Apple and Psystar Agree to Order Protecting Trade Secrets in Litigation

Apple sued Psystar for allegedly marketing and selling unlicensed Mac clones, see http://www.pcworld.com/article/159937/whats_at_stake_in_the_applepsystar_case.html . As all lawsuits do, after the pleadings are complete the case proceeds to the discovery phase. In cases involving intellectual property and claims of misappropriation the discovery phase implicates the disclosure and review of competitively sensitive materials - documents, things and testimony. What parties routinely do in these cases is negotiate and persuade the judge to enter a protective order - a court order that essentially permits the parties to show and review certain documents, things and testimony but also creating protocols to make sure that information is not shown to the wrong people or the public.

That's what Apple and Psystar have done - they've negotiated and obtained a protective order. Here is their motion to the court to get that protective order: http://docs.justia.com/cases/federal/district-courts/california/candce/3:2008cv03251/204881/54/.

This is a slow trade secrets day so we thought we'd just explain what a protective order is used for in these cases so that some of you might learn a little more about this area of law.

Nokia Lobbies for Intra-Corporate E-Mail Review Law to Bolster Trade Secret Retention

As many of you know, private employers in the United States routinely reserve the right to examine their employees' e-mails sent from, and received on, company computers. They do so under a general theory that employees of private companies do not have a reasonable expectation of privacy in communications contained on company-owned computer systems.

Apparently the issue of privacy vs. employers' rights is a hot topic in Finland. Nokia, one of Finland's most successful companies and a major employer there, has been lobbying for an amendment to existing law that would permit them to review their employees' e-mail and 0ther electronic communications sent or received on Nokia-owned computers - under a theory that this would better enable them to protect trade secrets and confidential and competitively-sensitive information. But - the Fightin' Finns are fighting mad and fighting back . . . as Bloomberg reports below:

The proposal, dubbed the “snooping” or “Nokia” law, allows companies to more easily see with whom their employees are e-mailing. Helsingin Sanomat, the country’s biggest newspaper, earlier this month accused Nokia of making behind-the-scenes threats to leave the country if the bill doesn’t pass. The world’s biggest mobil-phone maker, which denies the allegations, wants the law to protect intellectual property rights.

“Trade secrets are a serious matter for a country like Finland, whose competitiveness lies in innovations,” Arto Satonen, chairman of the parliament’s employment committee, said. “It’s important that emails are included in the law.”

The legislation, an amendment to a 2004 law, clarifies when employers can monitor e-mail details, such as recipients and attachments sizes. Companies wishing to monitor traffic must update their security systems, inform employees how the program will work and notify a government ombudsman.

“This will absolutely be a better way to prevent trade secret leaks compared with the existing situation,” said Kimmo Sasi, chairman of the parliament’s constitutional committee, which endorsed the amendment. “It requires companies to upgrade their own security systems.”
Right to Undress

A majority in Finland’s parliament today voted down efforts by opponents to alter the proposal. The final vote, which is a formality because the ruling coalition’s two main parties support the measure, will take place next week.

The allegations against Nokia, along with public comments by one of the bill’s supporters, have often sidelined debate about the proposal itself. Communication Minister Suvi Linden told daily newspaper Aamulehti Feb. 12 employers have the right to undress workers and search them for USB memory sticks when leaving company premises. Linden later said she was joking.

Nokia Chairman Jorma Ollila on Feb. 15 went on an interview program on public broadcaster YLE to deny that the Espoo-based company had pressured anyone and say that the accusations should be investigated. Nokia spokeswoman Arja Sumonien said the company backs the view of the Confederation of Finnish Industries.

“It’s unfortunate that there’s no discussion about the content of the proposal, but the talk is rather on completely other matters,” said Mikko Nyyssoelae, senior legal counsel at the confederation, which has lobbied for the law on behalf of Nokia and other Finnish corporations.

“The talk about us pressuring somebody on the matter is nonsense.”

Nonprofit organizations such as universities, libraries and housing associations would remain under the new data protection law. Student groups from Finland’s main political parties have signed a joint petition against the act. They say nonprofit organizations should be excluded from the bill.

“The act will not stop leaks, as many experts have pointed out, and we shouldn’t take the risk that someone’s basic rights could be violated” said Martti Kuhonen, chairman of the Left Alliance, during today’s debate.

Opponents have launched a website called urkintalaki - or snooping law -- to protest against the proposal. It features a video of lawmakers ripping pages from Finland’s constitution after the parliament building runs out of toilet paper.

“This act will not make Finland a big brother society, but it’s one step towards it,” said Antti Kurvinen, head of ruling Centre Party’s student organization.

If You Buy a Product Made With Stolen Trade Secrets, Are You a Misappropriator?

The National Law Journal has reported on a fascinating issue that is cranking its way through the California appellate courts - are customers who buy products made with misappropriated trade secrets liable for being misappropriators themselves? The issue is usually an academic one - rarely would a victim of trade secret misappropriation sue customers of the misappropriator. But, as you'll see below, that's exactly what Silvaco Data Systems did - they sued the misappropriator's customers:

Eyebrows were raised by Silvaco Data Systems Inc.'s aggressive move when it sued the customers of a software maker, Circuit Semantics Inc., that it had beaten in a trade secrets case.
Last week, one of those customers, Cypress Semiconductor Corp., notched a win in the long running fight. Santa Clara County Superior Court Judge Kevin Murphy granted summary judgment to Cypress, ruling that Silvaco didn't have the evidence to show that Cypress acquired or knew about the stolen trade secrets when it bought software from Circuit Semantics.

"At most, Cypress obtained software that was created using the purported trade secrets," Murphy wrote.

Silvaco had sued 12 semiconductor companies in 2003 and 2004 that bought CSI software, which is used to test computer chips, alleging that they should've known that it contained the computer code that CSI took from Silvaco. Seven settled, but Intel, Agilent, Cirrus Logic, Hewlett-Packard and Cypress fought the allegations. Intel, Agilent and Cirrus eventually won on summary judgment, and now Cypress joins them.

"We're extremely pleased with the court's decision and are now looking forward to victory on appeal," said Arturo Gonzalez, the Morrison & Foerster partner who represented Cypress.
Chris Scott Graham, the Dechert lawyer who represents Silvaco, said that with the decision, the state appeal court can now decide the issue of whether the third parties can be held liable in this case for trade secret misappropriation.

Rodger Cole, the head of Fenwick & West's trade secret practice, said he's not surprised that Silvaco wasn't successful at the trial court. "Unless there's evidence that the customer really knows about the fact of misappropriation, it's going to be hard to nail the customer," said Cole, who is not involved in the litigation.

Murphy originally ruled against Cypress on the same summary judgment motion in 2007. While Cypress appealed a separate issue involving the statute of limitations, Murphy granted summary judgment to Intel, Agilent and Cirrus. So MoFo asked him to reconsider his earlier decision on Cypress, which he did. "The court is of the view that it erred in denying Cypress's motion for summary judgment," Murphy wrote.

The issue on appeal following the summary judgment rulings is whether the customers, even if they didn't actually get Silvaco's trade secret source code, are still liable for trade secret misappropriation. Silvaco's lawyer, Graham, said they knew they were getting tainted software.

"There's no dispute that they knew," he said. "The code they were getting from CSI had been alleged to contain Silvaco trade secrets."

MoFo's Gonzalez said if they didn't get the trade secret, there's no case. "In order to violate the trade secrets act, you must actually have the secret," he said. "In this case, the secret is the source code, and we never got the source code."

ConnectU vs. Facebook Unredacted Trade Secrets Settlement

In a follow-up on a case we first reported on in July 2007, College News is reporting that inadequate redaction of a .pdf document containing settlement information has resulted in the disclosure of otherwise confidential terms.

Specifically, the inadvertently disclosed portions revealed that ConnectU received somewhere between from $31 million and $65 million to settle its lawsuit--and that Facebook’s internal valuation was a hefty $3.7 billion.

The article cites ZDnet quoting an Adobe senior product manager saying that someone had “added a white rectangle over the white text in order to cover it” thinking incorrectly it was “sufficient to make that content undiscoverable”.

The lawsuit was brought against Facebook originally in 2007 after ConnectU’s creators accused Facebook’s Mark Zuckerberg of stealing their ideas while they were all students at Harvard University.

McAfee Estimates $1 Trillion in Trade Secret Thefts in 2008

The theft of trade secrets cost businesses about $1 trillion last year, with employees committing many of the offenses, according to research commissioned by McAfee Inc.

In a survey of information-technology executives, 42 percent of respondents said laid-off workers were the biggest threat caused by the economic slump. Businesses reported losing $4.6 million on average last year as employees and outsiders took company information.

The skidding economy, along with the spread of corporate data to overseas factories and call centers, is making company secrets more vulnerable, McAfee said. The information has become a form of currency, used by workers to make themselves more valuable when applying for a job, the study found.

“A lot of the anecdotal evidence shows that many of the thefts were internal,” Gerhard Watzinger, executive vice president of Santa Clara, California-based McAfee, said in an interview. “The information can be anything. We have one case of an oil company with complicated logistics procedures, which an employee took to a competitor.”

The study, conducted by Purdue University’s Center for Education and Research in Information Assurance and Security, polled 800 information chiefs at businesses with more than $250 million in annual sales. Researchers extrapolated the $1 trillion figure, which includes the value of stolen data and the cost of repairing breaches, from its survey sample.

“In the past you heard about credit-card information being stolen,” Watzinger said. “Now it’s more about intellectual property. We saw a spike in the second half of the year.”

U.S. companies have eliminated more than 150,000 workers this month, according to Chicago-based executive-search firm Challenger Gray & Christmas. That follows the loss of 2.6 million jobs last year.

30 Months in the Hole -- Metaldyne Trade Secrets Sentence

That's what they give you, in Michigan at least.

From MLive.com, a follow-up to our story from last September about guilty pleas in a case involving the sale of trade secrets.

Anne Lockwood, who worked as a vice president for Metaldyne Corp. of Plymouth, Michigan, was ordered to the prison for 30 months for selling the company's trade secrets to a Chinese competitor. According to the story, authorities called her the "driving force" of the plot that also involved her husband, Michael Haehnel and Fuping Liu of Flushing, N.Y.

Haehnel was sentenced to six months in prison and Lie was given nine months. The three were convicted of stealing secrets on how to make powdered metal connecting rods to displace Metaldyne as supplier to Navistar, a truck builder.

Islamorada Marine Services Worker Accused of Stealing Secrets - Providing to Boyfriend

Apparently down in the Florida Keys they prefer to use the local sheriff, instead of the FBI, to investigate trade secret theft.

An employee of a marine services company on Plantation Key is accused of stealing trade secrets from her workplace and giving them to her boyfriend, a potential competitor of the business.

According to the Monroe County Sheriff's Office, Gwendolyn Russell, 45, was diverting price estimates and other quotes from Atlantic Davits & Boatlifts of the Keys so her boyfriend could submit lower quotes for the work in order to win potential customers.

The owner of Atlantic Davits, James Annesser, told investigators that Russell's boyfriend has a manufacturing company in Fort Myers and was planning to open a rival business in the Keys.

Annesser initially contacted authorities on Jan. 29, complaining that Russell was e-mailing her boyfriend with propriety information and had removed from the office a binder about boat specifications that had taken his employees more than 500 hours to compile.

A search warrant was served Thursday at Russell's Venetian Way home in Islamorada where numerous computers and other electronic equipment were seized for further investigation, according to sheriff's officials.

The sheriff's office says Russell turned herself in Thursday evening and was booked on the felony charges of offenses against intellectual property and trade secrets, theft, embezzlement and unlawful copying.

TEKsystems Prevails in Trade Secrets Case Against Competitor Modis

Technical staffing company, TEKsystems announces that it has prevailed in a lawsuit in the U.S. District Court for the Central District of California against its competitor Modis. The court awarded TEKsystems $450,000 for misappropriation of trade secrets concluding that Modis used information found in TEKsystems' proprietary database with knowledge that it came from TEKsystems, that the information constituted trade secrets, and that Modis refused to return the trade secret information or to delete it from its systems.

In addition to the monetary award, the Court determined TEKsystems was entitled to permanent injunctive relief to prevent actual and threatened misappropriation of TEKsystems' trade secrets by Modis.

In its decision, the Court stated "it is significant to note that this is not a 'garden variety trade secrets' case." "The evidence shows that Modis acted with a purpose or willingness to engage in the conduct in question and that the conduct was not reasonable under the circumstances at the time and was not undertaken in good faith. The evidence also shows that Modis acted maliciously in that Modis' conduct was done with a willful and knowing disregard for the rights of TEKsystems and constituted despicable conduct."

CA, Inc. (formerly Computer Associates) Settles Trade Secrets Case with Rocket Software

Software provider CA, Inc. this morning said it has reached a settlement with Rocket Software of Newton, Massachusetts, a competitor in the database administration software business, in connection with a 2007 lawsuit lodged by CA charging Rocket with intellectual property theft and misappropriation.

CA sued Rocket for $200 million, alleging that a team of CA engineers hired by Rocket stole computer source code and trade secrets from their former employer and used them as the basis for technology marketed as part of IBM Corp.'s data management software suite. CA today didn't disclose the settlement amount.

As part of the settlement, however, Rocket agreed to license technology from CA, an Islandia, N.Y., company formerly known as Computer Associates, including the source code and related trade secrets that were part of the litigation. Rocket, which had hired programmers and software developers who had worked at Platimum Technology, a company acquired by CA in 1999, did not admit wrongdoing in connection with the lawsuit settlement.

The suit was filed in US District Court in Central Islip, N.Y., on Long Island, and had been scheduled to go to trial this week.

International Rectifier's RICO Case Dismissed in California

We first covered this case in our blog post here: http://wombletradesecrets.blogspot.com/search?q=international+rectifier. International Rectifier had accused its former CEO, Alexander Lidow, of engaging in a violation of RICO by stealing the company's trade secrets in an effort to bolster a newly-created competitive company.

Los Angeles Business Online is nor reporting International Rectifier Corp. lost that battle.

The El Segundo maker of power management chips filed the suit in September, alleging that Lidow engaged in an ongoing criminal enterprise — also known as a racketeer influenced and corrupt organization, or Rico — by stealing information and intellectual property related to the company’s $60 million secret research. The judge dismissed the suit on Monday.

International Rectifier claimed that Lidow devised a plan to steal IR’s trade secrets, and then recruited former researchers and sales executives to help him launch a competing company.
Federal judge Manuel Real threw out International Rectifier’s suit, ruling that the company failed to properly plead its claim that Lidow, and the other former IR employees, where involved in a criminal enterprise.

“We are happy the court recognized they hadn’t pleaded a Rico claim,” said Robert Sacks, the L.A. litigator who represented Lidow in the case.

Graham Robertson, a spokesman for International Rectifier, said the company is evaluating its next move in its battle with Lidow.

“We are reviewing the options,” Robertson said.

We wonder if one of the options International Rectifier is considering is bringing claims under California's Trade Secrets Act or maybe even going federal with an Economic Espionage Act claim. We'll keep you posted.

ClearOne Obtains Expanded Trade Secrets Injunction

An order was issued by the federal court yesterday, in favor of ClearOne Communications, Inc. expanding the scope of a previously issued preliminary injunction order, and prohibiting WideBand Solutions, Inc., its principals, and others acting in concert with WideBand, from (among other things) the use, sale or marketing of ClearOne's trade secrets and WideBand's infringing products found to use these trade secrets.

This order comes in the case which was presented to a jury in October and November 2008. The case is pending in federal court in Utah (the "Intellectual Property Case") initiated by ClearOne against Biamp Systems Corporation ("Biamp") and a group of defendants sometimes termed the "WideBand Defendants," which group consists of WideBand Solutions, Inc. ("WideBand"); three of WideBand's principals - Dr. Jun Yang, who was a former ClearOne employee, Andrew Chiang, who was previously affiliated with an entity that sold certain assets to ClearOne, and Lonny Bowers; and Versatile DSP, Inc. On November 5, 2008, the jury returned a unanimous verdict in the Intellectual Property Case in favor of ClearOne and against all of the Defendants, awarding ClearOne approximately $3.5 million in compensatory damages and $7.0 million in punitive damages, and finding that all of the Defendants willfully and maliciously misappropriated ClearOne's trade secrets.

On February 4, 2009, pursuant to ClearOne's request, the Court issued an Order Expanding the Preliminary Injunction (the "Expanded Order"). The Expanded Order provided, among other things, the following:

that it applies to all of the WideBand Defendants, as well as their agents, officers, employees, and those acting under their direction or control.
that WideBand's "Infringing Products" "illegally utilize" ClearOne's trade secrets, listing as the Infringing Products the following:

(a) WideBand's Simphonix products, including the Si-40 and Si-400;
(b) WideBand's WC301A product, sometimes known as the "Tandberg(TM)
Phone Add;"
(C) WideBand's WC301 product;
(d) WideBand's FC101 product;
(e) the AEC2W code licensed to Biamp Systems Corporation; and
(f) the computer code licensed to Harman Music Group, Inc. that was
the subject of the October 30, 2007 Preliminary Injunction Order.
that all WideBand Defendants are prohibited from disclosing or using in any way the computer code at issue in the case, the development documentation for that code, and WideBand's "Infringing Products," identified above.

The Expanded Order noted that "[t]here is also recent evidence that the WideBand Defendants are still marketing one or more products that contain the trade secret," and went on to preclude any "further marketing, selling, manufacturing, development, modification, duplication, or transport or delivery of technology containing [ClearOne's trade secrets]," including "without limitation, a restriction upon any further marketing, selling, delivery, and/or use of technology or products containing [ClearOne's trade secrets] to service any past or existing customers."

Trade Secrets and the Mole at Microsoft

From the Seattle Post-Intelligencer, an almost bizarre story concerning the CEO of a software company, Ancora Technologies, who went to work for Microsoft claiming that Ancora was no longer in business. Not only was that apparently not true, but his reason for joining Microsoft was to obtain evidence for a patent suit brought by Ancora against three Microsoft customers, Dell, Hewlett-Packard and Toshiba America Information Systems. Microsoft claims he downloaded secret information unrelated to his work for Microsoft.

The individual at issue, Miki Mullor, was terminated from Microsoft in September 2008 and, now, Microsoft has sued him for theft of trade secrets in state court in Seattle.

Microsoft is now a defendant in Ancora’s patent suit which concerns an anti-piracy system related to Windows. Microsoft wants to keep Mullor out of the patent case.

Full disclosure: our firm represents Microsoft and Dell.