Federal Judge: "A Certain Absurdity Exists in Requiring . . . Trade Secrets to Be Unsealed . . . in a Theft of Trade Secrets Trial"

Another first here at the Womble Trade Secrets blog - we're linking you to a story from Tire Review, an industry source for news and analysis about, well, tires.

They're reporting that a federal judge in Knoxville, Tennessee has ruled that pictures at the center of industrial espionage case linking Wyko and Goodyear must be viewed “in camera” to protect the interests of those involved. The Knoxville News Sentinel reported that U.S. Magistrate Judge Clifford Shirley has approved federal prosecutors' request to keep the seven mobile phone pictures allegedly taken at Goodyear’s Topeka, Kan., OTR plant in May 2007 by Wyko Tire Technology employees Clark Alan Roberts and Sean Edward Howley secret.

Roberts and Howley are accused of visiting the Goodyear plant under false pretenses, covertly using their mobile phones to take photographs of proprietary equipment and sending these to Wyko’s Dudley, U.K., offices. These photos were then allegedly used to complete a “similar piece of machinery” for China’s Haohau South China Guilin Rubber Co. The photos reportedly depict Goodyear’s proprietary “swab down system” used in the production of giant earthmover tires to wrap rubber around a cable.

Roberts was the director of engineering at Wyko Tire Technology’s U.S. site and supervised engineer Howley at the time the duo visited the Goodyear plant. Assistant U.S. Attorney Greg Weddle alleges the pair got into the plant by claiming to service some Wyko-manufactured equipment. Howley reportedly confessed when the FBI later raided Wyko, although he now maintains his innocence.The defense said sealing the photos could lead jurors to conclude the photos show trade secrets. Their argument centers on the notion that they do not, Knoxville News Sentinel reported.

However, Judge Shirley ruled in favor of the prosecution’s motion to keep the details secret. "A certain absurdity exists in requiring Goodyear to publicly disclose the trade secrets at issue in a prosecution of the alleged theft and disclosure of those same trade secrets," he wrote.

Wyko is not itself accused in the rare case of alleged industrial espionage. Neither Roberts nor Howley are still employed there. According to the original indictment, the charges include one count of conspiracy to commit theft of trade secrets, seven counts of theft of trade secrets, three counts of wire fraud and one count of conspiracy to commit wire fraud. If convicted of all charges, the defendants each face a maximum of 150 years in prison and $2.75 million in fines.

Australian Prime Minister Says Chinese "Commercial Secrets" Prosecution Left "Serious Unanswered Questions"

The Sydney Morning Herald is reporting that Australian Prime Minister Kevin Rudd is complaining about China's procedurally secret criminal trial relating to the alleged "commercial secrets" purportedly stolen by an Australian businessman.

By holding part of an Australian businessman's criminal trial in secret, China has missed an opportunity to prove itself on the world stage, Prime Minister Kevin Rudd says.

A Shanghai court yesterday sentenced Rio Tinto mining executive Stern Hu to 10 years behind bars for taking bribes and stealing trade secrets. You can find Rio Tinto's response to the convictions here: http://www.riotinto.com/media/18435_media_releases_19133.asp. Of particular relevance is this statement: "Rio Tinto is unable to comment on the charge regarding obtaining commercial secrets as it has not had the opportunity to consider the evidence. That part of the trial was held in closed court and no details of the case were made public until the verdicts and sentences were announced today."

Hu admitted to the bribery charges but the commercial secrets elements of the trial were heard in secret.

Mr Rudd said that left "serious unanswered questions" about his conviction.

"In holding this part of the trial in secret, China I believe has missed an opportunity to demonstrate to the world at large transparency that would be consistent with its emerging global role," he told reporters in Melbourne today.

"Australia ... has reservations about the manner in which the second charge contained within this particular court case has been handled."

Mr Rudd said the federal government made strong, frequent and high-level representations to Chinese officials on behalf of Hu and would continue to do so.

He expects the bilateral relationship between China and Australia to sustain the pressure of Hu's trial and sentencing.

"We've had disagreements with our friends in Beijing before, I'm sure we'll have disagreements again," Mr Rudd said.

Opposition foreign affairs spokeswoman Julie Bishop questioned the strength of a consular agreement between the two nations, which should have allowed local officials to attend Hu's trial in its entirety.

"If China is able to ignore the agreement in these circumstances, are there other circumstances where the consular agreement will not be adhered to?" she asked on ABC Radio.

"This would be an issue of great concern to many companies from Australia and also around the world."

Ms Bishop accused Mr Rudd of engaging in "megaphone" diplomacy, instead of telephoning Chinese officials to discuss the issue.

Australian Greens leader Bob Brown said the government was scared to push China on the matter because it did not want to damage trade relations between Australia and China.

"Beijing sends a certain fear into the hearts of politicians in Canberra," he said.

"There's no doubt the pressure for trade overcomes the pressure for democracy, human rights and the proper processes under the law."

Three of Hu's Chinese colleagues were also jailed for terms ranging from seven to 14 years.

Details of Rio Tinto Bribery Prosecution Released - Commercial Secrets Verdict Unreleased

We've been interested in the Chinese government's prosecution of Rio Tinto employees primarily because it involved an allegation the employees stole Chinese commercial secrets, presumably secrets regarding how much it had committed to pay for iron ore. Well, the bribery part of this prosecution is all that was open to the public and it was a wing-dinger of a week. The Monday guilty pleas from all four defendants for accepting bribes blew a hole right through what many commentators assumed were trumped-up charges. But the details of the bribery are only now being released.

The New York Times is reporting that Stern Hu's attorney (Mr. Jin) acknowledged Stern Hu said in court that he accepted two large bribes in late 2008 and early 2009 totaling about $1 million from Chinese steel mills in exchange for agreeing to sell them long-term supplies of iron ore. Mr. Jin declined to name the two steel mills involved and said he did not know why those who had paid the bribes had not been charged.

“Those two small companies bribed Stern Hu in order to get a long-term contract with Rio Tinto, which normally is not available for medium- and small-sized companies,” Mr. Jin said. “It was during the economic crisis in late 2008 that those large-scale steel companies were struggling with continuing their deals with Rio Tinto. That’s when the small companies decided to intervene, causing a corruption of the system.”

Analysts also said a chaotic pricing system had created a two-tiered market, fueling corrupt deal-making. Many large state-run steel companies in China agree to long-term supply contracts at a set price with foreign suppliers, while smaller steel mills compete to buy supplies on the open market, often for higher prices.

“Desperate steel mills would do anything to get ahold of supplies,” said one steel industry executive in a telephone interview on Friday, speaking on the condition of anonymity for fear of government retribution. “There was a huge potential for mischief and a huge incentive to bribe.”
Getting a discount on the open market price could mean saving tens of millions of dollars, experts say, giving tremendous power to iron ore salesmen working for companies like Rio Tinto.

Paul Bartholomew, who writes about iron ore for Steel Business Briefing, an industry newsletter, said he was surprised by the size of the bribes, including the $10 million in bribes that prosecutors here say went to Wang Yong, another Rio employee. A lawyer for Mr. Wang said he had pleaded guilty to accepting only part of that money.

“How could that have gone unnoticed?” Mr. Batholomew said.

Mr. Jin, the lawyer for Mr. Hu, said Mr. Hu had agreed to repay the bribes and pleaded for leniency from the court. A three-judge panel is expected to rule on the case on Monday.

Hu's On First: Three-Day Rio Tinto Criminal Prosecution Concludes - Four Plead Guilty to Accepting Bribes, Verdict Pending

The New York Times is reporting that the three-day trial of four employees of the British-Australian mining giant Rio Tinto ended here Wednesday afternoon, but there was no verdict on charges that the group had accepted millions of dollars in bribes from Chinese steel companies and had stolen commercial secrets.

The defendants face 5 to 15 years in prison, if convicted.

A three-judge panel is expected to rule in days or weeks on the high-profile case, which is being closely followed by foreign companies with operations in China.

The four Rio Tinto employees, including Stern Hu, an Australian national, pleaded guilty to accepting money that prosecutors have deemed bribes.

Rio Tinto says it has no evidence its staff engaged in any wrongdoing.

But the confessions Monday, the first day of the trial, complicated a case that began last July, when the authorities in Shanghai detained the four men on suspicion of espionage and harming China’s economic interests under the country’s tough state secrets law.

Lawyers involved in the case have offered often contradictory accounts of what took place in court this week, of who pleaded guilty and whether their clients accepted bribes.

Prosecutors charged the four with receiving about $12 million in bribes.

But lawyers for the defense said their clients had accepted much less and that some of the money was unrelated to Rio Tinto, like a loan used to invest in stocks.

“Liu Caikui pleaded guilty but he said part of the bribe that he was accused of taking was actually commission,” his lawyer, Tao Wuping, said after a court session.

Tom Connor, the Australian consul general in Shanghai, said outside the court Monday that Mr. Hu, one of Rio Tinto’s highest-ranking executives in China, had been accused of two counts of bribery, accepting payments of $147,000 and $790,000.

Mr. Connor said that during the trial, Mr. Hu had “made some admissions” about taking money.
Now, the three judge panel will decide how much time the four Rio employees will serve for pleading guilty to taking at least some money.

The defendants almost certainly face convictions for bribery, but only one pleaded guilty to the more controversial charge that they illegally obtained commercial secrets, a charge that could imply the involvement of their employer, Rio Tinto.

Lawyer Zhang Peihong told The Age the defendant who pleaded guilty was ''definitely not'' Hu. He told another reporter that it was not his own client, Wang Yong, either.

The commercial secrets proceedings are controversial because they were conducted behind closed doors, with Australian diplomat observers refused entry, and because they involve laws that are notoriously vague and inconsistently applied.

Defense lawyer Tao Wuping said the business secrets allegedly stolen by the Rio Tinto employees were straightforward commercial information.

''The case is not as complicated as the public may think,'' he said.

O'Melveny's David Almeling and Colleagues Publish New Article Analyzing Federal Trade Secret Litigation

There is an attorney at the esteemed O'Melveny & Myers law firm in San Francisco who is a friend of this blog. His name is David Almeling and you can find his impressive bio linked here: http://www.omm.com/davidalmeling/. We like this guy. We first started communicating with Mr. Almeling in connection with a law review article he published in the Fordham Intellectual Property, Media & Entertainment Law Journal titled "Four Reasons to Enact a Federal Trade Secrets Act." The article made some interesting arguments regarding the rationales for creating a uniform federal law respecting trade secrets.

Well, folks, David Almeling is at it again - and this time he involved his friends and colleagues. They've published a new article titled "A Statistical Analysis of Trade Secret Litigation in Federal Courts" and it was published last week in the Gonzaga Law Review. We're just starting to digest the article but David and four colleagues read 1,500 trade secret cases from 1950 through 2008, and then they coded 394 of those cases for 28 criteria. David and his team then worked with statisticians to analyze and present the data. We will publish a link to this article once one is available.

Some of their article's findings include:

(a) Trade secret litigation in federal courts is growing exponentially, doubling every decade or so.

(b) In over 85% of trade secret cases, the alleged misappropriator was someone the trade secret owner knew — either an employee or a business partner.

(c) Trade secret owners were twice as likely to prevail on a motion for preliminary relief when they sued employees than when they sued business partners.

(d) The top venues for trade secret cases were the N.D. Ill. (Chicago), the N.D. Cal. (San Francisco, Oakland, and San Jose), the S.D.N.Y. (much of New York City), and the E.D. Pa. (Philadelphia).

(e) Courts applied the substantive laws of Illinois, California, or New York in almost 30% of trade secret cases.

(f) Despite the burdens faced by the moving party, alleged misappropriators prevailed at summary judgment more than half the time.

(g) As one element of its prima facie case, a trade secret owner must establish that it took reasonable measures to protect its purported trade secrets. Two measures — confidentiality agreements with employees and third parties — were significantly associated with a finding that this element was satisfied.

(h) In over 25% of trade secret cases, the courts cited to and justified their decisions based at least in part on authority from outside their jurisdiction.

This is novel and interesting research. We'd suggest to David and his friends at O'Melveny & Meyers that they know full well why California proves such a fertile state for trade secrets litigation - not only are that state's high-tech companies generating relatively large numbers of trade secrets in their day-to-day operations, but that state's statutory prohibitions on noncompete agreements and their weak commitment to tort theories inhibiting unfair competition force oh-so-many cases into a trade secret posture. Well, that's what we think. Sorry for the editorial interruption - but this is, after all, a blog. We can do that.

The community of attorneys and others who continue to study the evolution of trade secrets law owe David Almeling and Darin Snyder and Michael Sapoznikow and Whitney McCollum and Jill Weader a debt of gratitude. This is a unique article and it reports some interesting findings. While trade secret law is a creature of state law and this team's article and research focuses on cases litigated in federal courts, this is still important work. We think it somehat likely that David Almeling (this guy had a full head of hair before he started writing about trade secrets matters) will drink too much Starbucks some day and decide to do the analysis of the reported state cases - but let's applaud this current work and carefully study this review and analysis. More on this as we digest the article.

Blockbuster Admission in Trial of Rio Tinto Employees in China: "I Took Bribes"

We've covered this Chinese prosecution of existing Rio Tinto executive employees repeatedly: http://wombletradesecrets.blogspot.com/2010/03/chinese-trial-involving-rio-tinto-execs.html. You'll recall that China arrested four Rio Tinto employees almost nine months ago, charging them with bribery and theft of China's commercial trade secrets. Rio Tinto was acting as lead negotiator for global iron ore suppliers in price talks with Chinese steel mills. One of those arrested, Stern Hu, was Rio Tinto’s senior executive in China in charge of iron ore. Rio Tinto has urged Chinese authorities to handle the case quickly and openly. In the meantime, it is moving ahead with its business in China, the world’s biggest steel maker and thus its biggest consumer of iron ore.

Well, emerging from the Shanghai court after Monday's hearing, attorney Tao Wuping has reported Hu was charged with accepting six million yuan (880,000 dollars) in bribes and Hu pleaded guilty, said Tao, who represents fellow defendant Liu Caikui. The charges carry a jail term of more than five years, Tao said. It is unclear from reports what the bribes were for or who paid the bribes.

We'll continue to keep an eye on this matter for you. The primary reason for our following this matter is the allegation of theft of China's "trade secrets" or "commercial secrets" in the iron ore negotiations. That aspect of the prosecution commences Tuesday.

Former DuPont Employee Sentenced to 18 Months in Prison for Trade Secret Theft

The Wall Street Journal is reporting that former DuPont employee Michael Mitchell was sentenced a federal judge in Richmond, Virginia to 18 months imprisonment, a restitution of $14,500 to DuPont and $30,000 in fine for theft of trade secrets and obstruction of justice.

Mitchell, who left DuPont in early 2006 was working on behalf of a Korea-based company Kolon Industries when we was suspected by DuPont of theft of proprietary information. Following which DuPont filed a civil lawsuit against Kolon in February 2009.

When ousted from DuPont, Mitchell was handling the sales and marketing of Kevlar that is five times stronger than steel. Mitchell, however, left DuPont with several confidential and sensitive documents and later traded them to Kolon, a South Korean company that markets a similar product belonging to the class of Kevlar. The company noted that FBI later recovered several of such files from his personal computer and other locations when it raided his residence in February 2006. At that time, he was working for Victrex, a polyether producer.

Chinese Trial Involving Rio Tinto Execs to Commence Monday, March 22

BusinessWeek is reporting that four Rio Tinto Group employees, including the company’s iron-ore chief in China, will stand trial in Shanghai on March 22, almost nine months after being arrested on suspicion of bribery and stealing state secrets.

Australian Stern Hu will be tried with his colleagues by the Shanghai No. 1 Intermediate People’s Court, Australia’s Department of Foreign Affairs and Trade said today in an e- mailed statement. Rio confirmed the trial date by e-mail.

The detention last July frayed Chinese ties with Australia, coming a month after Rio had rejected a $19.5 billion investment from state-owned Aluminum Corp. of China. Both companies this week said they sought to invest together, signaling an attempt to repair relations. China had already downgraded the charges against the four to bribery and infringing commercial secrets.

“An outcome, whatever it may be, is going to happen sometime soon rather than being in a state of limbo,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne and holds Rio shares. “To have some certainty and not have this lingering is good for the company and good for the individuals and allows the healing process to continue.”

London-based Rio, the world’s third-largest mining company, gained 2.6 percent to 3,797 pence by 11:09 a.m. in London. The stock rose 1.6 percent on the Australian stock exchange.

The parts of the trial relating to the charges of receiving bribes will be open and Australian consular officials will attend, the foreign affairs department said. Australia has asked for a reconsideration of the decision to keep those sessions dealing with infringement of commercial secrets closed, it said. Hu, Liu Caikui, Wang Yong and Ge Minqiang were indicted Feb 11.
“Rio Tinto reiterates its hope for a transparent and expeditious process for its employees,” the company said.

The trial will take place after talks between Rio, Vale SA and BHP Billiton Ltd., the three biggest suppliers of iron ore, and their customers to settle this year’s prices stalled.

China, the world’s biggest buyer of the steelmaking raw material, last year refused to accept prices agreed between Rio and other Asian producers, saying they were too high.

“The Chinese government is trying to repair its relationship with Australia by downgrading Hu’s alleged crime,” said Tu Xinquan, a researcher at the University of International Trade and Finance in Beijing. “Detaining the Rio employees didn’t give China a bigger say in the iron ore negotiations.”

AON Sues Marsh & McLennan For Employee Raid and Trade Secrets Misappropriation

BusinessWeek is reporting that a unit of Aon Corp., the world’s largest insurance broker, sued its closest rival, accusing Marsh & McLennan Cos. of seeking to steal trade secrets, poach clients and “rob Aon of its key employees.”

Aon Risk Services Northeast Inc., whose parent is based in Chicago, filed a complaint today in Manhattan federal court against New York-based Marsh & McLennan and three ex-employees who recently left the firm.

Marsh & McLennan stole business “through the patently illegal downloading of Aon proprietary trade secret information, unlawful disclosures of Aon trade secrets, and other unfair and unlawful practices -- including soliciting Aon business before the employees left Aon’s employ,” Aon alleges. Marsh & McLennan’s goal is to obtain a “pre-packaged book of business,” according to the complaint.

Aon claims it already has lost business due to the employee departures. The amount it claims to have lost is redacted from the complaint.

We'll keep an eye on this one for you.

Former Toyota In-House Attorney Stole Documents He Claims Demonstrate Bad Conduct by the Auto Company

CNN is reporting that when former in-house defense attorney Dimitrios Biller resigned from his top post at Toyota, he walked out with something potentially more valuable than his nearly $4 million severance package.

He took some 6,000 internal documents, including memos and e-mails potentially damaging to his former employer.

Although Toyota calls the materials "trade secrets," Personal Injury Attorney Jeff Embry said, "That doesn't mean that you get to keep them a secret from the court system."

So why, if Biller knew a judge had ordered all information produced, didn't he produce it? He said he tried but was stopped by a superior who told him, "You have to protect the client at all costs."

"Even if that includes," Biller asked, "committing criminal acts or violating the law?"

The answer, Biller said, was yes.

Did he break the law? "No, I did as much as I could as a lawyer for a client to not break the law," he said. "I wrote e-mail after e-mail, memo after memo, explaining the legal obligations Toyota and its affiliates needed to fulfill."

In response to Biller's documents and his allegations, Toyota spokeswoman Cindy Knight released this statement: "Mr. Biller continues to make inaccurate and misleading allegations about Toyota's conduct that we strongly dispute and will continue to fight against vigorously."

We'll continue to follow this story which pits the stolen documents against the company that they were stolen from.

Austin Surveillance Camera Maker Says "Hey, You Ripped Us Off When We Weren't Looking"

The AustinBusinessJournal is reporting that Austin surveillance camera maker Advanced EDR Systems LLC has charged a former design partner with stealing ideas when it launched a competing company, Idrive Inc.

Along with its partner Envision Engineering, the local company launched in 2007 sued Idrive Inc., Solutions Group Inc., Sean O’Neil, Stephan Dragomir, Randy Aldridge and Colin Cairns in the case.

“We believe some of the key people behind the Idrive (camera) learned this information through their confidential relationship with (Advanced EDR Systems) and are now using it to compete against us,” Advanced CEO Daniel D’Agostino said.

“The lawsuit alleges that the Defendants learned AEDRS’ trade secrets and proprietary information in confidence when hired to help design and develop the envisionCAM (www.envisioncam.com) to AEDRS’ specifications,” said D’Agostino.

“We believe some of the key people behind the Idrive learned this information through their confidential relationship with AEDRS and are now using it to compete against us.” Several years ago, AEDRS hired Design Solutions Inc. (DSI) to design and develop the envisionCAM. Sean O’Neil was the CEO of DSI. “He signed a nondisclosure agreement on behalf of DSI and signed a contract stating that ‘all IP shall remain vested in AEDRS,’” said D’Agostino.

AEDRS and DSI ultimately had a dispute over an alleged failure to deliver a working product. AEDRS filed a lawsuit against DSI and O’Neil for breaches of contract, fraud, misappropriation of funds, and negligent misrepresentation. That lawsuit was eventually settled.

AEDRS now believes that some of the key people involved in the envisionCAM’s design and development that worked for DSI have created a new company (Idrive Inc.). Idrive now makes a competing product that is “very, very similar to the envisionCAM,” according to D’Agostino. The defendants appear to be “seeking to avoid judicial authority and civil liability by playing a ‘shell’ game with their business entities and practices,” according to the lawsuit. “I am confident that the facts of the case will speak for themselves and a jury will see the facts for what they are,” said D’Agostino.