Trade Secrets of Ultimate Fighting - Stolen?

USA Today is reporting that the parent company of the Ultimate Fighting Championship and World Extreme Cagefighting says agent Ken Pavia illegally passed trade secrets to Bellator Fighting Championships.

The company accuses Mr. Pavia of revealing confidential information to Bellator about mixed martial artists' contracts. Pavia and Bellator are named as defendants in the suit.

The company is asking for an unspecified amount of damages and a permanent injunction barring Pavia and Bellator from using Zuffa's (that's the parent company) intellectual property, such as contracts.

E-mail conversations purportedly between Pavia and Bellator CEO Bjorn Rebney show that the agent passed on UFC documents to the rival promotion, Zuffa's lawsuit claims.

Let's get ready to . . . L-I-T-I-G-A-T-E!!!!!

Trade Secrets and Muffins – The Appeal

The Third Circuit has upheld the injunction in the English Muffin case blocking an employee who had access to trade secrets at his former employer from starting work with the new employer. Legal Intelligencer has the story here.

We wrote about the case when it began in January here and Todd was quoted shortly thereafter in an article in the National Law Journal.

The facts are fairly simple: Botticella worked for Bimbo Bakeries, makers of Thomas’s English Muffins. He took a job offer from a competitor, Hostess, but didn’t tell anyone at Bimbo. While continuing his work at Bimbo, he remained privy to its confidential information and downloaded a bunch more.

In February, the trial court enjoined Botticella from starting work at Hostess and ordered him to return all confidential information to Bimbo. Rather than proceed toward an April trial, Botticella chose to immediately appeal the preliminary injunction.

The most interesting part of the case, at least to us, relates to application of the so-called “inevitable disclosure” doctrine. That doctrine, although formulated numerous ways, essentially holds that an employee can be enjoined from going to work for a new employer if, in performing his work, he would inevitably find himself in a position of disclosing the trade secrets of the former employer.

The Third Circuit, in affirming the trial court, held that a showing of inevitability was not required, but that, under Pennsylvania law, a preliminary injunction could issue based on a “likely” disclosure only. That showing, in turn, did not require the former employer to demonstrate that it was “virtually impossible” to do the new job without disclosure.

The case now goes back for trial.

Medical Device Industry to FDA: Your Transparency Plans Implicate Our Trade Secrets

The Hill is reporting that the Advanced Medical Technology Association (AdvaMed) has recently raised concerns with a transparency task force’s recommendations regarding disclosures by the Food and Drug Administration. AdvaMed's statement is synopsized below:

“These draft proposals, while well-intentioned, would have a number of negative effects,” writes Technology and Regulatory Affairs Vice President Janet Trunzo in 21 pages of comments. “They would undermine intellectual property rights. They would create competitive harm, disadvantaging originator companies, especially small companies, relative to competitors. They would benefit foreign competitors, providing them with heretofore unavailable intellectual property and commercially sensitive information. Most important, they would reduce the attractiveness of financially risky investments in novel, breakthrough products; ultimately harming the public health by limiting the development of new treatments and diagnostics.”

Again, more in the private vs. public vein of trade secret risk. We'll continue to report about this forecasted battle.

Office Depot Sues Florida Attorney General in Legal Bid to Keep Pricing Data Out of Public's Hands

We continue to see more of these lawsuits - private companies who need to insure that the government doesn't release information provided to the government pursuant to a government inquiry or investigation.

The South Florida Business Journal is reporting that Office Depot has sued the Florida Attorney General in response to the Naples Daily News requesting certain Office Depot documents be released pursuant to the freedom of information act or its state counterpart. Apparently the Florida Attorney General investigated Office Depot for certain pricing practices and this resulted in a settlement that generated $4.5 million in refunds to eligible customers. That investigation being complete, the Florida Attorney General still has lots of documents provided him by the company. And the Naples-based paper wants to see them. Office Depot's lawsuit should provide some cover for the Florida Attorney General in not providing the documents.

We'll see if the sitting judge agrees that "trade secret protection" is a ground on which the Florida Attorney General can adequately use so as not to have to produce the requested documents.

Trade Secrets and Dolls – The Appeal

We first reported on the Mattel-MGA Bratz doll trade secrets dispute nearly four years ago here. Mattel claimed that toy maker MGA used its trade secrets in putting together its Bratz line of dolls which became a formidable competitor to Mattel’s Barbie.

Later, Mattel got a big verdict, reported by us here, and some big-time equitable relief from the trial judge who essentially assigned the Bratz brand to Mattel on constructive trust and copyright theories.

Now the appeal. The news isn’t good for Mattel. The Ninth Circuit has reversed and remanded, probably for a new trial.

Chief Judge Kozinski, writing for the court, identified some basic problems related to the remedies in the judgment. While the case at this point has been largely drained of specific trade secrets issues, it is important in the familiar context of the appropriate remedy for an employee who develops – or steals – an idea and then takes it to a new employer.

The trial court agreed with Mattel’s argument that its former employee – Bryant – violated his employment agreement by going to MGA with the Bratz idea instead of disclosing it and assigning it to his current employer, Mattel. The damages awarded – $10 million – although not small, were much less than Mattel sought. The constructive trust and injunction by the trial court, though, were sweeping.

In reversing, Judge Kozinski found that the employment contract was not so clear that mere “ideas” were encompassed within its definition of “inventions” or that the contract’s phrase “at any time during my employment” meant just during work time or after-hours as well.

Moreover, the appeals court held, a constructive trust assigning the entire brand was simply too much given that MGA put in significant efforts in creating the brand after the initial wrongful appropriation of the idea. In the words of the court, it was “not equitable to transfer this billion dollar brand – the value of which is overwhelmingly the result of MGA’s legitimate efforts – because it may have started with two misappropriated names.”

My favorite line in Judge Kozinski’s opinion (providing an example where the range of possible expression creates broad copyright protection): “there are gazillions of ways to make an aliens-attack movie.” True dat!

Husband-Wife Accused of Trade Secret Theft Relating to GM Hybrid Technology

The Associated Press is reporting that a former General Motors engineer and her husband conspired to steal trade secrets about hybrid vehicles and use the information to make private deals with Chinese competitors, according to a federal indictment unsealed Thursday.

Shanshan Du and Yu Qin, both of Troy, were indicted on conspiracy and other charges. Federal officials also allege that in 2006 the couple drove to a dumpster behind a grocery store and Qin discarded plastic bags containing shredded documents in response to a subpoena seeking information on Millennium Technology and hybrids. The couple could face up to 10 years in prison for conspiracy to possess trade secrets and unauthorized possession, and up to 20 years on charges of wire fraud, in addition to fines up to $250,000.

The indictment says Du, who was hired at GM in 2000, purposely sought a transfer in 2003 to get access to hybrid technology and began copying documents by the end of that year.

In 2005, she copied thousands of documents, five days after getting a severance offer from the automaker, according to the indictment.

By that summer, Qin was telling people that he had a deal to provide hybrid technology to Chery Automobile, a GM competitor in China, the indictment says. He had set up his own company, Millennium Technology International.

Trade Secrets Unicorn: Economic Espionage Act Charge Against Former Dow Chemical Employee for Theft to Benefit a Foreign Government - China

To our knowledge, there's been only one known conviction under the "to benefit a foreign government" part of the federal Economic Espionage Act: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/19/BARD11B9U7.DTL.

The Boston Globe is reporting that a scientist from Westborough, Massachusetts passed on trade secrets worth more than $100 million to China about a commercial insecticide developed by Dow Chemical Company.

Kexue Huang, 45, who worked for Dow in Indiana for five years until he was fired in early 2008, was arrested on July 13 in Massachusetts, where he now lives, on 12 counts of economic espionage to benefit a foreign government or instrumentality. Huang was also charged with five counts of interstate or foreign transportation of stolen property.

The charges, which do not involve classified or national defense information, stem from a federal indictment in Indiana that remains sealed. Garland and Alexander H. Arnett Jr., an FBI agent who testified briefly at the hearing, provided scant details except that Huang allegedly transmitted commercial secrets to Hunan Normal University in China, some by e-mail.

But Huang’s lawyer, James P. Duggan of Boston, said his client, a Canadian citizen and legal US resident, was merely a coauthor of an article in a scholarly journal published by the university in December 2008. The article was called “Recent Advances in the Biochemistry of Spinosyns’’ and dealt with insect control agents used in agriculture.

“If he was really intending to steal trade secrets which allegedly have these commercial values of hundreds of millions of dollars, he would hardly be publishing what he knew in a scholarly journal which is open to and available to the public,’’ Duggan said after the hearing. “That is not the way a proper crime is committed.’’

Dow AgroSciences, a Dow business unit based in Indianapolis, said in a statement that it was “aware of an FBI investigation into a potential violation of our company’s intellectual property rights by a former employee.’’

“We are cooperating fully with the authorities,’’ the statement said. “Because of the nature of the investigation, we are unable to comment further.’’

Huang lives in Westborough and works as a scientific researcher for Qteros Inc., a Marlborough biofuels company, and hopes to return to work.

Duggan implored the judge to release his client and let Huang report to Indiana himself. His chances of remaining free while awaiting trial would probably be far greater if Hillman lets him report to Indiana.

Duggan said Huang has no criminal record and is a well-educated man with a wife, who works as a data manager for Brigham and Women’s Hospital, and two children. His wife sat in the gallery of the otherwise empty courtroom.

“I do think it’s unusual, judge, that you could allege a larceny scheme’’ based on publication in a journal, Duggan added.

Garland countered that the allegations against Huang extended beyond the article in the journal but declined to elaborate.

Duggan said later that prosecutors contend Huang’s alleged theft of trade secrets could enable manufacturers in China to make the same variety of insecticide Dow was developing.

Hillman put off a decision on Huang’s bail until he gets more information from prosecutors.

FusionStorm and Employees Get Hit With $10 Million Trade Secret Theft Verdict

The San Francisco Business Times is reporting that FusionStorm and three of Technology Integration Group's former employees (and new FusionStorm employees) were hit by a $10 million jury verdict and judgment, $9.36 million of which was for compensatory damages.

The case against FusionStorm, which is headquartered in San Francisco' SOMA neighborhood, alleged that three of its former employees gave trade secrets to FusionStorm in an effort to damage TIG's operations in Tampa, Florida. TIG proved to the jury their former employees handed over sensitive pricing, financial and customer information that damaged the company.

$59 Million Trade Secret Default Judgment Vacated in Florida

Florida is for vacations - and a Florida Court of Appeals just vacated a whopper of a trade secrets judgment amounting to $59 million.

Seems Alpha Mining Systems filed suit against its former employee, Sam Vance, for stealing their trade secrets and providing it to competitors in China and the United Arab Emirates. Since Vance didn't defend himself in the Florida trial court, Alpha Mining Systems put on evidence of their damages and the trial court entered a major-league judgment against Vance.

But on appeal Vance argued that the Florida court system has no jurisdiction over him. And the Florida appellate court agreed - apparently he lives in China and formerly lived in Virginia and did all his work for Alpha Mining Systems either in Virginia or China.

It's back to the drawing board for Alpha Mining Systems on this one.

Trade Secret Theft Conviction: The Post-Script

This is a rarity for our blog - a story regarding, and interview with, a convicted trade secret thief AFTER his conviction.

The Epoch Times has published this very interesting piece regarding Meng Hong, a former employee of DuPont convicted of economic espionage. We reported about this case originally here: http://wombletradesecrets.blogspot.com/2009/09/dupont-terminates-then-sues-chinese.html.

This is a sad tale. In 2009, Meng accepted a job with Peking University (PKU), without telling DuPont. Meng sent an e-mail from DuPont to PKU. The e-mail contained a chemical process that contained a DuPont trade secret.

He gave a presentation to Chinese officials to raise money to commercialize organic light-emitting diodes (OLED) research he did at DuPont. He said PKU officials did not give all the funding promised for his job and asked him to raise the rest.

He felt “deeply depressed” about his actions. “I wanted to take my own life,” Meng said.“My wife asked me not to. She asked me to think about the two young children,” he said. Meng has two daughters, 7 and 10 years old. They live in China.

Meng said he speaks with his wife about three times a week. “She still holds on to me when I am guilty and am even forsaken by myself. More than ever, I love her and cherish her.”

He faces his criminal sentencing in September of this year.

Foxconn Tells Hong Kong Judge BYD's Claims Are Meritless

BusinessWeek is reporting that Foxconn International Holdings Ltd. urged a Hong Kong judge to throw out a lawsuit filed by BYD Co., China’s largest maker of rechargeable batteries, that accuses Foxconn of unlawful interference with its business, defamation and conspiracy to injure.

BYD’s claim should be struck because the company failed to provide any “material” facts or allegations to back its case, Winston Poon, Foxconn’s lawyer, said at a hearing today in the Court of First Instance in Hong Kong.

“Not only are the matters immaterial, they are also vexatious,” Poon said. “They will waste the court’s time and money.”

BYD, backed by billionaire Warren Buffett, countersued after a 2007 lawsuit filed by two Foxconn units that claimed BYD recruited Foxconn employees and stole Foxconn’s trade secrets. BYD doubled its revenue from the sale of mobile phones in each of 2005, 2006 and 2007 as a result, according to court documents.

“The Foxconn parties embarked upon a course of conduct of procuring and using false or fabricated evidence,” BYD said in its lawsuit. Foxconn’s “ultimate objective” was to damage the business relationship between BYD and its investors and customers, BYD said.

In 2008, BYD had failed to persuade a Hong Kong judge to throw out the Foxconn lawsuit and let the case be tried in Shenzhen, China, where BYD is based. Judge Thomas Au in Hong Kong ruled he wasn’t convinced Shenzhen was a preferable venue.

Liu Xiang Jun, former chief operating officer of one of the Foxconn units, joined BYD in 2005. He was convicted in Shenzhen of infringing Foxconn’s business secrets, according to court documents. Si Shao Qing and Zhang Jian, who had worked for the same unit, were also convicted of infringing Foxconn’s business secrets.

Was Hulu Stolen from Hula?

The Los Angelese Times is reporting that a Los Angeles County judge on Thursday referred to arbitration the case of a Canadian engineer who contends that NBC Universal stole his idea and business strategy to launch Hulu, the website that shows TV programs and movies.

Errol Hula, founder of technology company Hulavision, sued media giant NBC Universal and the Hulu joint venture four months ago, saying Hula shared trade secrets and a business plan with an NBC executive in 2006. The following year, NBC Universal announced plans to team up with Rupert Murdoch's News Corp. to create a website, which blossomed into a venture named Hulu that now is the second-most-popular video website, behind Google Inc.'s YouTube.

Hula, who lives near Vancouver, Canada, said in the complaint that he met with Raymond Vergel de Dios, NBC's director of business development, at a TV industry trade show in Las Vegas in January 2006. The complaint said, "Mr. Vergel de Dios expressed interest in Mr. Hula's plans and invited him to submit his confidential information to NBC."

But before Hula would relay the information to NBC, in an effort "to explore the possibility of a business arrangement," Hula required that Vergel de Dios sign a nondisclosure agreement. A contract was struck in May 2006, and Hula provided NBC with an 18-page PowerPoint presentation which described his strategic plans, marketing strategy and technology.

"At no time did Mr. Vergel de Dios inform Hula of any potential plans NBC had of its own for the development of any project similar to Hula's or that it had any interest other than possibly to form a business relationship with Hula," the lawsuit said. The two men discussed the plans for several weeks. Then, according to the suit, in June 2006, Vergel de Dios stopped returning Hula's calls.

NBC Universal and News Corp. announced their joint venture in March 2007. That summer, the name "Hulu" was unveiled for the website. At the time, the joint venture management said the name Hulu was selected because it was meaningless, easy to spell and "rhymes with itself."
Hula and his attorney aren't buying it.

"It's not a coincidence that the name of the website is so close to my client's name," Robert M. Vantress, a San Jose attorney who is representing Hula, said after Thursday's hearing. "There are many similarities between the information my client gave NBC and what they used to create Hulu. Everything that they have been doing, as near as we can tell, is what we proposed."

Attorney Henry Shields, who represents NBC Universal, dismissed Hula's allegations that NBC stole trade secrets. "The allegations are meritless," Shields said.

Shields also said the NBC executive named in the complaint, Vergel de Dios, was not involved in the development of Hulu. "There are a lot of people who work at NBC, and this man had no relationship to the people who were working on the website," he said.

Hulu is owned by NBC Universal, News Corp., Walt Disney Co. and the private firm Providence Equity Partners. Hula contends that the venture is now worth at least $1 billion.

Cache Says "Not!!!" To Chico's Trade Secret Suit

The internet has incentivized companies to stay on top of the news cycle. Apparently concerned that investors will consider the recent trade secret suit filed against it by Chico's to be bad news for the stock, Cache strongly rebutted the allegations of Chico's that it hired two Chico's employees and utilized the stolen trade secrets allegedly misappropriated by those employees. We reported on this matter already here: http://wombletradesecrets.blogspot.com/2010/07/trade-secrets-of-womens-clothing.html

That the press release was carried by MarketWatch didn't escape our attention.

Here's what Cache says:

"The Company noted that the allegations made by Chico's are false and it will vigorously defend its position. Cache has built its business with a reputation for high-quality, sophisticated and fashionable designs and maintaining the integrity of its brand is the Company's highest priority. The Company noted further that it believes Chico's is using baseless claims to impair its reputation. Several of the styles that Chico's claims were copied by Cache were never produced by Chico's or White HouseBlack Market and, in fact, are just clipped pages from Fashion magazines showing styles created by companies other than Chico's and White HouseBlack Market. In addition, many of the styles that Chico's claims were copied look nothing like those produced or purchased by Cache. Finally, several of the allegedly copied styles are successful styles that Cache has carried previously, which were re-colored and repeated in the Spring and Summer 2010 collections. The Company believes this lawsuit is frivolous and a waste of shareholder money and consumer tax dollars."

Consumer tax dollars? We'll keep an eye on this one for you.

Ohio Federal Jury Awards Allied Erecting Over $3 Million in Trade Secrets Verdict

The Youngstown Business Daily Journal is reporting that a federal jury has given Allied Erecting a $3.046 million verdict in a contested trade secret theft case. The verdict brings an end to a more than four-year legal battle in U.S. District Court between Allied Erecting and defendants Mark Ramun, son of Allied's president John Ramun, and Genesis Equipment & Manufacturing Inc.

After a two-week trial before U.S. Judge Peter C. Economus, the eight-member jury decided that Allied is entitled to $3.046 million in "unjust enrichment" that Genesis received because of trade secrets it used to develop a new product without Allied's consent.

The jury also found that Genesis was not liable for additional punitive damages sought by Allied, and that Allied did not suffer lost profits because of the misappropriation of trade secrets.

At the center of the dispute is a product Allied and its sister company, Allied-Gator Inc., developed called the Allied MT. The tool is an attachment the company designed, engineered and manufactured and is used in the scrapping and dismantling industry. The multi-purpose attachment allows an operator to change from a shear jaw set used to cut steel to a concrete crusher jaw set in minutes.

Between 1992 and 2001, court papers say, Mark Ramun had access to "highly confidential proprietary information and documentation" related to the Allied MT while employed at the company. Those trade secrets, Allied alleged, were given to Genesis after the company hired the younger Ramun in 2003.

Allied argued in its case that Mark Ramun kept nearly 15,000 documents that contained "a substantial array of highly confidential and proprietary information."

Allied filed its complaint in January 2006 in the U.S. Court for the Northern District of Ohio, alleging that Genesis started to sell in November 2005 its Genesis LXP, a product similar to the Allied MT.

"Genesis was able to develop, manufacture, and then market the LXP because of the confidential and proprietary information and documentation it wrongfully appropriated from Allied and Gator, by and through Ramun," the company said.

A separate federal case between Allied and Genesis that involves patent infringement is ongoing.
Allied filed in March 2008 a complaint against Genesis and its parent company, Paladin Brands LLC, asking the court to award damages and enjoining Genesis from producing its "multiple tool attachment systems." Discovery in this case is extended until September 1, because of conflicts arising out of the trade secrets case.

Womble Trade Secrets Wishes You Happy Independence Day

Those who won our independence believed liberty to be the secret of happiness and courage to be the secret of liberty. ~Louis D. Brandeis

Trade Secrets of Women's Clothing Designs -

From Naples, Florida - not normally a hot-bed of trade secret activity: the Naples News is reporting that Chico's FAS Inc. has sued two former employees for allegedly stealing the trade secrets of certain Chico's clothing designs and sharing them with their new employer, Cache.

Perhaps putting a bit of competitive spin on the matter, Chico's says that the theft was in aid of Cache's effort to “fast track” the company’s way out of “repeated seasons of declining sales and profitability."

As a result of the alleged theft, the suit alleges Cache’s spring and summer collections included garments that were identical or virtually identical to products designed by White House/Black Mark, one of Chico's lines.

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