NASD Deals Securities Firm Trade Secrets Theft Blow

McMahan Securities apparently thought its departing investment banker employee needed to return confidential files and office equipment before it had a duty to pay him monies owed under his employment agreement. So they sued him - and the investment banker countersued - and off to the NASD's arbitration panel they went. Apparently the NASD's arbitration panel didn't think too much of the unilateral withholding of wages and awarded the investment banker $250,000 and the securities firm nothing on its claims. Yet another example of an employer thinking the rules apply only to their employees and not to themselves.

Mistrial in Motorola Trade Secrets Case

From the Chicago Tribune, a story on the mistrial declared yesterday in Florida state court in the trade secrets case by defunct technology company, SPS Technologies, against Motorola.

The jury was deadlocked 3-3 after days of deliberation. The case concerned technology for a vehicle-tracking system.

SPS's counsel, Willie Gary, said he would seek a January re-trial, but both parties indicated that they might talk settlement.

Cain and Abel Fight A Computer Fraud and Abuse Act Case Out

The Computer Fraud and Abuse Act is found in Title 18 of the United States Code. 18 U.S.C. section 1030(a)(4) prohibits the "knowing[ ] ... access[ of] a protected computer without authorization," with intent to defraud, if "such conduct furthers the intended fraud and [the violator] obtains anything of value." In a case between Fiber Systems International, Inc. and some of its former employee/investors, Fiber Systems alleged the departing employee/investors copied a bunch of confidential information from Fiber Systems' database and walked off with it to start a competitive venture. Michael Roehrs was the CEO of Fiber Systems and his brother, Daniel Roehrs, was the principal defendant in the action. It got so nasty that Fiber Systems apparently filed a police report referring to the defendants as thieves so they countersued for defamation. The matter went to trial. The jury granted Fiber Systems $36,000 for the proven violations of the Computer Fraud and Abuse Act and $100,000 a piece in compensatories and $1 million a piece in punitives for the counter-claimants on their defamation claims. The trial judge non-suited Fiber Systems on the CFAA claim holding that no private right of action exists under 18 U.S.C. section 1030(a)(4). Fiber Systems appealed.

The Fifth Circuit agreed that the trial court got the analysis of the "private right of action" issue wrong. It reasoned that the trial court's interpretation of 18 U.S.C. section 1030(a)(4) "is at odds with the language of the statute, which plainly allows such an action to proceed. Section 1030(g) extends the ability to bring a civil action to any person suffering damage or loss under "this section," which refers to § 1030 as a whole, as subsection (g) does not proscribe any conduct itself. And although § 1030(g) refers to subsection (a)(5)(B), the statute does not limit civil suits to violations of § 1030(a)(5). Indeed, if Congress intended to limit civil actions in this manner, it could have simply provided that civil actions may only be brought for violations of subsection (a)(5)."

The appellate court reversed the trial court's non-suit on the CFAA damages and ordered that judgment be entered to the tune of $36,000 as found by the jury. The case can be cited as Fiber Systems International, Inc. v. Roehrs et al., 2006 WL 3378403 (5th Cir., November 22, 2006).

Celanese Press Release on New Trade Secrets Action

We thought we'd post for you the link to the Celanese Corporation's press release concerning its new trade secrets action filed against Saudi International - this one is going to be on our watch list:

"Celanese’s Petition alleges that the defendants engaged in a calculated campaign to misappropriate and commercialize Celanese’s confidential information. The Petition asserts that defendants, acting directly and through agents, among other acts, aggressively recruited and hired former or current Celanese employees, identified and retained engineering and construction firms that had extensive experience working on Celanese’s acetyl projects, and vendors and other suppliers with intimate knowledge of Celanese’s trade secrets."

Click http://www.tradearabia.com/tanews/newsdetails_snIND_article114846_cnt.html and you can find TradeArabia's online posting about the case and Saudi International's response to the suit, which it calls "baseless."

We acknowledge that we are seeing more cases involving allegations of globalized trade secret misappropriation - the trade secrets world is certainly flattening out, as Thomas Friedman implied it would. We'll keep an eye on this one.

Trade Secrets and Dolls

From the San Jose Mercury-News, a story about Mattel, the famous maker of Barbie dolls, suing rival MGA Entertainment, Inc., maker of the "Bratz" dolls which have been taking away significant market share from Barbie for the past several years. Mattel had earlier accused one of its former designers of improperly selling the concept for the Bratz dolls to MGA.

According to the story, Mattel is seeking to file an amended complaint, which alleges "intellectual property theft to MGA itself, accusing the company of stealing the Bratz doll line designs and then continuing to pilfer Mattel's confidential and proprietary information to fuel its growth."

Mattel contends MGA hired away three key Mattel employees in Mexico who "stole virtually every category of Mattel's sensitive and trade secret business plans and information" for markets in Mexican and elsewhere.

MGA CEO Isaac Larian, who is named as a defendant in the amended complaint, called Mattel's claims "a bunch of nonsense." "This lawsuit proves that Mattel is desperate," he said. "They wish they owned Bratz. They don't and they know it. The last time I checked, it was not illegal for people to leave one company to go to a better company for a better job."

Same as it ever was.

Hung Jury in Motorola Case?

More from the Chicago Tribune on the case by SPS Technologies against Motorola. According to the story the six-person jury has reported that it's deadlocked.

The judge, not surprisingly, won't give up so easily and has instructed the jury to take it easy over the Thanksgiving holiday and to come back for more deliberations on Monday. One juror reportedly left in tears.

Plaintiff's lawyer, Willie Gary, demonstrated a somewhat fatalistic attitude: "I worry about things I can control. I can't control what a jury does."

Happy Thanksgiving to all.

Celanese Corp. Sues Saudi International Petrochemical Corp. For Trade Secrets Theft

Dallas-based Celanese Corp. has sued Saudi International Petrochemical Corp. and International Acetyls Co. and International Vinyl Acetate Co. for alleged misappropriation of trade secrets to be used in connection with the construction and operation of new facilities Saudi International is having built in Al Jubail, Saudi Arabia. Saudi International denies the claim and says it obtained the technologies through licenses with Eastman Chemical and DuPont. The construction is reported to cost $1 billion.

We'll follow this one for you closely.

Plaintiff's Attorney: "Give us $10 Billion"

From the Chicago Tribune, in a case we reported on earlier here, between a defunct Florida company, SPS Technologies, and Motorola, SPS's attorney, Willie Gary, asked the jury yesterday to award his client $10 billion for misappropriation of trade secrets related to a vehicle-tracking system. The amount sought is obviously large, but Gary has a reputation for large verdicts.

According to Gary, the founders of SPS Technologies were duped into giving Motorola, the world's second-biggest maker of mobile phones, engineering details and a client list.

"We said we had the burden of proof and we've proven it," Gary said. "Motorola is guilty, and it's judgment day."

We'll get word to you on the verdict as soon as we get it.

Trade Secrets and Plasma-Etching

From BusinessWeek Online, a story concerning a $13 million settlement of a trade secrets case in favor of Tegal Corp., a maker of plasma-etch systems used to manufacture integrated circuits.

Tegal had claimed in a lawsuit that several companies, including Agilent Technologies Inc., Advanced Modular Sputtering Inc. (AMS), and Avago Technologies Ltd., had stolen the trade secrets of Tegal's subsidiary, Sputtered Films Inc., to co-build a custom sputtering system.

In addition to the $13 million, AMS assets related to the system are to be transferred to a Tegal subsidiary and AMS will be dissolved next year.

Washington Mutual, Inc. Settles Comerica Trade Secret and Raiding Case for $47 Million

In an interesting reported settlement of a California-based raiding and misappropriation claim, Washington Mutual has reportedly agreed to shell out $47 million and one of its executives has agreed not to hire for three years any of twenty-four (24) former Comerica employees who resigned together and apparently departed Comerica with detailed customer and account information regarding Comerica's banking customers. Comerica filed suit in July of 2005 against the departed employees and Commercial Capital Bancorp Inc., the banking interest that hired them away from Comerica. Commercial Capital Bancorp was acquired by Washington Mutual on October 1, 2006 and the latter then settled the case in mediation a few days ago.

Our question involves the reported "no hire" covenant. It appears that all twenty-four were fired by Commercial Capital Bancorp - thus giving some teeth to the "no hire" covenant. We'll research further factual background in this matter and report back to all of you. Suffice it to say that it appears from the reported settlement those twenty-four former Comerica employees probably wished they hadn't taken the customer data with them.

Cold Case: Anatomy of a Federal Trade Secrets Prosecution

From the Milwaukee Journal Sentinel, a story about a dispute between two refrigeration companies in which the federal government took the part of the company whose trade secrets were stolen

Under a plea agreement filed in federal court in Milwaukee this week, the three co-owners of Summit Refrigeration Group agreed to plead guilty to a misdemeanor charge of unauthorized access to a company computer and causing damage as a result of that access.

Dual Temp, the Chicago-based business that the men left to found Summit, will be paid restitution of $1.4 million by the time of the defendants' sentencing in federal court in February, under the agreement, thus settling a potential civil trade secrets case.

At issue in the case was the removal of records from Dual Temp's Brookfield office, including computerized drawings of company projects, and about 60 operations and maintenance manuals compiled by the company. The records also included 130 customer files regarding projects that Dual Temp was bidding on, as well as e-mail correspondence between Dual Temp and customers. The three former employees were indicted under the federal Economic Espionage Act.

Under the agreement, the misdemeanor to which the three men pleaded guilty this week carries a maximum penalty of one year in prison and a $100,000 fine.

Culinary Trade Secrets in London? Yuck . . . .

Ever wonder how the dish of "snail porridge and egg ice cream and sardines on toast" is prepared? Well, we haven't either. That said, a chef in London is offering up his take on molecular gastronomy and culinary alchemy. It's a slow day in the trade secrets world and we'd thought this might make you . . . er, hungry.

AirDefense Announces Consent Injunction and Settlement Obtained from AirTight Networks

This just out on the wires - wireless LAN security provider AirDefense, based in Atlanta, just announced that it had obtained a consent injunction based settlement from wireless LAN security provider AirTight Networks, based in Mountain View, California. AirDefense had initially sued AirTight Networks in November, 2005 for, among other things, misappropriation of trade secrets. A sworn declaration by an ex-AirTight Networks employee allegedly identified significant acts of misappropriation by AirTight.

A copy of the amended complaint, for those of you who use PACER, can be found here: https://ecf.cand.uscourts.gov/cgi-bin/login.pl?432343223651739-L_186_0-1. Interestingly, a substantial number of the allegations in the complaint were made "upon information and belief." The allegations appear to be that a former AirDefense employee named Scott Sterelitz provided a USB key to a friend of his who was a salesperson at AirTight Networks. The USB key allegedly contained a confidential list of AirDefense's existing and potential customers and information concerning customer contacts, marketing information, and information concerning the customers' needs and inquiries. We again note the existence of former employees, disgruntled or not, as being a continuing source of trade secrets leaks. AirDefense alleged in its complaint that Sterelitz and the AirTight Networks employee he provided the information to, Steve Skordilis, were personal friends.

The case has been settled on confidential terms.

Trade Secrets and Former Dealers (Pacer Req’d)

One area of particular trade secrets vulnerability for manufacturers is their own dealers and, especially, former dealers.

The US District Court for the Middle District of Tennessee, recently dealt with that issue in Xerox Corp. v. O’Dowd, 2006 WL 3053408 (M.D.Tenn. Oct. 26, 2006). O’Dowd was a former Xerox employee and his company, DDS, was a long-time Xerox distributor. The relationship started to sour in 2005 and DDS thereafter became a dealer for Xerox competitor, Sharp.

Xerox brought a case against O’Dowd, DDS and others claiming misappropriation of trade secrets. The secrets in question were basically customer data maintained on a proprietary Xerox system, MarketSmart, made available, under a confidentiality agreement, to Xerox distributors like DDS.

The court found first that the MarketSmart database contained trade secrets. In the words of the court:

Information specific to Xerox's customers, such as contact information, models and serial numbers of Xerox equipment purchased, notes entered by Xerox or its sales representatives concerning contacts with the customers, Dunn & Bradstreet reports relative to specific Xerox customers, UCC-1 filings of competitive equipment, lease status, pricing information, usage, and service histories, is not generally known outside of Xerox, and such information is divulged to Xerox employees and agents under strict conditions. The information is not shared with Xerox dealers. O' Dowd and DDS executed Xerox agreements in which they acknowledged the confidential and proprietary nature of the information and agreed to return such information at the conclusion of the business relationship. Xerox takes numerous security measures to guard the secrecy of the information and prevent its replication because the information is very valuable to Xerox and its competitors.

The court also found that suspicious downloading activity on the part of DDS just prior to the switchover from Xerox to Sharp. The court found irreparable harm based on the fact that the information was trade secrets.

The list above of customer-related trade secrets is one of the more comprehensive one is likely to encounter.

U.S. Government Computer Security Policy

From the website of the U.S. Citizenship and Immigration Services, a state-of-art computer security policy:

"For site security purposes and to ensure that this service remains available to all users, this Government computer system employs software programs to monitor network traffic to identify unauthorized attempts to upload or change information, or otherwise cause damage. Anyone using this system expressly consents to such monitoring and is advised that if such monitoring reveals evidence of possible abuse or criminal activity, such evidence may be provided to appropriate law enforcement officials. Unauthorized attempts to upload or change information on this server are strictly prohibited and may be punishable by law, including the Computer Fraud and Abuse Act of 1986 and the National Information Infrastructure Protection Act of 1996."

You've been warned.

Qualcomm/Broadcom Stipulated Order for Preliminary Injunction (PACER required)

Well, here it is, folks. This is the Qualcomm/Broadcom Stipulated Preliminary Injunction. Again, this case will surely keep making news so we'll keep an eye on any developments and you'll likely read them here first.

Broadcom Provides Its Own Take on the So-Called Court-Ordered Trade Secrets Injunction In Favor of Qualcomm

As you can see from the link above, Broadcom issued its own press release after Qualcomm's press release hit the airwaves. Broadcom says that Qualcomm's reporting of the court-ordered trade secret injunction was nothing more than a consent injunction entered by the Court and was not the product of a full adversarial proceeding but, rather, an agreement by Broadcom to sequester certain documents and information until a full trial of the matter can be had.

We will continue to report on this one. Seems both sides have publicity teams in place so that'll make things easier on us but we'll be vigilant to report both sides of the story.