Congressman McCotter on Chinese Espionage Threat

From the Northville (Mich.) Record, a “Congressional Update” from Michigan Republican Congressman, Thad McCotter, concerning the bi-partisan U.S.-China Economic and Security Review Commission which recently issued its annual report to Congress.

The report, according to the congressman, is “a wake-up call to America.”

The Commission declared, according to McCotter that "Chinese espionage activities in the United States are so extensive that they comprise the single greatest risk to the security of American technologies." Further, this spying is an "aggressive and large-scale industrial espionage campaign" being waged against American companies located here and in communist China. The communist Chinese's goal is to acquire our technologies "without the necessity of investing time or money to perform research."

He also brought it home for Michigan residents:

“Nor is their spying a distant threat. Here, in southeastern Michigan, a federal grand jury indicted a Metaldyne employee, his wife (a former company executive), and their Chinese partner (a former company metallurgist) for stealing trade secrets and giving them to Chinese companies in return for a piece of future profits.”

Allstate: Win the Case, Lose the Trade Secrets Battle

From the Lexington (KY) Herald-Leader, a story about a trial won by Allstate in which it looks like it will lose the issue of whether its claimed trade secrets will be made public.

A judge in Fayette County, Kentucky has ruled that secret company documents shown during a civil trial challenging Allstate's claims practices should be made public.

The documents date back to 1992, when Allstate hired consulting firm McKinsey & Co. to overhaul how the insurance giant handled claims. Trial lawyers later claimed the 12,500 PowerPoint slides were a blueprint for cheating injury victims.

Jurors in the Kentucky case, however, found in favor of Allstate in a $1.425 billion lawsuit filed by one Geneva Hager.

According to the story, "Allstate has fought to keep the documents secret, and has previously defied court orders in three states to produce them without protective orders. The Illinois-based insurer says they contain valuable trade secrets. Circuit Judge Thomas Clark said the several dozen documents introduced at trial were shown in a public hearing and should not be covered by a protective order. But the documents that were not introduced will remain under seal."

Allstate attorney Mindy Barfield indicated that she will appeal the ruling.

Trade Secrets Battle in Detroit - MSC Software Corp. vs. Altair Engineering Inc. and Seven Former MSC Employees

Crain's Detroit Business is reporting that Troy, Michigan-based Altair Engineering Inc. wants a federal judge to appoint a programming expert to determine whether any computer codes link Altair's new prototype simulation software to a competitor's.

The competitor, Santa Ana, Calif.-based MSC Software Corp., is suing Altair and seven former MSC employees in U.S. District Court in Detroit, alleging theft of trade secrets in two software products Altair launched this year. No date has been scheduled for U.S. District Judge John Feikens to review the matter.

MSC filed the lawsuit in July and agreed to dismiss one of the eight former employees from the suit in September."It was people who all worked previously at MSC and moved to the Altair offices," said attorney James Hermon of Dykema Gossett P.L.L.C., one of MSC's attorneys. "They all came out of the Ann Arbor office where this product originates."

The suit alleges that Altair hired more than "20 percent of the MSC Software Adams Group," developed a product using trade secrets and "undertook an aggressive program to induce Adams/Car customers to abandon Adams/Car and adopt Altair MotionView."

Strictly a coincidence, said attorney C. Thomas Ludden of Bloomfield Hills-based Lipson, Nielson, Cole, Seltzer & Garin P.C., who represents the employees. He contends that his clients left MSC at varying times for varying reasons."Our position is — and we've stated as much in the pleadings — that we deny any theft of trade secrets," Ludden said. "We deny that we've done anything to break any laws or even violate a noncompete or confidentiality agreement. The clients moved for all the usual reasons you might change employers."

Larry Saylor, co-counsel for Altair Engineering and a principal at Miller Canfield Paddock & Stone plc, said Altair's newest developments were driven by customer demand and not a bid to steal MSC program code or its customers.

We here at Womble Trade Secrets are seeing more and more of these "employee raiding" cases pop up in the reported cases. The allegations are generally tracking the following paradigm: (a) Business A's employees are unhappy and willing to jump ship for a better opportunity at Business B; (b) Business B is happy to take on the new campers and aggressively uses them to compete with Business A; (c) Business A claims the mass departures make competition difficult and that Business B's actions are unfair competition; and (d) Business A says that its former employees have disclosed trade secrets to Business B, thus explaining Business B's newfound success in the marketplace.

We'll keep an eye on this one for you.

China: "Security Threat" and Denial

From the dog-bites-man files, first a story from Information Week concerning the economic espionage threat posed to the United States by China.

The occasion for the story is the new Report to Congress by the U.S.-China Economic and Security Review Commission which calls Chinese economic espionage the top threat to U.S. technology.

The report states in its summary that "Chinese espionage activities in the United States are so extensive that they comprise the single greatest risk to the security of American technologies."
Economic espionage, according to the report, saves China the time and cost of researching and developing advanced technologies.

For its part, China responded on Monday in a press release reported by the Associated Press. China called the Commission Report "brazen interference" in China's internal affairs.

Chinese Foreign Ministry spokesman Liu Jianchao, in a statement posted on the ministry's Web site, said the report "ignores the fact of China's progress in the areas of politics, economics, and society, is rooted in prejudice, and brazenly interferes in China's internal affairs."

"We have already raised serious representations with the U.S. side expressing our resolute opposition," Liu said. His statement called the commission's report a "smear attack" aimed at misleading public opinion toward China.

Federal Scientist and Engineer Creates New Twist in Rohm & Haas Trade Secret Battle With Former Employee

The Philadelphia Inquirer is reporting that a Department of Energy scientist and engineer has put in his two cents regarding this long-fought trade secrets battle between Rohm & Haas and one of their former employees.

The chemist and engineer, Charles Russomanno, wrote in a two-page, previously undisclosed Energy Department memo obtained by The Inquirer that Lin's research made no use of company trade secrets and was worthy of an $850,000 federal research grant.

Of the lengths to which Rohm & Haas has gone to get access to Lin's research, Russomanno added in a recent interview, "I've never seen anything like this."

What impact the memo will have on the fractious, sealed court battle is far from clear, given the scorched-earth legal tactics by both sides and the refusal of Montgomery County Court Judge Bernard A. Moore to ask for an independent scientific assessment in the case. Here's a timeline detailing some of the key events in this case: http://www.philly.com/inquirer/gallery/11227517.html

We here at Womble Trade Secrets are noticing more and more the federal government and its agents intervening in technical trade secrets battles between private parties. Part of the reason for this is the explosive growth of the government's contracting interests - as the government gets bigger and bigger and becomes a more voracious consumer of technology it has interests that align with one or another party owning certain technology it needs. This is true in the iRobot case and now true in the Rohm & Haas case.

We'll keep an eye on this one for you. You have to hand it to this former Rohm & Haas employee for chutzpah - she's treating the standing court order to disclose her technology like a request and not a command. That makes for strained relations with the court and for an interesting trial.

Union Wants Aramark's "Trade Secrets"

Local 217 union members and some parents want Aramark Corp. to fully disclose terms of its contract with the New Haven Public Schools.

Service Employees International Union and UNITE HERE! requested the information, along with eight New Haven parents in a letter to Board of Education Chairman Brian Perkins, dated Oct. 29. But a copy of the contract documents released last week by the New Haven corporation counsel's office had so many redactions, recipients said, that they dubbed it useless.

Assistant city corporation counsel Kathleen Foster said she only redacted portions of the contract that would give up trade secrets, which are exempt under Freedom of Information laws.The legal definition of trade secret include any information that has its own economic value by being secret and that a company has made an effort to keep secret."Mostly it was information and cost data that related to their food purchasing network," Foster said.

Trade Secrets and Sneakers -- Nike's Case

Or maybe you call them tennis shoes, or trainers, or athletic shoes.

In any event, from KGW.com in Portland, Oregon, a story about how the feds nabbed a print shop employee, one Reynold Chapin.

Investigators say Chapin claimed to have a copy of Nike's unreleased Fall 2008 catalog and was willing to leak the information, including designs and prices, to the highest bidder.

The FBI says that Chapin wrote an anonymous letter to the CEO of the Saucony Corporation, a Nike competitor, and, apparently, to four other shoe CEO's.

The FBI then set up a sting with a federal agent posing as a shoe company executive and offering $2,000 for the catalog. He was charged on Thursday with theft of trade secrets.
According to the FBI, Chapin says he got the unreleased Nike catalog while working at a local printing press.

There could be some interesting legal issues in the case since the catalog was obviously ultimately meant for public disclosure. In addition, the case may ride on the level of protections that the print shop initiated. Nevertheless, the fact that Chapin wrote his letters anonymously indicates he probably knew what he was doing was wrong.

Chariman of DOJ Task Force on Intellectual Property Releases Statement Made to Senate Judiciary Committee

It's clear that the Department of Justice has gotten serious about domestic and foreign intellectual property crimes. Just how serious, however, is proven by statistics released in the Chairman's statement:

"Of course, at the core of the Department's IP enforcement program are criminal prosecutions, and we have worked hard to increase both the quality and the number of intellectual property prosecutions nationwide. Through the dedicated efforts of U.S. Attorney's Offices, our Criminal Division, and law enforcement across the country, the Department filed 217 intellectual property cases in FY 2007, representing a 7 percent increase over cases reported in FY2006 (204), and a 33 percent increase over cases reported in FY2005 (169). Also in FY2007, 287 defendants were convicted and sentenced on intellectual property charges, representing a 35 percent increase over FY2006 (213) and a 92 percent increase over FY 2005 (149).

The increase in prosecutions in FY 2007 was not an aberration, but rather reflects a continuing upward trend. For example, in FY 2006, federal prosecutors convicted 187 defendants of criminal copyright and trademark offenses alone - an increase of 57 percent over the prior year. Thirty-nine (39) of those defendants received terms of imprisonment of 25 months or more, a 130 percent increase from the 17 sentenced to such terms in 2005. Indeed, in the previous year (FY 2005), the Department prosecuted twice the number of defendants for intellectual property violations than it had in 2004."

Good news for intellectual property owners and innovators - bad news for intellectual property thieves.

Innovative Solutions & Support Wins Trade Secrets Verdict

From MSNMoney.com, a story (really it's a press release, so take whatever grain of salt you deem appropriate) regarding a jury trial in a trade secrets case between competitors with, as always it seems, former employees in the mix.

Here's the release, edited slightly:

Innovative Solutions & Support Inc., maker of display systems, data equipment and computers for aircraft, said Wednesday (11/7/07) that a jury has awarded it a little more than $6 million in a trade-secret misappropriation trial.

The Exton, Pa.-based company said the jury unanimously found that each of the defendants had misappropriated IS&S' air data computer technology and that it had suffered damages of slightly more than $4.4 million in lost profits and $1.6 million in net profits earned by the defendants.
The defendants in the case were Joseph Caesar, a former IS&S employee; James Zachary, a former IS&S sales consultant; a company founded and owned by Caesar and Zachary, J2 Inc.; a company founded and owned by Zachary, Zachary Technologies Inc.; and Merrimack, N.H.-based Kollsman Inc., the U.S. subsidiary of Elbit Systems Ltd., which is located in Haifa, Israel.

The jury also found in favor of IS&S' claims for breach of duty and contract, and unfair competition against Caesar, Zachary, J2 and Zachary Technologies, IS&S said.
IS&S said the judge presiding over the case will hear its claims for a permanent injunction as well as its claims for punitive and exemplary damages against the defendants.

GUYS GONE WILD!!! Father-Son Plead Guilty to Conspiracy to Steal Trade Secrets

The Watergate bunglers are Exhibit A in break-in failures. John Norris and Matthew Norris are Exhibit B. And now the latter have had to cop a guilty plea like the former.

John K. Norris admitted in his plea that after leaving The Imperial Group -- a company that bids on U.S. General Services Administration building projects -- he established his own competing business and hired his son. John K. Norris and Co. and The Imperial Group submitted competing bids to build and manage a structure to house an office of the Department of Homeland Security, Immigration and Customs Enforcement in El Centro, Dembin said.

John K. Norris admitted that he decided to break into his former employer's office to determine what they had bid on the project, and convinced his son to help. On March 23, John and Matthew Norris conducted a practice run. With Matthew standing outside the building keeping watch, John K. Norris took a master key from the janitor's closet servicing The Imperial Group's offices and determined that it worked in The Imperial Group's door.

On April 8, again with his son standing guard outside, John K. Norris used the master key to enter the offices of The Imperial Group and searched for the records of that company's bid on the El Centro project. Unbeknownst to the defendants, the practice run on March 23 was captured on a hallway surveillance camera designed to monitor janitorial staff performance. The janitorial supervisor viewed the practice break-in and reported it to The Imperial Group.

In response, The Imperial Group removed the documents of its pending bid from its offices and installed its own surveillance system. On April 8, the hallway camera captured John K. Norris entering the hallway and janitor's closet, but he shielded his face with a piece of cardboard. The Imperial Group's surveillance system, however, captured him rifling their files, Dembin said.

These cases are getting more and more interesting.

Ex-DuPont Scientist Gets 18 Months for Theft of Trade Secrets

From the International Herald-Tribune, a follow-up on our story from last February concerning former DuPont scientist, Gary Min, a Chinese national who pled guilty to stealing trade secrets from his employer.

According to the story, "while the fair market value of the confidential DuPont technology accessed by Min exceeds $400 million by some estimates, the government pegged DuPont's loss at about $180,500 in out-of-pocket expenses, and Min was ordered to pay only about $14,500 in restitution." In addition to the 18 months in prison, Min was also fined $30,000.

According to DuPont, after Min resigned in December 2005 to take a job with Victrex plc, a British-based competitor, the company discovered that Min had accessed and downloaded thousands of confidential company documents. Investigators also found that Min had uploaded DuPont documents to his new employer's computer, but no evidence that he sold or otherwise disseminated the information.

Departed Employee's Lack of Credibility Key to Robot Injunction

We don't usually do this in our blog but we'd like to take this opportunity to commend to you the site of XConomy which can be found here: http://www.xconomy.com/. This site was new to us prior to our watching and commenting on the robot trade secrets case currently being litigated in federal court in Boston and we've been VERY impressed with this site's coverage and comprehensive handling of the inner workings of a trade secrets suit. We've bookmarked them and recommend that you consider doing the same if you routinely track the information economy.

NOW, our blog is about trade secrets matters. This iRobot vs. Robotic FX trade secrets suit is fascinating as it involves departing employees, the military-industrial complex, hundreds of millions of dollars in government contracts for military-usable robots, the current safety of soldiers in Iraq, third-party intervention by military procurement officials, and allegations of lying and deception. Our experience in trade secrets litigation reveals that it's not a real good case until sometimes is forced to lie and dissemble.

The federal judge in the iRobot case appears convinced that the one lying at this point is Robotic FX's founder, and former iRobot employee, Jameel Ahed. As XConomy is now reporting:

"Judge Gertner had damning words for Ahed, who admitted that he had destroyed or discarded physical evidence and electronic data relating to the case. “His spoilation [sic] of evidence, along with other acts in which Ahed engaged just before he left iRobot, gives rise to a strong inference of consciousness of guilt,” Gertner wrote.

And in the end, Ahed’s credibility was at the crux of the ruling. “Where Ahed’s testimony was critical…the court finds him not to be a credible witness, and accordingly finds that the plaintiff has demonstrated a reasonable likelihood of success on the merits,” Gertner wrote.

We speak about trade secrets and related unfair competition matters to groups of attorneys and corporations interested in these matters. One of our focal points in our presentations is commonly that it is some act of deception or surreptitious activity that these cases routinely turn on. The iRobot trade secret litigation appears to be no exception.

As for the injunction, Judge Gertner found in her 30-page public ruling that iRobot was likely enough to prevail in a full trial over the trade-secret allegations that the company was entitled to an injunction. Otherwise, she said, iRobot would suffer “irreparable harm” and Robotic FX would have a “substantial first-mover advantage” over iRobot in competition for future robotics contracts. “Allowing the Negotiator to be sold would cause the plaintiff to irrevocably lose market share to which it is entitled,” Gertner wrote.

In her ruling, Gertner said that the Negotiator’s tank-like tracks seemed to have been based on technology that Robotic FX founder and CEO Jameel Ahed illegally appropriated from the design of iRobot’s own Packbot robot when he was an employee there prior to June 2002. She enjoined Robotic FX from selling any product that embodies those secrets—meaning, in effect, that the company cannot deliver the Negotiator to the Army, or sell it anywhere else, in its current form.

Robotic FX has three big problems at this point: (a) the judge assigned to their case thinks they created their company's product using the secrets of another company; (b) their key witness isn't someone who is credible; and (c) the cash flow that was supposed to come in from the Pentagon is now gone. They're facing legal and actual destruction at this point.

"Take Off, Hoser - But Leave the Beer Secrets Here"

The authors of this blog love Canada. Canadians love beer. This is one of the reasons the authors of this blog love Canadians because we love beer, too. Canadian-based Sleeman Breweries has sued Canadian-based Mill Street Brewery and one of their new employees for allegedly stealing secrets about his former employer, see http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20071102/brewery_lawsuit_071102/20071102?hub=Canada.

Punctuated by unusually strong language, Sleeman's $3-million lawsuit against former regional sales executive David Mitchell and his new employer, Toronto-based Mill Street Brewery, demands that he return "stolen confidential documents."

Describing Mr. Mitchell as a "successful salesperson and manager," Sleeman warned that the information he allegedly took -- everything from business strategy to customer incentives -- is crucial for the country's third-largest brewer to stay on top of its game.

"The Canadian beer industry is highly competitive," says the 10-page claim filed recently in Ontario's Superior Court of Justice. "There is little, if any, data and information about the industry (in particular the size of the market and the relative market share of various competitors) that is publicly available to all competitors.

"Mitchell downloaded confidential and sensitive business documents from Sleeman's computer systems regarding, among other things, marketing data and analysis, business and sales plans and customer information. Mitchell had no legitimate purpose for accessing this information."

Even after Mr. Mitchell gave notice that he was leaving, the sales manager "continued to download the Stolen Confidential information from Sleeman's proprietary data management system in gross violation of his contractual obligations, fiduciary duties and duties of confidence to Sleeman," the suit reads.

None of Sleeman's allegations has been proven and Mr. Mitchell filed a notice that he intends to defend the suit.

"If you had invested all that time, money and resources trying to build your business and somebody leaves with all your secrets, you'd be pissed off," said Gerard Seijts, an associate professor at the University of Western Ontario's Richard Ivey School of Business. "Let's not pretend that business is a friendly game."

We like professors that tell it like it is, too. Straight-talkers, those Canadians. We'll keep an eye on this one.

Tips on Steps to Take in Suspicious Departing Employee Cases

From The Metropolitan Corporate Counsel, an interesting article from two Aon consultants entitled "In Search Of Lost Assets: Using Computer Forensics In Intellectual Property and Trade Secret Theft Investigations."

Here's some worthy advice from the article:

When concerns of wrongdoing arise, the suspected employee's computer should be turned off immediately and secured until a computer forensic expert can properly image the hard drive. This specialist will create a forensic image of the hard drive, which will provide a mirror copy of the hard drive's contents. An analysis of the image will then be conducted - not the original image... Depending on the nature and sensitivity of the matter, the original hard drive will either be secured or placed back into service for future use.

It is prudent to consider retaining an independent third-party computer forensic expert to conduct the analysis of any computers that may have been used in the crime. Using an impartial expert helps maintain objectivity and independence, which will work to counsel's advantage if the matter results in litigation and requires expert testimony.