ComputerWorld Kenya Warns "There Are Computer Thieves Out There!"

Okay, okay. We admit it. We thought it was a little ironic that an online magazine called "ComputerWorld Kenya" was warning about data thievery. That said, in a legitimate piece, Christopher Burgess echoes points we've made on our blog many times - that nation/states are active in stealing proprietary information for their benefit. Mr. Burgess makes a fascinating report in the following regard, something we didn't know:

"As said above, the FBI went so far as to place an advertisement in various Chinese language dailies, soliciting volunteers with information about Chinese interest in U.S. firms, and especially those who may have information about the activities of the Ministry of State Security. Brazen and unprecedented, but perhaps quite effective, although we'll never know just how successful. One can only assume the noise factor of MSS activities in the U.S. had reached such a level that the leadership of the FBI had decided that the political fallout of their advertisement far outweighed the potential positive results of their efforts--the verification and identification of Chinese espionage activity in the U.S. against public and private entities. The FBI should be commended for being proactive."

Anyway, pretty interesting read. Enjoy.

The Marvell Case – Screwing Up a Voicemail Message Waives Attorney-Client Privilege

Here’s how Sue Riessinger put it in an article in Corporate Counsel in June 2005:

There are dumb mistakes, and then there are really dumb mistakes. Four years ago Matthew Gloss, the general counsel of Marvell Semiconductor Inc., and two of his colleagues phoned the legal chief of a rival company, Jasmine Networks Inc. The call went straight to voicemail, so Gloss left a message and hung up.

At least, he thought he did. Though the Marvell officials didn't know it, the Jasmine lawyer's voicemail was still taping them as they continued to talk on speakerphone – allegedly about how they were stealing their rival's trade secrets.

The trial judge ruled that the recorded conversation was an inadvertently disclosed attorney-client communication and suppressed it from use in the subsequent trade secrets case by Jasmine against Marvell.

An appellate court reversed but that ruling was stayed when the California Supreme Court put the case on hold while it reviewed another case on a related issue.

Now a new development, reported in The Reporter, brings us up to date. The California Supreme Court has dismissed the appeal which appears to mean that the order of the intermediate appellate court finding no privilege will stand.

That ruling found that the tape could be used in evidence because the attorney-client privilege had been waived for three reasons:

In the words of the earlier report, first, the conversation fell within the crime-fraud exception to privilege. fraud.")

Second, Marvell's "uncoerced disclosure" – even though it wasn't intentional – also also waived the company's privilege. This finding ran counter to traditional doctrine, which holds that inadvertent disclosure doesn't waive privilege.

The appellate court said that because the individual leaving the message was a company officer, he could waive privilege on Marvell's behalf.

Interestingly, it's not as if Marvell didn't know much about misappropriation matters. To the contrary, they secured an indictment in 2005 against a customer's former employee for stealing trade secrets. http://www.justice.gov/criminal/cybercrime/zhangIndict.htm

Further Developments in Trade Secrets Case Concerning NC Scientist

Further to our original story posted here. A follow-up from the Burlington (NC) Times-News reporting progress in this case, posted without comment (because it's Todd's case).

New York Times on Economic Espionage

There's an old joke that once the New York Times or Time Magazine reports on a trend, it's over.

Well, here's hoping that's the case with respect to economic espionage, especially the Chinese variety, which is detailed in this piece from Sunday's paper, "A Spy’s Motivation: For Love of Another Country."

Lew Racing Sues Edge Composites Over Alleged "Secret Process" Theft

A Nevada court has delayed ruling on a request by the owners of Lew Racing to bar competitor Edge Composites from displaying or selling products that Lew alleges were made using a “secret process” it developed.

Paul Lew and Lee Vaccaro, the owners of Lew Racing, filed suit in Clark County, Nevada, seeking damages and a permanent injunction to keep Edge, owned by former Lew employee Jason Schiers, from producing carbon fiber products using Lew’s so-called “secret process,” which Lew says he developed and protected with non-disclosure agreements.

Another hearing is scheduled for April 28th.

Schiers, who was employed by Paul Lew for two years ending in 2002, denied that he “or anyone at Edge” is manufacturing carbon fiber products using a secret process developed by his old employer.

“Nothing that we did at Lew, while I was there, represented a significant departure from standard industry practices,” Schiers told VeloNews. “I don’t know if he’s developed some super-secret process since I left — and I wouldn’t put it past him, since he’s a bright guy — but nothing I saw at Lew before 2002 was anything you couldn’t have seen in any other company in this business.”

Lew attorney Jeffrey Whitehead said he’s uncertain how Schiers “could have developed such an understanding of the industry, since he had never worked anywhere in the business before he came to Lew.”

Lew Racing's website is here: http://www.lewracing.com/

Edge Composites' website is here: http://www.edgecomposites.com/products.aspx

Electric Sports Car Maker Tesla Motors Sues Fisker Coachbuild for Trade Secrets Theft

Tesla Motors, the Silicon Valley maker of electric sports cars, filed suit in San Mateo Superior Court on Monday against a competing company and two of its employees, saying they stole some of Tesla’s design ideas and trade secrets.

Tesla, which has generated much interest among fans of cars and technology, recently started shipping a two-seat electric sports car in limited quantities. Last year it hired Henrik Fisker, a Danish-born designer who is known for his work on high-end exotic sports cars, to do the body design for a four-seat sedan, code-named White Star.

The Tesla lawsuit contends that Mr. Fisker and his chief operating officer, Bernhard Koehler, doing business under the name Fisker Coachbuild, fraudulently agreed to take on Tesla’s $875,000 design contract to gain access to confidential design information and trade secrets, then announced a competing vehicle. Last fall Mr. Fisker founded Fisker Automotive, which is backed by the venture capital firm Kleiner Perkins Caufield & Byers.

“I think it’s ironic that Fisker chose to name his car the Karma, when what he’s done is very bad karma,” said Adam C. Belsky, a lawyer at Gross, Belsky & Alonso who represents Tesla.
Calls to Fisker Automotive were not returned. A person answering the phone at Finck & Dadras, the San Francisco law firm representing Fisker Coachbuild, said it was the firm’s policy not to comment on litigation.

Tesla executives said they decided not to use Mr. Fisker’s design and were starting over on the design for White Star when they discovered that Mr. Fisker was going into competition with them. The design switch caused a three- to six-month delay in production of the car, which is now scheduled to go on sale in 2010, the company said. Tesla is building a factory in New Mexico to manufacture the sedan.

“It caused a slight delay in White Star because we could not use the Fisker styling,” said Elon Musk, chairman of Tesla. “The styling was substandard compared to what he unveiled for his product. He gave us an inferior work product, and it’s obvious why.”

Friday Historical Vault: Mother Jones Says CIA Prepared to Aid in Trade Secret Theft for American Companies

Well, it's Friday and there's little going on in the trade secrets world. That being the case, we thought we'd link you in to a fascinating article from 1994 in which Mother Jones contributor Robert Dreyfuss suggests that the CIA was gearing up to assist private businesses to engage in economic espionage. History demonstrates Dreyfuss was far off the mark - that government sponsored economic espionage DID become a reality but the perpetrators of this espionage were from Asia, and particularly China, and not the United States. We thought you'd be interested in this piece from the archives and quote a fascinating predictor from that piece below:

"Since the end of the Cold War, Washington has been abuzz with talk about using the CIA for economic espionage. Stripped of euphemism, economic espionage simply means that American spies would target foreign companies, such as Toyota, Nissan, and Honda, and then covertly pass stolen trade secrets and technology to U.S. corporate executives.
R. James Woolsey, President Clinton's CIA director, has said repeatedly that the CIA will not engage in corporate spy work. Targeting foreign companies and giving that information to American companies is "fraught with legal and foreign policy difficulties," Woolsey says. But there is not the slightest hesitation among other top CIA officials that such information, when obtained, ought to be shared with American automakers.
The idea of using the U.S. intelligence community to give American companies an edge is an explosive subject that has divided the CIA and provoked bitter debate in Congress. It also raises troubling questions about whether a free society can accept the kind of help that the CIA provides when the question is not one of national defense but simply dollars and cents."

Enjoy your weekend.

Defense Contractor Employee Pleads Guilty to Stealing Aircraft Fuel Bidding Secrets

A U.S. Department of Defense (DOD) contractor from Baltimore pleaded guilty today to conspiringto steal competitive information concerning contracts to supply fuel to DOD aircraft at locations worldwide, the Department of Justice announced. Matthew W. Bittenbender has entered into a plea agreement, filed inU.S. District Court in Baltimore, where he was originally charged on January 7, 2008.

According to the terms of the plea agreement, which is subject to court approval, Bittenbender has agreed to cooperate in the government's investigation. At the same time Bittenbender was charged, indictments were unsealed against two other individuals, Christopher Cartwright and Paul Wilkinson, and their affiliated companies, Far EastRussia Aircraft Services Inc. (FERAS) and Aerocontrol LTD, on related charges. The trials of Cartwright, Wilkinson and their affiliated companiesare scheduled for July 7, 2008.

According to the plea agreement, Bittenbender conspired to steal trade secrets from his employer Avcard, a division of Kropp Holdings LLC, and sell that information to his competitors, FERAS, and Aerocontrol. In return, Bittenbender received cash and a percentage of the profit earned on the resulting fuel supply contracts. According to the plea agreement,Cartwright, Wilkinson, FERAS and Aerocontrol, in turn, used that information to underbid Avcard at every location where the companies were bidding against each other. Avcard ultimately lost each of the contested bids. Aviation fuel is obtained by the DOD through the Defense Energy SupportCenter (DESC) which lets contracts for a variety of products. The fuel is delivered worldwide to locations, including Croatia, Bulgaria and Afghanistan.

Bittenbender pleaded guilty to conspiring: to defraud the UnitedStates; to commit wire fraud; and to steal trade secrets. A violation of defrauding the United States carries a maximum sentence of five years ofimprisonment and a fine of $250,000. A violation of conspiring to commitwire fraud carries a maximum sentence of 20 years of imprisonment and a fine of $250,000. A violation of conspiring to steal trade secrets carries a maximum sentence of 10 years of imprisonment and a fine of $250,000. The fines could be increased to twice the gain from the offense or twice the loss incurred by the victims of the crime.

Good Hands Trade Secrets: Allstate Releases Data on How it Sets Rates

The Chicago Tribune has reported Allstate's release of the documents was on the heels of an appeals court ruling in Florida on Friday that upheld the regulator's suspension in January of the insurer from writing new policies in the state until it complied fully with subpoenas seeking information about how it sets rates. The situation had followed one in Missouri in which the insurer was willing to accept fines rather than submit similar documents to a court.

On Monday, the Florida state regulator said it submitted a motion to the court seeking clarification on whether the suspension could be effective immediately or at the end of a 15-day period. Meanwhile, Allstate continues to write new business in Florida as it reviews its legal options.The state of Florida said it will need time to determine whether the documents posted Friday are the ones the agency had been seeking in its subpoena.

"We don't have a reaction yet because we haven't reviewed the documents," Zutell said of Allstate's posting. "Are they actually the McKinsey documents? Are they all the McKinsey documents? We don't know yet."

For years, Allstate refused to make the documents publicly available, calling its actions "respectful civil disobedience" and saying trade secrets were involved. Allstate has maintained that these documents contain trade secrets it will not release. It is alleged that these documents detail a business strategy created by the consulting firm McKinsey & Co. back in the 1990’s that is believed to have been widely used in the insurance industry.

Allstate said Monday that it didn't post the documents in response to Friday's court ruling, noting that it could not have created a site with 150,000 pages that quickly.

"We think the documents do merit protection and what we did to protect them was justified, but at some point you have to look to the threat of the brand," spokesman Rich Halberg said. "Critics were using bits and snippets of documents to create an inaccurate picture of claims."

Federal Judge Permits Bear Stearns Producer to Work for Morgan Stanley - No Preliminary Injunction on Alleged Confidential Information Theft

Portfolio Media is reporting that a judge has denied a bid by Bear Stearns & Co. Inc. for a preliminary injunction in a case it brought to fight a move by one of its Boston-based executives to rival Morgan Stanley & Co. Inc.

Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts said in an order Friday that no irreparable harm would befall Bear Stearns if an injunction wasn't issued. He said the firm would likely succeed on the merits of its breach of contract claim but not in the rest of the case.

Bear Stearns filed the lawsuit when it learned that Douglas A. Sharon, the executive director of the investment bank's private client services group in its Boston office, was moving to a post at Morgan Stanley in the wake of the Bear Stearns collapse. Sharon was the Boston office's top employee, annually generating about $5.2 million in commissions and managing more than $867 million in assets for Bear Stearns clients, the complaint said. Sharon resigned from Bear Stearns on March 17, just one day after the dramatic buyout of Bear Stearns by JP Morgan was finalized.

The lawsuit Bear Stearns filed alleges that Sharon violated the terms of his employment agreement, which require him to give 90-days' notice before leaving the company. Bear also claims that Sharon tried to lure Bear Stearns clients and employees to Morgan Stanley. Bear Stearns alleges that Sharon left the firm with significant amounts of Bear's confidential information, including client statements. Judge Gorton issued a temporary restraining order at the end of March, saying that Bear Stearns had shown that its case was likely to succeed on the merits and that if a temporary restraining order was not issued the company could suffer irreparable harm.

In deciding whether to convert the temporary restraining order into a preliminary restraining order, Judge Gorton said that the evidence that Sharon misappropriated Bear Stearns' confidential information and solicited his colleagues and clients to follow him to Morgan Stanley is “sparse to negligible.”

Sharon said that he printed documents in the days before he left so that he could work through the weekend and reassure clients that their savings were safe. He denied that he was taking the information with him as Bear Stearns alleged.The judge noted that most, if not all, of Sharon's clients have transferred their accounts from Bear Stearns to Morgan Stanley. But there's no evidence of any effort on Sharon's part to persuade his clients to take any action other than to protect the security of their assets.

“The plaintiff was suspicious of the circumstances under which Sharon left its employment and it drew not unreasonable inferences about his contact with colleagues and clients, but it can point to no direct evidence of wrongdoing,” the judge wrote. However, the judge said that there is a likelihood that Bear Stearns will succeed with its the breach-of-contract claim.

Judge Gorton said, though, that to win injunctive relief Bear Stearns needs to show that it would suffer irreparable harm without an injunction.The judge said that in light of the pending Financial Industry Regulatory Authority arbitration in the matter, the hardship to Bear Stearns of permitting Sharon to resume his employment at Morgan Stanley is minimal. And Sharon could lose professional standing if the injunction were issued, the judge said.

The case is Bear Stearns & Co. Inc. v. Sharon, case number 1:08-cv-10505, in the U.S. District Court for the District of Massachusetts. Mr. Sharon is ably represented by a friend of WombleTradeSecrets, Mike Boudett of Boston's Foley Hoag firm.

This isn't the first case Bear Stearns has fought on this front, see http://www.nytimes.com/reuters/business/business-bearstearns-employees.html?_r=1&oref=slogin and it certainly won't be the last. We'll report back on how the legal system addresses the Bear Stearns people who jump ship.

Lubrizol Trade Secrets Allegedly Stolen By Kyung J. Kim for South Korean Competitor

After an internal investigation at specialty chemical maker Lubrizol, federal authorities have charged a former company employee with theft of trade secrets and conspiracy. Kyung J. Kim, a one-time senior R&D associate at Lubrizol's Brecksville, Ohio, facility, is accused of selling confidential company information to SK Chemicals of South Korea.

According to charging documents filed in U.S. District Court for the Northern District of Ohio, Kim allegedly downloaded Lubrizol trade secrets about thermoplastic polyurethanes (TPUs) and other technologies—including nonhalogen flame retardants and static control technology—and provided the information to three co-conspirators. SK Chemicals, a Lubrizol competitor, sells TPUs under the trade name Skythane.

The documents allege that between 2001 and 2007, Kim met at least 17 times with SK Chemicals executives to discuss confidential technology in exchange for cash payments. At each meeting, Kim allegedly received $10,000 in $100 bills and about $1,100 in travel expenses.

In a statement, Lubrizol says it stands by its security measures including limited access to databases, password controls, and encryption. "Unfortunately," it adds, "it is clear that these policies and protective measures are not totally fail-safe, given human behavior."

Lubrizol notified the FBI of its internal discoveries and subsequently fired Kim. The involvement of the SK Chemicals executives is "under investigation," according to Assistant U.S. Attorney Justin J. Roberts, the prosecutor on the case. SK Chemicals officials could not be reached for comment.

The two counts of theft of trade secrets and one count of conspiracy each carry maximum penalties of 10 years in prison and $250,000 in fines. If Kim is convicted, the court will review his role in the conspiracy and any prior criminal record; most cases result in less than the maximum sentence, according to a Justice Department press release. No date has been set for trial.

Roberts says trade secret cases more commonly affect the technology industry in places like Silicon Valley, but "in northern Ohio our industry is manufacturing, and the law here is the same."

Pulte Homes Accuses Former Employee of Stealing Confidential Strategic Plan for Developing Albuquerque Properties

Pulte Homes claims in a federal lawsuit that a top executive who was being laid off stole a highly confidential, $1 million Albuquerque market study and used it to create a similar report for a major competitor.

The lawsuit filed in U.S. District Court alleges that Lynn Galindo, a former area vice president based in Las Vegas, Nev., conspired with former subordinates and other employees to obtain the
Albuquerque Operating Strategic Plan as she was negotiating her severance from Pulte.

Pulte claims Galindo entered into an agreement with Forest City Covington, developer of the 13,000-acre Mesa del Sol development south of the Albuquerque International Sunport, to provide that firm with a marketing study and used material from Pulte's report to do so.

There is no allegation of wrongdoing against Forest City, which is identified in the lawsuit but not named as a defendant.

"We would never contract with anyone with the specific aim of obtaining trade secrets," said Forest City Covington spokeswoman Anne Monson.

"That's just not what we're about."

An attorney for Galindo says the lawsuit is retaliation for Galindo's participation, as a witness, in a Nevada sexual harassment case against Pulte.

"This is a lawsuit where Pulte is going to have a great deal of egg on their face," said Marty Esquivel, an attorney for Albuquerque's Narvaez Law Firm, which is representing Galindo.

The suit alleges that Galindo asked a colleague or colleagues, named as "Does 1 through X" in the suit, to provide her with a copy of the report during the period when she was negotiating the severance package.

The document contained information about the Albuquerque residential housing market, such as economic forces, population size and mobility and price sensitivity, and cost in excess of $1 million to produce, according to the lawsuit.

"The information is of great value to Pulte because it contains, in specific detail, the supply and demand characteristics of the entire Albuquerque market by Targeted Consumer Group, as well as detailed (and mapped) information about how the market breaks into component pieces ( submarkets), the perceptions of those submarkets among specific consumer groups and the desirability of the submarkets," the lawsuit alleges.

"Galindo, having served in a high level position at Pulte, knew or should have known that Pulte would not have executed the Severance Agreement had Pulte known that she was planning to, or in the process of, violating the Business Policy Agreement by obtaining and using its Confidential, Proprietary and Trade Secret Information," the lawsuit said.

Lynn Hynds, a Detroit-based attorney, told the Journal that Pulte discovered the alleged plot by reading e-mail communications by Galindo.

The Albuquerque market study is "the road map of (Pulte's) assessment of the market, today and into the future," he said. "It contains some of the most confidential information that can be known to a homebuilder."

But Esquivel said Pulte never saw the report Galindo prepared for Forest City -- for which the lawsuit says she was paid $250 an hour.

"They have no idea what was in that report," he said. "They're just making assumptions, and they're wrong."

We'll report back as information on this matter develops.

Coca-Cola Trade Secrets Case -- The Denouement

It's over. I'm talking about the inevitable appeal of the conviction of Joya Williams who was convicted last year of stealing Coca-Cola's trade secrets and trying to sell them to Pepsi.

The Eleventh Circuit pretty quickly disposed of Williams claims of legal error, none of which related to trade secrets per se.

The opinion does, however, present as good a summary of the conspiracy and it's unraveling at the hands of the FBI as you are likely to see.

(A tip of the hat to Andrew Shane at Bloomberg for bringing this to our attention. Thanks Andrew.)

Misappropriation Trial of Chinese-American Aerospace Engineer Delayed

A judge agreed Monday to postpone for 13 months the trial of a Chinese-American engineer charged with stealing military and aerospace trade secrets on behalf of China.

Kenneth Miller, the attorney for 72-year-old Dongfan "Greg" Chung, asked for the delay because he is involved in a lengthy trial, said Assistant U.S. Attorney Greg Staples.

The trial was scheduled for April 8, but U.S. District Judge Cormac Carney agreed to delay it until May 5, 2009.

The government alleges that Chung stole trade secrets on the space shuttle, C-17 military transport and the Delta IV rocket during his decades of employment at Rockwell International and Boeing.