BLOGS: Trade Secrets Blog

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Tuesday, May 30, 2006, 5/30/2006 06:30:00 AM

Another Apple Update

From a Wired Blog, an update on Apple's attempt to subpoena the emails and identity of those it claims were stealing its trade secrets.

The California appellate basically said no, holding that Apple offered no reason why the California shield law should not apply to the information sought by Apple. The key holding is the one extending the protection of the journalist's shield law to bloggers.

Ever upward!

Friday, May 26, 2006, 5/26/2006 08:07:00 AM

Hacking the Hackers: Computer Fraud & Abuse Act Jujitsu

Can "Turnabout is Fair Play" become an affirmative defense in a claim for violation of the federal Computer Fraud & Abuse Act? I doubt it, but we may be about to find out.

From the San Francisco Chronicle, a story about a lawsuit filed by against the Motion Picture Association of America., part of Valence Media, is a website where people go to trade files, often copyrighted files like the movies the MPAA wants to protect from being pirated. In fact, the MPAA is usually -- and currently is -- the plaintiff in lawsuits against websites like

Now though, the shoe is on the other foot. claims the MPAA hired a hacker for $15,000 to break into its computers to steal passwords, e-mails and detailed information about the company's finances and operations.
The MPAA calls it a baseless attempt to change the subject from's improper file-sharing activities.

"I find it ironic that an anti-piracy organization would resort to piracy to get other companies' data," said Ira Rothken, the attorney representing Torrentspy.

Ironic indeed. How about "all's fair in love and war" as an affirmative defense?

Thursday, May 25, 2006, 5/25/2006 08:28:00 AM

Can Trade Secrets Claims Trump All Others?

In the death match in California federal between the Electronic Frontier Foundation and AT&T concerning NSA wiretapping, AT&T is trying to use claims about its trade secrets to essentially shut down the case. At least that's the take in HuffPost by Shayana Kadidal, a staff attorney at the Center for Constitutional Rights.

The case arises out of the claims by a whistleblower at AT&T concerning a "secret room" near the switch in San Francisco where AT&T allegedly allowed the NSA to illegally tap the company's phone traffic through its fiber optic cables.

AT&T has been trying to keep the documents under seal arguing that they constitute its trade secrets. The issue became moot this week when Wired published the documents here. Wired said it consulted first with experts who confirmed to it that the documents were not trade secrets. The judge, also, was skeptical of AT&T's claims.

Next, watch to see the government seek to shut down the case by asserting the state secrets doctrine.

The case is a political hot potato and has the potential to embarrass AT&T, other phone companies, and the NSA.

Will trade secrets (or state secrets) claims bail out the defendants? So far, it appears the answer is no.

Wednesday, May 24, 2006, 5/24/2006 01:18:00 PM

Calence v. Dimension Data -- Was a Mole Siphoning Trade Secrets?

An interesting press release -- I know, I know, you have to be careful about press releases -- from Calence LLC about its continuing lawsuit against Dimension Data Holdings, plc (a South African-based networking, security and storage company) and Dimension's U.S. subsidiary. Calence is a company that builds and manages Internet-based voice and data networks. The lawsuit arises out of an alleged raid of Calence's 14-person Seattle office earlier this year.

The amended complaint charges that defendants violated the Computer Fraud and Abuse Act, illegally stole Calence trade secrets, and asserts other claims as well. Interestingly, it also claims that the General Manager of the Seattle office operated as a mole for Dimension and that defendants left with 32,000 pages of Calence confidential data and computer data, including transfer information about Calence customers, potential customers, and business operations.

The release quotes Calence's chairman and CEO, Michael Fong: "One thing is true across the entire technology sector -- your people and your intellectual property are your most valuable assets. We believe this lawsuit is the latest powerful reminder that the poaching of personnel and intellectual property has rapidly become one of the most sensitive issues in our industry."

Hard to disagree with that.

Tuesday, May 23, 2006, 5/23/2006 07:00:00 AM

Microsoft Responds on Symantec Trade Secrets Case

From (and to round out the circle), Microsoft has responded regarding the federal trade secrets case brought against it last week by Symantec.

According to Microsoft, it misappropriated nothing and the dispute arises from a narrow disagreement concerning a contract between the parties. Microsoft's spokesman says the company purchased everything it used.

Monday, May 22, 2006, 5/22/2006 08:43:00 AM

Trade Secrets & the Chicken Man (PACER Req'd)

A recent from the Eastern District of Tennessee, Vincit Enterprises, Inc. v. Zimmerman, 2006 WL 1319515 (E.D.Tenn. May 12, 2006), provides an interesting insight into the differences between employment contract claims and trade secrets claims based on the same conduct. Defendant was a former employee of plaintiff, a company engaged in chemical and poultry equipment sales. He had entered into an employment contract with plaintiff which acknowledged the company's trade secrets and prohibited him from using them after termination of employment. The contract also contained a non-solicitation covenant.

After defendant gave notice of his retirement, he was seen in the company of a competitor, Duchem, Inc., at the premises of Tyson Foods, a customer whose account he had serviced while employed by plaintiff. Based on those allegations -- which defendant contended showed only simple contact, not solicitation -- the court refused to dismiss the breach of contract claim. The court said those allegations, taken together, were "sufficient to support an inferential allegation that [defendant] solicited Tyson Foods."

The trade secrets claim did not fare so well. The court held that recitals of the value of the trade secrets in the contract were insufficient to allege the "independent economic value" required under the Tennessee trade secrets statute. Also lacking were allegations that the alleged trade secrets were the subject of reasonable efforts to maintain their secrecy. Finally, the allegations regarding Tyson Foods contacts were not sufficient to show misappropriation of trade secrets.

In addition, the court dismissed claims for common law misappropriation of trade secrets, intentional interference with business relationships, and unfair competition on the grounds that those claims were preempted by the Tennessee Uniform Trade Secrets Act.

Sunday, May 21, 2006, 5/21/2006 10:43:00 AM

Hawaii Five-O

By Todd
Kenneth Kamakana was a police detective in Honolulu. He felt there was rampant corruption in the Honolulu police department in the late 1990's and apparently complained about it. He allegedly had some adverse employment actions taken against him for trying to be a whistleblower . He then sued the City and County of Honolulu for retaliation and that case settled in a confidential settlement.

The Honolulu Advertiser is a newspaper and it caught wind of Kamakana's suit. It rightly figured that police corruption and allegations of it by a former police officer makes good print. They wanted access to the documents that were used and disclosed during Kamakana's suit. Problem was, the court had entered a protective order restricting access to, and the use of, those documents during the litigation. They were under seal. Once the case settled, the Honolulu Advertiser said it still wanted to see the documents. And the federal district court reviewed them all, in camera, and determined there weren't compelling reasons why the newspaper shouldn't be able to review them too. An appeal was taken to the United States Court of Appeals for the Ninth Circuit.

The Ninth Circuit noted that "unless a particular court record is one traditionally kept secret, a strong presumption in favor of access" is the starting point of the analysis. Editors' note: if you represent the City at this point, you do not like where the Ninth Circuit is going with this. The Ninth Circuit went on to note that "compelling reasons" must exist to keep the judicial record sealed and those compelling reasons are usually rebutted only if the party seeking a permanent lock on the public record can demonstrate: (a) the anticipated use of public records is to gratify private spite; (b) the anticipated use of the public record is promote public scandal or circulate libelous statements; or (c) the anticipated use of the public record is to release trade secrets.

The Ninth Circuit essentially agreed with the lower court and affirmed its ruling. Without going into all of the Court's reasoning, suffice it to say that the following language from the Ninth Circuit sums it up: "The mere fact that the production of records may lead to a litigant's embarrassment, incrimination or exposure to further litigation will not, without more, compel the court to seal its records."

Wow. Stay tuned. The Ninth Circuit's decision is Kamakana v. City and County of Honolulu, 2006 WL 1329926 (9th Cir. May 17, 2006).

Company Computers, "No Expectation of Privacy" Policies, and Good Old "Deleted" E-Mails

By Todd
Imagine that an employer has a policy that says something to the effect that "computers and computer accounts provided to our employees are to assist them in the performance of their duties . . . and employees of the company have no reasonable expectation of privacy in their e-mails or transmissions to others outside the company . . . and we reserve the right to monitor communications made from our computers and computer accounts . . . ." This shouldn't be hard to do as most employers who have spoken with an attorney have such a policy in place.

Imagine also that the employee grows disgruntled with their employer at some point. Again, not hard to do as most employers know that most employees do, in fact, grow disgruntled at some point.

Imagine, however, that the disgruntled employee is so disgruntled that she hires an attorney and then uses the company computer to communicate with that attorney about things like what was the best way to get at the company legally. Imagine, too, that the company's policies required the return of all company property at the termination of the employee's employment and then, like many smart employers who are being sued do, the company did a computer forensic search of the company's computer system and its expert found a huge number of "deleted" e-mails that constituted attorney-client communications between the now terminated employee and her attorney.


The answer from a federal court in New York may surprise you - that court said no, there was not a waiver of the privilege by the former employee. The court's reasoning is interesting: (a) the court acknowledged that inadvertent disclosures of attorney/client materials usally constitutes a waiver of that privilege; (b) that is not the rule, though, unless the party's conduct was so careless as to suggest it was not concerned with the privilege; and (c) although the ex-employee's use of the company computer system appeared careless on its face, the company's failure to enforce its computer usage policy lulled employees into believing the policy would not be enforced and thus suggested to the ex-employee she was not being careless.

This is a particularly troubling case that has significant unrelated ramifications that we'll mention in short. First, we believe that a company's computer system is its property and that the rule of law demands that the privilege as to any attorney/client communications with an attorney for reasons other than the company's business would be waived as a per se rule as long as there is evidence that the employee understood the company's computer usage policy (i.e., the signed employee acknowledgement). Second, we empathize with the company's attorneys in this case and agree that the company's actual track record of enforcing the policy (i.e., punishing those who violate it) is irrelevant to the inquiry of whether the employee was being careless with her attorney/client communications. Last, we think the ramifications of such a holding is that employers who want to put teeth in their computer usage policies MUST police their policies more stringently, at least in Long Island, New York, or else they may find themselves unable to enforce the same on a go-forward basis. We're going to keep our eye on this one.

Editors' note to departing employees: no e-mail is ever permanently deleted.

The case is cited as Curto v. Medical World Communications, Inc., 2006 WL 1318387 (E.D.N.Y. May 15, 2006).

Saturday, May 20, 2006, 5/20/2006 09:47:00 AM

More on Symantec v. Microsoft Trade Secrets Case

From TG Daily, an interview with Symantec's director of legal affairs, Michael Shallop. In the interview, he alleges that Microsoft employed programmers to take apart source code from storage virtualization leader Veritas to which Microsoft was not entitled, and then used the information it gleaned from that code to create storage virtualization device drivers for a number of Windows products including forthcoming versions of Windows Vista and "Longhorn" server.

Microsoft, though, says that Symantec is wrong "because Microsoft actually purchased intellectual property rights for all relevant technologies from Veritas in 2004."

Based on Mr. Shallop's comments, it looks like the lawsuit may leverage to cut a deal with Microsoft before Vista and the Longhorn server are released. Oddly enough, the companies continue to do business with one another.

Friday, May 19, 2006, 5/19/2006 08:22:00 AM

Symantec Brings Trade Secrets Action Against Microsoft

From the Seattle Times, an article concerning a trade secrets lawsuit filed in federal court in Washington state by Symantec against Microsoft.

According to the article, Symantec alleges that "Microsoft has deliberately and surreptitiously misappropriated Symantec's valuable data-storage technologies, misled and thereby convinced the United States government to issue patents to Microsoft based on technologies invented by Symantec, attempted unsuccessfully to persuade Symantec to forgive Microsoft's misdeeds under the guise of expanding a business relationship, and ultimately built portions of its next generation operating system on this house of cards."

The allegations relate to code included in Microsoft's forthcoming Windows Vista operating system.

Microsoft, of course, denies it all. We'll keep track.

Tuesday, May 16, 2006, 5/16/2006 02:40:00 PM

No Summons, No Peace

By Todd
Those of you who are litigators obviously know that there is a summons and a complaint. The summons compels the defendant to respond to the complaint or explain why they shouldn't have to and the complaint spells out the legal claims against the defendant.

A weird case was reported today in our home jurisdiction of North Carolina. Apparently the plaintiff/former employer sued their case by filing the complaint but a summons never issued. The defendant didn't learn about this summons deficiency initially and defended the misappropriation of trade secrets case by losing the motion for temporary restraining order, losing the motion for preliminary injunction and then being forced to take an appeal. Presumably tens of thousands in defense fees were generated all the while.

Arguing that the trial court did not have jurisdiction due to the failure of a summons being issued and that the injunctive relief should never have been provided to plaintiff, defendant took an appeal. And they won, too. Although this is just a technical pleading lesson, remember to obtain a summons to serve with your complaint if you represent the plaintiff who is seeking injunctive relief or you may end up with no summons, no peace - and no permanent injunction, either.

Conner Brothers Machine Co., Inc. v. Rogers, 2006 WL 1318784 (N.C. Ct. of Appeals, May 16, 2006).

Hand-Shake Deals -- Trade Secrets and Other Problems

From Stereophile (yes, Stereophile!), a story about two individuals -- one a prominent sound engineer, the other, the money guy -- who formed a business to manufacture high-end speakers on a hand-shake. And then their troubles began. . . .

First, the engineer's former employer claimed he was using their trade secrets, specifically "the identities of the companies they buy parts from." Although a weak case, the new company had to settle for $50,000.

Things went downhill from there with the whole thing crashing in competing recrimnations between the two owners.

It's a good cautionary tale from author John Marks.

Monday, May 15, 2006, 5/15/2006 05:29:00 PM

Reminding Employees of their Trade Secrets Obligations -- How Often Should it be Done?

Further to yesterday's post, from Professor David Hannah:

I noted your comment about reminding employees about their obligations to protect trade secrets on a regular basis. I agree with the importance of communicating regularly. What I found, though, is that too-frequent communications can result in employees tuning out due to information overload.

I also found that legal departments usually prefer more frequent meetings (e.g. quarterly) and other functional areas want less frequent ones (e.g. annually).

I suggest a compromise: bi-annual meetings. I also suggest sending periodic e-mail or memos in order to ensure that employees keep thinking about trade secret protection.

We recommend Professor Hannah's paper, "Keeping Trade Secrets Secret" in the MIT Sloan Management Review and available at the link here.

Sunday, May 14, 2006, 5/14/2006 11:16:00 AM

An Academic Confirms What We Suspected about Trade Secrets

From the New York Times "What's Offline" business column:

Professor David R. Hannah at Simon Fraser University in British Columbia, writes in The Sloan Management Review, that companies are particularly bad at protecting their trade secrets. A link to the Sloan Management Review, who will permit you to purchase the paper for $6.50, can be found here.

According to the professor, "research has shown that the biggest threat to a company's trade secrets does not come from spying competitors but from within: current and former employees." And, he concludes, employees frequently disclose information simply because they do not know they are supposed to keep it confidential, having been briefed on the subject only once, during orientation.

The professor suggests a gentle reminder of those leaving on good terms "of their ongoing legal responsibility to protect the organization's trade secrets."

"For employees who are fired, laid off, or otherwise leave on acrimonious terms, the firm might consider pre-emptive measures" like sending both the employee - and his future employer - a letter reminding them of the consequences of disclosing, or acting on, trade secrets.

We'd go a step further and remind employees on a regular periodic basis -- once a quarter at least -- of their obligations regarding company trade secrets and also remind them of just what the company considers its trade secrets to be. That way there can be no mistake.

We'll see if we can run down the professor and get some more thoughts from him.

Saturday, May 13, 2006, 5/13/2006 02:46:00 PM

Can a Company Misappropriate a Trade Secret without Knowing the Trade Secret?

The answer is "yes," according to Judge Castillo of the Northern District of Illinois. Cognis Corp. v. CHEMCENTRAL Corp., 2006 WL 1274744 (N.D. Ill. May 5, 2006), concerned what amounts to a "derivative" claim of misappropriation of trade secrets. Cognis had developed CAPCURE, a curing agent for epoxy resin adhesive, and kept it as a trade secret. It used a company called GabePro to manufacture CAPCURE and CHEMCENTRAL distributed it.

After GabePro ceased to manufacture CAPCURE, it developed its own equivalent, GPM-800, allegedly using Cognis's trade secrets. CHEMCENTRAL then began to market GPM-800 for GabePro using its old customer lists and pricing information from its time as a Cognis distributor.

The crux of CHEMCENTRAL's motion to dismiss was that distribution of a product manufactured by another's use of a trade secret does not constitute "use" of that trade secret. In other words, a defendant cannot accomplish use without actually knowing what the trade secret is. GabePro -- the first-line misappropriator and the subject of another action -- was the trade secrets violator, not CHEMCENTRAL.

The court said no, at least for the purposes of the motion to dismiss. Although the term "use" is not defined in either the Illinois Trade Secrets Act or the uniform act, the court looked to the Restatement 3d of Unfair Competition, sec. 40, for a broad definition of "use" that includes "marketing goods that embody the trade secret, employing the trade secret in manufacturing and production, [or] relying on the trade secret to assist or accelerate research or development."

The court held that CHEMCENTRAL knew from its prior dealings with Cognis that Cognis protected the CAPCURE technology as a trade secret and, at least according to the allegations of the complaint, "still accepted GabePro's baseless claim that it had the right to use the CAPCURE technology without verification."

Motion to dismiss denied (and interesting questioned answered).

Thursday, May 11, 2006, 5/11/2006 10:38:00 AM

More on Chinese Espionage

From the Asian Pacific Post of British Columbia, a further take on the Canada-China economic espionage flap which notes that the Canadian allegations arise "after decades of wimp diplomacy with China." The denial by the Chinese government is referred to as "predictable."

The article then details numerous stories of Chinese economic espionage in Canada that the Asian Pacific Post claims to have broken.

This story isn't going away.

Wednesday, May 10, 2006, 5/10/2006 07:50:00 AM

Five Years in Jail under the Computer Fraud & Abuse Act

From All Headline News, a story concerning a 57 month sentence meted out to computer hacker Jeanson Ancheta by federal judge Gary Klausner in the Central District of California. Ancheta admitted downloading software onto more than 400,000 computers, creating a collection of "zombie bots" which sent out millions of unwanted spam emails. Ancheta also admitted collecting $107,000 in commissions and charging spammers to use his "botnet" by selling access to up to 10,000 infected machines at a time.

According to the report, "In pleading guilty [Ancheta] agreed to pay about $15,000 in restitution to the US government. In addition, he agreed to forfeit his proceeds from the crimes, which include more than $60,000 in cash, a 1993 BMW and computer equipment."

57 months is one of the longer sentences under the CFAA (and no doubt well deserved in this case).

Tuesday, May 09, 2006, 5/09/2006 07:49:00 AM

Sun vs. Azul -- Trade Secrets and the New CEO

From the San Jose Mercury News (via Linuxinsider), a story concerning Sun's contentions in a lawsuit that Stephen DeWitt, a former Sun employee and now CEO of Azul, stole trade secrets, violated his non-compete agreement with Sun, and recruited key Sun employees to work for Azul. Azul makes network appliances for applications that run on Sun's Java system.

Sun's statement: "It is unfortunate that we have to resort to litigation in order to settle our dispute with the company, despite repeated business proposals from Sun that were intended to free up Azul and its products to continue to take advantage of Sun's intellectual property without interruption."

From Azul's lawyer: "Azul has spent the last year negotiating with Sun while they have threatened us with belligerent requests to be granted a significant ownership in Azul, in addition to cash and royalty payments.... This suit is not about Azul technology; this suit is about Sun and its predatory attempt to thwart Azul's innovative solution from penetrating the market."

Pretty much the usual dueling allegations.

Saturday, May 06, 2006, 5/06/2006 10:12:00 PM

Oil Exploration Reports in Kazakhstan and Trade Secrets

By Todd
Every once in a while federal district courts draft opinions addressing litigation discovery disputes and publish them for everyone to see. One such opinion recently published is in the case of Grynberg v. Total S.A., 2006 WL 1186836 (D. Colo. May 3, 2006). Seems Grynberg is suing Total S.A. over damages from the development, or lack of development, of certain oil wells in Kazakhstan (editors' note: we believe Kazakhstan is somewhere between Russia and China). Grynberg has asked Total S.A. to turn over "well logs, tet results, and well evaluation reports" and Total S.A. has objected, arguing in part that production of the same "would or may contravene contractual confidentiality obligations Total owes to the Republic of Kazakhstan ...."

Note to litigators - when trying to object to discovery requests on "trade secrets" grounds, do NOT use the phrase "would or may contravene ...." It won't work. The party seeking not to dislose information or data or documents on "trade secrets" grounds has the burden of showing that the disclosure would release confidential information or trade secrets and then the court needs to examine the bona fides of that claim and balance the risks and benefits of the same. Using the phrase "would or may contravene. . . . " confidentiality obligations isn't strong enough - ever. And it wasn't in this case either.

Grynberg is going to get access to a good amount of what they are looking for and perhaps the world is about to learn more about what Kazakhstan has to offer in the form of oil reserves. We'll see.

Stranger than Fiction -- IBM Hacking Law Firm Website?

A strange and so-far under-reported story from UK's The Inquirer concerning a lawsuit in federal court in Washington under the Computer Fraud & Abuse Act brought by a Washington law firm against IBM. The law firm, Butera & Andrews (whose website can be found here), is a small firm of about ten lawyers specializing in government relations and litigation.

According to The Inquirer, the law firm claims that an employee suspected last Fall that its email server, contracted out to a Virginia firm, Sierra Corporation, had been compromised. The firm then hired a forensics computer investigator to track the email traffic. The investigator discovered that a computer with a particular IP address had attempted to gain access to the server. The IP address in question, the complaint alleges, is registered to IBM in Durham, North Carolina.

In the words of The Inquirer, "[c]ontinued monitoring revealed that other attacks during last November caused multiple denial of service attacks. The investigators also monitored logs from the law firm's clients and discovered 42,000 attempts by 80 different IP addresses registered to IBM Durham," according to the complaint.

IBM has received an extension of its time to answer the complaint.

This one is very odd and we'll keep an eye on it.

Friday, May 05, 2006, 5/05/2006 12:08:00 PM

Canadian Trade Secrets?

By Todd
We like hockey and donuts and our good friends to the north. It's Friday and there aren't any new legal decisions requiring our attention so we thought we'd let you click on and have you see who got the registered trademark for the phrase "trade secrets" in Canada.

Have a great weekend . . . hoser.

Thursday, May 04, 2006, 5/04/2006 01:51:00 PM

The Tax Man Cometh - Part Deux

By Todd
We've already blogged that H&R Block case that came out of the United States District Court for the Western District of Missouri. You may recall this was the case where H&R Block was accusing a collection agency of illegally accessing its computer database in order to garnish their tax clienteles' tax return monies. One of the issues the collection agency raised when seeking to dismiss the case was that H&R Block hadn't properly pleaded damages it sustained for violation of the CFAA. We thought we should examine that issue a little further for your purposes.

What H&R Block did allege in its complaint was that "as a result of defendants' unauthorized, intentional access of H&R Block's protected computer system, H&R Block has suffered damages and a loss of no less than $5000.00, including but not limited to its costs to respond to this offense." SO - can an aggrieved party claim its costs "to respond to the CFAA offense" as a damage? Apparently the court thought so - it denied the defendants' motion to dismiss.

The CFAA requires that defendants' conduct must cause "loss to 1 or more persons during any 1-year period . . . aggregating at least $5000 in value." See 18 U.S.C. section 1030(a)(5)(B)(i). "Loss" is defined as "any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense . . . ."

Thus, H&R Block had it right and so did the federal court. All you need to plead is damage in the form of the cost of "responding to an offense" and you have satisfied the damages pleading predicate of the statute. Call your next case!

Tuesday, May 02, 2006, 5/02/2006 11:54:00 AM

Seventh Circuit Crafts Another Great Opinion

By Todd
We love the Seventh Circuit. The opinions that court crafts are always a pleasure to review - well-written, well-reasoned, and well - er, interesting. The opinion in Lakeview Technology, Inc. v. Robinson, 2006 WL 1133147 (7th Cir., May 1, 2006) is no exception.

Robinson was Lakeview Technology's vice president of sales. Like departing employees often do when going to work with direct competitors, Robinson lied about where he was going. By lying about where he was going, not only did Robinson continue to receive compensation from Lakeview Technology but he also obtained some competitively sensitive information that he would take with him to his competitive employer. Robinson had executed a two year nonsolicitation covenant and NDA/trade secrets agreement with Lakeview Technology - the latter having no durational limit.

After Lakeview Technology found out that Robinson was not pursuing non-competitive "real estate interests" after his departure but instead was working for Vision Solutions (the direct competitor of Lakeview Technology), Lakeview Technology sued him and sought injunctive relief. The district court denied injunctive relief on three grounds: (a) absence of proof that Robinson had solicited Lakeview Technology's customers or disclosed its trade secrets; (b) Robinson's pledge not to do so in the future; and (c) the propect of hefty damages if Robinson did act otherwise. Circuit Judge Easterbrook from the Seventh Circuit did not agree with the district court's reasoning and the appellate court reversed the lower court decision and essentially ordered the lower court to issue the injunction it previously refused to issue.

The Seventh Circuit's rationales for doing so are persuasive: (a) injunctions issue to "curtail palpable risks of future injury," not to remedy established violations only; (b) Robinson's promise of no future legal violations is hollow and weak when viewed against the established fact he is an admitted liar; and (c) the limits on Robinson's wealth make Lakeview Technology's security all the more tenuous due to the fact that they could probably not collect a major judgment against their former employee for misappropriation of trade secrets.

All of that said, the most interesting portion of this decision is contained in dicta - Judge Easterbrook considers the possibility of forcing Robinson to post a "non-injunction bond." As most of you know, to get an injunction in court under Rule 65, the non-enjoined party must post a bond to secure the enjoined party from suffering damages due to the decision coming so early in the case and the facts or law later showing that an injunction shouldn't have issued. While Judge Easterbrook ultimately acknowledges a "non-injunction bond" is not part of the law of injunctions, it is a fascinating risk-shifting analysis nonetheless.

Bravo Seventh Circuit!

Sweet Injunction in Texas Trade Secrets Case (Pacer Req'd)

An interesting ruling from the United States District Court for the Southern District of Texas in Zinco-Sherman, Inc. v. Adept Food Solutions, Inc., 2006 WL 11061917 (S.D. Tex. Apr. 21, 2006). Plaintiff and defendant worked together for many years to develop, blend and test a proposed reduced sugar product known as REPLACE. After the relationship faltered, Plaintiff claimed Defendant was threatening to misappropriate its trade secrets.

The court found that Plaintiff could likely show the information at issue -- formula for the product, including the ingredients and their amounts -- constituted trade secrets. Importantly, the "work and time required are evidence of the difficulty others would have in acquiring the information, and the evidence showed that reverse-engineering was not practically available." Moreover, "[a]lthough the parties did not execute a written confidentiality or noncompete agreement, Texas law does not require a formal written confidentiality agreement to establish a confidential or fiduciary relationship."

Thus, the case presents the relatively rare circumstance where a court grants a preliminary injunction in the absence of a formal written confidentiality agreement.

Monday, May 01, 2006, 5/01/2006 01:17:00 PM

The Tax Man Cometh -- Computer Fraud & Abuse Act Pleading Standards (Pacer Req'd)

An interesting case in the area of the Computer Fraud & Abuse Act came down last week from the United States District Court for the Western District of Missouri. The case, H&R Block Eastern Enterprises, Inc. v. J&M Securities, LLC, 2006 WL 1128744 (W.D.Mo. April 24, 2006), was brought after H&R Block found that the defendant, a collections company, was bringing numerous garnishment proceedings against its clients. Defendant could have obtained that information only -- H&R Block surmised -- by illegally accessing H&R Block's confidential electronic databases.

Defendant sought to dismiss by arguing that H&R Block's allegations were vague and that it could not claim "access by inference." The trial court disagreed, though, holding that under the liberal pleading standards, H&R Block's allegations were sufficient, particularly since it claimed that defendant could not have obtained the information to do what it did without improper access.

The court also ruled that H&R Block's essentially conclusory claims of damages were sufficient at the pleading stage and that "[p]ersuasive authority narrowly construing compensable losses under the [Computer Fraud & Abuse Act] will be considered when the facts are developed."

An article on the case from the Kansas City Star can be found here.
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