In July 2018, U.S. District Judge James Patterson imposed a $59 million penalty against China’s largest wind-turbine firm, Sinovel Wind Group LLC (“Sinovel”), for stealing trade secrets from a Massachusetts-based technology company, American Superconductor Inc. (“AMSC”). This fine was imposed as restitution to the American company, AMSC, after Sinovel was found guilty of stealing trade secrets in federal criminal court in January 2018. At trial, the court found that AMSC’s losses from the theft exceeded $550 million. The ordeal left AMSC in perilous financial shape. The U.S. Department of Justice said that the company lost more than $1 billion in shareholder equity and 700 jobs. Because of the severity behind Sinovel’s theft, the court ordered Sinovel to pay $1.5 million in fines and $57.5 million in restitution, and the company was put on probation for one year. The parties reached a settlement with Sinovel, which it agreed to pay the $57.5 million in restitution.

Acting Assistant Attorney General Cronan stated, “[a]s demonstrated by this prosecution, intellectual property theft poses a serious threat to American companies, and the Department of Justice is committed to aggressively investigating and prosecuting individuals and corporations who undermine American competitiveness by stealing what they did not themselves create.” This case further affirms the United States’ commitment to prosecuting the theft of intellectual property through criminal and civil penalties.

Those who perpetrated the thefts live abroad. One has been successfully prosecuted in Austria. U.S. charges are still pending against him, as well as two others who live in China.

On March 15, 2018, HouseCanary, a data-analytics startup, was awarded $706 million in damages by a jury in Texas in its lawsuit against Title Source, an affiliate of Quicken Loans. The jury found Title Source misappropriated trade secrets including HouseCanary’s technology and appraisal analytics and breached both confidentiality and other agreements between the parties. While Title Source engineers were building the automated valuation model (“AVM”), HouseCanary alleged they helped themselves to other intellectual property, algorithms, analytics, and proprietary data without paying for it. In fact, an email from a Title Source employee encouraged colleagues to “think big and wide about how to maximize the value of the HouseCanary data to our business.” The jury found that a combination of lost profits and the benefit that Title Source obtained from the trade secrets misappropriation warranted $235 million in damages but tripled the damages due to a finding of deliberate conduct resulting in a final damages award to over $700 million. A big number indeed.

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 April 19, a divided Texas appellate panel reversed a jury’s $4.5 million award of exemplary damages, finding no evidence of malice in a hydraulic fracturing trade secret misappropriation case. Shale Exploration, an independent Oil and Gas Exploration company, accused Eagle Oil & Gas of breaching a confidentiality agreement and engaging in theft of trade secrets (Shale’s identification and compilation of mineral interest owners). However, the Court found no evidence of malice despite even testimony of Shale’s own President. The panel affirmed all other findings of the lower court’s decision.

In what is likely the first case of its kind, the United States District Court for the Eastern District of Pennsylvania dismissed a counterclaim for infringement of trade secrets, which the pharmaceutical company Lanett brought in the context of a wrongful termination suit initiated by a former employee. The Defend Trade Secrets Act was passed in May 2016 and allows the holder to a trade secret to bring suit in federal court when their trade secret has been misappropriated. However, in Christian v. Lannett Co., Inc., the alleged misappropriation happened during a document production made pursuant to a court order, which the court held is immunized by the Defend Trade Secrets Act.

In Krawiec v. Manly, owners of a ballroom dance studio sued two former employees pursuant to a non-compete clause in their employment contracts. The plaintiffs claimed their former employees began working at a competing dance studio where they shared “original ideas and concepts for dance productions, marketing strategies and tactics, as well as student, client and customer lists and their contact information.” However, the studio’s claim under North Carolina’s Trade Secrets Protection Act was dismissed by the North Carolina Business Court based on the pleadings, which did not specifically state each of the required components of a trade secrets claim. In upholding the dismissal, the North Carolina Supreme Court stated, “To plead misappropriation of trade secrets, a plaintiff must identify a trade secret with sufficient particularity so as to enable a defendant to delineate that which he is accurse of misappropriating and a court to determine whether misappropriation has or is threatened to occur.”

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.

PharMerica Corporation (“PharMerica”) is a Delaware corporation headquartered in Louisville, Kentucky that provides institutional and hospital pharmacy services throughout the United States.  The company filed a lawsuit in September 2016 in the Federal District Court of Pennsylvania alleging several employment and tort-related claims, and claims of misappropriation of Trade Secrets under the Pennsylvania Uniform Trade Secrets Act (“PUTSA”) and the Federal Defend Trade Secrets Act (“DTSA”) against former Pharmaceutical executive, Lena Sturgeon (“Sturgeon”) and ContinuaRx.  ContinuaRx is a start-up, long term care pharmacy that serves facilities and institutions with pharmaceutical needs. While the DTSA and the PUTSA use different wording to define a trade secret, they essentially protect the same type of information, and create a private right of action for the misappropriation of trade secrets.

Sturgeon and ContinuaRx filed a Joint Motion for Summary Judgment alleging that PharMerica failed to show it has protectable trade secrets.  At issue is whether PharMerica’s internal information about PharMerica’s service methods, market opportunities, marketing plans, current and prospective customers, and pricing information constitute protected trade secrets. On March 16, 2018, the judge sided with Sturgeon and ContinuaRx stating that while “PharMerica may have certain ‘trade secrets’ that deserve protection … in this instance [the company] failed to identify a single quality, attribute, or feature of any of these alleged trade secrets.”

Furthermore, PharMerica admitted that the majority of underlying materials that create its services, marketing opportunities, and pricing information are publically available, and “largely fixed by Medicare and Medicaid reimbursement rates.” Therefore, the court not only found that PharMerica failed to prove it had a protectable trade secret but also that there was no evidence that Sturgeon and/or ContinuaRx improperly acquired, disclosed, used, or threatened to use any specific trade secret.

Remember: “to warrant legal protection, a trade secret must be, in fact, a secret.”

A Pennsylvania federal judge grants Ex-PharMerica Executive’s motion for summary judgment. PharMerica, a company that provides long-term care pharmacy services to organizations such as senior living communities, filed suit against ex-executive Lena Sturgeon and two other ex-PharMerica employees in September 2016. A decision on defendant’s motion for summary judgment was released on March 16, 2018.

The company accused the ex-employees of misappropriating trade secrets after leaving PharMerica to launch a rival company called ContinuaRX LLC. PharMerica argued that trade secrets arose from its marketing plans, software, training programs, and customer service metrics, along with documents created to assist PharMerica’s employees with doing their jobs. In its decision, Judge Cercone noted that PharMerica admitted, however, that: there was nothing trade secret or confidential about the customers in its market; pricing and margins in long-term care pharmacy marketplace are largely fixed by Medicare and Medicaid reimbursement rates; nearly all pharmacies follow state Medicaid comparable reimbursement strategies; and PharMerica trains customers on software that contains no prohibition against customer disclosure, among other relevant facts invalidating PharMerica’s arguments. Continue Reading Pennsylvania Judge Throws Out Pharmaceutical Trade Secrets Lawsuit

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.