Trade Secrets Trends

Trade Secrets Trends

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

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.

Advanced Video: Time to Check Your Agreement Provisions

Posted in U.S. Litigation

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.

Florida Fourth District Court of Appeal Affirms Decision to Produce Uber’s Airport Business Reports

Posted in U.S. Litigation

Uber continues to find itself in the midst of trade secret-related controversy. Last Wednesday, the Florida Fourth District Court of Appeal affirmed the trial court’s decision in ordering Broward County to produce redacted monthly Uber reports to Yellow Cab. These monthly reports contain information regarding the number of pickups and drop-offs, time stamps, latitude and longitude, and driver’s license plate information. Following the trial court’s in camera inspection of the un-redacted reports, it held that the “aggregate number of pick-ups and the sum of money paid by [Uber] to the County as a usage fee at the [airport] does not constitute trade secret information such that it would be exempt found no abuse of discretion by the trial court, noting that the Public Records Act is construed “liberally and favors openness”, and citing Cotter v Lyft, Inc., No. 13-cv-04065-VC, 2016 WL 3654454, at *2 (N.D. Cal. June 23, 2016), which held that Lyft’s commissions and revenue from certain products were not trade secrets. The Court thus held that “[n]othing indicates the fees or total pickups provide an advantage to Yellow Cab or that Uber derives independent economic value from keeping that information secret.”

Case: Rasier-DC, LLC v. B & L Serv., Inc., 4D16-3070, 2018 WL 354557 (Fla. 4th Dist. App. Jan. 10, 2018).

Waymo Rings in the New Year with Accusation of Discovery Abuse against Competitor Uber

Posted in U.S. Litigation

In the most recent installment of the long running saga between Waymo and Uber over autonomous vehicle technology, Waymo has accused Uber of intentionally withholding evidence from discovery. Specifically, Waymo alleges that Uber failed to produce a letter of resignation from its former Global Intelligence Manager, Richard Jacobs. Waymo asserts that the letter is “[e]vidence that the Jacobs documents [that allegedly had been taken from Waymo and ultimately brought to Uber] were broadly known within Uber … [and] would confirm that these documents were not mistakenly withheld (as Uber’s witnesses have claimed), but that they were instead intentionally concealed as part of an overall cover-up.” The existence of the letter and related correspondence came to light when a prosecutor, working on a separate (criminal) investigation, turned it over to U.S. District Judge William Alsup, the presiding judge in the civil case. Judge Alsup has not yet ruled on Waymo’s motion.

U.S. Supreme Court Rejects CFAA Appeal by Power Ventures against Facebook

Posted in U.S. Litigation

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

Trial Experts Must Pick a Lane – Source Code Expert Disqualified for Switching from Neutral Evaluator to Witness in StubHub Trade Secrets Matter

Posted in U.S. Litigation

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

Can Your Non Compete Agreement Be Invalidated Based on Wage-and-Hour Violations? One Appellate Court Says Yes.

Posted in Non-Competes, U.S. Litigation

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

Another Case on the Intersection of Criminal and Civil Trade Secret Claims

Posted in Criminal Prosecution, U.S. Litigation

“Ex-DuPont Worker Wins Discovery Stay In Trade Secrets Suit,” an article published earlier today by Law360, cites Crowell & Moring Partner, Mike Songer, as DuPont’s counsel in E.I. du Pont de Nemours and Co. v. Anchi Hou et al., 1:17-cv-00224 (D. Del). The case involves both a civil proceeding and a related criminal case, and the different strategies available in discovery in these situations. Click here to read more about this trade secrets case, involving alleged theft of the company’s printing plate technology.

U.S. Justice Department Announces Charges Against International Conspirators For Stealing Trade Secrets to Benefit China-based Company

Posted in Criminal Prosecution

In a press release last week, the U.S. Justice Department announced charges against a group of international conspirators for allegedly stealing trade secrets from an unidentified Houston company. Those charged include four U.S. citizens, two Chinese nationals, and a Canadian national. The beneficiary of the alleged theft appears to be a China-based company with funding from the Chinese government.

The trade secrets at issue concern a product known as “syntactic foam” – a material used in underwater military equipment (e.g. submarines) and other under water vehicles.  Sources report that the syntactic foam is rare, with only a handful of companies worldwide manufacturing the material.  Those same sources report high barriers to market entry: new market entrants need significant resources to develop the intellectual capital and technology to produce the foam. Here, the plot’s conspirators figured it easier to just steal the trade secrets. Continue Reading