Trade Secrets Trends

Trade Secrets Trends

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

Diversity is Important – But Is It A Trade Secret?

Posted in Non-Competes

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

Extending the Scope of a Search: Searching iCloud Storage

Posted in Data Protection, U.S. Litigation

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.”

Self-Driving Car Dispute Comes to a Halt: Uber Settles with Waymo

Posted in U.S. Litigation

Uber and Waymo’s high-profile legal battle has come to an abrupt halt, as the parties agree to settle the case a mere five days into trial. For its part of the deal, Waymo will get a 0.34% stake in Uber, worth about $245 million based on Uber’s present valuation. In prior negotiations, Waymo had been seeking $1 billion and just earlier in the week  had proposed $500 million. Uber rejected both offers. But after four days of testimony there was scant evidence showing that Uber actually used Waymo’s trade secrets. The settlement was entered into late last Thursday and announced last Friday.

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Parties Settle $100M Trade Secret Case on Eve of Trial

Posted in Data Protection, U.S. Litigation

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.

When You Do the Crime, You Must Do the Time

Posted in Asia, U.S. Litigation

Sinovel Wind Group Co. Ltd. (“Sinovel”) was convicted on January 24, 2018 for stealing trade secrets from AMSC, a U.S. based company. In March 2011, Sinovel, a manufacturer and exporter of wind turbines based in the People’s Republic of China, contracted with AMSC to sell more than $800 million in products and services for its wind turbines.

On June 27, 2013, Sinovel was charged of conspiracy to commit trade secrets theft, theft of trade secrets, and wire fraud, along with Su Liying, Sinovel’s Deputy Director of Research and Development Department; Zhao Haichun, a technology manager for Sinovel; and Dejan Karabesevic, a former employee of AMSC Windtec Gmbh, a wholly-owned subsidiary of AMSC. The evidence presented at trial showed that Sinovel conspired with the other defendants to obtain AMSC’s copyrighted information and trade secrets in order to produce wind turbines and to retrofit existing wind turbines with AMSC technology without paying AMSC the more than $800 million it was owed under the contract.

Because of the theft of its information and trade secrets, AMSC lost more than $1 billion in shareholder equity and approximately 700 jobs, over half its global workforce. Sentencing is set for June 4, 2018. U.S. Attorney Scott C. Blader stated that the “verdict sends a strong and clear message that the theft of ideas and ingenuity is not a business dispute; it’s a crime and will be prosecuted as such.”

A Trade Secret Telenovela: Defendants Alleged to Have Misappropriated Trade Secrets, Engage in Tortious Interference, and Unfair Trade Practices

Posted in U.S. Litigation

Earlier this month, Sunbelt, a North Carolina Corporation, filed a federal lawsuit against Vortex companies and Vortex Turnkey Solutions (hereinafter named “Vortex”) alleging misappropriation of trade secrets, tortious interference, and unfair trade practices. In a case of follow the “footprints,” Sunbelt alleges that Vortex, through a serious of events, “willingly accepted information from Ghent, a former employee of Sunbelt that they knew or should have known to be Sunbelt’s trade secret and/or confidential information.” Furthermore, the complaint states that Vortex solicited, encouraged, or otherwise incentivized, through salary negotiations, said disclosures and breach of the agreement. Vortex and Sunbelt are direct business competitors in selling and renting industrial and construction equipment and providing services, such as turnkey pumping bypass solutions. There are two key parts to this complaint: 1) Can confidential materials including customer lists and rental histories, and other records and documents pertaining to business transactions be considered a trade secret?; 2) Can Sunbelt successfully prove that Vortex had actual or constructive knowledge of Ghent’s agreements with Sunbelt.

Ex-Employee of IBM Sentenced to Prison for Theft of Source Code

Posted in Criminal Prosecution, Data Protection

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.