Trade Secret Shrimps on the Barbie

This report from Australia's Fairfax Digital - Australia is experiencing a surge in trade secrets, unfair competition and intellectual property litigation. According to one experienced Australian attorney: "Often there is dissent about who owns the intellectual property rights in employee work product," he says. "Actual litigation has increased because of the tightening job market and rise in the 'knowledge-based' economy. The knowledge component of jobs has become more important so what gives a business a competitive advantage is its intelligence, but that intelligence resides in the employees."

Have a good weekend.

Clear Channel Sues Tribune Co. and Former Executive for Trade Secret Theft

As readers of this blog know, we're reporting more and more on competitively-sensitive hires that result in certain and immediate litigation alleging trade secret misappropriation and tortious interference with employment contracts.

This is a substantial case of that type - Clear Channel accuses Chicago-based Tribune Co., owner of the Chicago Tribune and other media properties, of stealing trade secrets when in May it hired one of the radio giant's vice presidents involved in its online business.Clear Channel seeks to stop Tribune from employing the executive, Andrew Friedman, in an Internet-related job until at least the end of the year, when his employment contract with the radio company was set to expire. The company also seeks to restrain Tribune from inducing any other Clear Channel employees to break an employment contract. Friedman also is named as a defendant in the suit, filed Monday.

Tribune spokesman Gary Weitman described the suit as worthless. "We're finding that there are a lot of people who want to come work for the new Tribune, and we're going to hire the best of them, we're going to do it lawfully and we're not going to be intimidated by frivolous lawsuits," he said.

We'll keep an eye on this one for you. We decided to post the Chicago Tribune's version of this story as an opener for you.

EDITOR'S NOTE:

WELL, HERE'S A FIRST POST-SCRIPT - CLEAR CHANNEL OBTAINED AN INJUNCTION AGAINST THE EMPLOYEE FROM STARTING WORK . . .
http://www.chicagobusiness.com/cgi-bin/news.pl?id=29582

The Trade Secrets of Salad in a Package

Chiquita apparently owns a subsidiary called "Fresh Express" and it developed the concept of "salad in a package." Well, Chiquita is alleging that key members of its packaged salad management team got a lot of cabbage to go elsewhere and now they're, em, dressing them down with a lawsuit for stealing key people and secrets.

The suit states the defendants were part of the management team at Fresh Express that "developed the packaged salad concept and became the No. 1 seller of packaged salads in the United States."

Chiquita said it "went to great lengths to retain them," including $150,000 to $280,000 bonuses, because of the "extraordinary amount of trade secret and proprietary knowledge" they gained in their jobs.

Chiquita alleges that after NewStar CEO Mark Drever, who is not named in the lawsuit, left the company in 2006 to run NewStar, NewStar "began raiding the ranks of Fresh Express' talent and knowledge."

With Drever at the helm, the suit alleges, plans "emerged to build a package salad industry within NewStar," which had no packaged salad business before Drever joined the company, according to the suit.

In February 2007, the same month OrganicGirl, which is part of NewStar, was registered as a corporation, the suit alleges Gallagher resigned from Fresh Express after receiving a $280,000 bonus to work at NewStar.

Once at NewStar, Gallagher along with Drever started to "transplant the old Fresh Express management team" to NewStar and OrganicGirl, the suit states. Over the next two months, Lemmon, Komar and Staehle left for NewStar and OrganicGirl, according to the suit.

Further, Chiquita alleges the defendants planned their resignations, and Lemmon and Staehle used their computers during their final week of employment to access confidential company information, including budgets, forecasts and trade secret files.

Protection of Trade Secrets in the Gulf States

Okay, so this one is more a curiosity than anything else, but the Gulf Times (of Doha in Qatar) publishes a question-and-answer column called "The Legal Helpline."

Following is a verbatim transcript of one of this week's questions, from "IB" in Doha:

Q: We run a business related to artistic production and creativity. Trade secrets have a key role in this business. Is there a law for their protection?

A: According to Article 7 of the Law No. 5 of 2005, it is not permissible for anyone to obtain, use or divulge trade secrets illegally without the consent of trade secret holder. Obtainment of a trade secret independently or as a result of scientific research, or by means of self-capabilities shall not be regarded contradictory to decent commercial practices.Article 8 provides the right-holder or his successor title to claim compensation for damages incurred resulting from others’ infringement or misuse of the secret. The court may halt infringement on trade secret by taking following steps: attachment of materials containing infringed or misused trade secrets or products resulting from misuse wherever found; attachment of evidences relevant to infringement on trade secret.

What's interesting here, at least to me, is how the concepts (and remedies) are very similar to American trade secrets law, despite the differing terminology. It's just a surmise, but it may be that the idea of protecting intellectual property, including trade secrets, is more universal than some of us may have thought.

Boot Suit Settled

We don't know much about the trade secrets of boots, but two companies that make boots tried to kick each other in a version of the "trade secrets two-step." Rocky Brands had claimed the defendants were using Rocky trade secrets to make "knock-off" boots.

The lawsuit was filed earlier this year in U.S. District Court against Glen Bratcher of Springhill, Tenn.; Westwood Footwear and Accessories, Nashville; and Nantong Hong Yi Wang Shoes Co. of China.

Rocky sought preliminary and permanent injunctions against the defendants.Because of the settlement, the lawsuit and a counterclaim filed by Bratcher and Westwood Footwear have been dismissed. The court ordered that the terms of the settlement be filed with the court under seal, and that the court retain jurisdiction to enforce the settlement.

Rocky Brands CEO Mike Brooks said the company "is extremely pleased with the resolution of the case."At the time the lawsuit was filed, Brooks said the company was concerned that its customers were being confused by the "defendants' apparent copying of Rocky's trademarks as well as Rocky's distinctive trade dress."

According to the lawsuit, Bratcher is a former employee of EJ Footwear in Tennessee, which was acquired by Rocky in 2005. At that point, Bratcher became an employee of Rocky, working as a vice president of product development for Durango and Rocky Western, until he left in early 2007 and formed Westwood Footwear.

Nantong was a shoe manufacturer for EJ Footwear and later for Rocky Brands. The lawsuit asserted that Bratcher and Nantong had access to trade secrets while working for Rocky, and were using that information to make Westwood boots. The court action sought preliminary and permanent injunctions to stop what it claimed was the misuse of Rocky trade secrets.

Trade Secrets and Dolls Continued

Forbes.com has an update from the Associated Press on a story we first wrote about in November 2006 concerning a lawsuit by toy maker Mattel (maker of the famous Barbie doll) against insurgent toy maker MGA, maker of Barbie's chief competition, the "Bratz" dolls.

Jury selection began Tuesday in their case, now characterized as a "federal copyright infringement case," pending in federal court in Riverside California.

According to the AP, Mattel has alleged that it's entitled to some of the profits from the Bratz dolls because MGA stole the concept and other trade secrets by luring away a Mattel employee.

Mattel filed the original lawsuit in 2004 against Carter Bryant, one of its former doll designers, accusing him of wrongfully selling his Bratz ideas to privately held MGA while he was under contract to Mattel.

Bryant has said he became inspired to create Bratz between two stints at Mattel, and it wasn't anything more than an idea until he left the company.

Mattel dropped the lawsuit against Bryant on Monday, the eve of jury selection, said John Quinn, a lawyer representing Mattel. He declined further comment.

The AP says that Isaac Larian, MGA's chief executive officer, has pegged the value of the Bratz franchise at $2 billion, but industry analysts believe its market share has slipped in the past few years.

We'll update on the result when it comes in.

Craigslist Sues eBay for Misappropriation of Trade Secrets and Unfair Competition

Here's a biggie - Craigslist is counter-suing its own minority shareholder, eBay, for trade secrets misappropriation that allegedly assisted eBay in launching its own classified ad business. The complaint can be read by clicking on the link below.


http://blog.craigslist.org/etc/craigslist.vs.eBay.pdf

Eaton Aerospace Trade Secrets Criminal Case Has Seven of Twelve Counts Dismissed

The Mississippi Clarion Ledger is reporting that 7 of 12 criminal charges brought against five former Eaton Aerospace employees have been dismissed and that federal prosecutors intend to appeal that decision.

Federal District Court Judge Barbour threw out the first five counts of the latest indictment, saying the charges were unconstitutionally vague. The charges were one count of conspiracy to defraud the United States, two counts of theft of trade secrets and two counts of wire fraud.
He also threw out two counts involving theft of trade secrets, saying they were barred by the statute of limitations.

The remaining charges in the indictment allege the men defrauded Eaton by scheming to "steal, take and carry away proprietary information" and then using that information "to compete against Eaton for government and commercial contracts."

The indictment alleges the former Eaton employees had access to a variety of confidential information, as well as other information constituting trade secrets, that belonged to the company.

"In July 2001, the defendants approached Frisby regarding employment with Frisby," the indictment says.

"It was an object of the conspiracy that the defendants would and did leave their employment at Eaton and take engineering jobs at Frisby, where they would and did compete directly against Eaton for aerospace contracts for hydraulic pumps and motors."

The indictment further alleges the defendants conspired to enrich themselves while at Frisby through salaries and business by using property stolen from Eaton. Also, they attempted to recruit others, including engineers, to participate in and work for Frisby and to continue to acquire Eaton technology from former and present Eaton employees, according to the indictment.

In addition to the criminal charges, Eaton - a Fortune 100 business - filed a $350 million lawsuit against the former employees and Frisby, accusing them of stealing trade secrets.

Jurors "Outraged" By Trade Secret Claims Made In Texas

Here's a relative rarity - a trade secrets misappropriation case that goes to a full jury trial and verdict. National Oilwell Varco is an oil field parts seller. It had some long-term employees leave without any noncompete agreements restricting their re-employment in the industry. That said, National Oilwell Varco sued the employees on a trade secrets misappropriation theory and alleged that the employees took with them key information about clients - including, for example, a "40 year collection of business cards" and "product and vendor lists available online."

The really interesting part of this news piece, however, is the jury's reaction to the four-week trial. Their comments included "the overall feeling was that they didn't want employees to go, and if you tried to leave, they want you married to the company. Its president said if laid off, an ex-employee should reasonably be expected to move to Nebraska if they wanted to stay in the same business" and "there wasn't enough evidence to back up their claim. The whole deal seemed a waste of four weeks."

NOW, that's a nice lesson for attorneys. Taking a juror out of their life routine and sitting them in a box for four weeks while you attempt to prove that your client's secrets have been stolen requires some dexterity. These jurors were "outraged" by the employer's attempts in this matter. That juries often decide these cases at trial should not be forgotten.

Have a good weekend.

NC Court of Appeals Decision on Pleading Standards in Trade Secrets Case

It's nice (and easy) to be able to link to one of our sister blogs, the North Carolina Appellate Blog, concerning a case from earlier this week from the North Carolina Court of Appeals.

In Washburn v. Yadkin Valley Bank & Trust, the court affirmed dismissal of a trade secrets claim on the grounds that the identity of the trade secrets and the manner of the alleged misappropriation were pleaded with insufficient particularity.

The case could prove very useful in fighting off vague claims in North Carolina state and federal courts.

Ohio Supreme Court Justice Writes Op-Ed Piece In Newark Advocate

We think we're reading this correctly - a sitting Ohio Supreme Court justice has written an op-ed piece about a recently decided case entitled "Employees Should Realize Trade Secrets are Well-Protected."

The case Justice Pfeifer is referring to, of course, was one we've blogged and has also generated lots of press in the trade secrets world - the case that holds memorized trade secret data is just as protectible than that taken in tangible forms (e.g., thumb drives, print-outs, etc.).

We just find it refreshing that a sitting justice decided that he would explain the matter to the public in a written op-ed piece. Good stuff. The public has a right to know what their courts are up to and Justice Pfeifer should be commended for telling the public about an interesting case.

Trade Secrets Cases on the Upswing

This is not exactly scientific, but it's somewhat empirical:

If you do a search on the term "trade secrets" in the Westlaw federal database (federal district, appeals and Supreme Court cases) for 2007, 905 cases are returned. That's an increase of 20% from 2006 (754) and an increase of 231% from 1997, ten years before (273).

Now, not every one of these cases is a full-blown case about trade secrets. In some, the term may only be mentioned in passing. In addition, the Westlaw database may pick up lots more cases in 2007 than it did in 1997.

Nevertheless, it would be hard to deny that something's going on.

The numbers of cases under the federal Computer Fraud & Abuse Act are even more telling. It was mentioned in 79 cases in the database in 2007. That represents an increase of 46% from 2006's number (54). And in 1997? There was a grand total of one case, representing a ten-year increase of 780%.

The Trade Secrets of Hedge Funds

Portfolio.com published an interesting piece recently concerning the increasing number of suits commenced to stop hedge fund employees from departing to work for a competitor. The article identifies state trade secrets law as a primary legal vehicle for getting injunctions against the departing employees.

Some of the hedge fund employees were responsible for generating proprietary trading models - ones that utilize mathematical formulas in their design. Our favorite quote from the piece? "There's nothing like a bunch of lawyers trying to figure out mean-variance optimization."

Interesting piece.

Appeal in Virginia Trade Secrets Case

From the Danville (VA) News: This one's a little opaque, but it's from nearby enough that we ought to report it.

Robin Tomer, the wife of a Danville City Councilman, filed an appeal to the Supreme Court of Virginia against a jury decision that found her liable on a Virginia Trade Secrets Act claim brought by her former employer, Romar Medequip. The company makes wheelchairs, lifts, ramps, etc.

Apparently, Tomer took documents with her when she left for a new employer. Romar Medequip was awarded $175,000 in damages by the jury in the February trial.

According to the article, in March, Romar’s attorneys, Glenn Pulley and W. Huntington Byrnes, filed a motion asking for an accelerated hearing because Tomer and her husband, Danville City Councilman Adam Tomer, transferred ownership of their home between the time of the verdict and the judgment.