Trade Secrets vs. Patents – The Myriad Genetics Experience

An interesting article from the New York Times concerning Myriad Genetics, makers of an expensive breast cancer genetic test.

Some background: as a general rule patent protection looks a lot different from trade secrets protection. If you proceed with patents, you publish and explain your invention to the world in return for a monopoly to practice it. With trade secrets, you keep your information close to the vest so that no one sees it (at least without paying for it).

Myriad Genetics recently had its patent on two human genes used in its test upheld. Now though, the company is looking more toward trade secrets protection.

The key quote:

“The company also plans to rely less on patents and more on trade secrets. Because it has done so much more testing than anyone else, Myriad has more information on which of the thousands of possible mutations in the two genes actually raise the risk of getting cancer.”

And:

“Myriad used to share such information with a public database maintained by the National Institutes of Health, and it cooperated with academic scientists trying to analyze the mutations. But a few years ago, the company quietly stopped contributing and cooperating, in favor of building its own database.”

Not surprisingly, some public interest groups aren’t happy with the idea that Myriad is using trade secrets in an effort to extend its monopoly.

In any event, its an interesting example of the interplay between the two different regimes.

Hollywood, Esq. Says Talent Agency Defections Sparks Trade Secrets Claims

We've never read Hollywood, Esq. before today but it bills itself as "the intersection of entertainment and law." Eriq Gardner has a new piece regarding a recent talent agency defections that have resulted in claims of trade secret misappropriation and unfair competition.

He writes: "A Hollywood talent agency is brawling with three of its former agents who left for a competitor, but not before allegedly stealing confidential information to poach clients.
Diverse Talent Group, run by Chris Nassif, filed a lawsuit in Los Angeles Superior Court on Tuesday against agents Isam Durzi, Ehab Durzi and Wendy Morrison, as well as the Function Talent Group, the rival agency that is said to be the new home of the three defendants.

The talent agency says on its website that it represents talent on television shows such as Big Bang Theory, Mad Men and Lost, as well as feature films such as Transformers and X-Men.

The firm's client base was allegedly put at risk when the three defendants, still working for Diverse, obtained confidential materials, such as customer lists and the personal and financial information of clients. The three supposedly used this info to poach clients for the Function Talent Group."

We'll keep an eye on this one for you. Here's looking at you, kid.

Gundlach Being Painted As "Greedy and Conceited" - New Article in Pensions & Investments

Randy Diamond at Pensions & Investments has written an interesting piece on the ongoing trade secrets mega-trial between TCW and its former bond guru, Jeffrey Gundlach. The piece is linked above if you click on the title to this post.

Diamond notes that TCW's attorneys seem to be spending a significant amount of time demonstrating Mr. Gundlach is "greedy and conceited." He notes an interesting exchange between TCW super-lawyer John Quinn and Mr. Gundlach, testifying from the stand in front of the jury:

""It certainly drove you crazy when people inside TCW gave Mr. Barach credit, any credit, for that award, isn't that true?” Mr. Quinn asked.

“No,” Mr. Gundlach responded.

Mr. Quinn then produced an e-mail in which Mr. Gundlach asked TCW's Ms. VanEvery to make sure Mr. Barach's name was dropped from press materials from TCW announcing the award.

“I hate to nitpick, and I even less like looking like an egomaniacal nitpicker, but Morningstar did not give the 2006 FI manager of the year to JG and co-manager PB, right? ... They gave it to JG full stop. ... Our documents must say that, exactly that. Can you quietly fix this?”

Ms. VanEvery did so."

The trial continues tomorrow with TCW's CEO on the stand.

Federal Judge in California Sets Appeal Bond for Mattel at $315 Million in Bratz Trade Secrets Appeal

The Washington Post and other sources are reporting that late last week United States District Court Judge David Carter set Mattel's appeal bond at $315 million. This was expected, of course, but it's still a whopper of a bond.

What's an appeal bond? When a party who loses originally in the trial court wants to appeal a judgment for money damages, the original winning party is at risk of nonpayment or that the purpose of the appeal is to stall for time or other frivolous reasons. The trial court orders the appealing party to post an "appeal bond" - essentially as insurance that the winning party is secure in its judgment because the losing party guarantees payment, plus costs of the appeal, if they lose on appeal.

Los Angeles Times Report from Gundlach Trial: Nothing Special About TCW Data, Gundlach Testifies

There's a really well done report in yesterday's Los Angeles Times by reporter Tom Petruno. It is linked above if you click on the title.

Mr. Petruno's piece explains the issues well and the back-and-forth exchanges between Mr. Gundlach and TCW's super-lawyer, John Quinn.

We appreciated this portion of Mr. Petruno's piece, relating to Mr. Quinn showing Mr. Gundlach an e-mail he had written regarding perceived risk at TCW:

"This whole fire drill of a week has helped me to fully see that I will be forever vulnerable as long as I stay at a place that thinks it owns and controls the revenue stream," Gundlach said in the email. "Eliminating that vulnerability is the goal now."

Quinn and Gundlach then sparred over their perceptions of Gundlach's responsibility to TCW as a senior officer.

The revenue generated by assets Gundlach managed was "a shared revenue stream between me and TCW," he said.

"Did the clients send in the checks to Jeffrey Gundlach Inc.?" Quinn asked.

"No," Gundlach said.

The trial continues but Mr. Quinn clearly scored some points in this exchange that suggest Mr. Gundlach was angling to depart from TCW and that he considered the client relationships to be co-owned between him and TCW.

Trade Secrets Trial: Gundlach Claims He Offered to Buy His Employer

Bloomberg is reporting that Jeffrey Gundlach, the embattled former bond trader from TCW heralded as "the Pope" by Wall Street's bond community, has testified under examination that he attempted to purchase TCW from its owners prior to being fired.

Gundlach, who started DoubleLine weeks after TCW fired him in December 2009, told a Los Angeles jury today that he offered about $350 million for 51 percent of the firm. He made the offer at a meeting with TCW Chief Executive Officer Marc Stern when he believed he was about to get fired, Gundlach said under questioning by TCW lawyer John Quinn.

Gundlach, whose mortgage-backed securities group managed more than half of TCW’s assets under management, said Stern was making a wrong assumption to think his group’s business would continue as normal if he was fired. At the meeting, members of Gundlach’s group indicated they would leave as well should Stern fire him.

“If you fire me, you’re going to blow up the firm,” Gundlach said, describing his reaction to what he thought was Stern’s plan.

TCW's super-lawyer, Quinn, had additional questions for Gundlach regarding his motives in offering to buy TCW. Quinn showed jurors a Sept. 16, 2009, e-mail from Philip Barach, the No. 2 person in Gundlach’s group at TCW who also joined DoubleLine, saying that, after Gundlach had been reassured by Stern that he wasn’t getting fired, they now had the “the luxury of time to plan and prepare.” Gundlach said “it was completely untrue” that he sought a better relationship with Stern after the Sept. 3 meeting only to buy time to set up his own firm and leave TCW.

The trial continues . . . .

EU Trade Secrets Regulatory Gap

From Business Insider, an interesting article by New York City practitioner Joseph DeMarco, concerning the differences – he would say inadequacies – in trade secrets laws in the EU compared to the US.

According to DeMarco, most EU countries, with the possible exceptions of Germany and France, do not have criminal statutes that deal with trade secrets theft in the manner in which the US Economic Espionage Act covers such crimes. The UK, in particular, has considered but never adopted criminal laws for trade secrets misappropriation.

The result is a significant regulatory gap between protections afforded to trade secrets owners in the US and the EU. DeMarco posits that two recent cases prosecuted under US law – against former Societe Generale employee Samarth Agrawal and former Goldman Sachs employee Sergey Aleynikov – would not have been successfully prosecuted had those employees been based in an EU country.

Also inhibiting enforcement efforts, according to DeMarco, are EU privacy protections at work which limit surveillance.

Former TCW Employee Testifies Gundlach Instructed Him to Pilfer Data

Bloomberg is reporting that Cris Santa Ana, a DoubleLine Capital LP executive and a former managing director at the mortgage-backed securities group at TCW Group Inc., testified last week at a trial in state court in Los Angeles, telling jurors he downloaded TCW data at Jeffrey Gundlach’s request before they were fired. TCW alleges that DoubleLine was set up with proprietary information and trade secrets stolen by Gundlach, its ex-investment chief, along with Santa Ana and two others.

We'll keep watching and blogging on reports from this trial.

Federal Judge In California Decides Mattel Should Pay $310 Million to MGA in Bratz Matter

Law360 is reporting that United States District Court Judge David O. Carter reduced a jury's $88.5 million damages award to $85 million because of a duplication error, then tacked on another $85 million in exemplary damages, and granted MGA's request for an additional $139.9 million for attorneys' fees and costs.

Mattel's copyright suit "imperiled free expression, competition and the only serious competitor Mattel had faced in the fashion doll market in nearly 50 years," Judge Carter said in an order on Thursday. "MGA's successful defense ensured that well-resourced plaintiffs cannot bend the law to suit their pecuniary interests." In April, a jury found that Mattel had misappropriated trade secrets for the Bratz dolls, reversing a previous verdict that gave Mattel $100 million in damages and enjoined MGA from selling the Bratz dolls.

The case hinged on whether toy designer Carter Bryant came up with Bratz while working at Mattel and subsequently brought the idea to MGA, or if he struck upon the idea for the dolls in 1998 before he signed a contract with Mattel. Mattel and MGA began their second trial in the seven-year saga on Jan. 18, after the Ninth Circuit vacated a jury verdict awarding Mattel $100 million and control of the Bratz line.

Mattel had also moved for a new trial, arguing that the jury's original $88.5 million verdict in April lacked evidentiary support, but Judge Carter denied the motion, saying "Mattel similarly failed to introduce specific evidence of harm for each of its claimed trade secrets and, in an earlier phase of this lawsuit, successfully defended a similarly imprecise jury award."Mattel had maintained that Bryant perpetrated one of the biggest-ever copyright and trade secret heists when he took Bratz to MGA, eventually launching the wildly successful line of dolls. The alleged theft robbed Mattel of $300 million in profits and allowed MGA to capitalize on proprietary information, according to Mattel.

MGA, on the other hand, argued that Mattel was throwing its weight around, pursuing litigation as a way to crush competitors and usurp creations that MGA spent vast amounts of time and money developing.

This is a massive attorneys' fee award of $140 million. We are going to research this but believe it is the largest fee award ever in a case of this type. We do not doubt a massive appeal is in the works.

Gundlach-TCW Trade Secrets Trial Testimony - Hiding Data on Parents' Computer and the Ubiquitous Goldman Sachs

Reuters is reporting that trial testimony suggests Jeffrey Gundlach was exploring the possibility of leaving Trust Company of the West -- unsuccessfully seeking advice from Goldman Sachs -- a month before it fired him, a Gundlach co-worker and girlfriend testified in court.

Gundlach met with Goldman Sachs in November 2009 along with at least two other coworkers to seek advice on negotiating a deal with TCW -- or, if that failed, on leaving and forming a new company, Barbara VanEvery testified on Tuesday.

"I think he dreamt of one day having his own business," VanEvery, who was at the Goldman meeting, said at one point while being questioned by TCW attorney Steve Madison.
Goldman declined to act as intermediary in a deal with TCW, VanEvery said, and encouraged Gundlach to talk to TCW directly. VanEvery didn't say whether Gundlach ever did talk to TCW, and Gundlach was fired the following month.

VanEvery worked for Gundlach at TCW and followed him when Gundlach left to set up DoubleLine Capital in late 2009. She testified that she was also romantically involved with Gundlach at the time of the move.

Attorneys for DoubleLine did not question VanEvery on Tuesday, and her testimony is scheduled to continue on Wednesday in a Los Angeles courtroom.

Earlier on Tuesday, another co-defendant, Jeffrey Mayberry, said he had copied the entire contents of a flash drive with TCW information he hid from a company investigator onto his parents' personal computer. He did not tell them that he did so.

"At that point I decided the less people that knew, the better," Mayberry said, under questioning by a TCW attorney.

Under subsequent questioning by attorneys for DoubleLine, Mayberry said he and other former TCW employees were instructed not to use any TCW data.

DoubleLine then created new systems of its own, Mayberry said.

We'll keep blogging on this one.

Oracle Exec Who Used to Work at H-P Demands Apology from H-P

The Wall Street Journal is reporting that Oracle Corp. demanded on Thursday last week that Hewlett-Packard Co. drop its lawsuit against a former executive who joined Oracle after it became clear that copies of sensitive data H-P alleged the executive made onto an external hard drive were in fact made by H-P.

H-P's lawsuit against the executive, Adrian Jones, who is now a senior vice president at Oracle, was "based on a knowingly false allegation," according to Oracle's demand letter, a copy of which was reviewed by the Wall Street Journal. "HP has no evidence to support its case against Mr. Jones and, frankly, it never did."

Mr. Jones resigned from H-P in February and joined Oracle, of Redwood Shores, Calif., in March. In April, H-P sued Mr. Jones, charging that days before he left the company he copied "hundred of files and thousands of emails" containing H-P trade secrets onto an external hard drive. In its lawsuit, H-P asked for an injunction preventing Mr. Jones from going to work at Oracle and for Mr. Jones to return the hard drive, among other remedies.

H-P now concedes that Mr. Jones didn't back up his computer with the Western Digital hard drive in February. Instead, that device was connected to the computer and the files copied in December by H-P, which was investigating Mr. Jones for ethics violations.

In a letter to Oracle's lawyer, H-P's lawyer said the serial number of the hard drive "matches the hard drive used by HP to create an image of Jones' HP-issued laptop on or about December, 21, 2010." H-P's forensic investigator said in an email turned over in discovery that he was no longer claiming that a backup occurred and that it was "a dead issue."

We predict that H-P will amend its complaint sometime soon to drop the references and claims related to alleged data theft. Apology? We don't predict that will happen voluntarily.

TCW Claims Gundlach Stole Equivalent of "Recipe for Kentucky Fried Chicken"

MutualFundWire.com is reporting from the TCW v. Gundlach trial and we just thought we'd post what TCW lead attorney John Quinn claimed about Gundlach: "they secretly plotted to leave en masse . . . and stole [the equivalent of] the recipe for Kentucky Fried Chicken." Quinn reportedly went on to argue "this was an inside job . . . he was threatening to take his marbles and leave."

We'll keep our eye out for additional reports from this noteworthy trade secrets trial.