Law Firm Sued in Trade Secrets Case

From the National Law Journal, an interesting story about a trade secrets case against the Foley & Lardner law firm by SPH America, a Virginia company heavily involved in patent litigation.

The contention is that the law firm used information obtained in discovery in one case by incorporating it into another case. The suit, in addition to the trade secrets claims, apparently contends that a protective order was violated.

It’s hard to tell much about the facts from the case from the story, but our gut reaction is that trade secrets law should not reach a situation like this. Instead such matters are better left to the authority of the courts to police. In other words, if it violated a protective order, the remedies would be found in that context. Otherwise, no trade secrets claim would lie from information shared in the context of litigation and then used in later litigation.

I hope we can follow this to see where it leads.

Trade Secrets of the Securities Traders

Following up on last month’s post here concerning the case of the trader accused of stealing trade secrets from Goldman Sachs, the New York Times has an interesting and well-written piece about the case.

The story discusses the claims that former Goldman employee, Sergey Aleynikov, stole code that allowed for ultrafast computerized stock trading. Aleynikov was arrested at Newark Liberty Airport on July 3 and is now free on a $750,000 bond.

One issue dealt with in the article concerns when trade secrets claims should be pursued as criminal as opposed to civil matters.

Newspaper’s Publication of Trade Secrets Leads to Lawsuit

This is a new one on us.

From the AP, via Google, a story that generic drug manufacturer, Mylan Inc. is suing the Pittsburgh Post-Gazette over stories based on internal documents containing company trade secrets that were leaked to the paper.

The stories, Mylan contends, prompted a review by the Food and Drug Administration which ultimately concluded that Mylan did nothing wrong. (The documents, apparently, concerned employees overriding computer-generated warnings about potential problems with manufacturing of medicines.)

Mylan’s complaint alleges misappropriation of trade secrets and was filed in the state Circuit Court in Monongalia County, West Virginia. The suit asks for the documents back, along with an unspecified amount of damages.

The Post-Gazette’s publisher, for his part, says that the paper “stands fully behind its reporting and its news gathering and will defend the suit vigorously."

I’m certain some sort of First Amendment defense will be asserted. The question is whether special protections such as those afforded under New York Times v. Sullivan, will be afforded to the press in the context of a trade secrets case, as opposed to a defamation claim.

This case bears watching.

Biopharma Company's Competitive Advantage Lies in Trade Secrets, Not Patents

Cumberland Pharmaceuticals' IPO last week fell a little flat. But in a piece this morning in The Wall Street Journal, the company's product offerings and competitive advantages are touted to include trade secret advantages and marketing advantages not available to other competitors:

"Cumberland's product portfolio makes the rich multiple all the more impressive. Its biggest current product, Acetadote, is an intravenous version of a drug treating Tylenol overdoses. The oral form of the drug is generically available. According to the prospectus, protection from competition comes not from patents, but from "trade secrets and proprietary know-how" as well as marketing exclusivity, granted by the U.S. Food and Drug Administration, that expires in 2011."

The piece reports that: "The key point is that, prior to the Cumberland IPO, the most successful recent capital-raisings in the sector have been by companies developing drugs for deadly diseases with extremely robust intellectual property."

In other words, trade secret advantages and marketing exclusivity advantages, like those allegedly held by Cumberland, are NOT like those traditionally held by patent holders in the competitive marketplace. Bets on stocks in Cumberland-type companies are bets that their business succeed, or fail, not because the drug they are offering is different - bets on stocks in these types of companies will succeed, or fail, because their drug offerings are offered more efficiently or strategically.

Our take on this piece is that trade secret advantages are still recognized by business writers as having a real-world impact on valuation. Trade secrets matter.

Chinese Formally Accuse Rio Tinto Team of Stealing Trade Secrets: The Goose/Gander Story

We recently blogged about the Rio Tinto and Chinese "trade secrets" story here: http://wombletradesecrets.blogspot.com/2009/07/rio-tinto-executives-jailed-by-china.html.

You'll note the original theory China was going on was that its "state secrets" had been stolen. We haven't studied the difference between Chinese "state secrets" and Chinese "trade secrets" but not that there is logically some overlap due to the involvement of the state in competitive markets.

All of that said, The New York Times is reporting that China formally arrested an Australian citizen and three other employees of the British-Australian mining giant Rio Tinto early Wednesday on suspicion of commercial bribery and trade secrets infringement, ending a diplomatic standoff over whether employees of a foreign company had spied on China.

Prosecutors announced the decision six weeks after the four employees had been detained in Shanghai on allegations that they had violated China’s state secrets law by getting access to confidential documents that gave them an advantage in negotiating iron ore prices with Chinese steel mills.

Rio Tinto, one of the world’s biggest mining companies and one of China’s biggest iron ore suppliers, has strongly denied any wrongdoing in the case.

In a statement released Wednesday, the company’s chief executive, Sam Walsh, said: “Rio Tinto will strongly support its employees in defending these allegations. From all the information available to us, we continue to believe that our employees have acted properly and ethically in their business dealings in China.”

But legal experts say bribery is widespread in China. In the first half of this year alone, Beijing says 9,000 government officials were found guilty of graft, and about 24,000 officials were investigated.

However, legal experts also say that most high-level prosecutions here require approval from Beijing’s top leaders and that bribery and corruption cases are often brought to punish political opponents.

“It’s a good way to pick on someone who’s on the wrong side of the traffic,” said Mr. Huang, the lawyer at Jones Day.

The irony of China's zeal in the matter is that it contrasts with China's lethargy in recognizing the competitively-sensitive intellectual property rights of private companies that do business in China. Perhaps what's good for the goose is not always good for the gander.

Why Is There a Debate Over Publishing Stolen Twitter Documents and Data?

It's been a relatively slow week in the trade secret world - so we thought we'd blog about the ethical/legal implications of a news organization publishing data or documents that their source stole. As you can see from the link to the New York Times story, a hacker stole a bunch of data and documents from "Twitter." (Disclosure: the authors of this blog do not currently use Twitter but have been asked to consider it).

Then, the news source TechCrunch and its founder Michael Arrington had to consider whether to publish the stolen data or not.

"There’s some really interesting stuff here that I think is newsworthy — revenue projections, draft financials, costs, detailed strategy documents that talk about the Facebook threat and when and how they might sell the company,” he said.

“That is immensely interesting from a news perspective, and that’s where the debate internally here is going on — what’s appropriate to post.”

When TechCrunch told its readers that it would publish some of the material, the blog received hundreds of comments, many from readers who thought TechCrunch should keep the material private.

But Mr. Arrington pointed out in a subsequent post that much of what his blog and many other publications put out is confidential material.

“If you disagree with that, O.K.,” he wrote. “But then you also have to disagree with the entire history of the news industry. ‘News is what somebody somewhere wants to suppress; all the rest is advertising,’ is something Lord Nordcliffe, a newspaper magnate, supposedly said. I agree wholeheartedly.”

Well, we're not TechCrunch's attorneys - but the definition of misappropriation utilized by the Uniform Trade Secrets Act is relatively simple to understand. Assuming at least some of the information that TechCrunch received from the hacker constituted "trade secrets" of Twitter then if TechCrunch acquired the data or documents "improperly" or from a person "under an obligation not to disclose or use it" then TECHCRUNCH has technically misappropriated the secrets and could be liable to Twitter for misappropriation. We understand and agree that the law is all over the place on whether a court could issue an injunction against TechCrunch prohibiting it from publishing the stolen documents or data on "prior restraint doctrine" grounds, but the prior restraint doctrine does not prohibit a court from finding a news organization liable for misappropriation after the fact.

While TechCrunch appears to consider all information that a company like Twitter would prefer to keep private to be news, the fact that this "news" did not concern a public matter such as a production facility pumping out toxins into the air or water and thus looks more like a purely private matter does not bode well for any liability defense on First Amendment grounds. That's just our two cents . . . .

Printer Cartriage Reseller Accuses Epson of Illegal Spying and Trade Secret Misappropriation

Green Project Inc. alleges in a lawsuit filed July 27 in U.S. District Court in Oregon that Epson America Inc. and its parent, Japan-based Seiko Epson Corp., sent a company spy into the facility to gain access to trade secrets.

The company also claims that Epson punished it and firms like it for reselling recycled Epson cartridges.

Epson - which first filed a lawsuit against Green Project and several other firms in April over alleged patent infringement - denies all charges.

"My reaction (to the allegations) is they are B.S. and designed to create a posture for Green Project ... and that there's no substance to them," said David W. Axelrod, a lead attorney for Epson.

But in its counter lawsuit, Green Project says Epson's infringement claims don't stand up against the "first sale doctrine," a legal approach that says a patent owner's rights to intellectual property end once a particular product has been sold to the public. Green Project, a company of 13 employees, does business by "re-manufacturing" ink and toner cartridges for use on major manufacturers' printers, including Epson's.

The year-old company touts the service as good for the environment, since it takes discarded cartridges and puts them to new use.

"It's not that we are looking for p.r.," said Green Project President Joseph Wu. "Our goal is to recycle Epson's cartridges. If we don't, they go to landfills. We are recycling and looking to reduce e-waste, but also to make a business."

The company thought it was doing business when Herbert W. Seitz allegedly called - using another name - looking to buy cartridges from Green Project and ultimately sell them at his Huntington Beach firm, Wu said. As part of that business, Green Project sent price lists and other secret information to Seitz, who turned out to be an Epson employee, Wu alleged, adding that within a couple of days, Seitz showed up in the company warehouse without permission.

"The issue is that when Epson did come to us, they came under false pretenses," Wu said.
Green Project accuses Epson - one of the largest manufacturers of printers - of trade secret misappropriation and trespassing, and denies Epson's claims of patent infringement.

But Epson's lawyers maintained they have a case against Green Project.
Axelrod pointed to the "first sale" doctrine, adding that the doctrine of first sale does not apply in this case, because there is evidence the used cartridges were collected out of the U.S. Wu said his firm works with brokers who document that cartridges were collected in the U.S.

Wu's company is seeking to be dropped from Epson's original suit, and for Epson to pay damages and legal fees. It's also looking to stop Epson from using any secrets that Seitz allegedly obtained.
Epson wants the firms named in the lawsuit to pay damages and for its patents to be enforced.