Trade Secrets Trends

Trade Secrets Trends

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

AIPLA to Host Annual Trade Secret Law Summit

Posted in Event

Join Crowell & Moring at the American Intellectual Property Law Association in hosting its annual Trade Secret Law Summit on March 2-3 in Atlanta, GA. It will cover everything from the fundamentals of trade secret protection to protecting confidential information from cyber-attacks. Registration is now open; please click here to register at AIPLA.org. Crowell partner, Mark Klapow, is the vice chair of AIPLA’s Trade Secret Law Committee.

DTSA UPDATE: Tips for Santa to Maintain Trade Secrets at the North Pole

Posted in Legislation & Policy

1.  Clearly label Christmas cards as “Confidential” if these contain secret wishes.

2.  Amend Confidentiality Agreements and Employee Manual to include the required Whistleblower language – those elves have rights.

3.  Have robust exit interviews with all departing elves, reminding them of their obligations to keep “reindeer games” secret.

4.  Insist that expert toy makers are warned not to reveal secret information while enjoying (too much) mulled wine with ‘Happy Holidays’-industry peers.

5.  Further restrict access to the Sleigh Packing Room with candy cane key fobs.

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Flash Crash Fears Subvert Trade Secret Protection of Source Code

Posted in U.S. Litigation

On November 4, 2016, the U.S. Commodity Futures Trading Commission approved a supplemental notice of proposed rulemaking concerning its access to algorithmic trading source code in a 2-1 vote. The supplemental notice amends proposed Regulation AT and outlines a new mechanism by which the CFTC can obtain the source code and related records of the automated traders it regulates as part of its routine surveillance of the market.

Algorithmic source code is the foundation of an automated trader’s business model, and as such it is usually the most valuable asset and fiercely protected trade secret an automated trader has. Currently, the CFTC may obtain source code only by issuing a subpoena, which provides the subpoena recipient with certain procedural safeguards such as the ability to challenge the subpoena before a federal judge. Continue Reading

Chinese Company Challenges ITC’S Authority Over Trade-Secret Theft Occurring Outside the United States

Posted in U.S. Litigation

About 5 years ago, the Federal Circuit held that the U.S. International Trade Commission (ITC) had the power to adjudicate trade-secret theft occurring wholly overseas. The case was TianRui Group Co. Ltd. v. ITC, 661 F.3d 1322 (Fed. Cir. 2011), and we blogged about it here. That decision is now under attack. Last week a Chinese company known as Sino Legend petitioned the U.S. Supreme Court for a writ of certiorari to review TianRui Group’s principle holding—namely, that Section 337 of the Tariff Act gives the ITC jurisdiction over trade-secret misappropriation, even if the predicate acts of misappropriation occur entirely outside the United States.

The background to this significant development sounds similar to many trade-secret stories. A New York company known as SI Group developed a process for producing a type of rubber component, a “tackifier,” commonly used in tires. To serve its overseas customers, the New York company set up a manufacturing operation in China; it created a Chinese subsidiary and hired Chinese nationals to manage the company. Eventually, two of the Chinese nationals left the subsidiary and began working for a competitor in China—Sino Legend. SI Group alleges that the Chinese nationals worked with Sino Legend to misappropriate SI Group’s trade secrets in the tackifier. Continue Reading

Space Race Starts Anew as Virgin Galactic Files Trade Secrets Claims Against Rival

Posted in U.S. Litigation

Virgin Galactic (“Galactic” or the “Company”), the sub-orbital space flight arm of Richard Branson’s Virgin empire, filed suit last week against competing space flight company Firefly Systems, Inc. (“Firefly”) and two of its officers, alleging that Firefly misappropriated its  trade secrets and confidential information. The lawsuit is the latest salvo in an on-going battle (or as some might call it, a “star war”) between Galactic and the CEO of Firefly, Thomas Markusic, a former employee of Galactic who started the rival company in late 2013. While the Company has pending claims in arbitration against Markusic, this new suit in California Superior Court attacks both Firefly and Markusic’s business partners for knowingly using and benefitting from the alleged misappropriation.

According to the Complaint, Galactic hired Markusic in 2011 as its VP of Propulsion. Markusic’s role gave him intimate knowledge of the Company’s research into liquid rocket propulsion, space vehicle architecture, “aerospike” technology, and other confidential projects. While still employed at Galactic, Markusic allegedly solicited business partners and founded Firefly based on concepts and data he obtained in the course of his work.  Galactic maintains that Markusic and Firefly relied on and continues to use the Company’s technical and marketing information, as well as Markusic’s engineering notes from his tenure at Galactic, to develop products such as a recently announced small launch vehicle.

Galactic’s suit against Firefly and Markusic’s business partners comes after two years of arbitrating trade secrets claims against Markusic himself. That arbitration has been marred by discovery disputes, allegations of spoliation, and a recent attempt (after 2 years of arbitration) by Markusic to challenge the arbitrability of the dispute. Galactic now alleges that Markusic’s business partners knew that Markusic was providing them with Galactic’s protected trade secrets, and nonetheless used and continue to use that information to build and market their products. If proven true, Galactic asserts that Markusic’s business partners may be personally liable for misappropriating trade secrets.  Complaint at 19 (citing PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1383 (2000), as modified on denial of reh’g (Apr. 7, 2000)).

Interestingly, Virgin Galactic, LLC v. Firefly Systems, Inc., No. BC637340 (Sup. Ct. Cal. Oct. 13, 2016) is not the first space-related trade secrets case Trade Secrets Trends has covered this year (see our post of June 16, 2016). While the outcome of these cases are as yet unresolved, it is safe to say that not many people predicted that the new battle for space primacy would be fought in courtrooms here on earth.

Government Contractor Argues the Insider Threat

Posted in Data Protection, U.S. Litigation

Last week, government contractor Advanced Fluid Systems Inc. wrapped up its summary judgment briefing in a case loaded with trade secrets trends.  In June, Advanced sought summary judgment in the Middle District of Pennsylvania on its claims for misappropriation of trade secrets, and aiding and abetting breach of fiduciary duty.  Advanced had sued a former employee, the company that the employee then founded, and another rival firm – arguing that the defendants had teamed up to steal and exploit Advanced’s proprietary designs for hydraulic systems.  According to Advanced, the result was a $2 million subcontract for work at a NASA launch site, which went to the employee’s new company instead of Advanced.

At the heart of Advanced’s allegations is the charge that, while still working at Advanced, the former employee downloaded “virtually all files” from Advanced’s servers, including sensitive drawings regarding its hydraulic technology.  Advanced argued that, just days later, the employee’s start-up company began attaching its name to some of those drawings and ultimately submitted them as part of their bid on the subcontract.

Whatever the court’s determination on the briefs, the underlying fact pattern is an all too common one.  The case highlights the need to remain ever-vigilant with respect to those employees who have access to a company’s crown jewels, as well as the potential benefits of data loss prevention (or “DLP”) technology.

U.S. Chamber of Commerce Calls for Greater Trade Secrets Protection

Posted in Cyberhacking, Legislation & Policy

On Friday, September 9, the U.S. Chamber of Commerce urged the Obama Administration to take more action against the theft of trade secrets and other intellectual property.  The Chamber did so in response to a Request for Information issued by the National Institute of Standards and Technology (NIST), seeking industry input regarding various cybersecurity issues, including the economic consequences of hacking.

The Chamber explained that “IP-related industries generate 35 percent of America’s economic output and are responsible for two-thirds of all exports and more than 40 million jobs” and that the “threat of trade secrets theft is of increasing concern to U.S. economic well-being and job creation.”  Noting that it had previously called on Congress to pass federal civil legislation, it praised the passage of the Defend Trade Secrets Act as a step in the right direction.

Underlying the Chamber’s emphasis on trade secrets protection was its broader goal of establishing norms and deterrence to “heighten the costs on sophisticated attackers that would willfully hack America’s private sector for illicit purposes.”  This was one of only three “top” cybersecurity issues that the Chamber chose to address, along with standards and information sharing, and that it urged the executive branch to prioritize.

These and other comments submitted will help inform the new Commission on Enhancing National Cybersecurity, which President Obama recently convened.  The Commission will then craft recommendations to the President for improving cybersecurity – and possibly trade secrets protection – across the public and private sectors.

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.