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StubHub, an online ticket exchange company, successfully defeated a suit brought by start-up company Calendar Research LLC. Calendar had alleged that three of its former employees used proprietary data in developing applications for StubHub. In its suit, Calendar Research alleged that the former employees downloaded proprietary information that belonged to the startup that they didn’t return and maintained access to Calendar Research’s source code.

A California federal judge found that Calendar Research failed to show that the application created by StubHub used proprietary information. The applications did not use the same source code or have any other similarities. Furthermore, Calendar failed to meet an element of a claim for misappropriation under the Defense Against Trade Secrets Act (DTSA) that requires plaintiffs to show that a defendant had knowledge that the trade secret was improperly acquired. The court held that it “lacks any evidence to make a finding that StubHub acquired, disclosed, or used plaintiff’s trade secrets with knowledge. And the court lacks any evidence with which to impute that knowledge, considering that the code does not show any similarities and plaintiff’s alleged compilations do not have novelty.” In reaching this decision, a thorough review of the source code for both applications revealed that proprietary information was not misappropriated. For seven of eight StubHub apps for which the ticket company submitted source code, the judge said that neither of the experts who analyzed the code from those apps found that it was “similar, let alone identical, to the Calendar Research code.”

Although he dismissed the DTSA claims, the judge lifted the stay on several other claims, including allegations brought under the Computer Fraud and Abuse Act. The attorneys for Calendar Research stated that they are considering appealing the order because “Through this lawsuit, we are sending a message on behalf of tech startups everywhere that StubHub and other large companies have to pay a fair price for technology they want, they cannot just take it.”

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.

On November 2, 2017, Foltz Welding LTD filed a motion for preliminary injunction against its former employee and operations manager in the United Stated District Court Southern District of Illinois. The company filed a nine-count complaint against its former employee and requested injunctive relief and damages. Foltz Welding claimed that the former employee may have trade secrets on his personal computers or iCloud storage that could be given to his new employer.

On February 12, 2018, the Court granted Foltz’s motion for preliminary injunction, ordering that the former employee allow a computer expert that Foltz chooses. Specifically, the Court noted that the expert would be allowed to go through the former employee’s personal home computer, his daughter’s laptop, his iCloud storage, any other electronic device and any other data storage and be permitted to remove any emails or files.

The Court noted that the files being searched for could include “Foltz’s trade secrets or other proprietary data consisting of bidding strategies, bid files, project estimation files, project pricing files, project cost information, project construction specifications and as-built construction information, pricing strategies, labor or equipment rate sheets, customer lists, profit margins and financial relationships with its suppliers and customers, sales strategies and competitive bidding.strategies.”

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 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.