St. Cloud Must Turn Over to Union City's Records Regarding Its Payments to Non-Union Workers

In a not-so-surprising story, the St. Cloud Times is reporting that a judge in St. Cloud, Minnesota has agreed with a union seeking a city's records regarding how much it has paid non-union workers on city jobs.

The International Brotherhood of Electrical Workers Local 292 asked the city to turn over payroll records of employees of Design Electric, the company hired to complete the project.
The city balked at turning over the records out of concern that doing so would violate the state Data Practices Act and could lead to a lawsuit from Design Electric.

Stearns County District Court Judge Thomas Knapp, in an order filed Tuesday, ruled that the city had to produce the records for the union, saying that the city's previous refusals violated the Data Practices Act.

The union, which has sought similar records from the city in the past, wants to verify that the city is paying "prevailing wages" for that project and to gather information about what wages are paid for such projects in the St. Cloud area, according to previous statements from Marshall Tanick, an attorney representing the union.

Design Electric gave the payroll records to the city, but they marked them as confidential trade secrets, according to a previous interview with City Attorney Jan Petersen.

That put the city in a bit of a dilemma, Petersen said at the time the union sued the city.

Disclosing trade secrets could get it into trouble and not disclosing public data could get it in trouble as well. Petersen said previously that the city would comply with the judge's decision.

Knapp ruled that the certified payroll records are public data and must be released.

From this blogger's standpoint, the judge exercised some restraint in not sanctioning the claim of trade secret protection by the contractor. How can a contractor claim that its invoices to a city with a duty to disclose its contracts and performance efforts are that contractor's trade secrets? At best the parties might've entered into an NDA between themselves but that, too, would be suspect. How can a city enter into a private agreement not to disclose certain things that they are duty-bound to disclose?

Some Updates

Further to the story of Bulldog Investors' attempts to challenge an SEC rule requiring hedge funds to disclose their positions as an unlawful taking of trade secrets, a story from Barron's (subscription req'd). (Thanks to fund manager Phillip Goldstein for the head's up.)

And from cnetnews.com, a follow-up to a story from January regarding Hewlett-Packard spying on Dell. Fortune magazine contends that there's evidence that HP paid a former Dell executive to turn over some of Dell's trade secrets. Fortune quotes an unidentified law enforcement official claiming that the "circumstantial evidence is very strong."

China Wants Our Nibs

The Quad-City Times is reporting that the Iowa-based Sheaffer Manufacturing Company is going to court to protect the nib. (That's the part that puts ink to the paper).

Fort Madison's Sheaffer Manufacturing Company and its parent, BIC Corporation, have filed a lawsuit against a former worker to stop him from selling the company's information about the nib design to a Chinese pen company.

The lawsuit against Ted Sharpe of LaHarpe, Illinois, was filed earlier this month in US District Court in Davenport, Iowa.

Sharpe worked for Sheaffer from 1974 to 2003.

A spokeswoman for BIC and Sheaffer (Linda Kwong) says the companies don't comment on pending litigation, but they do take an aggressive position to protect trade secrets.

A Cyber Pearl Harbor?

From Federal Computer Week and FCW.com, a story that says that federal agencies are bracing for a cyberattack of historic proportions, a virtual "cyber Pearl Harbor."

The concern comes in the wake of the recent denial-of-service attack by Russian nationalists against Estonia’s government in a diplomatic dust-up.

According to the article:

Bush administration officials have been preparing in a variety of ways to harden the government’s cyberdefenses against a massive cyberattack, which could disable large portions of the Internet on which government operations depend. One recent step was an Office of Management and Budget memo requiring agencies to use standard Microsoft Windows desktop and laptop PC configurations. That policy will make it easier for federal agencies to automatically apply software security patches.

And, "[i]n an unusual action, the CIO Council met May 16 at a secure location in Washington to discuss cybersecurity and nation-state attacks."

Officials are also considering the implications of an attack -- or counterattack -- with respect to the Computer Fraud and Abuse Act.

South Korean Editorial on Threat to South Korean Economy From Trade Secrets Theft

Arguing that industrial espionage is a major threat to the future of the South Korean economy and an act that is tantamount to treason, an editorial in yesterday's Korea Daily opines that two recent cases of trade secret theft call for national action thus:

"The two technology thefts were not isolated cases. Instead, industrial espionage has expanded to such an extent that it is now perceived by many to pose a threat not only to the security of the corporations involved, but to the entire nation. That is the reason why the theft of trade secrets for sale to foreign countries should be treated as an act little short of treason. According to a report from the National Intelligence Service, the number of successful and foiled attempts to sell stolen technologies to foreign business concerns rose from 39 in 1999 to 237 last year. The damage from industrial espionage could be much larger than the numbers suggest, given the suspicion that so many trade secrets are covertly sold to foreign business concerns. Nonetheless, the criminals involved are treated with kid gloves. In 2005, trial courts convicted 104 of the 130 people indicted. But only 11 were actually sent to prison. Reasons for leniency ranged from not being repeat offenders to benefits having not been realized. But would the judges have been as merciful if it had dawned on them that the crimes were little different from acts of treason? But a severe punishment alone will not be enough to solve the problem of industrial espionage. Rewarding researchers adequately for their contributions will surely help cut down on the theft of trade secrets. But the ultimate responsibility lies with the corporations involved, that will have go the extra mile to protect their secrets."

We have tracked on this blog numerous editorials and opinion pieces that suggest that trade secret protection is taking on almost a form of economic nationalism where countries are indicating concern that other countries are stealing their national momentum in the form of business advances. We will continue to track this vein in the literature and report it as we see it.

Coca-Cola Secretary Sentenced to Eight Years in Prison in Trade Secrets Theft Case

Forbes.com is reporting that former Coca-Cola secretary Joya Williams has just received an eight year prison sentence for her role in the trade secrets theft that was uncovered with the cooperation of Pepsi and the FBI.

Judge Forrester's sentence for Williams was more severe than the 63- to 78-month sentence recommended by federal prosecutors and federal sentencing guidelines.

He said the seriousness of the crime necessitated a departure from the guidelines, which federal judges are not bound by.

"I can't think of another case in 25 years that there's been so much obstruction of justice," the judge said of Williams' conduct.

Forrester largely ignored a tearful apology by Williams, which was the first time she acknowledged what she did.

"I just wanted to say that I'm not a bad person," Williams told the judge before he imposed sentence. "I'm really not."

She added, "I am sorry to Coke and I'm sorry to my boss and to you and to my family as well."

The government said Williams stole confidential documents and samples of products that hadn't been launched by Coca-Cola and gave them to Dimson and a third defendant, Edmund Duhaney, as part of a conspiracy to sell the items to Pepsi. Duhaney, like Dimson, pleaded guilty to conspiracy. Duhaney will be sentenced later.

The conspiracy was foiled after Pepsi warned Coca-Cola that it had received a letter in May 2006 offering Coca-Cola trade secrets to the "highest bidder." The FBI launched an undercover investigation and identified the letter writer as Dimson.

Williams was fired as a secretary to Coca-Cola's global brand director at the company's headquarters after the allegations came to light.

Sentencing Day in Coke Trade Secrets Case

From the AP, via the Daily Report, Joya Williams, the former Coca-Cola secretary will be sentenced today for conspiring to steal trade secrets from her former employer.

She faces up to 10 years in prison for the scheme to steal secrets from Coke and sell them to PepsiCo Inc. for at least $1.5 million. She was convicted Feb. 2.

According to the article, the government's recommended sentence has been kept under wraps.

Sentencing in Duracell Trade Secrets Case

From Newsday, a follow-up to our earlier story here concerning theft of trade secrets from Duracell in Connecticut.

Former Duracell employee Edward R. Grande, 49, of Seymour, Connecticut was sentenced last week in U.S. District Court in Bridgeport to five years probation. He was also ordered to pay a $7,500 fine and perform 200 hours of community service.

According to the story, Grande, who worked as a cell development technologist, copied and downloaded computer research about Duracell's AA batteries and sent it to two Duracell competitors. Neither of those competitors had requested or solicited Duracell's trade secret information, and both of the competitors sent the information they received from Grande back to Duracell.

Bulldog Investors Continues to Challenge, on "Takings of Trade Secrets" Grounds, SEC's Requirement of 13-F Filings for Hedge Funds

The Washington Post is reporting that hedge funds and other investment firms have been busily filing quarterly public reports to regulators in recent weeks, offering rivals a window into top manager holdings that sometimes moves shares.

But don't look for any information from Bulldog Investors or Wynnefield Capital -- their so-called 13-F filings are largely blank.

The two funds are leading a charge to overturn the rules that require them to file quarterly holdings information, maintaining that such disclosures are trade secrets. Both have applied to keep their holdings confidential, but expect regulators to turn them down, forcing a court battle.

"We filed but it was blank," said Phillip Goldstein, a veteran investor who heads the $300 million-plus hedge fund group Bulldog Investors and affiliate Full Value Advisors. "We haven't heard back from the SEC."

Goldstein is no stranger to tangling with regulators. Last year he successfully challenged SEC rules requiring hedge funds to register as investment advisers. The U.S. Court of Appeals in June agreed, forcing the SEC to abandon the rule.

"Frankly I think we will win," said Goldstein of his latest effort. But he said "I suspect it will take a long time." Last year Full Value Advisors also asked for an exemption, but got no response from the SEC, he said.

If Goldstein succeeds and funds stop filing quarterly 13-F reports, investors could be denied an important investment tool: a quarterly window into what the world's best investors are holding, at least as of a particular quarter's end. And evidence shows that information is closely followed.

Yesterday, for instance, railroad stocks rose after investors Warren Buffett and Carl Icahn disclosed that they held large stakes in major industry players. Icahn disclosed stakes in CSX Corp. (CSX.N), while Buffett revealed stakes in Union Pacific Corp. (UNP.N) and Norfolk Southern Corp. (NSC.N).

Under SEC rules, institutional fund managers holding more than $100 million in assets must disclose their "long" holdings within 45 days of a quarter's end. Funds may apply to keep the information confidential if they can prove it reflects "trade secrets," and other criteria.
Bulldog and Wynnefield maintain that stock holding information is a trade secret akin to Coca-Cola's secret formula for Coke - the product of much original research that must remain undisclosed. Fund holdings, he said, can also reflect trading strategies that is valuable to competitors.

Public disclosure of this "unique intellectual property" violates the Fifth Amendment of the U.S. Constitution that bars the taking of property without compensation or due process of law, the two funds maintain.

Ron Geffner, a high-profile hedge fund lawyer and former SEC prosecutor, gave Goldstein a reasonable chance of success.

"Had I not known him and his prior successful action with the SEC, I would have dismissed him as having a very limited likelihood of success," said Geffner. "However, this time I would chose not to underestimate his abilities and the strength of his claims."

Goldstein said he is now waiting to hear from the SEC on his application for confidential treatment. He said he expects his bid will be rejected, which will likely lead to a court challenge.

Note: we have reported extensively on this matter in earlier posts which can be found by searching for the word "bulldog."

Top Computer Crimes for the First Quarter of 2007

From US News & World Report, an interesting compilation of the top computer crimes for the first quarter of this year.

Included is a trade secrets case:

Theft of Morgan Stanley Hedge Fund Secrets: On February 1, federal prosecutors announced the guilty plea of Ira Chilowitz to charges tied to the theft from his ex-employer, Morgan Stanley, of hedge fund trade secrets. Chilowitz oversaw secure computer connections between Morgan Stanley and its Prime Brokerage clients, and had access to numerous internal documents, including a list of all of the firm's hedge fund clients and the formulas used to calculate rates they paid for certain services. He pleaded guilty to four counts of conspiracy, transportation of stolen property, theft of trade secrets, and unauthorized computer access.

We reported on the story on February 9, here.

"This May Be The Darkest Secret of Corporate India . . . . "

India's Moneycontrol.com recently posted an interesting piece concerning a novel aspect of India's corporate trade secrets thievery. It's a short piece, with a good lead. We've copied it below.

"This may be the darkest secret of corporate India. Several Indian companies are stalking B-school campuses and hiring students with the sole aim of gaining trade secrets of their rivals, reports CNBC-TV18.

A 25-year old MBA student from one of the leading business schools in India succeeded in breaking through the security barriers of 10 banks in India. He was picked up by an MNC bank from his campus to do a live company project. His assignment involved getting classified information from the bank's competitors. But he was instructed to approach rival companies posing not as an employee but as a student working on an academic project.

A student said, “Its easy when you pose as a student because then corporates normally help you out.”

He gained access to various strategies followed by banks to service their HNI customers. Students use these projects to pump up their CVs. But business schools are getting concerned about such malpractices.

Prakash G Apte, Director, IIM Bangalore, said, “I think industrial bodies like Assocham and CII should come forward and put a stop to such things.”

Ashvin Parekh, Partner, Ernst & Young, said, “Using students for getting information from rivals is becoming rampant.”

Leading corporates have reacted with shock to this investigation saying they will have to go back to the drawing board to rework security checks. The next time you open your company's cards to a student, beware."

Judge Posner On Trade Secrets and Injunctions

In a decision issued yesterday (May 7th) Judge Posner wrote the 7th Circuit's opinion in a trade secrets case brought by American Family Mutual Insurance Company against a former agent named Bonnie Roth and other agents unidentified by the caption. Seems Ms. Roth started soliciting her former insurance customers shortly after her employment terminated and American Family subsequently adduced evidence she had downloaded a list containing 1847 names. They sued her and her cohorts, of course, for misappropriation of trade secrets and violation of her employment agreement's restrictive covenants.

Judge Posner, as per his traditional methodology, deconstructs the nature of the property interest in the names thus: "But once agents enter customer information in the database, the information becomes the exclusive property of the plaintiff, or at least exclusive as against the agent. The information, insofar as it had been developed by the agent rather than supplied to him by the plaintiff (employer), would be his trade secret initially - but only until he uploaded the information into the plaintiff's database, at which point it would become the plaintiff's trade secret. (This provision of the contract is a "grantback" clause, common in patent and other intellectual-property settings.) Trade secrets can be sold (citations excluded), and once sold (rather than just licensed) can no longer be used by the seller."

Judge Posner goes on to note "There is nothing unconscionable, or even one-sided, about the arrangement we've just sketched. The agents benefited from being able to use the plaintiff's database, as well as from receiving customers from the plaintiff; in exchange, they gave the plaintiff the right to keep, after termination of the agency relationship, any customer information that they'd acquired in the course of the relationship."

The Court went on to note: "So the plaintiff is entitled to an injunction. But there are problems with the wording of the injunction that the district court entered. The first provision we quoted, forbidding the use by the defendants of any information "downloaded" from the plaintiff's database, contains a potential loophole. "Downloading" could be thought to refer only to an electronic operation, such as transferring documents from an electronic database to a computer's hard drive. So defined, it would exclude hand-copying information from a computer screen. We cannot order the district court to close the loophole, however, as the plaintiff has not filed a cross-appeal, asking that the injunction be modified. Another problem with the first quoted provision - this one, however, properly raised in this court, by the defendants' appeal - is the inclusion of the prohibition against downloading of the "the names contained in exhibit 34." While most of the names are in the database, some are not, and there isn't any basis for forbidding the defendants to use those names."

Judge Posner, having advised the litigants and the district court of some of their oversights, then writes "But rather than try to work out the details of a proper injunction, we shall remand the case to the district court for the entry of a better-drafted injunction, while affirming so much of that court's decision as determines that the plaintiff is indeed entitled to a preliminary injunction."

What to take from this? If you take an appeal to the Seventh Circuit in a trade secrets case and you happen to pull Judge Posner on your panel, your arguments will be examined from all sides as will your record and you will learn that the Seventh Circuit continues to look at legal matters with a unique and novel eye. This opinion is American Family Mutual Insurance Company v. Roth et al., No. 06-3412 (May 7, 2007, 7th Cir.).

The Founding Fathers and Trade Secrets?

From the always interesting and entertaining James Suowiecki in the New Yorker, his Financial Page column on changing American attitudes toward intellectual property. The key quote:

"The great irony is that the U.S. economy in its early years was built in large part on a lax attitude toward intellectual-property rights and enforcement. As the historian Doron Ben-Atar shows in his book Trade Secrets, the Founders believed that a strict attitude toward patents and copyright would limit domestic innovation and make it harder for the U.S. to expand its industrial base. American law did not protect the rights of foreign inventors or writers, and Secretary of the Treasury Alexander Hamilton, in his famous “Report on Manufactures,” of 1791, actively advocated the theft of technology and the luring of skilled workers from foreign countries. Among the beneficiaries of this was the American textile industry, which flourished thanks to pirated technology.

The lesson: try quoting Hamilton the next time you're defending a trade secrets case.

Trade Secrets of 49ers' Stadium Negotiations

The San Jose Mercury News is reporting that Santa Clara city leaders signed an agreement with the San Francisco 49ers this week to keep secret certain sensitive documents about the team's quest to build an $854 million stadium in the city.

The agreement doesn't spell out what documents the team wants kept confidential, but the 49ers say releasing certain financial information could harm their ability to negotiate the best financing options for the stadium.

"It's just common sense - for example, if you're selling a house - you want to be in a competitive situation for items that are going to fund the stadium," 49ers vice president of communications Lisa Lang said.

Stadium critics aren't convinced. They say the public should have the chance to examine every document, because the city is weighing contributing more than $160 million to the project. The stadium would be owned and operated by a city stadium authority.

"It's like saying, `We want you to accept the ultimate responsibility but we're not sharing important information with you, the voters,'" said Santa Clara resident Kate Grant.

The agreement says the 49ers can identify which documents they want the city to keep confidential, but the city would still be required to follow the California Public Records Act.

The team does not plan to publicize breakdowns for projected revenues - such as stadium naming rights, concession rights, ticket taxes and seat licenses - that would help build and operate the stadium. Those figures, some sports economists and city leaders say, are crucial in helping the public understand the city's financial risks.

But Lang said the risk would be reduced because the team plans to negotiate contracts to guarantee the money is available before the stadium is built. The revenue breakdowns will be shared with the city's consultants, who will help assess whether the deal is in the public's best interest.

City Attorney Helene Leichter said some trade secrets are considered exempt from public disclosure rules because they could hurt the team if they're disclosed prematurely.

"A lot could be discussed at the table - some of which would hold water, some that won't," Leichter said. "We'll be as open as possible without jeopardizing the 49ers' confidential trade information."

For instance, she said, the team could undercut the value of a deal to sell the stadium naming rights if it announces an estimate that's lower than a company may be willing to pay.

But some open government experts said they're not convinced the revenue streams are trade secrets. Public disclosure rules define trade secrets as information that can allow competitors to "obtain economic value from its disclosure or use."

"It seems to me that's it's a hard case to make that all of this stuff really ought to be protected as trade secrets," said Peter Scheer, executive director of the California First Amendment Coalition. "You have to parse it item-by-item. You may have a reasonable argument with respect to naming rights but what about the other items?"

City Manager Jennifer Sparacino signed the agreement before telling council members in a closed session Tuesday.

"Based on what I heard, it sounds reasonable to me that we don't need to see every estimate and calculation, and I want an overall comparison to help me make decisions," said council member Jamie McLeod. "But if folks in the community want those numbers, we need to find out where the lines are drawn, what's requested and what specific concerns the 49ers are raising."

More Chinese Economic Espionage in Canada?

From Canada.com, a story about economic espionage and theft of trade secrets from Canadian jet manufacturer, Bombardier.

Canadian newspapers have reported this week that foreign technicians were caught stealing trade secrets at one of Bombardier's Montreal plants last year. According to Canada.com, reports said that Chinese technicians were especially interested in computer files at one of the jet-assembly plants and that Bombardier tried to keep the incident under wraps.

Another Canadian paper, the Journal de Montreal also reported that Bombardier negotiators found out they were being spied on during a recent trip to China.

Bombardier, for its part, isn't commenting.

We've earlier reported on claims of Chinese economic espionage in Canada in postings compiled here.

Hydromer, Inc. Settles Trade Secrets Case Against Former Employee and New Taiwanese Employer

Business Wire is reporting that a pending trade secrets misappropriation case has settled. In February, 2007, Hydromer, Inc. filed suit in the U.S. District Court for the District of New Jersey against Liou Liang Horng, a former employee, and Gelwell Biotech Corporation, a Taiwan corporation. (Civil Action 07-cv-967;(AET)(TJB))

Hydromer asserted that Horng has violated certain employment and consulting agreements with Hydromer and violated Hydromer's rights in its proprietary trade secrets by, inter alia, disclosing in Horng patent applications Hydromer's proprietary formulations developed during Horng's employment with Hydromer, and forming Gelwell to commercially exploit these formulations in violation of Horng's employment agreement.

Gelwell/Horng denied personal jurisdiction in this court and denied all allegations in the Complaint. The case has been settled and defendants have paid Hydromer's attorney's fees and assigned all the patent rights involved in this matter over to Hydromer. The suit was dismissed without prejudice in light of the settlement.

Hydromer, Inc. is a technology-based company involved in the research and development, manufacture and commercialization of specialized polymer and hydrogel products for medical device, pharmaceutical, animal health, cosmetic, personal care, and industrial uses.

Exel Transportation Services Inc. Announces $10 Million Settlement Agreement in Trade Secrets Matter with Total Transportation Services LP

Business Wire is reporting that Exel Transportation Services Inc. announced that it recently received a cash payment of $10 million from Total Transportation Services LP based on a settlement agreement related to its lawsuit alleging unlawful access to trade secrets and other confidential and proprietary information.

As part of the settlement, Total Transportation Services agreed to the following public statement: “Unbeknownst to Total Transportation Services LP, wrongdoing was committed against Exel Transportation Services, and Total Transportation Services LP sincerely apologizes.”

Exel Transportation Services President Jim Damman stated, “We are pleased we were able to quickly detect this situation, and subsequently bring about the successful resolution of this litigation, which demonstrates the commitment of Exel Transportation Services to protecting its confidential and proprietary information.”

In a lawsuit filed April 3, 2006, in the U.S. District Court of the Northern District of Texas (Dallas Division), Exel Transportation Services alleged that the defendants used computer passwords to hack into Exel’s computer system. According to the lawsuit, certain Total Transportation executives, all of whom were former employees of Exel, systematically accessed Exel’s computer system and company e-mail accounts to obtain Exel’s trade secrets and other confidential and proprietary information in order to help establish Total Transportation.

Exel Transportation Services, with principal offices in Dallas and Memphis, Tenn., provides transportation and supply chain management products and services to facilitate links between shippers and carriers in the manufacturing, retail and consumer industries. Total Transportation Services provides similar products and services.

Trade Secrets and Formula One

From Autosport.com, a story about two former Ferrari engineers found guilty in an Italian court of industrial espionage for stealing trade secrets for rival Formula One competitor, Toyota.

One of the engineers -- a wind tunnel designer -- was found guilty of misappropriation of a CD-ROM with engineering and test data, files and technical drawings, used in 2002 and 2003 to develop race cars while he was working for Toyota.

According to a related story in The Register (UK), "security firms were quick to highlight the case as an example of the dangers of uncontrolled use of removable storage devices in facilitating data theft."