Qualcomm v. Broadcom -- CDMA Trade Secrets Showdown (Round 3)

Who's suing: QUALCOMM Incorporated, a developer of Code Division Multiple Access (CDMA) and other wireless technologies.

Who's being sued: Broadcom Corporation, a competitor.

What's the suit about: Trade secret misappropriation and patent infringement.

Where was it filed: Federal court in San Diego.

What's alleged: Broadcom misappropriated trade secrets relating to QUALCOMM's development and marketing of WCDMA baseband integrated circuit products and the multimedia capabilities of such products. It alleges that Broadcom has used the misappropriated trade secrets to compete unfairly with QUALCOMM for the sale of WCDMA chipsets.

What relief is sought: the complaint seeks an injunction prohibiting Broadcom's continued use of QUALCOMM's intellectual property and monetary damages.

Where did you get this information: Qualcomm's press release.

Do you have anything more balanced: try this link to an article from Silicon.com which provides Broadcom's response (including noting the fact that this is the third lawsuit between the two companies).

Protiva Biotherapeutics Files Suits Against Inex Pharmaceuticals and Sirna Therapeutics

From Genetic Engineering News, two companies, formerly collaborators in the field of interfering RNA (siRNA) therapeutics, are now at loggerheads with claims of misappropriation of trade secrets and anti-competitive behavior.

Protiva Biotherapeutics has filed two lawsuits -- one in British Columbia and one in California state court -- against Inex Pharmaceuticals and Sirna Therapeutics, respectively. The California case claims that Sirna misappropriated trade secrets Protiva shared in confidence when they were working together in a strategic alliance.

Expect to hear more on this case.

Burden of Establishing Trade Secrets in Moving to Quash a Subpoena

Subpoenas served pursuant to Rule 45 of the Federal Rules of Civil Procedure often turn the subpoena recipients cranky. Simply put, responding to subpoenas duces tecum and producing responsive documents is a pain in the ass. So the rules permit the responding party to object via a motion to quash the subpoena. When you make a motion to quash, you've got to advise the Court why you shouldn't have to produce the requested documents.

Advanced Tenant Services thought their former employees' subpoenas in the case of Falicia v. Advanced Tenant Services, Inc., 2006 WL 752936 (D.D.C. 2006) was a pain in the ass. Apparently the former employees won an "unpaid wages" claim against Advanced Tenant Services. Then they didn't get paid. So they wanted to obtain evidence from Advanced Tenant Services concerning their bank accounts and status of their business. It was this second inquiry that got Advanced Tenant Services hacked off. It claimed that their former employees were asking for documents that constituted their "trade secrets."

The Court correctly stated the rule for motions to quash - Advanced Tenant Services had the duty of showing that the information and documents sought were "trade secret" protected. All Advanced Tenant Services argued, though, that this stuff was really important to them. The Court noted that Advanced Tenant Services had failed to show how release of the information and documents would "harm their ability to remain competitive." That's the standard. That's what you need to show to have the Court push the "quash" button.

It's not enough to allege a "trade secret" - you have to prove it. This is the case even when you are getting jammed up by some former employees who stuck it to you for a few hundred thousand dollars in a lawsuit.

Where's Richard Dawson When You Need Him?

Seems the Doebler family dominated the hybrid corn seed market for a gazillion years in rural Pennsylvania. Grandpa Doebler set up a company that ultimately became quite successful generating various hybrid versions of corn seed. His son and even his grandson, let's call him Doebler III or "Defendant," learned a good bit about the business too. When Grandpa Doebler passed away the company was run by some other Doeblers and some non-Doeblers. Doebler III wanted to run his own company. So he set up his own company. And then he started assigning the Doebler name to some of his hybrid corn. Grandpa's company didn't like this. They sued Doebler III and, among other things, claimed Doebler III had misappropriated some of their trade secrets. The district court, obviously convinced that Doebler III had pulled a stunt here he shouldn't get away with, granted summary judgment to Grandpa's company and told Doebler III he couldn't use his knowledge of Grandpa's hybrid seed names to his own competitive advantage on an ongoing basis. Doebler III didn't like that ruling so he appealed. The Third Circuit considered, among other things, whether Grandpa's company's hybrid seed trade names were a trade secret of Grandpa's company. Doebler III argued they weren't. The Court of Appeals for the Third Circuit agreed with Doebler III and reversed saying these Doeblers had screwed up the record so bad it was tough to say what was going on with these trade names. One of the thing the Court noted was that a piece of federal legislation concerning seeds forced companies that sold seeds to properly identify and name their products. Doebler III argued that if he were to comply with the trial court's permanent injunction he would run afoul of this federal seed law. The Third Circuit liked that argument. The Third Circuit apparently didn't like the Doebler attorneys for either Grandpa's company or Doebler III. It suggested they better work harder to make better arguments. No matter how you pop it, this corn case is pretty interesting - and you know for sure that a Doebler will ultimately win this one.

You can find the citation for the Third Circuit's decision as Doebler's Pennsylvania Hybrids, Inc. v. Doebler, 2006 WL 722156 (3rd Cir. 2006). Does anyone know if Orville Redenbacher has a grandson?

"Misty taste of moonshine, Tear drop in my eye . . . "

The teardrops are in the eye of Nalco Company in the recently reported decision of McGough v. Nalco Company, 2006 WL 681142 (N.D. W.Va., March 15, 2006). Nalco is a water-treatment chemical company. McGough is a former salesman for Nalco, apparently having sold water-treatment chemicals to the coal mining industry in West Virginia. Nalco hired McGough on November 6, 1978 pursuant to an oral, at-will employment contract at an annual salary of $22,000 per year. Ten days after he started work, McGough received Nalco's "Field Representative Agreement" and pressure was put on him to sign it. The agreement specified that McGough was not to disclose any of Nalco's trade secrets nor could he compete with Nalco for a period of two years following his termination. He agreed to sign the same on November 16, 1978. There was an issue of fact in the case whether McGough resigned sometime in 1989 for a couple of weeks or was employed continuously from November 1978 until his resignation in June, 2005 when McGough went to work for Appalachian Chemical Services. In his work for Appalachian Chemical Services, McGough competes directly with Nalco and there was evidence in the case that McGough had picked off customers of Nalco AND destroyed or deleted a good amount of Nalco confidential information on his way out the door.

McGough sought a declaratory judgment he wasn't bound by that agreement he signed in 1978. Nalco countersued for breach of contract and sough an injunction prohibiting McGough from competing with Nalco and disclosing any of Nalco's trade secrets. The court DENIED the injunction after one of the most descript analyses of the Fourth Circuit's injunction balancing standards. The court essentially found that both parties would sustain significant harm if the injunction didn't issue (or did, depending how you look at it) but that the agreement's enforceability had a low likelihood of success on the merits. It certainly didn't help Nalco that there were fact issues concerning the date of its execution and whether McGough resigned at some period in 1989 for a short period of time.

Our thought is that it is interesting that Nalco didn't move for an injunction on misappropriation of trade secrets claim. McGough admitted, after all, destroying some confidential customer and sales data claiming he didn't want Nalco to "misuse it." There was evidence that he was successful in his competitive efforts. Thus, we wonder whether the Nalco attorneys put all their eggs in the noncompete basket and didn't prosecute what might've been a decent misappropriation case. Only time will tell - injunctions denied are not the end of the world. As McGough proceeds, damages will surely mount. Stay tuned on this one. One gets the sense that Nalco may not let this former employee go down a country road without some more skirmishing.

Cheesy Trade Secrets

From the Fort Collins Coloradoan, a story concerning a trade secrets lawsuit by an out-of-business "microcheesery" against a larger competitor after a former employee went to work for that competitor. The suit seeks to stop the defendant from making cheese.

Bingham Hill Cheese Co. is suing Morning Fresh Cheese Co. alleging the former employee took trade secrets, such as the "types of cultures used to make cheese, vendor lists, recipes, business contacts and other confidential, intellectual property" when he went to work for Morning Fresh. The employee did have a confidentiality/noncompete agreement.

Action on a cease and desist order is expected soon.

Lamp Manufacturer Wins Trade Secrets Verdict

From the Roanoke (Va.) Times, a report on a $1.5 million jury verdict in a case between rival lamp manufacturers. Plaintiff Mario Industries Inc. accused its former sales contract manager of setting up a rival corporation, Renaissance Contract Lightning & Furnishing Inc., while on Mario's company time and using inside knowledge to lure sales reps away and divert contract jobs. Mario claimed it lost $2.7 million in sales over two years because of Renaissance's unfair practices.

The jury also found four individual defendants liable for the $1.5 million and ordered one of them to pay $56,000 in punitive damages.

According to defendants' lawyer, an appeal will likely follow.

Proposed Federalization of Trade Secret Law

In a sparsely cited 1995 essay from the Harvard Journal of Law & Technology, former Assistant U.S. Attorney Christopher Rebel J. Pace argues for a federalization of trade secrets law. His primary arguments are two-fold: (a) the legal benefits deriving from uniformity in application of the law; and (b) assistance in the negotiation and regulation of international trade. We thought you might be interested in this little-known piece.

Update on Trade Secrets Case Against GM in Connecticut

From Bloomberg, an update on the Connecticut case in which GM will face a jury trial over allegations that it used stolen trade secrets to develop its Gen II and Gen III engines.

Our earlier posting can be found here.

Judge Posner on "Misappropriation"

In this interesting essay in the Houston Law Review, Judge Richard A. Posner analyzes and critiques the "sprawling" concept of "misappropriation" in intellectual property law and declares it a doctrine of, in the words of Judge Jon Newman, "dubious worth." No matter how one feels about Judge Posner's predilection for a Chicago School economic analysis of all matters legal, one has to give him credit for his essentially unmatched intellectual intensity in writing about the development of legal constructs and concepts. This essay is a fine example of this point.

Google vs. Justice -- Give Up Trade Secrets (Subscription Req'd)

From the Wall Street Journal, an article summarizing the Justice Department's efforts to obtain a huge amount of data relating to searches from Google. On Tuesday, the federal judge hearing the case indicated that he would likely order Google to turn over some consumer data about Internet searches in response to the government's subpoena. The Justice Department is seeking information to bolster its efforts to show that the Chile Online Protection Act is constitutional.

Google's objections are two-fold. First, Google is concerned with protecting the privacy rights of its users. Google also has concerns, though, that release of large amounts of data regarding searches could allow its "crown-jewel" trade secrets to be reverse engineered.

Expect a ruling from the judge in the next few weeks.

Yours Aren't Trade Secrets but Mine Are

When two companies in the same industry do battle over alleged misappropriation of trade secrets, there often comes a point in the lawsuit where the defendant is forced to reconcile its claim that the plaintiff's secret sauce is not a trade secret, but their secret sauce is. Such was the case in the matter of McElmurry v. Alex Fergusson, Inc., 2006 WL 572330 (M.D.N.C., March 8, 2006)(slip opinion). In McElmurry United States District Court Magistrate Judge Dixon was asked to grant summary judgment as to McElmurry's claim of misappropriation of trade secrets of certain chemical formulas for certain food processing agents. Alex Fergusson, Inc. apparently told Magistrate Judge Dixon "them ain't trade secrets." The good judge decided there was enough to McElmurry's claim to let it go to a jury and he noted in a footnote that "Defendant has admitted that its own chemical formulas are proprietary and confidential trade secrets. (See Noble Decl. at Ex. J, Admission Nos. 2 and 3.) Defendant has not sufficiently explained why its chemical formulas are trade secrets, but Plaintiff's chemical formulas are not trade secrets. "

We wonder if defense counsel could've come up with at least some explanation as to why their formulas were trade secrets and plaintiff's were not - it's not clear. But we know this: when making a claim that another company's formulas are not trade secrets and your competitive formulas are, you have to take a shot at explaining why that is the case or else you will be seen as talking out of both sides of your mouth.

Connecticut Supreme Court Rules on Right to Jury in Trade Secrets Case

In Evans v. General Motors Corp., the Connecticut Supreme Court ruled, in a case of first impression in that state, that a plaintiff seeking damages under Connecticut's Uniform Trade Secrets Act had a right to trial by jury. Under its state consitutional analysis, the court ruled that because the cognate action in 1818 (the date of the adoption of the state's constitution) existed at common law and would have provided for trial by jury, a damages trial under the current statute also requires trial by jury.

The court examined the historical antecedents of the trade secrets statute, as well as cases from Georgia, Louisiana, and Washington which found that a jury trial was required.

The Hartford Courant has a story on the decision here.

The Computer Fraud and Abuse Act: A Tool for the Protection of Trade Secrets

All of the legal tools for protecting important information -- non-competes, non-solicitation and confidentiality agreements -- have their uses and their drawbacks.

A series of recent cases, including an important pharmaceutical industry case from a North Carolina federal court, illustrate that a new tool for protection of trade secrets may be available to counter the problems arising from the departure of key employees. That tool is the federal Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030, a statute originally enacted in 1984 to protect the federal government's computers and computer data.

Now it covers any "protected computer" which is defined to include a computer used in interstate or foreign commerce or communication. As a practical matter, the CFAA covers virtually any computer linked to the Internet. More importantly, the CFAA forbids access of such a computer without authorization and prohibits a person with access from exceeding the authorized access. Many (if not most) employee departures and defections to competitors make some use of the former employer's computer data, often by emailing confidential information to the competitor or downloading the information onto computer disks and bringing those disks to the new employer.

Protections, though, are not automatic. This article tells how to ensure protection.

The Economic Espionage Act -- Is It Working?

The federal Economic Espionage Act (the "EEA") was passed by Congress in 1996 to facilitate criminal prosecutions for theft of trade secrets from U.S. companies. The EEA is a powerful tool for federal prosecutors and potentially a great boon to companies owning trade secrets. Is the law, though, living up to that potential?

The objective data appear to indicate that in most judicial districts the EEA may not be used to its full extent. While prosecutions may continue to increase in coming years, companies will need to work hard to make sure their trade secrets are protected and to convince prosecutors to go to bat for those trade secrets.

In the linked article, we examine the data and discuss why it's important for companies to take action to make sure their trade secrets are protected.

Computer Fraud & Abuse - A More Powerful Tool for Protection of Trade Secrets

A new opinion from Judge Posner of the Seventh Circuit, International Airport Centers, L.L.C. v. Citrin, 2006 WL 548995 (7th Cir. Mar. 8, 2006), deals with the application of the federal Computer Fraud and Abuse Act ("CFAA") to a circumstance in which an employee or agent deletes information on his employer's computer. The defendant, Citrin, was an employee hired to work in plaintiff's real estate business. Prior to leaving that employment, he secretly began to compete with plaintiff. Just prior to leaving employment, "[b]efore returning the laptop to [plaintiff], he deleted all the data in it - not only the data that he had collected but also data that would have revealed to IAC improper conduct in which he had engaged before he decided to quit." Specifically, defendant "loaded into the laptop a secure-erasure program, designed, by writing over the deleted files, to prevent their recovery."

The district court dismissed the claim under CFAA on the grounds that simply deleting information did not violate the Act.

In the words of Judge Posner:

The provision of the Computer Fraud and Abuse Act on which [plaintiff] relies provides that whoever "knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer [a defined term that includes the laptop that [plaintiff] used]," violates the Act.

The key to the case, thus, was the word "transmission." Plaintiff argued that "merely erasing a file from a computer is not a 'transmission.'"

The court noted that "[p]ressing a delete or erase key in fact transmits a command, but it might be stretching the statute too far (especially since it provides criminal as well as civil sanctions for its violation) to consider any typing on a computer keyboard to be a form of ‘transmission’ just because it transmits a command to the computer."

Nevertheless, the court ruled that "the transmission of the secure-erasure program to the computer," could violate the Act and therefore reinstated the case.

Given the fact that most trade secrets cases involve abuse of computers in the sense of the Act, the CFAA can be a powerful tool in protecting trade secrets. The Citrin opinion is a step forward in that direction. A take on the case from TG Daily can be found here.

Water Technology Trade Secrets Verdict Thrown Out

From (believe it or not) Water Technology Online, a report on a Texas state court judge throwing out a million dollar verdict in favor of Global Water Group against its competitor, Aspen Water Inc., concerning alleged misappropriation of water purification trade secrets.

Aspen, based in Richardson, TX, makes a portable carbon/ultraviolet water treatment system used by the military and disaster-relief agencies; Dallas-based Global Water also makes water treatment equipment for various applications, including the military and disaster relief.

The judge, on post-trial motions, ruled that "there is no evidence of probative force to sustain the verdict of the jury." He dismissed the damage award and the complaint against Aspen, and assessed Global Water for court costs.

Advance Auto Trade Secrets Posted on the Web

From the Roanoke Times, a story concerning confidential financial information of Advance Auto posted on Yahoo, presumably by an anonymous employee or former employee. The company is seeking to subpoena Yahoo to find the identity of the culprit.

According to the article, it's not clear that Yahoo can provide the employee's identity because users, although asked to give a real name when signing up with the service, are not prevented from providing a fictitious name.

"What Yahoo can do, however, is provide the IP address -- a unique identifier of the computer used by the poster."

Settlement in Grain Processing Trade Secrets Case

Genencor International of Palo Alto announced that it had settled a trade secrets case brought by a competitor, Broin Companies. Plaintiff agreed to dismiss the case.

The case concerned trade secrets in the exciting field of "granular starch hydrolyzing enzyme technology for the fuel ethanol industry." No details of the settlement were announced, just a press release from the defendant, Genencor.

Who Needs a Computer Forensics Expert?

We've covered a significant number of cases decided by various state and federal courts and told you a good bit about our take on these cases and decisions made by the courts. One of the things we haven't covered is a practical question: HOW DOES ONE ASSEMBLE EVIDENCE THAT A TRADE SECRET HAS BEEN MISAPPROPRIATED?

If these were the good old days of attache cases and single copies of important documents, the answer would be clear - you need to obtain an affidavit that the attache case and important company document were missing. Things have radically changed, of course, and one of the things we all know is that information and data are kept in and on computers and databases in those computers. Quite commonly, then, the answer to the question about assembling evidence in a trade secret theft case is "a forensic computer search."

Some of the various things we've personally witnessed a computer forensic search turning up are: (a) last-minute downloads of customer lists; (b) out-of-office copying of entire customer and product databases; (c) destruction of valuable research data; and even (d) short and long term business plan and market forecasting data. These are just examples. Sometimes the information of the departing employee or contractor theft can be re-created by existing IT professionals from within the firm. But sometimes those IT professionals do not have the skill-sets necessary to re-create of find the necessary evidence. In those cases it can be imperative to seek the assistance of a computer forensics expert.

There are scores of companies in this business and we've worked with many of them. Should you ever need a computer forensics expert's assistance, we recommend that you consider contacting the International High Technology Crime Association for recommendations of a computer forensics expert near you. Their website is listed in the link above.

Trade Secrets and Bread (and Others)

From MSNBC.com, Atlanta Bread Company International Inc. has sued its former head chef, claiming he stole the menu and store designs for a new restaurant concept and used them to launch his own restaurant.

From the Miami Herald, a judge rules that DUI defendants can't have access to computer source code from the breath-test device used to measure blood alcohol content.

From the Monteray (CA) Herald, a story about a medical equipment company and its founders who have been ordered to pay close to $800,000 in damages to their competitor and former employer in a case alleging stolen trade secrets and hijacked confidential patient information.

Yahoo! Trade Secrets Case

From Forbes, a story about Yahoo! Inc.'s trade secrets case against a group of seven ex-employees and their new employer, MForma Group.

According to the report, Yahoo! has won a restraining order against former workers accused of stealing secrets for the new company, a global mobile-games publisher.

Yahoo! charged in the suit that MForma collaborated with former Yahoo! workers "to systematically and illicitly acquire and misappropriate Yahoo!'s trade secrets and illegally raid Yahoo!'s employee base."

The court enjoined the former employees and MForma from using insights derived from Yahoo! pending a court hearing in July.

As for the specifics of the trade secrets at issue, the complaint claims that thousands of pages of Yahoo! mobile business data was stolen including market research, contact lists, and Power Point presentations.

Trade Secrets and Arbitrability (Pacer Req'd)

From the Northern District of Texas, VDV Media Corporation v. RELM Wireless, Inc., 2006 WL 462436 (N.D.Tex. Feb. 27, 2006), a case between two wireless communications companies concerning the arbitrability of a trade secrets claim.

The parties entered into a Independent Representation and Assumption Agreement ("IRA") which contained a confidentiality provision and an arbitration clause. When plaintiff sued in Texas state court, defendant removed and sought to compel arbitration.

With respect to the trade secrets claim, the court held that the obligation to maintain trade secrets arose out of the IRA and therefore was arbitrable. The court rejected plaintiff's argument that because the trade secrets claim could "stand alone" in the absence of the IRA it was therefore not subject to arbitration. Instead, the court held, but for the duty in the IRA there was no duty to keep the claimed information secret.

"Improper, Redundant, Impertinent, Immaterial, and Prejudicial" = Persuasive

The United States District Court for the District of South Carolina in Dove Data Products, Inc. v. Murray, 2006 WL 463588 (February 23, 2006 D.S.C.) decided that a former employer seeking to enforce a noncompete covenant against a former employee salesperson was not entitled to a preliminary injunction.

Of interest in the reported decision is footnote one concerning the affidavit of a former regional manager of the plaintiff. He apparently submitted it to assist the defendant, presumably somebody that used to work for or with the affiant. Data Dove Products objected to it on grounds that it was "improper, redundant, impertinent, immaterial, and prejudicial." Editors' Note to Readers: anytime you see another lawyer argue all of these things at one time about a single affidavit, you know that affidavit works really well and is persuasive. Probably was the case here, too, because the court denied the motion to strike the former regional manager's affidavit and denied the motion for a preliminary injunction.

Customer Information Isn't Always Confidential Information

Customers of any business often have established purchasing patterns and often have described their purchasing preferences to a salesperson. When that salesperson leaves the employ of the current employer, can the former employer claim that the departing salesperson's knowledge of the purchasing patterns and purchasing preferences is the former employer's intellectual property?

The United States District Court for the District of Minnesota suggests not, absent special circumstances. In the case of Benfield, Inc. v. Moline et al., 2006 WL 452903 (February 26, 2006, D. Minn.), the court examined cross-motions for summary judgment as to whether some former employees in the reinsurance brokerage business had breached confidentiality agreements or misappropriated trade secrets in using information about customers they had learned while employed with their former employer.

The court looked to the definition of confidential information derived from other cases and learned that "the employee is entitled to fair notice of the confidential nature of the relationship and what material is to be kept confidential." The court also noted that it had previously held that "information as to customers, including knowledge of contact persons, prior purchasing history, and product and service requirements do not constitute trade secrets." The court went on to note the former employees did not take any physical files and that this is information likely to reside in the memories of the former employees.

We think the analytical work of this court was a bit soft - in the hierarchy of protectable information there are (a) trade secrets, commonly protected and defined statutorily, and then there is the lower form of information (b) confidential information. Often stumping courts is the issue of why a private business should be able to claim information provided by a customer can become a protectable interest of the employer who receives it. WELL, it makes sense that one who learns of information that is not known to the rest of the world - and compiles and tracks it for purposes of their employer who pays them - is in a position of knowing things they otherwise wouldn't know but for their employment. That information was provided by the customer for their employer's purposes, not theirs in the individual capacity. It was compiled for purposes of servicing and maintaining a relationship with that customer. It took time and money to do this. It was the employer's time and money. Seems to us that it is just a little too easy to say "you get to keep and use whatever you can remember in your head."

But we were not the judge in this case or any other. That said, one wonders if Benfield had a better confidentiality agreement whether they could've prevailed in this action. One can only wonder. We know this - this litigation surely cost a hundred times or more what Benfield spent drafting its employment agreements.

PETA, Public Records and Trade Secrets

From the Biloxi Sun-Herald, a story about a public records lawsuit by PETA (People for the Ethical Treatment of Animals) against Mississippi State University concerning a program funded by the Iams Company, a manufacturer of pet foods. PETA says it wants documents so that it can "know what happened to the animals that Iams caged and experimented on at Mississippi State."

Iams doesn't see it that way and seeks to intervene in the case. Through its lawyer, it says it has "contracted with Mississippi State in order to conduct studies to enhance animal well being," In a familiar refrain from these cases across the country, he also says these "studies are the intellectual property of The Iams Company, and it has made a substantial investment at Mississippi State in order to develop and protect this intellectual property." Thus, according to Iams, the documents are not subject to disclosure under the Mississippi Public Records Act.

The court has not ruled on the motion to intervene. Stay tuned. . . .