Trade Secrets Defendant Set Free

Here’s an interesting story from the New York Times DealBook on the case of a man convicted under the Economic Espionage Act of stealing trade secrets but ordered freed from prison by the United States Court of Appeals for the Second Circuit in Manhattan.

There’s been lots written about recent developments in the case of Sergey Aleynikov, but so far the Court hasn’t elucidated.

Aleynikov, you may recall (we wrote about him here and elsewhere), was a former Goldman Sachs programmer who stole the company’s proprietary trading code and tried to take it to his new employer.

He was convicted and ultimately sentenced to 97 months in prison.

Just after the oral argument on his appeal, the Court ordered him released stating that the opinion explaining its reasons would follow “in due course.”

While no one is sure why the Court took the unusual step, the betting is that they determined that source code embedded in proprietary software not itself a product for sale is not covered under the Economic Espionage Act, 18 U.S.C. § 1832, which covers only trade secrets “related to or included in a product that is produced for or placed in interstate or foreign commerce.” The conviction under the Interstate Transportation of Stolen Property likely was bounced for similar reasons.

DealBook thinks the case could end up in the Supreme Court. I’d bet not.

In any case, this may be an example of a substantial hole in criminal trade secrets protections under U.S. laws.

Trade Secrets of the UCONN Huskies

We’ve reported on this previously here, but now the result (courtesy of the Hartford Courant):

The Connecticut Supreme Court has ruled that the University of Connecticut’s donor list is a trade secret and not subject to easy access through a Freedom of Information request.

The court reasoned that UCONN spends resources to acquire the information and that other institutions could use that information to lure away dollars and loyalty from those on the list.

It’s the right result from the perspective of common sense, but common sense isn’t always on obvious display when dealing with state open records laws.

Chinese Vice President Gets Earful from Biden

China’s heir apparent, Vice President Xi Jinping, is visiting the US this week. Amid all the wining and dining, are serious discussions about issues concerning intellectual property rights, including trade secrets.

Here’s a little lecture Xi got from Vice President Biden as reported in The Diplomat:
As Americans, we welcome competition. It’s part of our DNA and it propels our citizens to rise to the challenge. But cooperation, as you and I have spoken about, can only be mutually beneficial if the game is fair. That’s why the meetings we’ve had this morning were essentially a continuation of the multiple meetings we had in your country in August, and we spent a great deal of time discussing the areas of our greatest concern, including the need to rebalance the global economy, to protect intellectual property rights and trade secrets, to address China’s undervalued exchange rate, to level the competitive playing field and to prevent the forced transfer of technology, and to continue a constructive dialogue on policies that would benefit our citizens and the world.

Meanwhile, the New York Times reports on a poster child US company whose trade secrets were stolen by China, American Superconducter Corporation of Massachusetts.

Womble Carlyle DC Event

Womble Carlyle Chief Leadership and Executive Development Officer Vandana Allman will participate in a discussion of “Career GPS for In-House Counsel” with members of the Washington Metropolitan Area Corporate Counsel Association (WMACCA). The luncheon takes place from noon-2 p.m. on Feb. 29th at the Tysons Corner Marriott, 8028 Leesburg Pike in Tysons Corner, Virginia. The “Career GPS For In-House Counsel” presentation will provide a guidance system for in-house counsel who want to design and implement professional-growth routes that will help them reach their destination as quickly and efficiently as possible.

WMACCA’s Career GPS for In-House Counsel is 12-2 p.m. Feb. 29 at Tysons Corner Marriott http://bit.ly/yzHfMJ. Register today.

Western Digital Hit with $630 Million Award in Trade Secrets Case

Ah, arbitration! That panacea that will cure all ills associated with our country’s out-of-control litigation system, especially those irrational juries who will do just about anything.

Yes, arbitration is just perfect. Except when it isn’t.

Just ask Western Digital. Corporate Counsel has an interesting article about a $630 million award against it and in favor of competitor hard-drive maker Seagate Technology.

According to the report, the matter arises out of a:

four-year battle stemming from accusations by Seagate that a former employee misappropriated trade secrets when he decamped to Western Digital. Western Digital hired Sinig Mao, a Seagate engineer, in September 2006. Seagate sued a month later, alleging that Mao would inevitably share Seagate's trade secrets with his new employer.

The arbitrator apparently found that Mao fabricated evidence and, despite the fact that Seagate could not prove some of its trade secrets claims, issued the massive award.

It’s after awards, especially, that arbitration suddenly doesn’t look so great.

If a jury goes off the rails, first the trial judge and later an appellate court will give the case a good hard look. Not so with arbitrators where reviewing courts, by law, are extremely limited in the post-award relief that they can grant. For example, errors by arbitrators are rarely grounds for vacating an award.

And so parties that pushed cases into arbitration are often left wondering why they ever did.

We’ll try to report on what happens in this case going forward, but given the track record, don’t expect the award to be vacated.

Do Lawyers Have Trade Secrets?

That, at least, is the question implicit in a report from Texas Lawyer concerning a dispute between two Houston law firms engaged in a lawsuit in which a TRO was recently entered.

Here’s a short summary of the facts as reported: last year, the former office manager of Schrader & Associates was charged with embezzling more than $200,000 from the firm. This January, Schrader learned that she may also have taken “confidential, proprietary and privileged information,” including trade secrets, and shared it with another firm, Stefanides & Associates.

How Schrader learned of this is strange, to say the least. According to an affidavit he filed, Stefanides’ wife and law partner told him she had seen his confidential work product on their firm’s computers.

Texas Lawyer reports that the former office manager offered to “teach” Stefanides how to do asbestos litigation in return for an agreement to split the proceeds 50-50. When he learned the office manager was not a lawyer, he hired her as “Director of Marketing.”

The trade secrets apparently relate to the firm’s “strategy and method of prosecuting asbestos cases and other mass toxic tort cases.”

Proving that that is a trade secret may be a tough proposition under orthodox trade secrets principles. Allowing former employees to steal stuff, though, is also tough for judges to swallow.

Judge John Donovan, no exception to the rule, issued a TRO on January 30 prohibiting any use of the information.

How this one plays out could be interesting.

Motorola and Lemko Settle Trade Secrets Claims

Following up on Todd’s post from last month, the Chicago Sun-Times is reporting that Motorola Solutions and Motorola Mobility have settled their long-running trade secrets case with Lemko over 4G technology. Terms of the settlement were confidential.

Lemko was founded by former Motorola employees.

As reported last month, the judge denied summary judgment to Lemko and the case looked ready to head for trial.

The defendant company, Lemko, was started by former Motorola employees.

In a related development, the Sun-Times reports that former Motorola software engineer Hanjuan Jin, accused in a related trade secrets matter, is expecting a verdict in the criminal case next week.