Law Firm Accused of Trade Secrets and Computer Fraud & Abuse Act Violations

From the New Jersey Law Journal, via Law.Com, an interesting story about a law firm accused of violating trade secrets law and the federal Computer Fraud & Abuse Act by hacking into an Internet archive website in order to retrieve pages sought to be removed by plaintiff.

The scenario is a little tricky, but here goes: Healthcare Advocates, Inc. is described as a patients' advocacy company based in Philadelphia. A Valley Forge, Pennsylvania law firm, Harding, Early, Follmer & Frailey represented another Pennsylvania company, Health Advocate Inc. According to the article, the suit in federal court in Philadelphia claims that "one or more Harding Earley employees violated the Digital Millennium Copyright Act and the Computer Fraud and Abuse Act by hacking into databases at San Francisco's Internet Archive 92 times, using an application known as the 'wayback machine,' in attempts to retrieve material that Healthcare Advocates had asked to be removed." (If you want to see the wayback machine for yourself, go here.)

The action charges Health Advocate with misappropriation of trade secrets, unfair competition, tortious interference, breach of contract, fraud, trademark and service mark violations, and unjust enrichment.

By all appearances, what was "hacked" appear only to be pages that were once posted openly on the web, but then asked to be removed.

A spokesman for Harding Earley, Earley himself, said earlier that an employee simply viewed the pages on the web. "Once they're out there, they're public," Earley said last year. "If they had been trade secrets, they were made public at one point and they're no longer trade secrets and they're not protected."

That seems like a reasonable position. We'll try to follow this one to see if there's more here than meets the eye or if this is, as it appears, a lawsuit intended mostly to scare off those looking for damaging information on the Internet.

Trade Secrets Obtainable from Discarded Treo or Blackberry Phones?

It was news to us, but Business Week online suggests that discarded phones containing text-sending capacities are often scoured for information that might be retained in the phone's memory banks. Word to the wise - don't trade in a phone that was ever a conduit for competitively sensitive business text messages. Those messages could end up in your competitor's hands.

Canada Still Worried About Economic Espionage

From the Vancouver Sun, a story about documents obtained from Canada's spy agency, the Canadian Security Intelligence Service (CSIS), which show that CSIS is concerned about economic espionage occasioned by rapid globalization. The results, according to CSIS: lost jobs, lost corporate and tax revenues and a diminished international competitive advantage for Canada.

According to the article, "CSIS has identified a minimum of 24 countries that are officially using their national intelligence service to conduct industrial espionage and economic espionage in Canada," including "usual suspects" Russia and China, as well as countries like the United States, Britain, France, Germany and others.

The concern is that Canada is ill equipped to deal with the problem because it lacks the laws and other deterrence to spies.

DOJ's Specification of Indictment of Ex-Dow Chemical Worker Accused of Stealing Trade Secrets for Sale to Chinese Companies

The link attached includes the Department of Justice's specification of the indictment of the former Dow Chemical worker indicted for trade secret theft and related crimes. The DOJ reports that "the indictment alleges that beginning on an unknown date and continuing until at least Oct. 31, 2001, Liou knowingly conspired with others to: (1) steal, appropriate without authorization, and obtain by fraud, trade secrets related to Tyrin® CPE (an elastomeric brand of chlorinated polyethylene polymer), which had been developed by Dow; (2) copy and convey Dow's Tyrin® CPE trade secrets; and (3) receive and possess Dow's Tyrin® CPE trade secrets, knowing such information to have been stolen without authorization. The indictment further alleges that Liou hired employees and former employees of Dow who had worked for Dow in producing Tyrin® CPE to prepare a detailed engineering package to sell to prospective Chinese companies."

Bog Snorkeling Trade Secrets Revealed

Just in case any of this blog's readers are frustrated bog snorkelers, we're putting you in touch with a bog snorkeler's winning "trade secrets." Good luck . . . .

Help! The Government's Got My Trade Secrets.

We've written extensively about the mostly unhappy intersection of trade secrets law with laws regarding disclosure of information in the hands of governments and their agencies and instrumentalities. A recent case from Judge John Bates of the U.S. District Court for the District of Columbia elucidates -- happily this time -- the intersection between government contracting laws and regulations, the Freedom of Information Act ("FOIA") and the federal Trade Secrets Act, 18 U.S.C. § 1905.

The case, Canadian Commercial Corp. v. Dep't of the Air Force, 2006 WL 2207604 (D.D.C. Aug. 3, 2006), was a so-called "reverse FOIA" action which grew out of a FOIA request by a competitor of the plaintiff, Canadian Commercial, that lost an Air Force bid for turbojet engines. The request sought certain financial data submitted to the government in connection with the bid including line-item unit and other pricing information regarding Canadian Commercial's subcontractor's fully-burdened labor rate, material mark-up, and pricing for engine repair services.

Canadian Commercial contended the information should not be provided under FOIA under so-called Exemption 4 which permits the government to withhold information responsive to a FOIA request if the information is (1) commercial or financial, (2) obtained from a person, and (3) privileged or confidential. That third prong, the only one at issue, turned first on whether the information was submitted voluntarily or involuntarily. In that latter case (which the court determined to be the applicable one), the court was then required to determine whether the information was likely to either (1) impair the government's ability to obtain necessary information in the future, or (2) cause substantial harm to the plaintiff's future competitive position.

The case is a long and difficult one (46 pages in the court's pdf version), but suffice it to say that plaintiff beat the Air Force and enjoined the release of the bulk of the information at issue. Along the way, the court ruled that the Air Force was not entitled to much, if any, deference in its determinations under FOIA. The court also ruled that the Federal Trade Secrets Act precluded the government from releasing information that falls within Exemption 4 and that the Federal Acquisition Regulation did not otherwise permit release under the Trade Secrets Act.

The opinion, though long, is a good primer for lawyers (like me, I'll confess) who don't know much about the subject.

Memphis Trade Secrets Case Adds Computer Fraud & Abuse Claims

Updating a story on a case we first reported on in April, the Memphis Business Journal, provides a report on the recent developments in the case of Exel Transportation Services against Total Transportation Services. The original lawsuit alleged that the defendants used computer passwords to hack into Exel's computer system more than 1,100 times since Sept. 8, 2005, to access confidential proprietary information and trade secrets.

Now, Exel alleges that executives and employees from Plano, Tex.-based Total Transportation Services began misappropriating information from Exel's protected computer systems as early as October 2004, nearly a year earlier than first believed. And, Exel has added three new defendants to the case.

According to the article, the amended complaint also contains allegations of conspiracy and violations of the Computer Fraud and Abuse Act and the Texas Criminal Wiretap Act.

This again, is further proof of our theory that it's a rare trade secrets case nowadays that doesn't involve abusing a computer.

69 Year Old Ex-Dow Chemical Worker Indicted for Trade Secret Theft

We've been watching departing and former employee cases for a good while. Here's a new one and a biggie - a former Dow Chemical employee stands accused of attempting to sell Dow Chemical's trade secrets to China-based companies. We'll keep an eye on this one.

Take-Over Battle at Delcath Systems Continues to Include Trade Secret Misappropriation Issues

Take-over battles are particularly messy affairs. Allegations of trade secret misappropriation are rarely focal points in these battles. That said, Delcath System's management team and Board are gearing up for a big take-over battle with Laddcap Value Partners. Check out this portion of Delcath's shareholder mailing that went out yesterday:

Mr. Ladd's proposed slate of nominees is a cause for great concern. If trust is an important factor in corporate governance, how are shareholders supposed to trust a board with members such as Jonathan Foltz, a man who has been sued by Delcath for misappropriation and theft of Delcath's highly confidential trade secrets, unfair trade practices, breach of loyalty and other serious claims, and who himself, as recently as April of 2006, described Mr. Ladd's accusations against the Company as "absurd" and complained of Mr. Ladd's "bullying tactics"? We cannot help but wonder if a consulting fee from Laddcap, the allure of a position as Delcath's Chief Executive Officer if Mr. Koly leaves, and reimbursement for legal and office expenses by Laddcap contributed to Mr. Foltz's apparent change of mind.

This is a messy one, friends. If Laddcap fires back, we'll post their response.

Trade Secrets, In-House Counsel, and Protective Orders

Those of you who have ever been involved in a trade secrets case that proceeded into the discovery phase know that the parties usually negotiate a "protective order" before they exchange their trade secret crown jewels with the other side. Oftentimes these protective orders have a "for attorneys' eyes only" provision where certain documents or data are so secret and competitively sensitive that they are not permitted to be disclosed to the client - just the attorney.

What happens, then, with the in-house attorneys for a company in one of these lawsuits? Do they get to see the trade secret crown jewels or not? Well, it depends on what the protective order said. In a recently reported case this was the exact issue Magistrate Judge Jeffrey Cole of the United States District Court for the Northern District of Illinois needed to address.

The plaintiff in the case is an outfit called Autotech Technologies. The defendant is an outfit called Automationdirect.com. Autotech requested that Automationdirect.com disclose the names of customers and prospective customers who have been sold or solicited to purchase products the defendant received from the plaintiff. The defendant objected and the court directed the parties to negotiate a mutually agreeable "for attorney's eyes only" protective order. That would fix the problem - or at least the court thought so.

Automationdirect.com had a problem with Autotech's two in-house attorneys seeing this information. They reasoned that these two guys were so intertwined in the competitive decisionmaking of Autotech that they were a significant risk of disclosure of Automationdirect.com's secrets. Autotech replied that their in-house attorneys were bound by the same rules as their outside attorneys and that it was necessary for its litigation efforts that its in-house team be able to review the documents and information. So - back to the court they go.

In a well-reasoned decision, Magistrate Judge Cole agreed with the defendant and held that the plaintiff's in-house attorneys should not be able to see the secret and competitively sensitive information. As Judge Cole noted: "The ultimate question is whether there is an unacceptable risk of inadvertent disclosure. If that risk exists, a party may be compelled to obtain outside counsel, regardless of whether in-house counsel was playing a lead or subordinate role in the case. That risk is apparent in this case."

The case can be cited as Autotech Technologies Limited Partnership v. Automationdirect.com, Inc., et al., 2006 WL 2411279 (August 21, 2006 N.D.Ill.).

007 In the Private Sector -- Corporate Espionage, A 21st Century Thing

Rodger Nevill Harding, a Toronto based business intelligence consultant, has a new book, Corporate Intelligence Awareness: Securing the Competitive Edge (Multi-Media Publications, $43.95), which distills his years of intelligence and consulting experience into a handbook for corporate executives seeking to protect their resources and gain a strategic advantage over competitors.

That's according to a book review -- well it's not really a book review, it's a press release that looks like a book review -- from PRWeb. According the review (or release), the FBI says that companies seeking competitive intelligence generally use three different methods to get trade secrets and other confidential information: They bribe people working inside the target organization to share research or other confidential documents, they hire employees who work in key positions in the target organization and then mine them for information about their former employer, and they establish what appears to be innocent business relationships with the target organization in order to get access to inside information. Harding believes that an enhanced people awareness approach to intelligence, coupled with the efficient use of technology, is a more ethical alternative to the kind of corporate intelligence that spills over into espionage.

Harding, it says, describes step-by-step how an organization can develop an intelligence-gathering strategy that does not cross legal or ethical boundaries. He describes how to gather the required information, analyze and process data, and ensure that the resulting product is made available to decision makers as soon as possible. Importantly, he links efficient intelligence gathering to effective corporate strategy development, planning, and product or service evolution.

It might be a worthwhile book (there's not much out there that's useful), but it's hard to tell just from a press release.

If the publisher sends it to us, we'll review it. Then you'll know for sure.

Computer Fraud and Abuse in Bahrain?

We are pretty sure that they do not have their own version of the Computer Fraud and Abuse Act in Dubai, Bahrain but this report on the scam some Indian employees played at a Bahraini supermarket just intrigued us. Surely these employees exceeded their authority for accessing and manipulating the grocer's computer system . . . right?

Stolen Laptops = Trade Secret and Information Risk

There has been an increase in the last six months of reports of password-protected laptops being stolen out of locked automobiles and offices. We're waiting for the reported decision that finds a company that can have its laptop stolen from a parked car is not entitled to trade secret protection due to a failure to use reasonable means to protect its intellectual property. We'll see.

More Fun with the Computer Fraud & Abuse Act (Pacer Req'd)

Here's another strange case under the Computer Fraud & Abuse Act, Southeastern Sports Management v. Baker, 2006 WL 2225299 (N.D. Miss. 2006). The dispute grew out of a canceled contract between a municipality, Southhaven, Mississippi, and the plaintiff to develop and manage youth baseball tournaments at the city's athletic fields. One of plaintiff's employees left the plaintiff for a competitor, JBJ Sports Productions, which then convinced the city to cancel the contract and contract with it.

The facts surrounding the CFAA claim are a bit odd. A different defendant -- one Brown -- had registered a domain and established a website for plaintiff. On the day the contract was canceled, Brown altered that website to redirect traffic to JBJ's website. Plaintiff claimed this violated the CFAA.

On summary judgment, the court said no but not based on the careful statutory analysis discussed yesterday. (In fact, under the statute, it's hard to see how this set of facts could make out a claim.)

Instead, the court ruled that Brown owned plaintiff's website since he registered the domain. Plaintiff attempted to argue that Brown created the website under contract, but the court ruled that the record established that he did it as part of a series of interlocking casual favors not rising to the level of a contract. Because plaintiff did not "own" the website, it had no claim.

The lesson: for companies that don't own their websites -- and there are lots of them out there -- make sure you've got a clear contract with the domain registrant so that you can control what happens.

Diminished Protections for Companies under Computer Fraud & Abuse Act (Pacer Req'd)

We’ve written extensively on the subject of the Computer Fraud & Abuse Act, 18 U.S.C. § 1030, particularly in the context of trade secrets and departing employees. Now comes an interesting and potentially important opinion from Judge Presnell in the Middle District of Florida, Lockheed Martin Corp. v. Speed, No. 6:05-cv-1580 (M.D. Fla. Aug. 1, 2006). The case represents a significant narrowing of the protections available to employers under the statute and directly takes issue with Judge Posner’s decision in Citrin discussed here and here.

The case presented the usual fact pattern. Just prior to moving from Lockheed to its defense and aerospace rival, L-3 Communications Corp., three employees downloaded alleged Lockheed trade secrets from their computers to computer disks and PDA’s which went out the door with them.

The issue facing the court on defendants’ motion to dismiss was whether Lockheed had a claim under the CFAA (and federal jurisdiction for the case based on that statute). The court ultimately said "no," but not without analyzing the statutory language of the CFAA and reaching a different conclusion from other courts which have considered the issue.

The court began its inquiry by noting that Lockheed had to satisfy a two-part injury requirement: first, that it suffered a "root injury" of damage of loss, and second, that it suffered "one of five operatively-substantial effects provided in 18 U.S.C. § 1030(a)(5)(B)(i)-(v)."

Regarding the first requirement, the statute defines "damage" narrowly and, in most usages, limits damage to losses affecting computers, networks, etc. Thus, loss of trade secrets, standing alone, generally will not satisfy the damage requirement. Lockheed, though, was able to meet this requirement by alleging that its costs in responding the alleged violations and conducting a damage assessment led to losses in excess of the statutorily-required $5,000.

Lockheed, however, could not get over the second hurdle. Like many plaintiffs, Lockheed attempted to assert that defendants violated § 1030(a)(4) which prohibits attempts to defraud by access to a protected computer "without authorization" or by "exceed[ing] authorized access."

The hang up for Lockheed came on the word "authorization." At the time the computers were "accessed" the defendants were employees and, thus, "authorized" in the most general sense. This is where Judge Presnell began to depart from the earlier precedent. Two leading cases, Shurgard Storage Centers, Inc. v. Safeguard SelfStorage, Inc., 119 F.Supp.2d 1121 (W.D. Wash. 2000), and Judge Posner's recent decision in International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), both held, based on principles found in § 112 of the Restatement (2d) of Agency, that when an employee acquires an interest adverse to his employer and begins to act in favor of that interest in breach of his loyalty to his employer, his authority terminates.

Not so, said Judge Presnell. Instead, relying on the "plain meaning" doctrine of statutory interpretation, he determined that Congress did not intend to incorporate the Restatement principles into its definition of "authorization." Judge Presnell's statutory argument is extensive, closely-reasoned, and represents a fair challenge to the earlier cases.

The decision raises a question that still needs to be answered: if courts accept the stricter standard of the Speed case, can companies craft authorization to employees such that it does not extend to disloyal acts taken for the benefit of competitors? I tend to think so, but no court has yet ruled on that question.

One thing is for sure, though: in light of Speed, companies need to take another look at their computer use policies.

China's 100 Day Piracy Purge

"We will not punish shops that have voluntarily handed in pirated products in the first month," said Liu, "but will strike hard on those who ignore our warning and continue to sell such products."

With memories of 1989, we don't even want to know what is waiting for those ignoring China's warning. Ugh. Perhaps a dose of civil law and an intellectual property statutory regime would work.

Judge Authorizes Voice Samples to Be Taken of Coca-Cola Trade Secret Defendants

Fox is reporting that the judge in the Coca-Cola trade secrets case has authorized prosecutors to obtain voice samples from each of the defendants. Defense attorneys, apparently, did not object to the prosecution's request but will, presumably, save their objections until the government's voice recognition expert makes an i.d. or not. This case continues to be a trade secrets blogger's dream!

Updates on Coke Trade Secrets Case

Numerous reports on the pretrial motions in the Coke trade secrets case, including this one from Finance 24 of Cape Town, South Africa. The lawyer for former Coke employee Joya Williams, has filed a motion to suppress the evidence obtained in a search of her home and, especially her computer.

According to the article, an "inventory of items seized from the home on July 5, which was attached to the motion, shows agents removed a computer disc, Coca-Cola and Fanta documents, a bank deposit slip, Coca-Cola memos and e-mail and a journal." The contention of the motion, of course, is that there was insufficient probable cause to conduct the search.

And, from AccessNorthGeorgia.com, an article regarding another motion to separate Williams trial from that of her two co-defendants. The contention there is that her defense will be antagonistic to that of the co-defendants.

The government, of course, loves antagonism between co-defendants at trial, so expect it to oppose the motion, and, expect the court to deny the motion.

No trial date has yet been set.

New York Times Article on Top Secret Secrets

We figured you needed a break from our normal coverage of business-related trade secrets issues. There are bigger secrets than just trade secrets and at least one judge believes the law of top-secret secrets is not unconstitutionally vague.

Have a great weekend.

First China, Now the Phillipines

We've been watching with interest the recent reports of China's alleged crackdown on software and content piracy. Now we note that the Phillipines is getting in the game, too. As East Asia and the Pacific Rim gain entry into product markets and become competitors in the global design markets their laws and enforcement of those laws should only become more effective and efficient. Interesting stuff. We'd like to see similar developments in trade secrets protection. Stay tuned.

Delcath Sues Former Employee in Connecticut

This from Reuters - medical device distributor Delcath has filed an action in Connecticut state court alleging misappropriation of trade secrets against a former Delcath Director of Operations.

What makes this newly filed trade secrets action all the more interesting is that Delcath is apparently fighting for its life against the take-over activities of Laddcap: http://www.secinvestor.com/2006/08/07/Delcath+In+Laddcaps+Crosshairs.aspx.

This should get interesting - the use of a trade secret misappropriation case in the face of a potential take-over battle is not as common as one would think. Stay tuned.

Giving Away Trade Secrets -- A True Story

From Bloomberg, a story concerning, incredibly, a company giving up its trade secrets on purpose.

Gilead Sciences, Inc., maker of the world's best selling AIDS treatment, is offering to give its trade secrets regarding production of its drugs to generic manufacturers in India. According to the article, this is the latest step in the efforts of drugmakers to increase access to AIDS therapies, even if it means they won't get the sale. The approach builds on one pioneered in 2002 by former President Clinton seeking to drive down prices in developing countries by fostering more competition.

Other companies, including Bristol-Myers Squibb and Roche Holding, are seeking to make similar deals.

Alleged Computer Fraud and Abuse in Central Falls, Rhode Island

In October of 2003, Charles Moreau was running for mayor of Central Falls, Rhode Island against the incumbent, Lee Matthews. As is usually the case in politics, government jobs flow from those in power and it appears that Central Falls was no exception to that rule. Mayor Matthews had a chief of police named Thomas Wilson. Candidate Moreau campaigned saying he would sack Wilson if elected - apparently even suggesting Chief Wilson routinely went home at 4 p.m. and lounged on his couch while people were being "beat up in the streets" of Central Falls.

The election took place on November 4, 2003 and Charles Moreau won the election by sixteen (16) votes. He apparently outlined a plan to "clean house" by firing existing City personnel and replacing them with "quality city residents." About six months after he was elected, Mayor Moreau apparently heard from a former Central Falls politician that the former incumbent, Lee Matthews, had run his mayoral campaign against Mayor Moreau out of the Central Falls Public Library. Mayor Moreau credited this report and commenced an investigative raid on the Central Falls library using detectives he ordered Police Chief Wilson to supply.

This investigative raid led to the federal Computer Fraud and Abuse Act claims. Apparently, the detectives and an IT professional scoured the e-mail accounts and city computer systems maintained at the library. One of the things they found were pages of text from city employees' e-mail accounts that touted Matthews as the best candidate for the election that had already been had - and won by Moreau.

Suffice it to say that a few heads rolled and a couple of people resigned and they ultimately banded together as plaintiffs and sued a federal court action with numerous claims - including Computer Fraud and Abuse Act claims. They claimed that Mayor Moreau and his lackeys "intentionally accessed a computer without authorization and obtained information from a protected computer by conduct involving an interstate communication." Mayor Moreau and the other defendants moved for summary judgment and argued that the plaintiffs hadn't sustained any loss and certainly not $5000 in loss per the statutory threshold. The only "damages" the plaintiffs could assert were "costs and expenses of litigation" and "loss of income."

The federal court in Rhode Island granted summary judgment on these CFAA claims. It did so noting that statutory loss required would include "any remedial costs of investigating the computer for damage, remedying the damage and any costs incurred because the computer cannot function while or until repairs are made." That said, the "loss" had to be related somehow to the computer and analyses or investigations of the computer's capacities and possible damage to the same. Litigation fees, opined the Court, cannot be counted toward the $5000 statutory threshold.

This is a fascinating fact pattern but a relatively straight-forward, and correct, judicial pronouncement regarding the Computer Fraud and Abuse Act. The case is captioned as Wilson v. Moreau, et al., 2006 WL 2171563 (August 3, 2006 D.R.I.).

Inevitable Disclosure of Trade Secrets: A Claim of Last Resort

The authors of this blog have in the past received frantic calls from clients and prospective clients in which they identify the fact that a key employee has quit and commenced work with a direct competitor, giving the former employer great concern that their company's competitively sensitive crown jewels are at risk of disclosure or use - the crown jewels being, of course, information.

If the company does not have a noncompete or nondisclosure or trade secret agreement in place with that departed employee, what legal theories are still available to that former employer? One, of course, that we cover routinely on this blog is the common misappropriation of trade secrets theory. Another, however, is the less-tested and variant "inevitable disclosure" theory - a claim that the former employee will inevitably disclose the competitively sensitive information to the new employer and/or its agents in the carrying out of their duties in the normal course.

We think the attorneys at Faegre and Benson have done a nice job outlining the lay of the land in connection with "inevitable disclosure" claims and thought you might like to see what they have to say about this theory. We fully agree with their analysis and commend their write-up.

http://www.faegre.com/articles/article_1491.aspx

Trade Secrets and Concrete

From the San Diego Union-Tribune, a story about a guilty plea from a former employee who hacked into his former employer's computer system in order to steal bid information on a concrete job.

According to the article, the employee, Benjamin Muñoz, took advantage of easy-to-figure computer passwords at his former employer, T.B. Penick & Sons Inc., to break into a computer system and get figures for a concrete bid for a big construction project. He then used the 136 pages of documents he printed at home to help the new employer, Progressive Concrete Images Inc. of Escondido, California, bid on the same job without having to recalculate how much concrete to use or how many people to hire.

Prosecutor Mitch Dembin said he would ask federal Judge John A. Houston to sentence Muñoz to two years in prison.

Customer List as a Trade Secret (Pacer Req'd)

If you're ever looking for a case pristinely holding that a customer list is a trade secret requiring issuance of a preliminary injunction, Mountain America Credit Union v. Godfrey, 2006 WL 2129465 (D. Utah July 28, 2006), may be your case. The only trade secret at issue was a customer list and the holding was dead-on for plaintiff on its motion for preliminary injunction.

The facts could hardly be simpler: The defendant was a former employee of the plaintiff credit union. He left with a notebook containing a list of approximately 600 customers of plaintiff. The court held that the list was a "compilation of information" -- entitling it to trade secrets protection -- which was available to defendant only by reason of his employment at plaintiff. The court found the list had "independent economic value because it is a selective compilation which includes information about specific persons who have purchased investment and insurance products from" plaintiff.

The court next found that reasonable efforts to maintain secrecy of the list had been taken in form of a non-solicitation and confidentiality agreement also at issue in the case, as well as an employee handbook. The fact that defendant used the list to make calls on behalf of his new employer established at least a likelihood of success on the misappropriation prong of plaintiff's claim.

Plaintiff also presented evidence of the economic value of the particular customers which was sufficient to establish irreparable harm.

All in all, the case, though simple, present a clear -- virtually textbook -- example of a trade secrets preliminary injunction arising from misappropriation of a customer list. Put it in the file.

An Accountant's Take on Trade Secrets

From Mondaq, an article by Gary Bender from Ernst & Young called "Managing IP Risk in Accordance with Sarbanes-Oxley." The article is principally of interest in revealing the way accountants think about intellectual property including trade secrets. Keeping track of trade secrets -- and making sure they're protected -- does have some implications under Sarbanes-Oxley, although the issue is not as explicitly covered under the law as the article might lead you to believe.

Accountants also place a lot of emphasis on valuing trade secrets. In fact, they tend to talk more about valuing them than protecting them. I suspect that's because that's what accountants do.

For my money, the heavy lifting on trade secrets will always be a job for lawyers. (But then, of course, that's what I do.)

Chinese Crackdown Part Deux: Karaoke First, Copyright Second

Our previous post was concerning a July 29, 2006 report from the China Daily concerning the government crackdown on copyright violations in China.

Our research indicates that this was not the sole Chinese crackdown in July of 2006 - China Daily also reported on July 21, 2006 that "the Chinese government's clampdown on pirated music and unhealthy entertainment content in karaoke bars has stirred a mounting debate, with karaoke fans arguing the move could deprive them of their joy while singing and bar owners calling for a revision amid concerns of profit losses, the Henan Business Newspaper reported on July 20."

Knowing that the Chinese tend to engage in conduct pursuant to a step-by-step planned process, it is readily apparent that the Chinese consider "unhealthy" karaoke content to be a slightly greater threat to their society than copyright theft.

China Cracks Down . . . on Piracy?

Everybody basically knows that China occasionally cracks the proverbial whip when its people get "out of line." As readers of this blog also know, however, acts of piracy in China have not traditionally been treated as "out of line." That said, this July 29, 2006 report from China Daily suggests that China may be taking piracy more seriously. Read the full piece, though, and you'll learn Chinese documentaries and even Communist Party education books are being pirated! Perhaps this explains why the government is starting to take note.

The authors of this blog are simply attorneys, not Communist scholars, but wasn't "the Socialist Man" supposed to love, among other common things, common property? We suppose common property is that which is owned by those other than the government but there must be an exception to that which is owned by the Communist Party of China.

We thought you would find this one ironic and interesting.

Trade Secrets and Dog Food

Who could resist?

From the Kansas City Business Journal, a story about a lawsuit filed by Atchison, Kansas company, MGP Ingredients, Inc. against Kansas City-based S&M NuTec LLC, the maker of "Greenies" dog food treats and candy bar maker, Mars Inc. which bought S&M NuTec in April.

According to the story, the complaint claims that MGP entered into a long-term, exclusive supply agreement with NuTec in October to provide key Greenie ingredients that "are closely guarded trade secrets."

But after the sale of NuTec, Mars said the relationship between MGP and NuTec was unenforceable. Mars quit purchasing from MGP and began manufacturing a new Greenies formula without compensating MGP, according to the complaint.

What the heck are Greenies? According to one pet food web site, they're great to chew on and improve your breath (if you're a dog):

"Dr. Joe and Judy Roetheli are dog lovers with a strong interest in animal health and nutrition. But the idea for Greenies was actually inspired by Ivan, their male Samoyed who suffered from terrible breath. The Roethelis decided to formulate something Ivan would love to chew on that would get rid of his doggie breath and be good for his teeth and overall health. With help from a veterinarian and clinical nutritionist, the Roethelis developed Greenies, the first and only smart-treat for dogs. Greenies not only satisfies a dog's natural desire to chew, they contain the natural green advantages of chlorophyll, which comes from plants."

Who knew?

Implied Preemption of Tort Claims by Uniform Trade Secrets Act

Any attorney who's litigated departing employee misappropriation cases recognizes that the complaint often has seven or eight different claims for relief when the simple basis of the complaint is - "that departed person took our information/process/customer list and is a threat to us now."

California-based trade secrets litigation is apparently no different. The complaint in the case cited below alleges, among other things: (a) misappropriation of trade secrets under the California Uniform Trade Secrets Act; (b) conversion of trade secrets; (c) common law unfair competition through the theft and attempted use of trade secrets; and (d) statutory unfair competition through the theft and attempted use of trade secrets. What do (b), (c), and (d) have in common?

In the case of Air Defense, Inc. v. AirTight Networks, Inc., 2006 WL 2092053 (July 26, 2006 N.D. Cal.) the claims in (b), (c) and (d) all got dismissed as pre-empted by the statutory trade secrets act. The essential reasoning of the decision is that California's adoption of the Uniform Trade Secrets Act codified California's substantive law, and procedure, for complaining about and recovering for alleged theft of trade secrets. Using more nebulous tort or statutory unfair competition theories to get at this same set of facts isn't permitted.

Take note, our friends in California.

Q: Who's in Charge of the Trade Secrets Here? A: Usually No One.

Put that question to someone in the know at most U.S. companies and the effective answer that you'll get is that no one is in charge.

That doesn't mean that there are not individuals in charge of aspects of the company's trade secrets. The problem is that there's no single person who's responsible. And that's a problem because if no one person is responsible, that means no one's really in charge and -- as sure as day follows night -- trouble is on the horizon.

What do I mean? Think about this: the HR Department is probably in charge of making sure that employees sign confidentiality agreements. The General Counsel (or someone in his or her office) is probably in charge of keeping track of what information falls into the category of trade secrets because it's not patentable or copyrightable. They may even pay attention to contractual confidentiality issues for vendors, customers, consultants and affiliates.

Some IT guy is probably in charge of the security of the computer network, usually making sure that bad stuff like viruses and hackers doesn't get in. Sometimes the IT Department may even pay attention that good stuff -- like trade secrets -- doesn't go out in ways that are unauthorized. There's very likely someone in charge of physical plant security whose job is to make sure that company property doesn't leave in people's trunks (an unlikely place, I'll admit, to smuggle out trade secrets).

Do you see the problem now? With all those folks with some responsibility, but no one with overall responsibility, things will slip between the cracks. This is where most companies go wrong. Plenty of companies now have an individual designated "Chief Privacy Officer." How many have a Chief Security Officer responsible for all aspects of a company's confidential information including trade secrets?

Damn few.