Back-Breaking Trade Secrets Trial: Synthes and Globus Medical Go To Trial

The Philadelphia Daily News is reporting that Globus Medical Inc., is on trial in federal court in Philadelphia, accused by its founder's former employer, Synthes (USA) L.P., of benefiting from the use of trade secrets and confidential information, including product designs, manufacturing methods and regulatory strategies.

At stake are tens of millions of dollars in damages sought by Synthes, which has North American headquarters and 1,400 employees in West Chester.

Globus and the three executives on trial contend they have done nothing wrong. In thousands of pages filed in the three-year-old lawsuit, Globus also accuses Synthes of defamation, trade libel, interference with prospective contractual relationships, and unfair competition.

A civil jury began hearing testimony yesterday in the courtroom of U.S. District Judge Lawrence F. Stengel, which was packed with dark-suited attorneys.

"In a word, they cheated," attorney Kevin M. Flannery said in an opening statement for Synthes, which is represented by the Center City law firms Dechert L.L.P. and Blank Rome L.L.P.

Synthes contends that Globus improperly used resources and information that Paul and Synthes employee Richard Kienzle obtained while working at Synthes, unlawfully recruited its employees, and improperly misappropriated and passed off Synthes' products as its own.
One of three Globus defendants on trial, Lawrence Binder, is accused of downloading 2,300 computer files that were electronic blueprints for Synthes products.

"Mr. Binder admitted he downloaded at least some of them onto a CD," Flannery told jurors, noting that Binder said he had since misplaced that CD.

"The reason Globus is successful has nothing to do with taking trade secrets," defense attorney John P. McShea countered in an opening statement. Globus and its executives are represented by McShea Tecce P.C. and Conrad O'Brien Gellman & Rohn P.C. "They devised a way to do this business better, smarter. The reason Globus was formed in the first place was, ideas that David Paul brought to Synthes were rejected," McShea said.

The defense portrayed Synthes - the No. 3 maker behind Medtronic Inc. and Johnson & Johnson in the $4.2 billion spinal-implant market - as an "old established" company out to squelch a successful newcomer.

Somebody's going to be in need of an adjustment when this one is over.

Economic Espionage in Our Backyard

From the Raleigh News & Observer, a story about a lawsuit filed right here in Wake County, North Carolina, by Serenex, a drug development company, against a former contract chemist, Yunsheng Huang of Apex, NC. Also named as defendants are two Chinese companies, Beijing Gylongli Sci. & Tech. Co. and GYLL Biomedtech; and Tongxiang Zhang, "a decorated member of the Chinese Communist Party" who runs the businesses.

According to the story, in February, Serenex learned Zhang and others had filed a patent application for a cancer treatment with the World Intellectual Property Organization. The treatment allegedly included compounds identical to patented compounds that Serenex worked on during Huang's employment. Other compounds in the application are "nearly identical" to Serenex's.

Huang "categorically denies any wrongdoing," said Walter Schmidlin of Anderson, Jones & Gengo in Raleigh, Huang's attorney.

USA Today Reports on FBI's Attempts to Counter Chinese, and other, Trade Secret Theft

This important issue our blog has been covering since its inception - the threat of foreign governments and foreign companies to American intellectual property interests - has now made the front page of the USA TODAY. That shows the issue has arrived.

They report that China, which lacks a tradition of protecting intellectual property, represents the most aggressive threat. The Communist leadership is determined to increase the nation's technological sophistication while fiercely competitive Chinese business executives seek to leapfrog Western rivals by marrying their low labor costs with purloined technology.

"It's a serious problem to Corporate America and our economic interests," says Rudy Guerin, former head of the FBI's East Asia branch. "And it's going to get worse."

The FBI has increased the number of agents assigned to counter alleged Chinese espionage from about 150 in 2001 to more than 350 today, says Bruce Carlson, who leads the bureau's counterintelligence efforts against China.

Wang Baodong, a spokesman for the Chinese embassy in Washington, says: "The allegations made by a handful of people in this country that China is engaged in espionage activities in the U.S. are groundless."

Federal Shield Law for Journalists and Trade Secret Implications

The San Francisco Chronicle recently ran an editorial regarding the growing opposition to a federal shield law protecting journalists who use anonymous sources.

As the editorial notes, 0pposition to the proposed shield law has emerged from another potential target of investigative journalism: big business. A coalition that includes the U.S. Chamber of Commerce, the National Association of Manufacturers, beverage companies and tire makers has hired one of the nation's largest litigation firms and one of Washington's high-powered PR firms in its effort to weaken the shield-law protections.

Phil Goldberg, an attorney from the D.C. firm Shook, Hardy & Bacon, denounced the current version as an "absolute protection" that would lead to all sorts of breaches of personal information and trade secrets by opportunistic evildoers. He suggested that companies would be left powerless to find out who was leaking damaging information about their customers or giving away trade secrets.

"Frankly, it could destroy some of these small companies," he warned.

The editorial claims that the amendments proposed by the business groups, however, could seriously chill investigative reporting on consumer, environmental or corporate-malfeasance issues that require confidential sources. They want no federal shield for journalists on revelations involving any trade secret or proprietary information.

We at Womble Trade Secrets seriously doubt either the U.S. Chamber of Commerce OR the association of journalists will finally agree on the propriety of a comprehensive shield law. The latter are incentivized and devoted to make news with hard-hitting, often critical, investigative reports on the members and constituencies of the former. Simply put, big business doesn't like reporters using confidential sources that accuse, in the dark, big business of wrongdoing. Interestingly, though, the news organizations reporters work for often use "closed door" and "secret meeting" sessions to wash their own dirty laundry. All one has to do is recall The New York Times' handling of the Jayson Blair and Howell Raines matters - or CBS's handling of the Dan Rather debacle - to see that they are not ALWAYS letting the light on in.

We'll keep an eye on this battle brewin'.

Facebook and Trade Secrets

From SecurityFocus, a story about social networking site Facebook's founder, Mark Zuckerberg, who is facing new claims from three Harvard classmates that the idea and source code for Facebook was taken from them when Zuckerberg was working with them on a site called Harvard Connection (now ConnectU).

The stakes are high since Facebook may now be valued at up to $2 billion.

According to the article, the three founders of ConnectU have brought ten claims against Facebook, including copyright infringement, misappropriation of trade secrets, and a number of violations of common law. They are seeking an injunction prohibiting Facebook's operations, requiring that the company destroy all materials derived from the allegedly infringed-upon code, and holding the firm and its officers liable for the civil claims.

More information on the story can be found at Conde Nast's Portfolio.com here.

Ithaca Journal Finally Concludes First Amendment Is No Shield In Private Employment

It's a slow news day here at the Womble Trade Secrets Blog. It must be a slow news day in Ithaca, New York as well because The Ithaca Journal has just published a piece informing Ithacans that, lo and behold, experts have informed them that at-will employees in a private place of business might not receive the protection from the First Amendment that they formerly thought they had.

The article quotes a recognized labor & employment specialist from Delaware to note "A lot of people think they're protected by the First Amendment in cases where they're not.” Perhaps it would have been a good idea for The Ithaca Journal to establish some context for its piece. We would have suggested the First Amendment itself, short enough for even the tiny newspaper to print. We'll do it here:

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances."

That's it - that's the First Amendment. That would've fit in the piece, short as the piece is.

One of the two editors of this blog admits some bias favoring the Ithaca, New York area having been a law student there many moons ago. Ithacans are, in this editor's estimation, generally as smart or (oftentimes) smarter than the average bear. That said, we think that even more noteworthy than the fact that the First Amendment doesn't protect an employee when they disparage their manager or business owner on a blog is the fact that most Americans don't even know what the First Amendment provides, that it is expressly directed at CONGRESS making a LAW that inhibits speech. Why would the average employee think that the text of the First Amendment somehow protects them from discipline or termination in a private place of business? Poor reading comprehension skills? We doubt that is what the author of the piece meant to suggest. Our criticism of today's article is that The Ithaca Journal does nothing to ameliorate the sad state of affairs that many Americans haven't read the Constitution or the Bill of Rights but believe they understand those foundational documents full well, thank you very much.

If you haven't tired of this mini-rant, our last point is that the topic of trade secrets DOES show up in the article. This occurs late in the article where the author examines why an employer would even be examining an employee's blog writings or use of the internet to disparage the company or its management. The article concludes, correctly, that employees are not always using blogs or the internet to tout the company they work for to the world and that these activities might result in what has been called a "career-limiting gesture."

Syria Formulates Trade Secret and IP Legal Protections

Just out from the ag-IP News Agency - Syria has created a draft law that specifies procedures concerning patents and utility models' filling, protection validity and people eligible for receiving a patent, among many others. In addition, the draft law allocates a special chapter for the protection against unfair competition and the protection of trade secrets. While, another chapter puts in order the work of the IP agents in Syria.

Just goes to show that even pugilistic legal cultures recognize the benefits from encouraging and protecting the creation of information that creates competitive advantages in the market.

Bloggers - Disclosing Trade Secrets?!?

http://www.informationweek.com/blog/main/archives/2007/07/new_tool_for_sn.html

We, as you now know, author a blog tracking developments in trade secrets. Information Week is reporting that there is now a device employers can purchase to snoop on bloggers to ensure that they aren't doing the wrong thing - like disclosing trade secrets. We did a double-take when we first read this one, but now that we've read it more slowly it's no skin off our backs. Until they design software prohibiting a blog on the issue of trade secrets, you won't hear us complain.

Now the name of this thing - the "social media compliance product" - that sounds a tad Orwellian, no?

Chinese Economic Espionage -- An EU Point of View

From the Epoch Times, an interview with Claude Moniquet from the European Strategic Intelligence and Security Centre concerning the different approaches to Chinese economic espionage in the EU.

According to Moniquet,

"Very sadly Europe can not be compared with the US on this point. The US has a very clear policy towards security issues. Notwithstanding the commercial relations they have with China they made it very clear to China that spying in the US cannot be allowed and that whoever gets caught will face jail time or be in serious trouble. Sadly in Europe it's not the same. Most of the European countries that deal with China, like France, Germany, the UK, Italy, etcetera, know very well that the Chinese secret service is working very hard in their country to steal industrial or commercial secrets, but in the same time they do not want to harm the relationship they have with China."

Moniquet's solution:

"We should make clear to them that we want to have commercial relations with them but that there are certain things they cannot do, such as spying or trying to influence the Chinese communities living in Europe or threaten and manipulate the local Chinese people."

LA Times Advice Columnist Gets Around to Advising on Trade Secrets

Well, we've documented quite a number of trade secret analyses on this blog over the past couple years. That said, this is the first time that the analysis is being offered by an advice columnist - kind of "Dear Abby" meets the Restatement. In an apparent attempt to save on fees, this trade secret holder wrote to the LA Times' business advice columnist to figure out the world of trade secrets. Enjoy "Dear Karen"'s response.
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"Dear Karen: What is a trade secret and how do I go about protecting it?"

"Answer: A trade secret is something valuable and unique that helps your business succeed against the competition. It could be almost anything, including a recipe, a formula, a manufacturing process or a customer list.California's Uniform Trade Secrets Act, civil code section 3426, contains a provision to enjoin and award money damages for violating or misappropriating a trade secret. The website of the California State Bar, calbar.ca.gov, has an overview of the law (search "trade secrets"). Some trade secrets are so unusual that they will always set your firm apart, said Larry Apolzon, an intellectual property attorney and co-author of "From Edison to iPod: Protect Your Ideas and Make Money." Other things you consider trade secrets may be easily reverse engineered, or they may be logical innovations that your competitors will figure out on their own. Even so, it's a good idea to catalog anything you consider a trade secret and keep it in a secure place." You should have specific rules in place with your employees about who has access to trade secrets, and you should keep them absolutely confidential, disclosing them only on a need-to-know basis," Apolzon said. Those people who must know your trade secrets should sign confidentiality and nondisclosure agreements acknowledging their receipt of the information and promising not to misappropriate the secrets in the future. " If you get into a legal dispute, you'll have to show the courts how you protected your trade secrets by establishing security policies around them," he said."

The Trade Secrets of Dishwashing

It's a relatively slow day here in trade secrets land so we thought we'd lighten things up a bit with this witty report about the trade secrets of dishwashing. Enjoy!

More on Oracle vs. SAP Trade Secrets Claim

PC World reports that SAP has admitted, presumably in its Answer to Oracle's complaint, that its subsidiary, TomorrowNow, inappropriately downloaded some information -- fixes and support documents, according to SAP -- from Oracle's secure website.

Oracle has characterized the behavior as corporate theft on a grand scale.

Now the Justice Department is getting into the act.

We reported on the story earlier here (among other places).

Final Dismissal in HP Spying Case

A case we've covered extensively -- some might say ad nauseum (and most recently here) -- is over.

From IDG News Service via ComputerWorld, the report that Santa Clara (CA) County Superior Court Judge Ray Cunningham has dismissed charges against the three remaining criminal defendants in the Hewlett-Packard Co. spying case. The three are former HP attorney Kevin Hunsaker and private investigators Ron DeLia and Matthew DePante.

The charges that were dropped against the three involved their part in the use of false pretenses to obtain phone records of individuals they were investigating for leaking HP board deliberations to the news media. Cunningham agreed to the dismissal after each of the defendants performed at least 96 hours of community service.

According to the judge: "At worst, the conduct in this case amounted to boardroom politics and a betrayal of trust rather than criminal activity."