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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 Diversity is Important – But Is It A Trade Secret?

On January 11, 2018, the Federal Circuit issued a game-changing decision that addressed the pitfalls of an entity’s attempt to secure the ownership of intellectual property rights through an employment agreement. The Court held that three different provisions that the employer argued effected an assignment of intellectual property rights were not sufficient to convey those rights to the employer.

In Advanced Video Technologies, Inc. v. HTC Corporation, the employment agreement under review had three provisions that the employer unsuccessfully tried to rely upon: (i) a provision that the employee “will assign” to the company the employee’s rights to any inventions, (ii) a provision whereby the employee agreed to hold in trust for the employer any intellectual property rights, and (iii) a provision, whereby the employee agreed that she waived and quitclaimed all interests that the employee had assigned under the employment agreement. The Court held that none of these was enough to confer ownership of the patent at issue. Therefore, the Court ruled that because the company did not own the patent in suit, it lacked standing to bring the lawsuit. All of this because one inventor out of three did not assign her rights to the company.

The patent at issue lists three co-inventors and the invention was created while the co-inventors were all employed with a predecessor in interest to Advanced Video. Two of the three co-inventors assigned their ownership interests during prosecution, so the entire dispute as to ownership in the company centered on whether the third inventor had assigned her interest in the patent to the company. The third inventor asserted that she had not assigned her patent rights to the company. Therefore, HTC moved to dismiss on this basis. In response, Advanced Video argued that the inventor’s ownership rights transferred under the terms of the Employment Agreement. The relevant language is:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company. Id. at 6.

The Court stated that “[t]he ‘will assign’ language alone does not create an immediate assignment of [the inventor’s] rights in the invention to [the company].” Id. at 6. The Court reasoned that the “will assign” provision was only a promise to do something in the future, but did not mean that the employee had already effectuated an assignment.

Next, Advanced Video argued that the “will hold in trust” language created an immediate trust under California law in favor of the transfer. But, according to the Court, even if that were the case and the interests were placed into a trust, “ it does not follow that that these interests were automatically, or ever, actually transferred out of trust in favor of [the company].” Id. at 7. Under California trust law, a trust beneficiary “generally is not the real party in interest” and has no standing to bring a patent infringement action. Id. at 7.

Finally, Advanced Video maintained that it has standing to bring this action because it acquired the inventor’s rights in the invention through the quitclaim provision in the Employment Agreement. The quitclaim provision states:

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may thereafter have infringement of [sic] of any patent, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company. Id. at 8−9.

The Court stated that the language in the quitclaim provision “waives [the inventor’s] rights to interests in any patent rights that she assigned under the agreement.” Id. at 9. Since no patent rights were ever assigned to Advanced Video, the quitclaim provision has no application. Id. at 9. Therefore, the quitclaim provision in the Employment Agreement did not effectuate an assignment of the patent rights.

The takeaways from the Advanced Video decision are relatively simple. First, employers should take a hard look at their employment and/or any confidentiality agreements that address ownership of intellectual property rights. Second, employers should ensure that the provisions dealing with ownership are written to clearly effectuate a current assignment of intellectual property rights instead of a promise to do something in the future.

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.

Last week, Waymo LLC (a subsidiary of Google’s parent company Alphabet, Inc.) filed suit in the Northern District of California against Uber Technologies, Inc. and Otto Trucking LLC for misappropriation of trade secrets, patent infringement, and unfair business practices. The case is sure to become one of the first high-profile cases alleging claims under the federal Defend Trade Secrets Act (DTSA) (another being the claims brought against Google and Alphabet by Space Data in June 2016, which this blog covered here). Waymo describes itself as a “self-driving technology company,” which for the last seven years has been developing technology related to self-driving cars, including a laser system used to help the car navigate known as LiDAR (“Light Detection And Ranging”). In January 2016, one of Waymo’s managers, Anthony Levandowski, left Waymo and launched Otto, a new company focused on self-driving car technology. Then, in August 2016, Uber acquired Otto for $680 million.

Continue Reading Waymo v. Otto: Self-Driving and Self-Dealing

On February 1, 2017, a Texas jury awarded Zenimax $500 million following trial in Zenimax’s longstanding dispute with Oculus, the creators of the Oculus Rift virtual reality system. Zenimax and Oculus had initially worked together on the Oculus Rift, with Zenimax programmer John Carmack (a well-known figure in the video game industry) working with Oculus founder Palmer Luckey (at the time a college student) to improve the Oculus Rift. As part of this collaboration, Zenimax shared certain confidential information and technology with Luckey pursuant to a Non-Disclosure Agreement (NDA). Eventually, however, Oculus stopped its collaboration with Zenimax and was in 2014 purchased by Facebook.  Shortly after that purchase, Carmack and several other Zenimax employees left Zenimax and joined Oculus, with Carmack being named Oculus’s Chief Technology Officer. In its Complaint, Zenimax alleged that Oculus improperly took and used Zenimax proprietary and confidential information, including the improvements and code that Zenimax had contributed to Oculus Rift during their prior collaboration. Zenimax sought over $4 billion in damages for misappropriation of trade secrets, copyright and trademark infringement, and breach of the non-disclosure agreement. Continue Reading Oculus: Looks Like Trade Secret Theft

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.

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

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.

 

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.

Continue Reading Defend Trade Secrets Act Gets Early Test In Florida Suit