Trade Secrets of Breathalyzers - Kentucky Gets in On The Act

The Kentucky Court of Appeals has apparently reversed two lower court rulings that defendants in drunk driving cases cannot test the accuracy of the breathalyzer machines that help convict them.

As you can see, this defense strategy is not one limited to Kentucky: http://arstechnica.com/news.ars/post/20080128-are-breathalyzers-accurate-dwi-defendant-wants-source-code.html.

We here at Womble Trade Secrets are not criminal defense attorneys BUT we did go to law school. Seems to us that a breathalyzer analytical machine is a device that should be open to examination by defendants in these cases. We aren't certain why the source code of the machine is relevant in that examination but, if it is, there could be a way in which defendants' counsel could review the same and test the same under court supervision such that the trade secrets contained therein will not be impaired or lost.

We can also understand why states and police and attorney generals and district attorneys wouldn't like such a world. It makes things harder on them - they might be proven to be using a machine to convict people that isn't working perfectly or isn't getting it exactly right.

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

Massive Trade Secret Verdict Awarded to Alpha Mining Systems Against Former Employee

The Sarasota Herald-Tribune is reporting a $19.7 million trial verdict in favor of Alpha Mining Systems and against its former employee, Sam Vance. Interestingly, the article reports that Vance did not show up for any court appearance in the matter - thus, suggesting that this was a default judgment that went uncontested.

The court found that in early 2005, Vance began working for China-based competitor Guizhou Tire Co. while still employed with Alpha. He would take Guizhou tire orders on his wife's cell phone and through his personal e-mail account to avoid detection. He also handed over pricing and profit margin information and customer lists to Guizhou, which paid him a commission on every tire sold, records show.

Beginning in August 2005, Vance went to work for Dubai, United Arab Emirates-based Al Dobowi Group, an upstart mining company. Vance gave Dobowi all of Alpha's trade secrets, from pricing information to its customer list to the design blueprints for Alpha's specialty tires, court records say. The blueprints alone are a wealth of information, containing all the specifications of building a very unique set of tires designed to work in mines worldwide -- from the tread design to the rim flange heights to the ply ratings.

Court documents stated "defendant advised Alpha's customers that they could receive the same specialized 'Alpha' tires by dealing directly through" Guizhou, the Chinese company. Alpha's losses mounted quickly, court records show. For example, Del-Nat Tire Corp. and American Tire Corp. were buying a combined average of $1.9 million per month from Alpha until April 2005, when they stopped buying anything. From April 1, 2005, to Jan. 15, 2008, Alpha lost more than $10 million from Del-Nat alone, the court found.

At $19.7 million, the penalty ranks among the largest trade secret judgments in recent Florida history.

We'd bet that Mr. Vance is not living in the United States anymore - or, if he is, he is feverishly working to shield his assets from Alpha Mining's reach.

Mississippi Trade Secrets Mess

Mississippi state courts are in an unholy uproar over a bribery scandal relating to one of the state's top plaintiff's lawyers, Dickie Scruggs, and claims of payoffs to state judges. (The New York Times had a lengthy recent -- and eye-opening -- article on the scandal.)

Now, from the Jackson Clarion-Ledger, comes the fall-out in the trade secrets world. The issue concerns a Special Master appointed in a case in which Eaton Corp. sued North Carolina-based Jeffry Frisby and other former Eaton employees, alleging they stole trade secrets and took them to their new jobs in North Carolina. A federal grand jury later indicted the employees on the same accusations. (Our story on that case, from Christmas Day 2006, can be found here.)

In any event, figures tangential to the roaring scandal, former District Attorney Ed Peters and his "protégé," presiding trial judge Bobby DeLaughter, are spilling over into the Eaton case. The claim is that Peters, working on behalf of Eaton, secretly interceded with his pal Judge DeLaughter to get one Larry Latham appointed as Special Master in the Eaton case in place of previously-appointed Special Master. (Special Masters, of course, can be important in trade secrets cases where even the lawyers don't necessarily get to see all the evidence.)

Latham, upon learning of all this, promptly resigned as Special Master.

Frisby's attorneys said they learned of Peters' possible involvement in aiding Eaton in the case last year when he inadvertently e-mailed one of their secretaries. Eaton's lawyers say this was the first they heard of it.

According to Matt Steffey, a professor at the Mississippi College School of Law, the fact that "Peters was allegedly aiding Eaton at the same time he was helping to get a special master - and yet concealing his involvement - is troubling." In most jurisdictions, one-on-one conversations with a judge about a case -- lawyers call them ex parte communications -- are prohibited under the rules of ethics.

All in all, it's another black eye for the system of justice in Mississippi.

Cooper Tire Ordered to Give Utah Plaintiffs Access to Records it Deems Trade Secrets

The Salt Lake Tribune is reporting that plaintiffs in a roll-over case received an order from U.S. Magistrate Paul Warner - and affirmed by U.S. District Judge Tena Campbell - for wide access to documents held by Cooper Tire & Rubber Co.

It was an order that Cooper Tire, in court filings, calls "breathtaking."

In his discovery ruling, Warner said the families' theory in the case - that the tire failed because of systemic design and manufacturing failures - is a wide one. "Plaintiffs . . . should be permitted to engage in discovery that has a similarly broad focus," Warner wrote. Whether any of the information will be shared with a jury will be decided later, he said.

Cooper argued that the plaintiffs should only be able to learn information about tires similar to the one that failed and that were manufactured in the same time frame. Otherwise, it could be forced to reveal trade secrets, the company argued.

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

Regulated Industries Day at Womble Trade Secrets - PUCO Interested in Duke's "Side Deals" for Corporate Customers

The chairman of the Public Utilities Commission of Ohio wants to prohibit the kind of secret deals that Duke Energy signed in 2004 with several of its biggest corporate customers.

Proponents of side deals say they are a good way to resolve disputes and often can spur economic development by reducing costs to businesses. But opponents, such as the Ohio Consumers' Counsel, say the deals help one group of customers at the expense of others.
After years of staying out of the debate, Schriber said the commission now believes side deals are not good policy.

"We want to prohibit secret side deals," Schriber said.

One of his concerns is that terms of the deals typically are not made public. In the Duke case, hundreds of pages of documents are available but have been heavily redacted because the companies feared disclosure would jeopardize "trade secrets."

The names of company officials, the amount of individual payments and the length of the deals all have been hidden from public view.

Allstate Gives Trade Secrets Documents to Florida Regulators

From the Chicago Tribune, a follow up to our story here, regarding documents sought by regulators that insurer Allstate was claiming were trade secrets.

Florida regulators had barred Allstate from writing new policies as a result of the dispute.

Florida Insurance Commissioner Kevin McCarty barred Allstate from writing new policies in the state because he said the company hadn't complied with a subpoena for the documents. That suspension, in turn, was overturned by a Florida court on January 18, and the commissioner is seeking to reinstate it. According to the story, McCarty still isn't satisfied with the insurer's level of cooperation.

The documents were created by consulting firm McKinsey which produced about 13,000 pages of documents for Allstate in the 1990's as it developed methods for the insurer to become more profitable by paying less in claims.

FBI Rolls Out Economic Espionage Awareness Programs Across US

MLive.com is reporting on the FBI's current initiative in heightening trade secret theft awareness across the business sectors of the United States. Raising awareness among business leaders and educators is key to the success of the program, FBI officials say. By doing that, Eldredge says, the U.S. can get a handle on the problem and help secure the country's economic future.

The first step for protecting vital information is to identify it, Eldredge says. That includes protecting sensitive research, technologies and information. He adds that unclassified information can be just as critical to protect.

Companies must then develop and implement security or protection programs to monitor the information, including educating employees on how to identify threats.

"The FBI is interested in protecting companies," he says. "We can make a dent, and we have made a dent. The way we can make a dent is to partner with corporate America and academia."

He adds that a critical leg of the effort is academia. Universities engaged in innovative research and development are clearly targets of foreign espionage agents, FBI officials say.

"A lot of research for cutting-edge security is taking place at universities," he says. "We are partnering with academia to protect the U.S."

Seventh Circuit Vacates Trade Secrets Injunction on Lack of Specificity Grounds

Those of you who have actually read a temporary restraining order or a preliminary injunction order know that there's usually some portion that says "THOU SHALT NOT DO . . . . " and the list is can be pretty long. Oftentimes the list is pretty vague too.

That's what the defendants were arguing in Patriot Homes, Inc. v. Forest River Housing, Inc. a case originally argued to the Seventh Circuit on March 29, 2007 and decided on January 10th, 2008. They argued "hey, some of these prohibitions amount to ambiguous "don't violate the law and don't take their stuff" restrictions and we don't know what the court considers their stuff."

Makes sense to us. An injunction needs to be definite and particular in the conduct that it prohibits - because violation of that order subjects the enjoined party to civil and criminal contempt in the right circumstances.

Made sense to the Seventh Circuit, too. The decision is a must read for attorneys who seek and obtain injunctions. We suspect this will open up a new basis for appeals in this area as all-too-many injunctions are too vague or too broad to be blessed on appeal.

More on Allstate Trade Secrets Disputes

The Miami Herald has an interesting story, following up on ours here from November, regarding Allstate's efforts to keep a consultant's report from McKinsey away from state regulators on the grounds that it's a trade secret.

The report, from the 1990's, reportedly advises Allstate on how to improve the company's profitability: pay less on claims and take a longer time to pay those claims.

According to the story, the "documents describe, in graphic terms, a scheme devised by Allstate and McKinsey & Co. to essentially turn the business of insurance into a zero-sum game,'' said David Bernardinelli, a Santa Fe, N.M., plaintiff attorney involved in a case against Allstate. He says he is the only person outside Allstate to have seen these documents.

McKinsely reportedly advised Allstate to get tough with policyholders. Consumers who didn't accept a settlement offer from Allstate would have to fight in court to get their claims paid.

Now Allstate is fighting to keep the report away from regulators in Florida and Missouri. In Missouri, the company is paying a $25,000 a day fine while it refuses to turn over the report. In Florida, the company can't sell new policies.

Some trade secrets!

Cyber-Espionage moves into B2B

From InfoWorld, a disturbing story about how cyber-espionage, including (of course) economic espionage, is moving away from governmental subjects and targets to businesses. The report is based on the research of the SANS Institute.

According to its latest research, cyber-espionage efforts funded by "well-resourced organizations" -- including both government-backed and private efforts -- will expand significantly during 2008, in particular as overseas companies look to gain an upper hand in negotiating business deals with large companies based in the U.S. and Europe.

A common scenario involves the use of hackers to break into competitor's IT systems to gather competitive information in order to gain an advantage at the bargaining table.

According to the story, "while such attacks have been somewhat common among government and defense contractors for years, the process is highlighting a lack of perception regarding security risks inside other major U.S. businesses."

Staffing Firm Aerotek Sues Former Employees for Trade Secret Theft

The Sacramento Business Journal is reporting that Aerotek - a staffing company owned by Baltimore Ravens owner Steve Bisciotti - has sued Johnson Group Staffing and one if its recent hires claiming they have misappropriated trade secrets in the process of competing and soliciting Aerotek's clients.

The lawsuit, filed Nov. 9 in Sacramento County Superior Court, alleges breach of contract, misappropriation of trade secrets, interference with contractual relationships, unfair competition and false advertising. It asks the court to order Ponce to stop using the trade secrets to solicit business and to return confidential client information. It also demands general, compensatory and punitive damages.

The legal saga at Aerotek in Sacramento started in 2003 when the company hired Christopher Johnson. He resigned in April 2006 and started Johnson Group, court documents said. The next month, Aerotek sued Johnson for allegedly using company information to solicit Aerotek clients.

The court granted a preliminary injunction against Johnson and his company in June 2006, demanded return of confidential information and prohibited its future use. The lawsuit subsequently was settled. As part of the settlement, the defendants agreed to stop soliciting or serving Aerotek contract engineering clients for 15 months, according to court documents.

We will report back if any legal flags are thrown or penalty yards assessed.

Ohio Defense Contractor Wins $23 Million Trade Secrets Verdict

Entrepreneur.com is reporting that an Ohio defense contractor whose former employees misappropriated trade secrets to set up their own company and work with a competitor received a jury verdict of nearly $23 million.

Innovative Technologies Corp. was awarded $17 million in punitive damages and almost $6 million in compensatory damages by a Montgomery County, Ohio, Court of Common Pleas jury, which based its verdict on findings that David P. Nicholas, James R. Silcott, and Sheila K. Silcott had given a rival firm an unfair advantage in the marketplace, subjecting ITC to "disgorgement of compensation by faithless servants." James A. Dyer, lead attorney for the Riverside, Ohio, support services contractor, said the jury "wanted to send a message to companies that act with faithless servants--you need to play fair."

The competing firm, Advanced Management Technology Inc. of Arlington, Va., was ordered to pay virtually all of the damages, Dyer said, having been found guilty of tortious inference with business relationships, civil conspiracy, and theft of trade secrets for acting in collusion with the former employees of Innovative Technologies.

This is a major trade secrets verdict and one that we'll watch for reports of an appeal.

Silicon Image and Analogix Fight It Out - Trade Secrets and Copyright Trial Set for April, 2008

Analogix Semiconductor, Inc., a world leader in high performance analog and mixed-signal semiconductors and IP solutions, announced today that the U.S. District Court recently denied Silicon Image, Inc.'s request for a preliminary injunction. Silicon Image had previously asked the Court to order Analogix to stop selling certain of its HDMI chips, claiming that Analogix had misappropriated Silicon Image's alleged trade secrets. The Court denied Silicon Image's request, stating that "the evidence gives rise to serious questions on the merits as to this claim."

Silicon Image, Inc., a leader in semiconductors for the secure storage, distribution and presentation of high-definition content, today announced that the trial in its trade secret and copyright infringement case against Analogix Semiconductor, Inc. has been scheduled for April 2008 in the United States District Court for the Northern District of California.

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

PETA Wants Animal Testing Records - Mississippi High Court Will Rule on Trade Secrets Objections

In January 2006, PETA filed suit alleging Mississippi State University violated the Mississippi Public Records Act when it was denied records of dental experiments and other tests on animals conducted since 1999 for Iams, a pet foot manufacturer.

The Public Records Act requires that records be furnished to the public either free of charge or in return for reasonable fees.

Iams' attorney James P. Streetman III of Jackson has argued that the experiments are the company's intellectual property. He has said Iams has made a substantial investment at Mississippi State in order to develop and protect that property.

PETA said it didn't want trade secrets. PETA said it only wanted to know what happened to the animals at Mississippi State.

PETA claimed Mississippi State wanted an advance fee of $40,497 for the documents it requested. When it reduced the number of pages asked for, PETA claims MSU told them that only 19 of the requested pages would be sent and the cost would be $1,000.

The university claimed the remaining pages contained proprietary information, according to court documents.

In her ruling in December 2006, Colom said the type and number of animals used in an experiment, whether surgery will be performed, and information related to animals' pain and discomfort do not qualify as trade secrets.

"Having carefully reviewed each and every protocol submitted by MSU and Iams, this court hereby finds that the protocols themselves are not a trade secret," Colom said.

This matter is being appealed to the Mississippi Supreme Court - and we'll let the cat out of the bag once we know something more.

Betrayal: A Silicon Valley Way of Life (subscription req'd)

From Salon.com, an interesting article which provides a different take on at least one case allegedly involving Chinese economic espionage. The case concerns the trade secrets claim of Applied Materials, a Santa Clara manufacturer of chip-making machinery, against a Shanghai start-up, Advanced Micro-Fabrication Equipment (AMEC).

Applied Materials claims that its former chief technology officer, Gerald Yin, and the general manager of one of its product groups, Aihua Chen, schemed to leave Applied Materials to go set up AMEC using information obtained while working at Applied Materials.

The author's interesting premise is that rather than yet another instance of Chinese companies stealing our superior know-how, the AMEC dispute is simply a continuing of the traditional Silicon Valley practice of engineers leaving old companies to found their own. It started, according to the author, with the so-called "traitorous eight" who left their boss, William Shockley, to found Fairchild Semiconductor.

The entire semiconductor industry, including Mr. Yin who worked at both Applied Materials and Intel, can trace its lineage back to the traitorous eight.

As the author put it, "this isn't necessarily a story about cheating. It's a story about technological change spreads."

Kinetic Concepts Brings Trade Secrets Against Innovative Therapies

What happier way to start the New Year than with a new trade secrets case?

From Forbes.Com, a brief item concerning a matter filed yesterday in state district court in Texas in which medical technology firm Kinetic Concepts Inc. sued competitor Innovative Therapies Inc. and three of its principals, all former Kinetic Concepts employees, alleging theft of trade secrets.

Just like last year (and every other year), though, Kinetic Concepts claims the former employees broke confidentiality agreements, illegally appropriated Kinetic Concepts' technology and stole its trade secrets.