BLOGS: Trade Secrets Blog

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Tuesday, November 30, 2010, 11/30/2010 09:13:00 AM

Goldman Sachs High Frequency Trading Secrets Prosecution Begins

By Todd

We haven't linked you to the online site ForexDice but we're doing it here. The reason? This particular report is giving us some insight into the jurors sitting in the criminal trial of Sergey Aleynikov. We acknowledge the report is a tad choppy grammatically - but it gives us the following insight we hadn't found anywhere else:

On Monday’s jury selection, the judge questioned jurors whether they had make use of computers at work & at home or not, whether they are familiar with anyone at Goldman or in law enforcement. The selected jurors include the real estate broker, a teacher & a man who work for the major banks.

We'll continue to report back as opening statements and the evidentiary phase of this criminal trial proceeds.

Monday, November 29, 2010, 11/29/2010 02:22:00 PM

Marvell Successfully Defends Trade Secrets Case Brought By Jasmine Networks

By Todd

We've been blogging about this case for a good while, see here: You'll recall this was the whacky case where the former Marvell general counsel and two of his colleagues phoned the legal chief of a rival company, Jasmine Networks Inc. The call went straight to voicemail, so the Marvell attorney left a message and hung up. At least, he thought he did. Though the Marvell counsel and pals didn't know it, the Jasmine lawyer's voicemail was still taping them as they continued to talk on speakerphone – allegedly about how Marvell was stealing their rival's trade secrets.

After appeals up and down and lots of arguments regarding standing, the jury has spoken: the jury unanimously found that Marvell did not use or acquire any Jasmine trade secrets and did not violate any nondisclosure agreements.

We don't know any more than this right now but we'll fill you as we learn more regarding this apparent defense verdict. Big sigh of relief from Marvell on this one.

Tuesday, November 23, 2010, 11/23/2010 01:48:00 PM

Zynga and Playdom Settle Trade Secrets Spat, With Disney's Assistance

By Todd

VentureBeat is reporting that a settlement has been reached in the Zynga v. Playdom trade secrets litigation. Terms were not disclosed. Zynga sued its rival in social games in September of last year, alleging that four former Zynga employees stole the company’s trade secrets when they left the company to join Playdom. Playdom has since been acquired by Disney allegedly for $760 million.

In a joint statement, the companies said they reached a confidential resolution of their litigation. Zynga general counsel Reggie Davis added, “The settlement reflects the very serious nature of the conduct involved, as reflected by the preliminary injunction, restraining orders, and contempt order issued by the Santa Clara Superior Court. We have great respect for Disney and are thankful that following its acquisition of Playdom, Disney resolved the matter to our satisfaction.”

The lawsuit reflected the fact that the social game companies are in a rush to get as many users as they can. But the irony of the litigation was that Zynga itself was often accused of copying games of its rivals, not by direct copying but by taking themes such as farming and making Zynga’s own games based on them. However, Zynga argued and courts generally agree that there is a line that employees cross when they take one company’s documents and allegedly share them with another company.

Zynga alleged that the former employees — Raymond Holmes, David Rohrl, Martha Sapeta, and Scott Siegel — left Zynga and took various documents with them. They included “The Zynga Playbook,” which is the recipe book that contains Zynga’s “secret sauce” for competing in social games. Zynga is the No. 1 social game company on Facebook with 198.5 million monthly active users, while Playdom has 34.8 million, according to market researcher AppData.

The court granted an injunction in Zynga’s favor in the lawsuit in March and another one in August saying that Playdom was not allowed to use any of the allegedly stolen trade secrets. In the process of discovery, Zynga uncovered emails with Playdom executives saying some very unflattering things about Zynga’s chief executive, Mark Pincus, according to its amended complaint filed back in May, including Playdom co-founder Daniel Yue saying, “God I hate Pincus.” Zynga argued that these comments established an environment in which the alleged theft could occur.

Zynga alleged that Rohrl, former director of design, stole an entire game idea and its associated innovative game mechanics from Zynga and developed it under a different name for Playdom.

Zynga produced as evidence emails sent by Rohrl from his private Gmail account to Yue, who promised to keep them secret. Zynga alleged that Rohrl got a bonus from Playdom for his actions. In March, the court issued an injunction prohibiting Playdom from releasing the game, saying that Yue and Playdom employe Jamie Ferris induced the sued employees to steal Zynga’s secrets.

Playdom also admitted that Zynga documents had been transferred to Playdom computers by former Zynga employee Chris Hinton and these documents had been used by Playdom in its efforts to compete against Zynga.

Monday, November 22, 2010, 11/22/2010 10:36:00 AM

Ex-SocGen Trader Found Guilty of Trade Secret Theft

By Todd

BusinessWeek is reporting that former Societe Generale SA trader Samarth Agrawal was found guilty of stealing trade secrets related to the bank’s high-speed computer trading software.

A federal court jury in New York today delivered the verdict at the end of a two-week trial. U.S. District Judge Jed S. Rakoff set Agrawal’s sentencing for Feb. 24.

Judge Rakoff said after the verdict that, for sentencing, he will consider that Agrawal admitted during the trial that he committed a theft of trade secrets.

“I think he may be entitled to some of acceptance of responsibility,” Rakoff said. Sentencing guidelines provide for a minimum prison term of three years and 10 months and a maximum of four years and nine months.

Agrawal testified, under questioning by his own lawyer, Ivan Fisher, that he shared information about Societe Generale’s trading software with a Manhattan hedge fund, Tower Research Capital LLC, where he hoped to create a similar system.

Judge Rakoff, who told lawyers he was “puzzled” by Agrawal’s self-incriminating testimony, said he assumed Fisher was using a “sympathy defense” on his client’s behalf.

Agrawal was convicted of theft of trade secrets and transporting stolen property in interstate commerce.

Friday, November 19, 2010, 11/19/2010 09:42:00 AM

More Testimony from Societe Generale Trade Secrets Trial

By Todd

We're practicing law at the same time we're trying to find information for you regarding this fascinating criminal trial of Samarth Agrawal in Manhattan. Thanks to FINalternatives we've found some more reported testimony from the trial to give you a better feel for how the explosive admissions from Mr. Agrawal came about in the courtroom. Read below FINalternatives accounting of the same:

Testifying in his own defense, Agrawal first said that he printed out the code to study it, on orders from his managers at SocGen.

“It was one of my responsibilities to know the code,” the 27-year-old said. “I printed it out so I could study at home.”

Agrawal also testified that his supervisor told him it would be “better that I work at home.” The trader said he was forced to work longer hours and on weekends after several departures from the high-frequency trading team, but that working on weekends had become a “red flag” at the firm, believed to be an allusion to the Jérôme Kerviel case.

Kerviel, a French trader at SocGen, lost the bank nearly €5 billion on unauthorized trades. Rakoff refused to allow discussion of the events that led to the encouragement to work from home.

But Agrawal then testified that he took the code so he could replicate it at Tower.

“I did it because I had to build the similar system at Tower,” Agrawal said. “I did it because I wanted the job.”

“It made certain things easier. I had to make some steps of trading, instead of making it from my mind,” he added.

Asked—by his own lawyer—if he knew that the code was proprietary to SocGen, and if he knew that taking it was wrong, Agrawal answered “yes” twice.

Judge Rakoff called the case a "curious" one and we admit to being confused too. Was this the defense strategy all along - to argue that Mr. Agrawal never stole trade secrets and take the jury on a wild goose chase only later to admit that he did exactly what the government accused him of? Now, we're not criminal defense attorneys - but that can get you in some hot water with the judge in your case where we come from.

More as we find out what Mr. Agrawal's attorney argues in his closing. We wouldn't be surprised to learn that he is flip-flopping again and saying there was no trade secrets theft despite Mr. Agrawal's admissions. Stay tuned.

Thursday, November 18, 2010, 11/18/2010 02:28:00 PM

Societe Generale Trade Secret Thief Admits Guilt During Trial - Judge Characterizes Admissions as "Sympathy Defense"

By Todd

We've been blogging about the ongoing criminal trial of Samarth Agrawal for a good while:

And we wondered - if the potential new employer of the Defendant is going to testify that he showed THEM a version of what he had copied from Societe Generale in terms of active high-frequency trading code, then what is the defense? Seemed to us that the only defense is that the code was not a trade secret - but wasn't that claim somewhat betrayed by the fact he was showing it to the potential new employer as something of value that he could bring to their place of business?

Well - all has been revealed. Mr. Agrawal yesterday admitted under questioning from his own attorney that he DID steal the code and he DID show it to the potential new employer and that he DID know it was wrong. Folks - this is game/set/match. And it must've been his counsel's strategy because the testimony of the new employer was going to sink him anyway.

According to Reuters, Judge Rakoff commented "Frankly, I'm puzzled by the present situation, because the defendant has admitted all essential elements of at least the first count of the indictment and probably the second count." Later Judge Rakoff is alleged to have concluded "One is driven to the inference of what is really going on here is a sympathy defense and, indeed, one would feel hard pressed not feel sympathy for this defendant."

We will report back on the verdict and scheduling for sentencing. It should be interesting to see if this recent spate of cases in which the government seeks a deportation order with no right of return to the U.S. will be part of the sentence sought. We admit to not knowing whether Mr. Agrawal is a United States' citizen. More soon. This is a major league development in this case.

Guilty Plea By Former Engineer in Ford Motor Trade Secret Case

By Todd

The Wall Street Journal is reporting that an engineer who went to work for a Chinese competitor pleaded guilty Wednesday in federal court to two counts of stealing trade secrets, prosecutors said.

Xiang Dong Yu, aka Mike Yu, of Beijing, China, is expected to return to court in Detroit on Feb. 23 for sentencing. According to his plea agreement, the 49-year-old should receive a prison term between 63 and 78 months based on losses worth more than $50 million to Ford, according to his plea agreement with prosecutors. He remains in federal custody.

The plea deal also requires that Mr. Yu be deported after his time behind bars. An attorney for Mr. Yu didn't immediately return a call for comment Wednesday.

The case is one in a recent spate in which federal prosecutors have charged former auto-industry employees with connections to China for taking intellectual property from the Detroit Three auto makers and their U.S.-based suppliers. In July, a federal grand jury in Detroit accused two engineers of stealing documents worth roughly $40 million related to hybrid technology at General Motors Co. The pair, who are of Chinese descent, are expected to return to federal court in early December for a pre-trial hearing.

According to the plea agreement in the Ford case, Mr. Yu was a product engineer at the Dearborn, Mich. auto maker from 1997 to 2007. In December 2006, on the eve of his departure from Ford, Mr. Yu copied some 4,000 Ford documents onto an external hard drive, according to his plea deal. The majority of the design documents copied by Mr. Yu didn't relate to his work at Ford.

In November 2008, Mr. Yu began working for Beijing Automotive Company. Upon his arrest in October 2009 in the U.S., the FBI discovered that 41 Ford design documents had been copied to Mr. Yu's Beijing Automotive Company work computer. It was unclear from court documents whether Beijing Automotive directly benefited from the stolen designs or even knew about their theft.

Wednesday, November 17, 2010, 11/17/2010 10:41:00 AM

SiRF Technology Trade Secrets Stolen Over 7 Year Period and Used By Start-Up Company, Say Feds

By Todd

The Silicon Valley Mercury-News is reporting that U.S. Secret Service agents arrested a man on suspicion of conspiracy, possession of stolen trade secrets, and foreign transportation of stolen property, prosecutors announced Tuesday.

Zhiqiang Zhang, who also goes by Michael Zhang, 41, was indicted by a federal grand jury in San Jose last week.

According to the indictment, Zhang stole technological trade secrets while working for SiRF Technology Inc. in San Jose from 2002 to 2009.

The company designed and developed software source code to be used as a platform for location-based services and applications for mobile phones and as an aided global positioning system to provide location-based services to wireless devices.

The suspect was responsible for developing the code. Prior to resigning from the company in 2009, Zhang allegedly recruited two other employees to work for him for his startup, Anywhere Logic Inc.

Prosecutors said the stolen code was used by the new company. The two employees, Xiaodong Liang and Yanmin Li, are now believed to be living in China.

Zhang faces up to 10 years in prison for each count of conspiracy, possession of stolen trade secrets and foreign transportation of stolen property.

He made his first court appearance Tuesday and was released on a $500,000 bond.

Monday, November 15, 2010, 11/15/2010 08:19:00 AM

Papermaster Leaves Apple, Joins Cisco

By Todd

You'll recall the name Papermaster because he triggered that high-profile fight in New York over whether Apple's use of Mr. Papermaster would threaten IBM's rights in certain IBM trade secrets. Well, Mr. Papermaster had a short tenure at Apple and now he's made a home at Cisco. You have to say this for Mr. Papermaster - he sticks with the blue chips.

Friday, November 12, 2010, 11/12/2010 12:51:00 PM

Takes One to Know One? 2FA Creates Trade Secrets Press Release During Oracle-SAP Trade Secrets Litigation

By Todd
We've copied the 2FA press release and you can read it if you click on the title to this blog post. You're all aware of the Oracle-SAP spat being litigated currently. Well, a company called 2FA decided that they'd use an opportunity to reach out to Mr. Ellison and Oracle via a press release as follows:

Mr. Ellison’s testimony this week in Oracle’s suit against SAP really struck home for executives at 2FA Technology, a Texas-based software company. 2FA has been embroiled in a legal battle for the past two years with Passlogix, a wholly owned, and recently purchased, Oracle subsidiary.

The lawsuit (1:2008cv10986), pending in the United States District Court for the Southern District of New York since December 18, 2008, bears a striking resemblance to Oracle’s litigation against SAP. Oracle’s contention is that SAP’s now defunct, wholly owned subsidiary, TomorrowNow, engaged in illegal activities relating to the misappropriation of Oracle software; the only difference being that the shoe is now on the other foot . . . .

Mr. Ellison testified under oath on November 8, 2010, “I think taking our intellectual property is a two edged sword,” he said. “For [SAP] it means they have access to all our engineering output…” Mr. Ellison added, “The other side of that sword is running an irrational risk by taking our software. That’s a risk I certainly would never, ever undertake.”

“Although Oracle’s market value increased more than $1 billion the day Oracle announced the
acquisition, I can only assume Mr. Ellison is completely unaware that Oracle acquired Passlogix,” said Mr. Greg Salyards, 2FA’s President & CEO. Mr. Salyards added, “We have the utmost respect for Mr. Ellison and Oracle. Once aware of this oversight, we are confident that Mr. Ellison and Oracle will do what they know is right.”

Opportunistic settlement overture? Sure. But you have to hand it to the 2FA folks - they're reading the news.

Wednesday, November 10, 2010, 11/10/2010 01:48:00 AM

Opening Statements in Societe Generale Trade Secrets Trial: Prosecution Says Potential New Employer Will Testify

By Todd

Bloomberg is reporting that opening statements have been made in the trade secrets theft trial of former Societe Generale employee Samarth Agrawal.

"You will see that Samarth Agrawal was a thief,” Assistant U.S. Attorney Thomas G.A. Brown said in his opening statement today. “He didn’t steal cash or gold or diamonds. He stole something much more valuable. He stole a powerful way to make millions of dollars on the stock market.”

Brown told jurors they would see a surveillance video showing Agrawal, 27, printing hundreds of pages of computer code at the same time he was planning on leaving Societe Generale to set up a similar computer trading system with a Manhattan hedge fund, Tower Research Capital LLC.
Agrawal, who was denied bail in the case after his April 19 arrest, is charged with theft of trade secrets. He faces as much as 10 years in prison if convicted.

“Mr. Agrawal is not guilty,” his lawyer, Ivan Fisher, said in his opening statement. “He stole nothing.”

Fisher said Agrawal was working on the code at home as part of his job. Fisher said his client will testify. He will also present testimony from five people who have known Agrawal for years, Fisher said.

In addition to the surveillance video, Brown said he will play for jurors tapes of conversations between Agrawal and Tower Research partners.

Prosecution witnesses will include Tower Research partners and programmers, Agrawal’s former Societe Generale supervisor, the federal agent who found the computer code in a search of Agrawal’s New Jersey apartment and an expert in high-frequency trading.

NOTE: It sounds like Tower Research has turned state's evidence and is giving testimony supporting the government's theory that Agrawal intended to use the stolen code to help them do high frequency trading. We'll see - but, if true, that's not good for Mr. Agrawal. More as reports continue . . . .

Tuesday, November 09, 2010, 11/09/2010 12:52:00 PM

The Trade Secrets of Selling Used Children's Clothes - No Kidding

By Todd

The Detroit Free Press (a paper I used to have to hump for delivery in the snow) has a piece today on a new lawsuit brought by a franchisor against a former francisee that alleges, among other things, the former franchisee misappropriated trade secrets regarding the sale of used children's clothing. We've copied the piece below or you can read it by clicking on the title to this blog post:

It looks like the art of selling used kids clothing is a trade secret, too, at least according to a lawsuit filed in federal court in Detroit.

Ann Arbor based-Children's Orchard, a national chain that sells used children's clothing and accessories, filed a federal lawsuit last week against two franchise owners in Oklahoma City, alleging they violated a franchise agreement and a noncompete agreement, and stole trade secrets when they opened a competing store called Upsy Daisy.

One of the defendants, Tiffany Thomas, is baffled.

"There's no magic to selling kids clothes," Thomas said in a telephone interview. "Everybody in the world does it.... There's not a trade secret for running a resale clothing store."

The owners of Children's Orchard beg to differ.

In their lawsuit filed in U.S. District Court in Detroit, the company claims that Thomas and her now-ex-husband, Kent Jaecke, signed a franchise agreement in 2005 to run a Children's Orchard in Oklahoma City for 10 years. But on July 14, without permission, the couple closed the Children's Orchard store and moved to another location, the lawsuit claims.

There, records show, they "clandestinely began operating the store under the name Upsy Daisy, in violation of a noncompete agreement. And, they failed to return confidential operating manuals, customer lists, records, files, instructions and brochures that belonged to Children's Orchard, the suit claims.

"Defendants are using the Children's Orchard Business System and Trade Secrets and are directly competing with the Children's Orchard franchise system," the lawsuit states.

Upsy Daisy is owned by Thomas' father, Paul Overton Thomas, who was unavailable for comment. The lawsuit claims that Paul Thomas knew of the franchise agreement between his daughter and Children's Orchard and intentionally interfered with that relationship by setting up a competing business.

"I don't feel like I've done anything wrong," said Tiffany Thomas, who cited poor business sales as the reason for closing the Children's Orchard store. "I tried to sell it several times, but I couldn't get anyone to sign the franchise agreement."

Thomas said there are plenty of resale clothing stores in her city, all of which rely on a similar business formula: How much do you want for your clothing, and how much do you want to pay for used clothing?

"What would be the trade secret? Is that a trade secret?" Thomas asked.

Monday, November 08, 2010, 11/08/2010 10:50:00 AM

Bristol-Myers-Squibb Employee Pleads Guilty to Stealing Trade Secrets, Intending to Start Competitive Business in India

By Todd

The Times of India is reporting that a terminated Bristol Myers Squibb employee has pleaded guilty to stealing trade secrets from the drug manufacturer so that he could set up his own business in India. Shalin Jhaveri, 30, entered a guilty plea to a one-count charge of theft of trade secrets.

A Syracuse, New York resident, Jhaveri faces up to 10 years in prison, a $250,000 fine and up to three years of supervised release and deportation, US Attorney for the Northern District of New York Richard Hartunian said in a statement.

Jhaveri, who holds a Ph.D from Cornell University, also agreed to be deported from the US after completion of any jail term imposed. He cannot seek relief or appeal his order of deportation. After being deported Jhaveri would never be able to seek re-entry into the United States.

Jhaveri, who worked as a technical operations associate in Bristol-Myers' management training program, was arrested in February this year. He had worked at the company since November 2007, but was fired in February from the company's Syracuse facility, where it develops and manufactures biotechnology medicines for clinical and commercial use. While he was employed, Jhaveri stole the company's trade secrets and devised a plan to put them to his own use.

At the time of his arrest, he was meeting with an investor who was willing to finance Jhaveri's business venture planned in India with his father.

Jhaveri had taken more than 1,300 documents from the company starting in late 2009. He downloaded the information to his laptop and portable hard drives over the course of several days and shared these trade secrets with his potential investor. Bristol Myers Squibb's potential loss from the information Jhaveri sent in his email was $193,000, Green said. The trade secrets included formulas for producing a drug under development to treat a rare and deadly form of skin cancer. An industry expert has said the drug could be worth millions for Bristol.

In December 2009, Bristol-Myers' corporate security had notified its in-house computer security experts that Jhaveri was taking confidential material. They later learned that Jhaveri planned to start a biopharmaceutical business in India with his father.

We'll report back on the sentencing phase in this criminal matter.

Friday, November 05, 2010, 11/05/2010 09:53:00 AM

Societe Generale Trade Secrets Trial Will Proceed in Open: Defense Counsel Warned That "Tongue Lashing" Awaits

By Todd

Bloomberg is reporting that the trial of Samarth Agrawal, the former Societe Generale trader accused of stealing software code used in high frequency trading, will remain open to the public.

Agrawal was charged by federal prosecutors in April with theft of trade secrets. The government said Agrawal, hired by Societe Generale in New York in March 2007 to work as a quantitative analyst in the high-frequency trading group, made copies of one part of the code he had been given access to and another part he wasn’t allowed to have.

“My recollection of the constitutional protections include an open court,” Rakoff said at a hearing today. “That protection cannot be overcome because it makes it more difficult for the government to prove its case.”

Assistant U.S. Attorney Daniel Levy told the judge that Agrawal was believed to have printed out between 500 to 1,000 pages from Societe Generale’s computers. Rakoff interrupted, saying, “The jury, I am sure, has no interest in seeing 500 pages of a logarithm code.”

The judge said prosecutors can renew their request to close the courtroom if they determine potential trade secrets might be disclosed. He told lawyers to prepare to deliver opening statements to the jury as early as Nov. 8.

Defense counsel advised Judge Rakoff that they had no defense strategy of parading trade secrets around the courtroom. Rakoff said that if defense counsel Ivan Fisher did disclose any trade secrets, “he would run the risk of some unfortunate consequence, like jail, like disbarment, or even worse, getting a tongue-lashing from me.”

Thursday, November 04, 2010, 11/04/2010 09:19:00 AM

Michigan Company Sues New York City For Misappropriation of Trade Secrets Relating to Technology Utilized to Identify 9/11 Victims

By Todd

In a recent presentation I gave to the annual conference of the American Intellectual Property Law Association, I noted that one of the risks of being a contractor with the government is that they might steal the contractor's trade secrets.

Well, GenomeWeb News is reporting that in a complaint filed in March in the US District Court for the Southern District of New York, Gene Codes, based in Ann Arbor, Mich., alleges New York's Office of Chief Medical Examiner improperly shared proprietary information about its software with the Federal Bureau of Investigation.

In the complaint, Gene Codes said that OCME approached it following the 9/11 attacks in lower Manhattan to develop the software to identify victims of the attacks and to organize the DNA data of the 2,800 victims and 20,000 fragmented remains located at Ground Zero.

OCME had already been using a previously developed software program called Sequencher for the analysis of mitochondrial DNA, Gene Codes said, and added that in order to carry out the 9/11-related tasks it "suspended its existing commercial software research and development activities and devoted all of its efforts and energies to developing a new and groundbreaking system of DNA profile matching technology."

The new software eventually was called Mass-Fatality Identification System, or M-FISys.
Gene Codes was awarded a three-year contract worth $13 million by OCME for developing the software.

After the contract expired, however, OCME infringed on trade secrets associated with M-FISys, Gene Codes alleges, by providing access and information about the software to the FBI, violating the contract it had with OCME, as well as Gene Codes' IP rights.

According to the suit, violations included OCME employees printing out confidential database schema from the M-FISys software "for the purpose of enabling FBI to extract," Gene Codes' trade secrets "in order to develop and enhance the functionality of" CODIS, another software program that was in use by FBI, the company said in its complaint.

Gene Codes is asking for at least $10 million in damages.

BUT the Big Apple isn't buying what Gene Codes is selling - they're suing too!

New York City is countersuing Gene Codes and is asking that the company's lawsuit be dismissed. It also asks for $10 million in damages.

According to the city, Gene Codes approached OCME in late September 2001 to develop the new software. Under its contract with Gene Codes, the city claims it obtained a "perpetual, royalty-free" license to use the M-FISys software for non-commercial purposes. In exchange, Gene Codes could claim copyright ownership of the software but not commercially exploit the program, New York alleges.

New York City alleges Gene Codes breached its contractual obligations by, among other things, failing to properly train OCME personnel for use of M-FISys; failing to provide upgrades and revisions of the software to OCME after the contract expired as was required; and failing to provide OCME with a version of M-FISys that could generate data in a CODIS format, "although such functionality was specifically requested by OCME and later incorporated in a newer version of M-FISys."

We'll watch this one for you.

Wednesday, November 03, 2010, 11/03/2010 04:11:00 PM

California Appellate Court - Just Because Trade Secrets Were Misappropriated Doesn't Mean Unjust Enrichment Occurred

By Todd

Yesterday, the Court of Appeals of California, Sixth District decided an appeal brought by San Jose Construction Company.

Seems San Jose Construction sued its former employee, Richard Foust, and Foust's new employer, South Bay, for trade secret misappropriation. The claim made it to the jury. San Jose Construction asked the jury for an award of $1,355,660 based on alternative theories: lost profits (from Foust); unjust enrichment (from South Bay). The jury found that both defendants had misappropriated plaintiff's trade secrets but it awarded no damages. The trial court entered judgment for the defendants.

San Jose Construction, on appeal, argued for what the appellate court called a "double negative" thus:

"No evidence, let alone substantial evidence, shows that South Bay was not unjustly enriched." Later, after extensively detailing Foust's misappropriation (an undisputed fact given the jury finding) and other claimed transgressions not relevant to the issues on appeal, it reiterates: "No evidence—none—supports the proposition that South Bay derived no benefit from Foust's misdeeds."

Well, the appellate court did not buy that argument and reasoning in affirming the trial court and held as follows:

Here, South Bay did not benefit at plaintiff's expense—South Bay benefited from an opportunity that plaintiff had spurned by firing Foust. Thus, the verdict is entirely consistent with reasoning that it was not "unjust" or "enrichment" for South Bay to benefit from the spurned opportunity.

Moreover, the trial court instructed the jury that South Bay was unjustly enriched if its misappropriation of plaintiff's trade secrets caused South Bay to receive profits it otherwise would not have achieved. This instruction, together with the burden-of-proof instructions, indisputably asked the jury to determine whether plaintiff proved facts, namely a receipt of profits, that South Bay otherwise would not have achieved. The jury's verdict specifically found that plaintiff had failed to prove those facts.

SO - the point to our readers is that unjust enrichment will not be established, as a matter of law in California, just because the jury is convinced that misappropriation occurred. This, of course, comports with the law of evidence and proof of damages and is not a major development in the law. But it is an interesting argument and decision, nonetheless.

Monday, November 01, 2010, 11/01/2010 08:13:00 PM

Prosecutors Ask for Another Closed Courtroom In Trade Secrets Theft Prosecution - This Time in Societe Generale Case

By Todd

Reuters is reporting that prosecutors have asked United States District Court Judge Jed Rakoff to seal trial exhibits from the public, close the court to the public when the evidence addresses the nature of the bank's trade secrets, and seal certain transcripts.

This is the prosecution of Samarth Agrawal, who worked with the high-frequency trade group at Societe Generale, which uses a multimillion-dollar computer system to perform sophisticated securities trading within milliseconds. We blogged about this case previously here:

The government supported their request thus: "Not only do victims of trade secrets theft have a strong interest in not being re-victimized when their trade secrets are disclosed to the public and their competitors during trial, but the government has an interest" in enforcing the Economic Espionage Act of 1996, prosecutors argued.

Ivan Fisher, a lawyer for Agrawal, said on Thursday that he will fight the government motion in court papers and at a pre-trial conference on November 4.

"It is grossly prejudicial," Fisher said. "What does the process convey to the jury when they go on recess and then when they come back, suddenly the public spectator section is empty?"

We suppose it sends them the message that very important information is about to be produced and identified - and that makes it very important that the information Judge Rakoff will be admitting and potentially excluding outsiders from seeing really IS secret and competitively sensitive. This is a judge, folks, with a tremendous background in difficult cases and is known to be smart, wise and not a push-over for the government's every argument.

We'll keep an eye on this important issue - the willingness of courts to clear courtrooms and seal transcripts in trade secret cases.
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