Anthony Levandowski, one of the founding members of Google’s self-driving car program and a former Uber executive, was sentenced to 18 months in prison and ordered to pay restitution after pleading guilty to one count of stealing self-driving car trade secrets from Google. This sentencing comes after years of civil and criminal matters relating to this lucrative technology.
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China Proposes Harsher Penalties for Trade Secret Theft in Draft Amendment
China’s National People’s Congress has released a draft law for comment that would impose harsher criminal penalties for any trade secret theft from Chinese companies that benefits foreign companies.
China’s current law imposes a maximum sentence of 3 years imprisonment for “serious” instances and 10 years for “particularly serious” instances of trade secret theft. The proposed law would impose harsher sentences for trade secret theft benefiting a foreign entity, resulting in 5 years for “serious” instances and a minimum of 5 years with no maximum for “particularly serious” instances.
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Best Practices for Responding to Potential Trade Secret Theft
Companies sometimes discover warning signs or clear activity of trade secret theft but do not know how to deal with the issue right away. Whether it is a current employee who remotely accesses company trade secret information while on vacation, or a departing employee who conveniently failed to return a company laptop, that company may be heading toward eventual trade secret litigation. But the immediate path forward seems unclear and presents so many options of what to do. Because the hours and days after discovery of a potential trade secret theft are extremely important, we suggest a simple set of best practices for responding to that potential trade secret theft: 1) understand the issue, 2) contain the issue, 3) exhaust the issue, and 4) consider bringing the issue to court.
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State Trade Secrets Claim Cannot Be Re-Litigated in Federal Court
Earlier this month, a federal judge ruled that a copycat trade secrets theft claim could not be re-litigated in federal court, having already been dismissed in a state court action. That decision came out of a complex dispute between a stem cell company and its prior President and CEO.
After former CEO Alan Smith left Cognate Bioservices Inc. in 2010, he sued Cognate for wage violations in Maryland state court. Cognate then counterclaimed for misappropriation of trade secrets alleging that Smith failed to return his company computer and passwords and misappropriated Cognate’s trade secrets. Meanwhile, Cognate filed a separate lawsuit in Maryland federal court alleging that Smith violated the Computer Fraud and Abuse Act and misappropriated Cognate’s trade secrets, among other things. Both the state court and federal court actions ran in parallel until May 2014 when the state court action went to a jury trial. The jury found against Cognate on its misappropriation counterclaim. Smith accordingly moved to dismiss the federal suit.
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U.S. Senate OKs Federal Trade Secret Bill
Last week the United States Senate unanimously approved legislation that would create a private right of action in federal court for trade secret theft. We reported on this legislation — The Defend Trade Secrets Act of 2015 – last summer, and explained how it would modify the Economic Espionage Act (EEA), 18 USC Chapter 90. See The Growing Momentum for Federal Trade Secrets Legislation.
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Designation of Trade Secrets a One-Way Ratchet in Discovery
One of the most complicated parts of litigating a trade secret case is the discovery process. Plaintiffs often seek discovery immediately to determine the full extent of information that was taken and how it was used, and often seek expedited discovery to prevent the defendants from destroying or hiding evidence of wrongdoing. Defendants, on the other hand, resist discovery in order to prevent the plaintiff from using the defendant’s information to help structure its claims, and to prevent the plaintiff from acquiring the defendant’s trade secrets. Recognizing this danger, courts typically require the plaintiff to identify its trade secrets before the plaintiff may obtain any discovery from the defendant. Many states, including California, have made this preemptive disclosure requirement statutory.
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Recent Decision Reinforces the Significance of Motions to Seal in Trade Secret Cases
Plaintiffs in trade secret cases are often torn between two conflicting interests: the need to state their trade secrets with enough specificity to survive a motion to dismiss, and the necessity of keeping their trade secrets confidential. In order to resolve this dilemma, plaintiffs often seek to file their complaints under seal, so that the contents are withheld from the public but still available to the parties and the court.
In deciding whether to seal a court filing, the court must balance the need for privacy against the public’s “general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Comm., 435 U.S. 589, 597 (1978). In federal court, in order to succeed on a motion to seal, a plaintiff must state compelling reasons, supported by specific factual findings, that outweigh the public’s right of access to court filings and the public policies favoring disclosure of court documents. In re Hewlett-Packard Co., 2015 WL 8570883, *2 (N.D. Cal. 2015); see also Sherwin Williams Co. v. Courtesy Oldsmobile Cadillac, Inc., 2015 WL 8665601, *1 (E.D. Cal. 2015). State courts employ similar standards. For example, in California, in order to seal a document the moving party must demonstrate: (1) There is an overriding interest that overcomes the right to public access to the record; (2) the overriding interest supports sealing the record; (3) there is a substantial probability that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) there is no less restrictive means to achieve the overriding interest. California Rule of Court 2.550(d).
Countersuit for Trade Secret Misappropriation Impermissible in the Face of FCA Claim Based on Trade Secret, New Jersey Appeals Court Holds
Last week the Appellate Division of the Superior Court of New Jersey dismissed a lawsuit brought by pipe-maker JM Manufacturing Co. Inc. against former JM quality assurance engineer John Hendrix and his counsel. JM had accused Hendrix and his counsel of improperly using stolen trade secrets documents and other confidential information to launch a False Claims Act (FCA) case against the company. The FCA is a federal law that imposes liability on individuals and companies who defraud governmental programs. The Superior Court refused to revive the lawsuit, finding that those claims should have been raised in California federal court with the underlying FCA claim.
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2015 Trade Secret Year in Review: Key Courtroom Developments
Last year saw many important trade secret developments in the court. Here is our Top 5:
1. DuPont v. Kolon
This case had it all. What appeared at first to be the actions of one disgruntled employee turned out to be a long-standing high-level initiative of Kolon to target former DuPont employees in order to develop its fledgling para-aramid fiber using the secrets behind industry standard Kevlar. There was spoliation, 400 page expert reports arguing all of DuPont’s trade secrets were disclosed in its own patents, antitrust counterclaims, criminal charges, Korean investigations, a two-month jury trial culminating in a damages award just shy of a billion dollars, an appeal, and finally—in 2015—resolution. This epic battle came to end with Kolon being criminally indicted, paying $275 million to DuPont in restitution, and settling the civil case under undisclosed terms. Read about it here.
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Be Careful What You Wish For: The Importance of Forum Selection Clauses
Last week, the California Court of Appeal issued a decision highlighting the need for employers, especially large employers with operations and employees in several states or countries, to take great care in drafting mandatory forum selection clauses and to always be aware of the relevant law in the chosen jurisdiction. In Richtek USA, Inc. v. UPI Semiconductor Corp., 2015 WL 7479125, a state Court of Appeal affirmed that a mandatory forum selection clause in an employment agreement is binding on both the employee and the employer.
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