One Appellate Court Says Yes.