Federal Judge Dismisses Invista's Trade Secrets Case Against DuPont, Rhodia

Trade secrets claims are generally matters covered by state, not federal, law. State law matters are routinely heard in state court - except when there is a diversity of citizenship between the parties and the amount in controversy exceeds $75,000. In diversity cases, corporations are "citizens" of both their state of incorporation and where their principal place of business is located.

A judge has dismissed a lawsuit by Koch Industries Inc.'s Invista unit against DuPont Co. and France's Rhodia SA over claims they teamed up to steal Invista's proprietary technology for the production of a chemical used in the manufacture of nylon.

In an order dated Thursday, U.S. District Judge Barbara S. Jones in Manhattan dismissed the lawsuit, saying Invista "failed to assert a cognizable federal claim." However, the judge did grant Invista's request to file an amended complaint.

"Invista grounds its claims in state law, not in any substantive provision" of federal law, the judge said. The company failed to plead a valid claim "because it cannot invoke an independent basis for federal jurisdiction," the judge found. (Author's note: we bet that Invista and DuPont are both incorporated in Delaware - meaning that diversity would be destroyed by that mere fact alone.)

In August, Invista sued DuPont and Rhodia, alleging Rhodia was attempting to improperly obtain trade secrets related to Invista's proprietary, butadinene- based technology to produce adiponitrile, an intermediate chemical used in the manufacture of nylon.

Invista had claimed it bought the core technology as part of $4.1 billion sale of DuPont's fibers business in 2004.

The lawsuit claimed DuPont agreed to prohibitions that barred it from competing against Invista and from disclosing the technology to any third party as part of the transaction.

The complaint alleged DuPont had joined forces with Rhodia as Rhodia seeks to build an adiponitrile plant in Asia and compete unfairly against Invista.

IBM Sues Top Executive to Stop Migration to Apple

IBM is suing one of its top executives, a server guru who is trying to take a job with Apple, where he would be working closely with CEO Steve Jobs.

Mark Papermaster, a 26-year veteran of IBM, has knowledge of "significant and highly confidential IBM trade secrets" that would "irreparably harm" the company if he is allowed to work for Apple, IBM alleges in a suit filed in United States District Court in Manhattan on Oct. 22. Papermaster also signed a noncompetition agreement in 2006 pledging not to work for competitors for one year after the conclusion of his employment with IBM.

The complaint says Papermaster was IBM's top expert for its Power microprocessors and the vice president of IBM's blade server development unit, until resigning on Oct. 21. Papermaster is also a member of IBM's "elite" Integration & Values Team, a group of 300 senior managers charged with developing corporate strategy.

"Recently, Mr. Papermaster informed his superiors at IBM that he intended to accept a position at Apple," IBM's complaint states. "On information and belief, Mr. Papermaster will become a senior executive and corporate officer at Apple and will work very closely with Apple's Chief Executive Officer in providing to Apple technical and strategic advice on a variety of issues."

IBM says it tried to lure Papermaster back with a substantial pay raise, and offered to pay him one year's salary in exchange for Papermaster "refrain[ing] from working for an IBM competitor for one year."

Papermaster nonetheless decided to leave and work for Apple beginning in November, the complaint states.

"Mr. Papermaster, as long as he is employed by Apple, will inevitably use and/or disclose IBM trade secrets for his own benefit and for the benefit of Apple," IBM alleges.

IBM is seeking an injunction preventing Papermaster from working for Apple and asks for monetary awards "as the court deems just and proper."

Stylish Trade Secrets?

From Women’s Wear Daily, a story concerning federal charges against two former employees of fashion trade show organizer ENK International with conspiracy Monday after the pair allegedly tried to steal confidential business information about retail buyers and trade show guests.

Prosecutors from the Southern District of New York claims that Morgan Gantt, 24, used company computers in August to send her former colleague Jeffrey White, 27, the confidential information. White had been fired the previous month for insubordination. The alleged transmittals occurred on company computers and Blackberries.

According to the story, the U.S. Attorney charged Gantt and White with one count each of conspiracy to commit unauthorized computer access and conspiracy to commit theft of trade secrets. Each faces a maximum 11-year sentence if convicted.

The story also says that the company filed a separate civil complaint against both defendants in September accusing each of theft of “its client contacts, pricing information and other client confidences.”

Since, as readers of this blog well know, the activities described are a regular workplace occurrence, the question arises – particularly in light of the earlier-filed civil action – why the feds would be interested in pursuing this particular case as a federal criminal matter.

Your guess is as good as mine.

Editor's note: only one of the two editors of this blog routinely read Women's Wear Daily. That would be Press. Not Todd.

"So Good . . . So Good . . . Cause I Got You!" - The Trade Secrets of the James Brown Estate

Freaky Friday here, folks. We read with interest the claim of the Trustees for the Estate of The Godfather of Soul - James Brown. They claim that releasing tax returns for James Brown will reveal trade secrets of the Estate. Huh?

Apparently, a settlement has been reached with the lion's share of Brown's many children and former lovers and spouses. South Carolina Assistant Attorney General Sonny Jones said the settlement can be presented to the judge without one child's consent. But attorneys need to obtain tax returns held by trustees before filing the proposal.

Trustees argued Thursday that turning over those documents would violate a federal confidentiality order associated with federal litigation against them or could reveal valuable trade secrets if they fell "into the wrong hands."

The judge was expected to issue an order Friday on the tax returns, which Levenson said could give some clues to the value of Brown's estate.

"GET UP, GET ON UP!!!" Have a good weekend.

Did Brett Favre Misappropriate the Packers' Trade Secrets?

Admission #1: one of the authors of this blog grew up in Detroit and suffered miserably while watching the Detroit Lions.
Admission #2: long ago, this same author publicly gave up hope on the Detroit Lions but privately watches their games.
Admission #3: he continues to be embarrassed by the Detroit Lions.

NOW, that having that out of the way - the NFL is all abuzz with reports that Brett Favre may have shared the Packers' play secrets with now-deposed Matt Millen in Week 2 of the season in a 90-minute teaching session.

Has anybody pointed out that the Packers rolled up 447 yards and 34 offensive points that day and beat the Lions 48-25?

In trade secrets lingo, even if Favre did it this was just a misappropriation that didn't cause the Packers any damage. Case dismissed.

7 Year Trade Secrets Theft Conviction Reversed by Texas Court of Appeals

The Texas Court of Appeals in the sixth district handed down the opinion Oct. 17, acquitting Frank McClain Jr. of stealing trade secrets from his former Lufkin employer, Didrikson and Associates, and throwing out his seven-year prison sentence. Interestingly, they not only reversed the conviction but have ordered an entry of acquittal in the matter - such that McClain cannot be retried in the matter.

Didrikson and Associates is a company that services the petrochemical and pipeline industries.
The opinion stated materials, known as backsheets, that McClain took from his employer to open a competing company are not trade secret, which was the basis of the evidence used to convict McClain in 2006. An Angelina County state district judge later sentenced him to seven years in prison.

McClain's appeal attorney Al Charanza, Jr. said he presented the case the first week of September. Although he was not surprised by the court's decision, he said he was impressed how quickly the opinion was issued.

"The court found what I have been saying all along — McClain is not guilty of stealing trade secrets," he said. "There was insufficient evidence."

In an opinion issued, the appellate court stated the trial record established the backsheets were public knowledge, and could not be considered trade secrets by legal definition.

"Didrikson admitted the backsheets had been placed in the public domain by GE, the original publisher," the opinion stated.

The opinion further stated any improvements or notes on the backsheets do not fall under trade secrets either.

"The only improvements identified as being stolen by McClain are the set-up sheets. Didrikson testified that the set-up sheets were McClain's idea and that McClain was the only person who created the set-up sheets," the appellate court stated.

The court concluded that although McClain may have obtained the backsheet information wrongfully, he is not guilty of theft of trade secrets.

"The evidence is legally insufficient. Because the evidence is legally insufficient, it is unnecessary to decide McClain's fourth point regarding error in the jury charge," the court stated. "We reverse the judgment of the trial court and render a judgment of acquittal."

Tough Economic Climate Puts Companies at Greater Risk of Trade Secret Theft

The attached link yields an interesting online piece from COMPUTERWORLD Security. The piece's angle is that tough times create greater risk of loss of trade secrets. They say:

"As it is, one of the biggest threats to corporate data and systems traditionally has come from insiders, who with their privileged access to data and systems, have the potential ability do more accidental or malicious damage than even the outside attacker.

That threat greatly increases at times when companies are laying off staff, cutting back on raises and bonuses, deferring promotions, consolidating operations and outsourcing work to save money . . . .

The increased use of portable devices, such as laptops and handhelds, and removable media, such as USB memory sticks and iPods, has also made it easier for rogue insiders to walk away with large amounts of corporate data. Analysts for sometime have said that it's important for companies to have measures in place for centrally controlling and monitoring which devices can be attached to corporate networks and systems and what data can be downloaded, uploaded and stored on them.

Another category of tools used by companies as a measure against data theft is the so-called data leak prevention tools that keep an eye on network traffic to ensure that protected information doesn't go outside in an unauthorized manner."

These are increasingly difficult times. While we at WombleTradeSecrets aren't sure there is data to support this piece's theory, it makes sense to us.

To Catch an Electronic Thief

An interesting article in the Legal Tech Newsletter by Ken Stasiak and Dave Kennedy, two consultants with SecureState LLC, an information security assessment and protection firm, concerning what to do if you think your company has been targeted by someone stealing electronic data.

The article looks at three steps in the process of ferreting out the offender: profiling, internal investigation and interrogation.

The authors’ conclusion:

Simply firing an employee suspected of wrongdoing is not appropriate on a variety of levels, most significantly you will likely not recover your data or your funds and the opportunity to do so may be lost forever. For this reason, it is essential to prepare a tactical response plan in advance to address potential problems -- instead of trying to play catch-up after the fact.

That’s a drum we’ve been beating for years and Stasiak and Kennedy are right on.

Too Small To Protect Trade Secrets?

InfoWorld has a blog that we read sometimes and this recent blog posting hit a couple of points we've opined about in the past. The blogger didn't identify the company they work for - but they noted that they'd persistently identified trade secret loss as a major risk for the company. The CEO apparently pooh-poohed the idea that this was a real risk and essentially instructed the blogger to chill out.

Murphy's Law struck and one of their VP's left and misappropriated data and secrets and helped others, and himself, eat the company's proverbial lunch. The CEO was mystified. The blogger engaged in a bit of nasty schadenfreude.

Our point: we agree with the blogger here - no company is too small to think about protecting intellectual property and trade secrets. Some rare companies don't have any intellectual property or trade secrets - but no company that DOES HAVE intellectual property or trade secrets is too small to worry about losing them.

Trade Secrets and the New Financial Landscape?

Suffice it to say that we all know that the world has changed and is changing as a result of the financial meltdown.

Just what it means for trade secrets and the issues covered on this blog is anyone's guess at this point.

Nevertheless, for your edification, we are linking to a piece prepared by one of our colleagues concerning "What Banks, Financial Institutions, Investors And Service Providers Need To Know About The Emergency Economic Stabilization Provisions of H.R. 1445."

The historic "economic rescue" bill began as a 2.5 page proposal from the U.S. Treasury to provide immediate liquidity to troubled financial markets and grew to a nearly 450-page enactment consisting of three separate laws: (i) the Emergency Economic Stabilization Act of 2008 (“EESA”), (ii) the Energy Improvement and Extension Act of 2008, and (iii) the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.

President Bush signed the bill on Friday, October 3 within moments of its passage in the House of Representatives. Whether Congress made immediate implementation of the “rescue” provisions of the bill unwieldy remains to be seen.

The link provides an extensive summary of the legislation.

Taiwan Semiconductor Manucturing Company Settles UniRAM Trade Secrets Matters

Taiwan Semiconductor Manufacturing Company (TSMC) has reached a settlement agreement with UniRAM Technology to settle a dispute regarding trade secrets alleged by UniRAM, according to a TSMC filing with the Taiwan Stock Exchange (TSE). No financial details were disclosed.

Last year, a jury returned a verdict in which it concluded that TSMC had misappropriated trade secrets relating to embedded DRAM technology from UniRAM, TSMC's former customer. In 1996, 1999 and 2000, UniRAM Technology Inc., entered into non-disclosure and confidentiality agreements with the Taiwan Semiconductor Manufacturer Corporation. The agreements stipulated that UniRAM would share certain design information about embedded DRAM semiconductors that it had designed in order to conduct a dialogue between the two companies regarding the potential for mass production of the semiconductors.

As the designs were being revealed to TSMC it entered into an agreement to manufacture embedded DRAM semiconductors designed by one of UniRAM's competitors, Monolithic System Technology (MoSys), Sunnyvale. UniRAM sued TSMC and MoSys for misappropriating its trade secrets and breaching its contract, alleging that TSMC disclosed its semiconductor design to MoSys so that MoSys could incorporate the design into plans it had developed for its own semiconductor. Prior to trial, UniRAM settled with MoSys for $2.4 million.

The jury awarded UniRAM US$30.5 million.

In May 2008, the United States District Court for the Northern District of California made another judgment in favor of UniRAM, and although TSMC appealed, the judgment will now be vacated and all the trade secrets claims asserted by UniRAM are fully and finally settled, according to the new settlement agreement.

Coin Dealers Says Customer Lists and Marketing Strategies are Trade Secrets Stolen By Former Employee

The suits filed by or against rare coin dealers in recent years could fill up even the largest of penny jars. The newest suit, The American Eagle Reserve LLC vs. Justin A. O'Neal, was filed Sept. 4 in Jefferson County District Court. Dozens of suits involving coin companies have been filed in the county the last year alone.

In its suit, TAER alleges one of its former employees stole company trade secrets in hopes of making a pretty penny. TAER is petitioning the court for an injunction to restrain O'Neal from contacting its customers. Court documents show that TAER and O'Neal entered into a confidential services, trade secrets and employment agreement on March 24, 2008.

"In part consideration for entering into an agreement, Plaintiff agreed to… train, employ and give the Defendant access to confidential and secret customer lists and information concerning rare and collectible coins," the suit says.

"Additionally, Defendant agreed to maintain confidentiality and use his best efforts to promote sales in the interest of Plaintiff, devoting full time to his employer's business and following the written and oral directives of the plaintiff… for a term of at least three years."

In August, six months after he was hired, O'Neal, who was now armed with the company's customer list and "techniques gleaned from" TAER training, quit and began contacting TAER customers, the suit states. "Defendant … agreed not to enter into any business which was in direct or indirect competition with the plaintiff," the suit states. "Plaintiff would further show unto the Court that the nature of the rare and collectible coin business is such that the market is nationwide, supported and promoted by nationwide advertising and commerce by regular mail, electronic mail, telephone and other methods of electronic communication so that it is reasonable to prohibit competition on a nationwide basis.

"TAER is suing O'Neal for tortuous interference, disclosure and conversion of trade secrets, including the customer list and trade infringement."The Defendant continues to solicit to customers of the Plaintiff to the detriment of the Plaintiff; and unless enjoined, such conduct will cause irreparable harm to the Plaintiff, the full extent of which is indeterminable.

A hearing was set for the month of September but Hurricane Ike has delayed court proceedings.