Federal Court in Massachusetts Dismisses Alleged Trade Secret Claim on "Continuous Use" Grounds

Portfolioscope, Inc. is a developer of portfolio management and record keeping software. I-Flex Solutions Limited - headquartered in Mumbai, India - is one of its competitors. In a case pending in federal court in Massachusetts, Portfolioscope alleged that I-Flex stole and incorporated Portfolioscope's software into I-Flex's own software product and in doing so I-Flex, among other things, misappropriated Portfolioscope's trade secrets.

I-Flex filed a motion to dismiss the trade secrets claim, arguing that the so-called Portfolioscope trade secrets weren't even in use any more by Portfolioscope. Plaintiff argued in response, apparently, that "continuous use" or "current use" should not be a requirement for a trade secret misappropriation claim. Judge Tauro, correctly, disagreed.

The court noted that "Massachusetts law establishes that a trade secret must be in continuous use. Although plaintiff has adequately identified that the GPVS is a trade secret, it does not allege that this trade secret is in continuous use. Despite plaintiff's willingness to adduce new facts in its opposition, it noticeably fails to argue that the relevant trade secrets are still in use. Instead, plaintiff argues that such a requirement should not apply. In light of this failure in the pleadings, and because plaintiff has already had three opportunities to plead its claims, Count I is dismissed with prejudice."

Stale secrets and data sets that are no longer used to competitive advantage are not the stuff of misappropriation claims. Judge Tauro was correct, even reluctantly so, in recognizing this in the dismissal. The case can be cited as Portfolioscope, Inc. v. I-Flex Solutions Limited, --F.Supp.2d--, 2007 WL 460875 (February 12, 2007 D. Mass.).

Federal Court Addresses Eli Lilly's Trade Secrets Identified in Zyprexa Litigation

The fascinating opinion issued on February 13th of United States District Court Judge Jack Weinstein granting a permanent injunction begins "This case raises the intriguing questions of when it is appropriate to conduct aspects of civil litigation in secrecy, and of what are appropriate limits on civil disobedience by newspaper reporters, forensic experts, and attorneys."

For over two and a half years, a multidistrict products liability action was pending in Judge Weinstein's court over the Lilly anti-psychotic drug Zyprexa. The plaintiffs alleged that as a result of inadequate warnings by Lilly they became obese and suffered from diabetes. The court ordered internal Lilly documents were to be sealed on consent of the parties so that discovery could be expedited and the cases settled or litigated on their merits. A comprehensive protective order was entered.

Apparently, a New York Times reporter named Alex Berenson worked with the plaintiffs' expert to arrive at a means to avoid the protective order and obtain the protected documents in the expert's possession. Berenson allegedly worked with the expert in identifying an attorney in Alaska who could subpoena the documents from the expert under the pretense of needing them and that attorney would assist in disseminating them to the world. Judge Weinstein opined that rather than seeking a judicial lifting of the protective order, the three "conspirators" (NYT's reporter, plaintiffs' expert, and Alaskan attorney) agreed that the Alaskan attorney would disseminate the documents far and wide and the New York Times reported a number of stories under Berenson's by-line. Needless to say, Lilly reported this matter to Judge Weinstein and he wasn't happy. The Court ordered the Alaskan attorney to retrieve the documents and return them to the court-ordered "Master of Discovery" and report back.

Understandably, those who received the documents from the Alaskan attorney were not all equally prepared to give them back or even give them up. Hearing about that, Judge Weinstein issued a preliminary injunction prohibiting individuals and organizations from further disseminating them or the information. Interestingly, Judge Weinstein did not enjoin the New York Times in this regard - although it appears that Lilly did not seek the injunction to reach that newspaper. As Judge Weinstein makes clear in his opinion "no newspaper or website is directed to do anything or to refrain from doing anything" to comply with the injunction.

The plaintiffs' expert gets pilloried by Judge Weinstein in this opinion - mainly because he was a signatory to an agreement NOT to distribute documents sealed by court order. Judge Weinstein notes "such unprincipled revelation of sealed documents seriously compromises the ability of litigants to speak and reveal information candidly to each other; these illegalities impede private and peaceful resolution of disputes." Judge Weinstein goes on to address the New York Times in a similarly harsh fashion, noting the illegal scheme to obtain the information being dissimilar to the "Pentagon Papers" matter in that the documents in the Lilly matter were illegally obtained as the product of a conspiracy to evade a federal court order.

The court granted the permanent injunction sought (e.g., preventing further dissemination of the documents) but did not include any prohibition on websites that had posted or linked to the Lilly documents.

This opinion is a fascinating read. The case can be cited as In re Zyprexa Injunction, 2007 WL 460838 (February 13, 2007 E.D.N.Y.). There will likely be appeals taken from the permanent injunction and we'll report back on these as they develop.

Here's Eli Lilly's press release regarding Judge Weinstein's decision: http://newsroom.lilly.com/ReleaseDetail.cfm?ReleaseID=229954

Here's The Washington Post's write-up of Judge Weinstein's decision:
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/13/AR2007021301263.html?nav=hcmodule

Here's the Electronic Frontier Foundation's fact-filled website page concerning the matter:
http://www.eff.org/legal/cases/zyprexa/

A Complete Recapitulation of the Hewlett-Packard Shenanigans

Although it's not available on-line, this week's New Yorker has the seminal piece on the Hewlett-Packard boardroom mess and corporate spying. The article, by veteran business writer, James B. Stewart, details the dysfunctional board and the problems that occurred when the company tried to learn which director was leaking to the press.

It's a great read.

We had earlier covered the story here and here, among other places.

Trade Secrets of the Sword Swallowers

We couldn't resist this one from LiveScience.com on the trade secrets of those who swallow swords.

According the article, sword swallowing is a risky business. A new study reveals just how risky, and the trade secrets among those who plunge blades down into their throats and live.

The most common medical complaint: a sore throat. But the article reports lots of gruesome injuries too.

Tricks used to coax a blade down the throat varied: Many performers lubricated their swords first with saliva; one performer used butter and another had to retire because of a dry mouth condition. Some performed "the drop," in which the sword falls abruptly down the throat; some invited audience members to move the sword.

More Details in Trade Secrets Theft at DuPont

Gary Min pleaded guilty to stealing trade secrets from Wilmington, Del.-based DuPont in November 2006, but details of the case were officially unsealed only Thursday by U.S Attorney Colm Connolly in the U.S. District Court in Delaware. Min, who also goes by the first name Yonggang, faces up to 10 years in prison and a fine of up to $250,000 when he is sentenced on March 29.
According to the details released Thursday, Min started worked as a scientist at DuPont in November 1995 and focused mainly on research involving a certain type of high-performance films. In June 2005, he started talking with a U.K.-based multinational firm, Victrex PLC, about possible job opportunities in Asia and eventually accepted a job with the company in October 2005. Though he was scheduled to start working for Victrex in January 2006, he did not inform DuPont about the job until Dec. 12, 2005.
Between August 2005 and December 2005, Min downloaded approximately 22,000 abstracts and viewed approximately 16,700 full-text PDF documents from DuPont's Electronic Data Library (EDL) server, which was located at a company facility in Wilmington. The EDL server hosts DuPont's primary databases for storing confidential information. A large portion of the downloaded material had nothing to do with his primary areas of research; instead, it covered most of DuPont's major technology and product lines, including some emerging technologies that were still in the research-and-development stage.
The theft was noticed only after Min announced his plans to leave DuPont, when an internal probe by the company uncovered his unusually high EDL usage and the large volume of abstracts and reports he had accessed -- about 15 times higher than the next-highest user of the system.
DuPont immediately contacted the FBI and the U.S. Department of Commerce, both of which launched a joint investigation of Min's activities. About a month after Min started work at Victrex, he uploaded about 180 DuPont documents, including ones containing trade secrets and confidential information, to a Victrex-owned laptop computer. Victrex officials in London were contacted by DuPont and informed of the theft. Victrex then seized Min's laptop and handed it over to the FBI.
A raid of Min's home in Ohio on Feb. 14, 2006, uncovered several computers with confidential DuPont information, numerous garbage bags that were filled with shredded DuPont technical documents as well as evidence of documents that had been burned in a fireplace. At the time federal agents entered the house, Min had launched a software erasure program on one of the computers in an attempt to destroy the contents on its hard disk.

Ex-DuPont Scientist Pleads Guilty to Stealing Company Trade Secrets

From the Associated Press, via Forbes.com, a story concerning a former DuPont senior scientist, Gary Min, also known as Yonggang Min, who faces up to 10 years in prison after admitting that he stole trade secrets from the company. Min pleaded guilty in November to stealing trade secrets, but the case was not unsealed by federal prosecutors until yesterday. Min is facing the standard economic espionage penalty: up to 10 years in prison and a fine of $250,000. He will be sentenced March 29.

The Delaware U.S. Attorney say the market value of the confidential DuPont technology accessed by Min exceeds $400 million.

DuPont officials said they discovered that Min had accessed and downloaded thousands of confidential company documents only after he submitted his resignation in December 2005 to take a job with Victrex plc, a British-based competitor. DuPont immediately notified the FBI and Commerce Department.

Biggest Threat to Corporate Information: Ignorance

From the Seattle Post-Intelligencer, via HispanicBusiness.com, a nice piece about the sources and dangers of economic espionage.

According to the author: Sensitive documents are walking out in briefcases, bytes of data are zooming away over the Internet, and those internal files you thought were history are probably lying, unshredded, in some Dumpster.

Yet, "corporate top brass tends to ignore security issues until information is stolen and the company is embarrassed."

Trade Secrets and Morgan Stanley Hedge Funds

From a news release from the U.S. Attorney's Office for the Southern District of New York on Media Newswire, the United States Attorney announced that a former employee of Morgan Stanley, Ira Chilowitz, pleaded guilty in Manhattan federal court to charges relating to the theft of proprietary information regarding Morgan Stanley's hedge funds.

Chilowitz worked for Morgan Stanley's Prime Brokerage Division which provides financial and administrative services to numerous hedge funds. As a consultant to Morgan Stanley in its Information Technology Department, Chilowitz was responsible for establishing secure computer connections between Morgan Stanley and its Prime Brokerage clients. In that position, Chilowitz had access to numerous confidential and proprietary documents belonging to Morgan Stanley, including a list of all of Morgan's Prime Brokerage hedge fund clients ( the "Client Rate List" ) and the formulas used to calculate rates paid by clients to Morgan for certain prime brokerage services. Data in the Client Rate List is not generally known to the public and is valuable to competitors of Morgan.

The criminal information to which Chilowitz pleaded contains a reference to a co-conspirator 1 to whom the information was passed. That individual was not named and the U.S. Attorney says the investigation is on-going.

Eighth Circuit Affirms Synergetics' $2 Million Trade Secrets Theft Verdict

On February 5th, the United States Court of Appeals for the Eighth Circuit affirmed the $2 million misappropriation of trade secrets jury verdict in favor of Synergetics, a company specializing in the sale of precision instruments and disposable laser probes used during retinal surgical procedures. The verdict was rendered against Charles Richard Hurst, Jr. and Michael McGowan, two former high-level Synergetics sales employees who formed a competing company while still employed with Synergetics and who, as found by the jury, hired an outside Synergetics consultant to build a competing adapter/connector for the laser they would bring to market. The jury determined that Synergetics suffered actual damages of $1,759,165.00 and it levied punitive damages in the amount of $293,194.16 per defendant.

On appeal defendants argued, among other things, that they had no reason to know that drawings they commissioned for the adapter/connector were actually copied from Synergetics' own designs. They further contended that the information used was of the type that "grows stale relatively quickly" and thus shouldn't have been considered a trade secret two years after they left employment with Synergetics. The Eighth Circuit knocked both of these appellate claims down and noted, correctly, "determination of when trade secret information becomes stale cannot be made by reference to a bright line rule and necessarily requires fact specific consideration." The appeals court found that the jury HAD effectively engaged in the requisite fact specific consideration to support their verdict.

This is a major verdict against two departed employees and the affirmation of the verdict by the Eighth Circuit surely came as a major blow to the appellants. The appellate decision can be cited as Synergetics, Inc. v. Hurst, --F.3d--, 2007 WL 313585 (Feb. 5, 2007 8th Cir.).

Convicted Coca-Cola Trade Secrets Thief Called Flight Risk By Prosecutors After Friday Fire At Her Apartment

In a case that grabbed the attention of the national trade secrets bar and in-house counsel interested in the criminal implications of corporate trade secrets theft, the weird is only getting weirder. In a motion filed in U.S. District Court in Atlanta, Assistant U.S. Attorney Byung J. Pak said clothing, prescription medication, papers and other personal items were found in Joya Williams' Mustang during a search after a fire destroyed her apartment Friday. "With no place to live, with no money, with a significant amount of debt, and with the prospect of a lengthy prison sentence, the defendant poses a serious risk of flight," Pak argued in the motion.

"Residents from the Hunters Point apartment complex reported that they heard what sounded like an argument from Williams' apartment and items may have been thrown through her apartment windows," Pak wrote. Pak also said that Williams made inconsistent statements to investigators about her location and actions during the fire. He added, "Regardless of whether the fire was intentionally or accidentally set, the fact remains that the defendant no longer has a residence at which the pretrial release supervision can be maintained." A sentencing date has not been scheduled.

We will continue to report developments in this matter.

Trade Secrets & AA Batteries

From the Boston Globe, a story of a Connecticut man, a former Duracell employee named Edward Grande, who copied and downloaded computer research about Duracell's AA batteries. He then e-mailed that information to a home computer.

He's now pleaded guilty to theft of trade secrets in a Connecticut federal court.

According to the story, Grande then sent the information to two Duracell competitors, neither of which bit.

This is big business because Duracell generates more than $1 billion in revenue from the sale of AA batteries alone.

Grande faces up to 10 years in prison and a fine of up to $250,000 when he is sentenced April 23.

Joya Williams Found Guilty in Theft of Coca-Cola Secrets

From the AP, from ABC7.com in Los Angeles, a "federal jury convicted a former Coca-Cola secretary Friday of conspiring to steal trade secrets from the world's largest beverage maker in an effort to sell them to rival Pepsi."

Sentencing to come. Williams could face up to ten years.

Coke Trade Secrets Jury Deadlocked -- Judge: "Keep Working"

From WBSTV.com in Atlanta, a short report on the jury's reported deadlock and the judge's predictable statement that they should keep working.

Juries often have a way of resolving their differences and reaching a unanimous verdict on Fridays. We'll see.

The AP's report, via the Chicago Tribune is here.