Blackwater Trade Secrets Case Settled

From the Virginian-Pilot, a story about a settlement of Blackwater USA's trade secrets case against a former employee who was a cost analyst for the security firm.

All civil and criminal charges have been dropped and the settlement is confidential.

Blackwater had fired the analyst, Curtis Smith, and brought suit against him in Superior Court in Virginia.

The company claimed that he gave confidential pricing models to Covenant Special Projects, a Northern Virginia-based security firm for which he later went to work.

Chinese Economic Espionage on the German Government

More of our coverage on the never-ending saga of Chinese economic espionage, this time from the Times (of London), a story about the Chinese hacking their way into German government computers, specifically at the Chancellery and three other ministries.

If true, it's not going to help German-Chinese relations, especially while German Chancellor, Angela Merkel, is in Beijing.

According to the story:

Investigators caution that businessmen should not leave their laptop computers in hotel rooms while at official functions because of the risk of data theft. And all information transferred from China to German corporate headquarters should be encoded. “I have become really worried about Chinese espionage in the technology area,” says Hartmut Schauerte, parliamentary minister in the Economics Ministry and a China specialist.
The suspicions are now so deep that the motives of Chinese researchers at German universities are being questioned. Yesterday the Chinese Embassy in Berlin described the accusation of state-steered hacking as “irresponsible speculation without a shred of evidence”.

Australia: Trading Its Intellectual Property for a Lamb Chop?

From On-Line Opinion, an Australian site, a somewhat bitter piece by Dale Spender concerning Australia's trade agreement with the U.S. which requires the country to harmonize (or as they say in the rest of the English-speaking world, "harmonise") its IP laws with the U.S. (While we're at it, let's harmonize spelling too.)

The basic premise is that from the beginning of our Republic and for as long as it suited us, the U.S. pirated the world's intellectual property and trade secrets. Now that we're on top, the argument goes, we're all about protection of IP by law.

And Australia, Spender says, signed on to a regime that favors the U.S. in order to get free trade (and, presumptively, to sell us lamb chops).

According to Spender:

"According to one esteemed Australian journalist we traded our IP for a lamb chop. Sydney Morning Herald business commentator Ross Gittins said much the same thing: 'To the Australian negotiators it is about eliminating trade barriers; to the US it is all about IP.' They sell it and we buy it. On their terms. And that’s the story of how IP has become the new wealth. And how countries that don’t 'harmonise' their IP laws with the US are in trouble; and individuals who don’t go along with the US laws designed to lock up American IP - are pirates and criminals."

While I don't necessarily agree with everything Spender says, we owe it to ourselves to listen to voices from countries like Australia and their points of view deserve our consideration.

Synergetics Announces That Former Employees' Post-Trial Motions Denied But That Its Own Pre-Trial Conduct Will Reduce Collectable Judgment

Synergetics USA, Inc. announced on August 22, 2007 that the U.S. District Court has ruled on post-judgment motions filed by defendants Charles Hurst and Michael McGowan.

In December 2005, a judgment in favor of Synergetics was entered in federal court against Hurst and McGowan on all counts after a jury found that they had misappropriated Synergetics' trade secrets, breached confidentiality agreements, breached their fiduciary duties to Synergetics, and had intentionally interfered with Synergetics' business relationships. In February 2007, the Eighth Circuit Court of Appeals affirmed the judgment in all respects. However, prior to the appellate court decision, Hurst and McGowan filed in the District Court a motion to vacate the judgment and a motion seeking sanctions, asserting that Synergetics engaged in improper pre-trial conduct.

Today, the Court dismissed the defendants' motion to vacate the judgment, allowing Synergetics to retain its judgment against Hurst and McGowan. The Court also awarded Hurst and McGowan $1.17 million in sanctions, which the Company intends to offset against the original $2.35 million judgment in the Company's favor against Hurst and McGowan.

"Although we are pleased with the final outcome of this litigation for Synergetics' shareholders and employees, we are greatly disappointed in the Court's opinion that Synergetics did not conduct itself in pre-trial matters according to the highest legal standards. This was not our intent," said Gregg D. Scheller, President and Chief Executive Officer of Synergetics USA, Inc. "Synergetics is a medical technology company that relies heavily on its trade secrets for success in the marketplace. Synergetics has and will continue to vigorously defend these trade secrets from those who would misappropriate them. The Company will continue to diligently pursue its collection efforts in the judgment against Hurst and McGowan."

Synthes and Globus Settle Trade Secrets Dispute

A story from the Philadelphia Inquirer following up on a story we reported on here last month concerning the trade secrets dispute and trial between spinal implant makers, Synthes and Globus.

Globus agreed to pay Synthes a multimillion-dollar sum to resolve claims of trade secrets theft, but lawyers refused to provide details of the settlement. However, online publication Orthopedics This Week reports speculation by bloggers that Globus will pay Synthes some serious change, between $13 and $35 million.

According to the Inquirer, Synthes sued David Paul, its former head of spine-products development, and two other Globus executives. Paul left Synthes in 2003 to create Globus and recruited more than a dozen Synthes employees.

The settlement occurred mid-trial.

The Inquirer quoted one juror as stating that the "testimony was pretty damning for Globus." She stated that "Synthes produced copies of Globus and Synthes safety testing ratings with FDA. They were word for word, including typographical errors."

Synthes also called as witnesses Globus employees "who methodically resigned on Friday and started with Globus the next Monday for eight months in a row."

There it is: another big trade secrets settlement.

Continuing the All Whole Foods' Theme

From the Washington Post, a story following up on those from last week concerning the government's loss in its attempt to block Whole Foods' acquisition of rival upscale-organic type grocer, Wild Oats. Notwithstanding some damaging internal documents from Whole Foods, the government could not overcome the defense that other less upscale grocers would keep the combined from companies from raising prices.

The irony here is that the opinion is not fully available because it contains trade secrets, but the government apparently inadvertently released those same trade secrets last week.

The FTC is seeking emergency review in the D.C. Circuit to block the acquisition which could happen today.

Don't hold your breath waiting for the appeals court on this one.

FTC Continues To Drop Ball in Whole Foods Trade Secrets Matter

The blog SeekingAlpha reports that the troubles continue for the FTC in its attempt to redact confidential information in the Whole Foods/Wild Oats debacle. Apparently, the FTC filed a redacted Word document where the FTC just blacked out the formerly offending trade secret releases. Due to the fact that the filings were in Word format, the user could simply delete the blacked out sections with their cursor and read everything anew. We imagine the judge is going to have some interesting comments regarding how seriously the FTC is considering the existing court orders.

More on Whole Foods Trade Secrets Disclosure by FTC

Following up on yesterday's story, from public radio's Marketplace, a story called "Trade-secret leak in Aisle 7" in which your author can be heard decrying the release of the Whole Foods' trade secrets and the futility of later redactions.

FTC Screw-Up: Whole Foods Trade Secrets Released

From the AP via KGTB-TV in Harlingen, Texas, a story about the FTC's accidental public release of trade secrets disclosed by Whole Foods in connection with the FTC's lawsuit to block Whole Foods attempted acquisition of Wild Oats markets. The FTC opposes the merger of the two upscale grocers on antitrust grounds.

Among other gems, the documents revealed that Whole Foods plans to shut down 30 Wild Oats stores that compete with it in the event the merger goes through. In addition, the FTC revealed how Whole Foods negotiates with suppliers to drive up costs for Wal-Mart Stores.

Regulators also discussed the company's closely held marketing strategies.

According to the story, the filing says one of the most important factors in placing a new Whole Foods store is college graduate density. (Surely that can't be much of a secret.)

The FTC says the opening of a Whole Foods store can cut revenue 30% or more in nearby Wild Oats stores while closing those would increase Whole Foods revenue by as much as 90%. Hence the desire for the merger.

Apparently the FTC later released properly redacted documents. Thanks a lot, guys!

North Carolina Trade Secrets Law Requires Some Evidence of Misappropriation

A new unpublished case from the North Carolina Court of Appeals, Modular Technologies, Inc. v. Modular Solutions, Inc., makes an interesting point concerning the need for actual evidence of misappropriation of trade secrets.

The case concerned two competitors in the business of modular building sales and construction.

In 1997, the plaintiff outsourced its bookkeeping and accounting to firm that included defendant Alice Rouse. She worked on the account until she formed a competitor, MSI, in 2001. Even though she was the president, sole shareholder and sole director of MSI, she apparently had little to do with the day-to-day operations of the company.

The plaintiff got upset when it found itself competing with her company on various bids. It sued for misappropriation of trade secrets and other claims.

After the jury deadlocked on the trade secrets claim, the court granted directed verdict to the defendants. Plaintiff appealed.

The court of appeals found that Mrs. Rouse "had access to plaintiff's sensitive business information such as vendor lists, price lists, customer lists, etc." But, the court held, "even assuming that at least some of the information to which [she] had access qualifies as trade secrets, plaintiff has not introduced substantial evidence that Mrs. Rouse acquired the information for disclosure or use, or disclosed or used the information."

In other words, there was "no evidence to support their claims that Mrs. Rouse wrongfully disclosed any of plaintiff's confidential business and financial information."

In so holding, the court distinguished an earlier case, Byrd's Lawn & Landscaping, Inc. v. Smith, 142 N.C.App. 371, 542 S.E.2d 689 (2001), in which a former employee's knowledge of bid information led to a trade secrets claim.

Here, the court held, plaintiff had not made "any showing that Mrs. Rouse similarly reviewed plaintiff's confidential information immediately prior to incorporating MSI or that Mrs. Rouse was even involved in preparing MSI's bids for projects."

Thus, "[w]hile MSI bid on projects for customers who were past customers of plaintiff, these projects were entirely new projects and not projects for which plaintiff was required to re-bid each year as were the yearly landscaping projects in Byrd's."

Only One Way to Get Attorney's Fees in NC Trade Secrets Case

From our sister blog, the North Carolina Appellate Blog, a report on yesterday's decision in Bruning & Federle Mfg. Co. v. Mills.

The North Carolina Court of Appeals resolved a perceived conflict in statutes regarding an award of attorneys' fees in trade secrets cases under the Trade Secrets Protection Act, holding that the provisions of the Act, specifically, N.C.G.S. § 66-154(d), controlled. That section provides that "[i]f a claim of misappropriation is made in bad faith or if willful and malicious misappropriation exists, the court may award reasonable attorneys' fees to the prevailing party."

Thus, an award of attorneys' fees to a prevailing defendant is available only if the plaintiff's trade secrets claim is advanced in bad faith.

The court ruled that the more general "costs" provision found in N.C.G.S. § 6-21 did not apply.

Conviction in Chinese Economic Espionage Case

From SFGate.com, a story concerning a former Chinese national from Cupertino, California, Xiaodong Sheldon Meng, who pleaded guilty to economic espionage for stealing software from a Silicon Valley defense contractor and trying to sell it to military buyers in China.

Under terms of the plea deal, Meng faces up to two years in federal prison and up to $1.5 million in fines. He will be sentenced early next year.

According to the story, Meng was accused of stealing a program used to simulate real-world motion for military training from Quantum3D, a San Jose company he used to work for, and providing a demonstration version to the Chinese navy. Meng was also accused of exporting without a license the source code for a Quantum 3D simulation software used to train military fighter pilots.

"This conviction, the first in the nation for illegal exports of military-related source code, demonstrates the importance of safeguarding our nation's military secrets," Assistant Attorney General for National Security Kenneth Wainstein said in a statement.

The economic espionage beat goes on.

Sweet Trade Secrets

From the Mobile Register, a story about a bitter lawsuit between the sugar industry (specifically the Sugar Association) and McNeil-PPC and McNeil Nutritionals LLC, makers of the sweetener Splenda. The Association claims that Splenda's slogan, "made from sugar so it tastes like sugar," is false and misleading. McNeil counterclaims that the Association is running a smear campaign.

And the trade secrets? Well, those are claimed by Splenda's manufacturer, Tate & Lyle, a British company with a manufacturing facility in tiny McIntosh, Alabama.

The Association wants to get into the plant to inspect and videotape the process. Tate & Lyle, understandably, isn't keen on this, as the British say.

According to the story, U.S. Magistrate Judge William Cassady said that he would make his decision after reviewing both parties' arguments. He asked both parties if a controlled smaller-scale reproduction of the sucralose-making process could be created in a laboratory-like environment. Lawyers for Tate & Lyle said this was possible. Sugar Association lawyers disagreed.

Rule 34 inspections can often be sensitive from a trade secrets standpoint. This one is a particularly salient example.

Computer Fraud & Abuse Act Claim Against Law Firm Resolved

From Out-Law.com, here’s an update to a post from nearly a year ago concerning a dubious claim under the Computer Fraud & Abuse Act.

The contention, by a Pennsylvania non-profit called Healthcare Advocates, in federal court in Philadelphia, was that a Valley Forge, Pennsylvania law firm, Harding, Early, Follmer & Frailey representing another Pennsylvania company, Health Advocate Inc., hacked into plaintiff’s website.

The suit contended that that "one or more Harding Early employees violated the Digital Millennium Copyright Act and the Computer Fraud and Abuse Act by hacking into databases at San Francisco's Internet Archive 92 times, using an application known as the 'wayback machine,' in attempts to retrieve material that Healthcare Advocates had asked to be removed."

According to a recent ruling, use of web archive The Wayback Machine did not constitute hacking in the case of a law firm which used the web archive to see pages which owners did not want it to see.

Federal judge Robert Kelly ruled for the defendant, holding that because protections to block the old material sought by Healthcare Advocate malfunctioned, there was no protection to break or bypass in violation of the CFAA.

"When the Harding firm accessed Internet Archive’s database on July 9, 2003, and July 14, 2003, it was as though the protective measure was not present," the judge wrote. "Charles Riddle and Kimber Titus simply made requests through the Wayback Machine that were filled. They received the images they requested only because the servers processing the requests disregarded the robots.txt file [blocking measures] present on Healthcare Advocates’ website."

"As far as the Harding firm knew, no protective measures were in place in regard to the archived screenshots they were able to view. They could not avoid or bypass any protective measure, because nothing stood in the way of them viewing these screenshots. The Harding firm did not use alter code language to render the robots.txt file void like the defendant in Corley did with the encryption," said Kelly.

"They did not 'pick the lock' and avoid or bypass the protective measure, because there was no lock to pick. The facts show that the Harding firm received the archived images solely because of a malfunction in the servers processing the requests," said Kelly.