BLOGS: Trade Secrets Blog

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Friday, December 30, 2005, 12/30/2005 04:53:00 PM

Does A Trade Secret Lose Trade Secret Status if Those That Want It Can Remember It In Their Head?

By Todd
We are often asked whether a former employee is entitled to utilize information that they can remember in their heads when they finally leave employment with the company. Apparently, the United States District Court for the District of Minnesota was asked the same question in a case called Ad Associates, Inc. v. Coast to Coast Classifieds, 2005 WL 3372968 (D. Minn., December 12, 2005) and in the pertinent part of its order denying the former employer's motion for injunctive relief that court said: "the customer names Brennan remembered and to whom she sent letters after finding corresponding contact information do not qualify as trade secrets under Minnesota law. Brennan was never told by Reinhart or anyone else at Ad Associates that customer names were confidential. In addition, Ad Associates cannot credibly argue that Brennan should have erased her memory before going into business for herself."

We don't presume to know this court but - was the former employer really claiming that their former employee should "erase their memory before going into business" or was the former employer essentially arguing that inasmuch as the former employee committed alleged trade secrets to memory she shouldn't be able to use that information? We think the employer was arguing the latter and that the court clearly didn't like the former employer's arguments and ascribed to it the former. That being said, we believe that this "if you can memorize it, you can use it" line of reasoning is HOGWASH. This court is not the first one to suggest memorization of non-public data gives the former employee a built-in misappropriation defense but, for the life of us, we don't know where this argument or line of reasoning comes from.

We would like to be clear - there is nothing in the Uniform Trade Secrets Act or any of its iterations in the various states that suggests "if you can memorize it, you won't be misappropriating it." One could imagine a human with a good memory might remember a good bit of information even the most aggressive skeptic would concede is a trade secret. What is likely going on, however, in the cases where courts suggest this baseless "memory is okay"doctrine is that the information in question ISN'T EVEN A TRADE SECRET AT ALL and the court is just piling on with this faulty additional "an employee doesn't need to unremember things" line of reasoning. In the cited quote from the case above, the court should have just stopped with " . . . do not qualify as a trade secrets under Minnesota law. " All would've been well and it was probably the right result. This being said, we admit - we were neither elected nor appointed as judges and therefore don't get the important call on this one . . . but that's why we have a blog.

Thursday, December 29, 2005, 12/29/2005 09:35:00 AM

Sticky-Handed Former Employees: What is Missing?

By Todd
We are forced to focus a good bit of our time in trade secrets matters answering questions from employers who tell about their mangerial employees who resign and fill their bags (or laptops) on the way out the door with just about every piece of company-related information possible - customer lists, company marketing plans, product development information, employee compensation information, and customer-based analytical data revealing profitability of certain customer relationships and even plans for improving those numbers. We are ultimately asked - "what can we do to stop this?" The answer, of course, is to file a court action and ask the court for (a) injunctive relief and (b) damages to the company resulting from the alleged theft. Before this occurs, though, there needs to be a focused effort to determine EXACTLY what is missing or was copied. The recent treatment of this issue by a federal court in Illinois shows why.

In Exhibit Works, Inc. v. Inspired Exhibits, Inc., 2005 WL 3527254 (N.D. Ill., December 21, 2005), the court was asked by Exhibit Works to issue a preliminary injunction against Inspired Exhibits due to the latter having allegedly misappropriated trade secret information of the former. The defendant, an Illinois-based company, was a company created by the plaintiff's, a Michigan-based company, former employees of its tiny office in Illinois. Seems the former employees were convinced that their former employer was screwing up its handling of the single biggest account they serviced out of Illinois and thought to themselves - "hey, let's jump ship before it sinks but let's not lose this opportunity to service this valuable customer ourselves." They allegedly departed taking what the plaintiff alleged consisted of "corporate information." The court refused to grant an injunction against the former employees, noting "Exhibit Works has not established, as it has the burden to do, what exactly was taken by the defendants which leaves the court to question whether the information taken by the defendants was confidential trade secret information sufficient to support the injunctive relief Exhibit Works seeks."

What is a former employer to do? The answer, clearly, is catalogue the misappropriated information. We advise employers that they should be performing audits of their trade secrets and confidential information in the normal course of their business. If they do so, and the audit is accurate, it forms a starting point for the analysis of what has been misappropriated. The next step is to have forensic computer experts or, if that is not an available option, the IT professionals at the company review and document computer access to the audit list's information sets in the last sixty (60) days of employment. Scouring e-mails and data back-ups is also key. You would be amazed at what you'll find in these situations if you do the right search. Cases are won and lost in these matters due to the proof - and so it is to proof that the former employer and its attorney must turn their attention and focus before they can get the court to do anything for them.

You might wonder: why was the former employer in this Illinois case so mad? The answer might lie in the court's recitation of the facts. Seems the former employer's single account in Illinois knew early on a little more about the former employees' plans than the former employer. While the former employees were still employed with the plaintiff the large customer indicated in an e-mail that they knew about the planned new company. This irritated the former employer to no end and they terminated the group of employees immediately. On the same day and probably as a response in this competitive chess match, the largest customer utilized its right to terminate the services agreement in its entirety - AND THAT IS THE REST OF THE STORY. We're sure that this is not the end of this skirmish and will report back what happens next as it is published. We'll also provide some links to some computer forensic specialists in upcoming posts.

Wednesday, December 28, 2005, 12/28/2005 10:13:00 AM

Disclosing Trade Secrets in Non-Trade Secrets Litigation

By Todd
We are struck by the numbers of litigated employment cases where a party claims that it cannot or will not supply a requesting party with documents containing its trade secrets. This occurs routinely in cases where the former sales employee sues for wrongful discharge, the employer responds to the complaint saying "the former employee was an underpeforming salesperson," and then the plaintiff requests documents and information concerning: (a) how the former employee ranked versus the other salespeople who are still working there; and (b) what the company's forecasts for sales were for the termination period and whether those forecasts, and sometimes the per-employee quotas, were realistic or reasonable. All of this information is claimed by the former employee to be evidence of whether the employer's stated rationale for termination, poor sales performance, is pretextual.

On December 21, 2005, the United States District Court for the District of Kansas was asked to review just such a conflict. Seems Don Hatten Chevrolet maintained information on sales and sales projections that was not public. The parties apparently negotiated, with the Court's ultimate approval through the entry of the same, a protective order for documents and information disclosed in the litigation. That said, Don Hatten Chevrolet still refused to turn over a number of financial statements requested by plaintiff contending that they were not germane to the issue at hand and that they contained trade secrets. The Court, noting that Don Hatten Chevrolet rendered these documents and information germane, in establishing its "poor sales performance" defense, and ordered them produced. The Court did so noting that Don Hatten Chevrolet bore the burden of showing that the disclosures would cause "harm" and further noting the existence of the protective order covering this information was adequate protection.

Suffice it to say that Don Hatten Chevrolet could have seen this coming when it established its defense. In civil litigation, if you want to use a defense that implicates documents and information you don't want the world to see, sharpen your pencil early and draft a comprehensive protective order that you want the requesting party to agree to. It is simply no strategy at all to raise "poor sales performance" as a defense and then refuse to disclose the sales performance documents and information supporting, or refuting, that defense.

Sunday, December 25, 2005, 12/25/2005 12:46:00 PM

Trade Secrets Issues with Public Records Disclosure Regarding Ohio Investment Funds

From the Cincinnati Enquirer: a story concerning the fight by 68 private equity firms to stop release of a report by the state worker’s compensation insurance fund that the companies contend contain trade secrets and other sensitive information.

The Ohio Bureau of Workers' Compensation informed the private equity funds that it would release the report in response to a public records request.
This is a further development in a theme seen all this year, namely how doing business with the government – or really any entanglement with government at all – may put companies in positions where their trade secrets become subject to public records requests.

Expect even more on this subject in 2006 as companies’ needs for confidentiality and the desire to do business with the public sector continue to conflict with more open government.

Friday, December 23, 2005, 12/23/2005 06:00:00 PM

Yet Another California Criminal Case

From UPI: Just in time for Christmas, a former Netgear engineer was charged with stealing trade secrets from his former company and distributing them to colleagues at his new employer, Broadcom.

Suibin Zhang of San Jose was indicted yesterday by a federal grand jury on nine counts, including computer fraud and unauthorized copying of trade secrets.

Zhang, a product development manager at Netgear until earlier this year, allegedly downloaded sensitive product information from Marvell Semiconductor, a customer of Netgear after giving his notice that he was leaving.

Why are there so many criminal trade secrets cases in California? Several possible explanations exist:

1. Californians are less honest and more prone to stealing. (This seems unlikely.)

2. California companies, especially in and around Silicon Valley, have businesses that are more likely to have important trade secrets. (Now we might be getting on to something.)

3. California federal prosecutors, perhaps because of issue number 2, are more attuned to trade secrets theft and hence more likely to bring criminal trade secrets cases. (There's our explanation, I think).

Thursday, December 22, 2005, 12/22/2005 08:22:00 AM

More Quixotic Attempts to Stem the March of Technology

From the New York Times via the International Herald Tribune, a story about the discomfort of some governments at the pictures available on Google Earth. That service provides high-resolution satellite pictures of places all over the world for free.

Yet, according to the New York Times, "Google Earth has received attention of an unexpected sort. Officials of several nations have expressed alarm over its detailed display of government buildings, military installations and other sensitive sites within their borders."

But, as on one security analyst at Sandia National Laboratories put it, the governments simply need to accept the new reality. In his words, "times are changing, and the best thing to do is adapt to advances in technology."

The same is true of protecting trade secrets generally. Some can simply no longer be protected in light of the march of technology. Companies need to recognize that reality and move on. As in anything, adaptation will be the key.

Tuesday, December 20, 2005, 12/20/2005 08:34:00 AM

Hacking of "Soft Spot" Leads to Criminal Theft of Trade Secrets by Competitor

From of the UK, an interesting and in-depth account of the theft of trade secrets of software company Niku by executives of Business Engine Software. From October 2001 until July 2002, Business Engine used stolen passwords to gain unauthorized access to Niku's systems more than 6,000 times and downloaded over a thousand confidential documents containing trade secrets, including technical specifications, product designs, prospective customers, customer proposals, client account information and pricing. reports that according to one source close to the case, Business Engine stole the passwords from an online Niku employee training system that was not password-protected. "They hacked into a soft spot," said a former Niku executive.

The case is one of many criminal trade secrets cases pending in and around Silicon Valley.

Saturday, December 17, 2005, 12/17/2005 10:31:00 PM

Minnesota Federal Court Rules in Former Employee's Favor in Trade Secrets Case

Ad Associates, Inc. v. Coast to Coast Classifieds, Inc., (D.Minn. Dec. 12, 2005), concerned a dispute between a classified advertising broker and its former employee who left to start a competitor. After a bench trial, the judge ruled that the former employee conducted herself appropriately when leaving. The departing employee "did not take any customer lists or contact information, marketing or pricing information, computer data, or financial information." Moreover, she was a 22-year at-will employee, without a written agreement, a non-compete, or a confidentiality agreement.

Plaintiff's trade secrets contentions came down to three items, all rejected by the judge. First, the court held that a list of fax numbers of publications removed upon defendant's resignation was not a trade secret since it was readily ascertainable from publicly-available sources. Second, customers whose names defendant "remembered" and then contacted did not qualify as trade secrets, particularly since plaintiff took no steps to protect them. Finally, so-called "customized publication groupings" undertaken by plaintiff were not trade secrets because that information was disseminated to potential customers in a company brochure.

All in all, the trade secrets claims were simply too thin too support a claim.

Friday, December 16, 2005, 12/16/2005 10:22:00 PM

Another California Exec Heads to Jail for Stealing Trade Secrets

From the San Jose Mercury News, a former executive of San Ramon, California based BioGenex Laboratories Inc., pleaded guilty in federal court to misappropriating trade secrets of his former employer.

In his plea, the executive admitted to taking engineering notes containing confidential information he thought would boost his success in his next job. The notes were later found in his home during a police search.

Maximum penalty for the charge is 10 years in prison and a fine of $250,000.

Drunk Driving and Trade Secrets

By Todd
The Wall Street Journal reports today that defense attorneys in Florida have commenced a clever strategy of having their clients' convictions overturned due to their attorneys' inability to review the source code in the software that runs the Intoxilyzer 500 - the instrument the State of Florida uses to detect alchohol on the breath of suspected drunk drivers. The defense attorneys apparently contend that their clients have "the right to examine the machine that brings evidence against them." An appellate court sitting in Daytona Beach agreed in one such case and held that the State of Florida had to produce "full information" about the test that determines the blood-alcohol level of drivers suspected of drunk driving - and numerous trial courts later interpreted that appellate ruling as permitting Florida's defense attorneys to access the source code for the Intoxilyzer 500! CMI Group, a company out of Owensboro, Kentucky that makes the Intoxilyzer 500, has refused to turn over the source code for its breathalyzer and this has resulted in over 1000 of the breath test results being thrown out of court as inadmissible.

Our thinking is that a company making a competitive breathalyzer with that of the CMI Group has a fine marketing opportunity right now . . . it would be as simple as proclaiming "our breathalyzer will accurately determine the state of intoxication of Florida's drivers AND be admissible all the while as we will permit an examination of our source code by any defense attorney smart enough to make sense of it." This is a rare circumstance where holding on too tightly to trade secrets might cost you your business by making your product unmarketable.

Thursday, December 15, 2005, 12/15/2005 08:25:00 AM

More Pizza Trade Secrets?

In a follow-up to our recent posting on a Kentucky case involving Papa John's Pizza claiming a franchisee was stealing its trade secrets, we now have a South African pizza chain getting in the act.

From the Cape Town Independent, a nauseating story of concerning the Cape High Court shutting down the city’s "worst" pizza parlor, a franchisee of South African restaurant chain, St. Elmo's Trading Company. Among other things, according to the report, the franchisor "claimed the franchise was so bad it had scored an unprecedented 0.1 percent during its September 2005 inspection - the pass rate is 85 percent." The franchisor also said "it feared the extra demands of the festive season could only worsen the branch's already poor service."

The closed restaurant has until noon today to "remove all its franchise signs and return its operating manuals and trade secrets."

Here's to a healthy holiday season.

Tuesday, December 13, 2005, 12/13/2005 05:38:00 PM

Georgia On My Mind . . . .

By Todd
We are particularly interested in legal decisions that address the issue of the "sticky-handed departing employee." The United States District Court for the Northern District of Georgia, Judge Shoob presiding, published a written opinion and order on December 8, 2005 in which the court addressed exactly that topic - a departing employee who thought it might make sense to bring a book of business with him to his new place of employment. In Opteum Financial Services, LLC v. Spain et al., Judge Shoob was asked to dismiss most of the claims filed by the former employer, Opteum Financial Services, due to Mr. Spain's, and his new employer Market Street Mortgage Services', contention that some of Opteum Financial's legal claims were tricky attempts to bypass the Georgia Trade Secrets Act. Some background is in order.

Seems Mr. Spain worked as a mortgage loan officer for Opteum from May 1, 2003 until his resignation on May 16, 2005. At the time of his resignation Mr. Spain was working on nine mortgage loan applications that had been approved by Opteum for processing. The day BEFORE his resignation, May 15, Mr. Spain apparently deleted some of the loan information that Opteum maintained for these nine loan applications, took one of the original loan files from Opteum's offices, and also made copies of all of the eight other loan files. Mr. Spain proceeded to resign from Opteum, effective May 16, and was found to be working as a mortgage loan officer for Market Street Mortgage Corporation shortly thereafter and, you guessed it, trying to market alternative mortgage products to those same nine customers of Opteum Financial. Opteum sued Mr. Spain and his new employer immediately for: (a) violations of the Georgia Trade Secrets Act; (b) conversion; (c) misappropriation of personal property; (d) unjust enrichment; and (e) quantum meruit. Although it isn't clear from Judge Shoob's opinion and order, it looks as if Market Street Mortgage and Mr. Spain were able to convince at least some of these nine loan applicants that Market Street Mortgage was a better place to get a mortgage than Opteum - and this presumably made Opteum pretty mad. Due to the fact that they were particularly hacked off at Mr. Spain and had an employment-related nondisclosure agreement with him, they sued him personally for: (a) breach of nondisclosure agreement; and (b) civil theft. Interestingly, Mr. Spain's nondislosure agreement with Opteum was not limited in time - it was silent as to how long he needed to keep hush-hush. It might be generally said about restrictive covenants in Georgia that "no limitation in time is no limitation at all."

The attorneys for Mr. Spain and Market Street Mortgage Corporation obviously felt that there were too many pages in Opteum Mortgage's complaint. They made a motion to the court to dismiss the conversion, misappropriation of personal property, unjust enrichment, quantum meruit, and civil theft claims on grounds that they were just alternative, and prohibited, names for a GTSA claim. The court granted that motion, essentially agreeing that all of these claims were pre-empted by the Georgia Trade Secrets Act. This is, in our view, good law - the Georgia Trade Secrets Act specifically provides that the Act supercedes, or pre-empts if you prefer that word, all "tort, restitutionary and other laws of this State providing civil remedies for misappropriation of a trade secret." The court noted, again correctly, that the GTSA does not pre-empt claims not based on misappropriation of a trade secret. Things get a little complicated with that carve out - as the reasonable question remains: how does anyone know if certain information is a "trade secret" or something else until the judge actually rules?

Opteum's attorneys argued "hey, judge, we don't know if the information relating to these nine customers will be deemed a trade secret or not - so you can't dismiss those other tort claims at this point." AU CONTRAIRE! the judge replies and then explains that the Act intended there to be one cause of action for claimed theft of a trade secret. In other words, "you've either got a GTSA misappropriation claim or you don't, you don't get subsequent shots at this apple and you can't give the same alleged legal wrong a bunch of different legal names just to be cautious." Interestingly, though, the same GTSA rescued Opteum's claim for breach of nondisclosure agreement against Mr. Spain. The Act also provides, contrary to standard Georgia restrictive covenant law, that an agreement seeking to protect against the disclosure of trade secrets does not have to have a temporal limitation in it. Thus, inasmuch as the information Mr. Spain allegedly took with him is a trade secret of Opteum's, its nondisclosure agreement will not be ineffective as a potential legal source for a recovery. That claim survived. The parties will be litigating, with less paper obviously, the rest of this case for misappropriation of trade secrets and breach of nondisclosure agreement.

If you're confused at this point, don't be. We'll try to explain a good number of these concepts in some upcoming posts. Suffice it to say that in Georgia, and other states having a version of the UTSA that provides for pre-emption of certain common-law claims, you can't plead your trade secrets misappropriation claim in the alternative. Litigation under the UTSA and its various state law versions is tough - you have to plead the case correctly, conduct the proper discovery, find the solid and reliable evidence of misappropriation, and argue and prove damages in a particularized manner. This is not the type of case you want to cut your teeth on as a litigator. In one of the upcoming posts we'll discuss the phrases "confidential information" and "trade secret information" and give you our take on why these words should not be considered synonymous or otherwise inter-mixed. We'll also be identifying in the months to come some litigation-related anecdotes that some of you attorneys might be interested in. We can tell you, from experience, that Mr. Spain's departure and efforts to hit the ground running with some of his former employer's customers is not a novel fact pattern . . . .

Study: Email and Trade Secrets, a Dangerous Mix

From Information Week, a study released Monday reports that six percent of employees admitted that they've emailed confidential company information to someone they shouldn't have. In addition, 62% of employees reported that they've used their personal accounts for business purposes to circumvent controls placed on their business accounts.

Monday, December 12, 2005, 12/12/2005 07:44:00 AM

Ninth Circuit Rules Defense of Trade Secrets Claim not Covered by Insurance

In Hayward v. Andresen Color of San Francisco Inc., the Ninth Circuit Court of Appeals ruled that the defendant insurer was not required to provide insurance coverage to a plaintiff in connection with a claim of misappropriation of trade secrets. The trial court had initially ruled that the policy exclusion for infringement or violation of trade secrets did "not necessarily comprehend all confidential business information, such as marketing ideas."

After the California Supreme Court decided Hameid v. National Fire Insurance of Hartford, 71 P.3d 761 (Cal. 2003), the Ninth Circuit was constrained to rule that advertising injury - covered under the policy - was limited to widespread promotion to the public at large, and not the essentially one-on-one solicitation of customers from a misappropriated list, as alleged in the case at issue.

Sunday, December 11, 2005, 12/11/2005 11:31:00 AM

Watch that Metadata! You too, White House

As we reported here a few weeks ago, many Fortune 100 companies have hidden metadata in the documents posted on their websites. Such metadata could be embarrassing, if not a downright security breach.

Now it turns out the White House has been burned on metadata. Specifically, the White House "Plan for Victory," allegedly an unclassified version of the Pentagon plan that's been in place since 2003, turned out, upon examination of the metadata in the pdf file, to have been authored by Peter Feaver, a Duke University professor who has been working for the administration only since this June.

As conceded by Christopher F. Gelpi, Dr. Feaver's colleague at Duke, "this is not really a strategy document from the Pentagon about fighting the insurgency." Instead, he said, the "document is clearly targeted at American public opinion."

Don Fluckinger at pdfZone has an interesting take here:,1895,1897227,00.asp

Companies – and governments – need to clean up that metadata.

Saturday, December 10, 2005, 12/10/2005 09:48:00 AM

Trade Secrets Theft Could Land Executive in Prison

From the San Jose Mercury News: John J. O'Neil, former CEO of Business Engine Software Corp., pleaded guilty Wednesday to conspiracy to steal trade secrets He faces a maximum penalty of 10 years in prison and a fine of $250,000.

O'Neil admitted that he conspired over a 10-month period to illegally access the computer network of rival company Niku Corp. in order to steal trade secrets, according to the U.S. Attorney's office.

O'Neil then transmitted the stolen material to other Business Engine Software employees so the company could gain a competitive advantage over Niku.

Although most trade secrets are civil, the most egregious ones can occasionally interest prosecutors and lead to serious time for those convicted.

Thursday, December 08, 2005, 12/08/2005 12:50:00 PM

Airbus Deal with China Creates Trade Secrets Concerns

From, concerns that the technology transfers agreed to by Airbus in order to secure a large order from China could lead to loss of Airbus’s trade secrets.

According to reports, Olivier Gorge, the secretary general of GEAD, the European aerospace and defense equipment body, has already warned Europe's aviation industry to be careful not to give away all its trade secrets in its rush to win business in China.

"It is necessary to be sure, therefore, that French technology in terms of aerospace equipment does not go to China through production sub-contracting," said Gorge. "There have been examples in the past of some parts suppliers returning from China having seen piracy of their technology."

Wednesday, December 07, 2005, 12/07/2005 07:53:00 AM

Pricing Strategies as Trade Secrets (PACER Req'd)

In DoubleClick, Inc. v. Paiken, the United States District Court for the District of Colorado had an opportunity to determine what information shared with a former employee constituted trade secrets. Under Colorado's restrictive regime for enforcement of covenants not to compete, one of the few exceptions to voiding a covenant occurs when the covenant is for the protection of trade secrets. Thus, the only way for DoubleClick to enforce its covenant was to show that the defendant had been made privy to trade secrets.

The company argued that the former employee had learned of two types of trade secrets: pricing strategies and DoubleClick's "one-stop shopping" program. The court found such information was sufficient to constitute trade secrets.

Tuesday, December 06, 2005, 12/06/2005 03:41:00 PM

Ancient Chinese Secret, Huh?

By Todd
Seems like the mantra of Western businesses in today's global economy is "all roads lead to China." We agree. However, yesterday's piece in The Cincinnati Enquirer accurately identifies a major risk for those same Western businesses - the exposure of their trade secrets and associated intellectual property interests to piracy or theft. We predict that this is not a dilemma that will be solved in the near future (and the "near future" in China isn't what it is in the West - ed.) through international legal strictures or voluntary Chinese compliance. As such, it is imperative that companies considering expansion of their manufacturing base, or distribution of goods, into China audit and catalogue their intellectual property assets and consider "best strategies" for the protection of the same before they make the leap in an attempt to capture manufacturing efficiencies or untapped markets. Confucius probably never said "he who puts his head in the sand . . . will get kicked in the end" but that seems to be the case for Western companies who put their heads in the sand with regard to their intellectual property that may become exposed in their endeavors in China.

Spear-Phishing for Trade Secrets -- A New Form of Hacking

From the New York Times via the International Herald-Tribune, reports of a new kind of hacking involving Trojan Horse programs placed on specific computers in order to obtain trade secrets and other sensitive information. The new hacking -- known as "spear-phishing" is directed at specific computers rather than the world at large. An investigation in Israel has led to the indictment of three of the country's largest private investigation firms on criminal fraud charges. And, the IHT reports, "some of Israel's most prestigious corporations are under investigation for possibly stealing information from companies in fields like military contracting, telephony, cable television, finance, automobile and cigarette importing, journalism and technology."

"The Trojan horses that penetrated their computers came packaged inside a compact disc or an e-mail message that appeared to be from an institution or a person that the victims thought they knew very well. Once the program was installed, it whirred along surreptitiously, logging keystrokes or collecting sensitive documents and passwords, then transmitting the information elsewhere."

Something else to keep you awake at night.

Monday, December 05, 2005, 12/05/2005 07:45:00 AM

When is the Secret Sauce No Longer Secret

From the Shanghai Daily, a story about the new head of McDonald's in China. The company's efforts have been lagging in that market.

Among other things, McDonald's is wary of franchising in China. According to the report,

"McDonald's and KFC corporately own and operate most of their stores in China. Some Chinese franchisees have signed on as partners, only to steal trade secrets or recipes and then open a competing store under a different name."

China is said to be passing additional laws to protect companies that operate restaurants through franchising.

Sunday, December 04, 2005, 12/04/2005 05:19:00 PM

Ninth Circuit Reverses Preliminary Injunction in Inevitable Disclosure Case

In Lam Research Corporation v. Deshmukh, the Court of Appeals for the Ninth Circuit reversed a preliminary injunction granted by the Western District of Washington sought on the theory of inevitable disclosure. The case turned on choice of law. Washington trade secrets law recognizes the doctrine of inevitable disclosure, i.e. the theory that a key employee simply going to work for competitor would cause an inevitable disclosure of trade secrets. California law rejects the doctrine. The case thus turned on which state's law applied.

The court of appeals held that the district court erroneously applied Washington law. Under Washington's choice of law principles, the court should have looked to the state with the "most significant relationship" to the case. In a case with a California corporate defendant and an individual, originally resident in Washington, but moved to California, the court found that the state with the most significant relationship was California.

Saturday, December 03, 2005, 12/03/2005 11:19:00 AM

Ford Pushed on Safety Data it Claims are Trade Secrets

From the Detroit Free Press, an article concerning efforts of Public Citizen to convince the National Highway Traffic Safety Administration to release Ford data regarding the safety of roofs in passenger cars for its Volvo division.

According to the Free Press: "Public Citizen, a consumer advocacy group, filed a motion Thursday in a Florida state court to release the documents. They were made public briefly earlier this year, in a trial in which a jury ordered Ford to pay $10.2 million for a woman's death in a Ford Explorer rollover accident. The judge in the case ordered the documents resealed, but not before several groups received copies."

And: "Joan Claybrook, Public Citizen's president, said the group had planned to put the documents on its Web site earlier this year but stopped after Ford threatened to sue."

The effort appears to be another in a long-series where consumer groups, teaming with plaintiff's lawyers, seek to force companies to reveal information provided to governmental entities. Expect more on this story.

Friday, December 02, 2005, 12/02/2005 07:14:00 PM

Trade Secret Litigation in North Carolina: Say Nothing or Too Much?

By Todd
In late December, 2004 the North Carolina Court of Appeals issued a decision of great interest to North Carolina attorneys and those they represent in a case called Visionair, Inc. v. James and Colossus Incorporated.

One of the interesting holdings of the decision was that the former employer, VisionAIR, had not identified with enough specificity its "trade secrets" it claimed its former employee, James, had misappropriated AND the consequence of that failure to identify their trade secrets with specificity resulted in VisionAIR's failure obtain any protection from the court and against James - the alleged misappropriator.

SO, how specific does a company suing to protect its trade secrets have to be in its complaint? And how does that same company ensure that they do not waive trade secret legal protections - in making the formerly private matter public - while they are pleading their complaint with specificity? We'll give you our thoughts on these matters in the weeks to come . . . .

Thursday, December 01, 2005, 12/01/2005 10:02:00 AM

Aboriginal Perspectives on Trade Secrets

By Todd
The Department of Indian and Northern Affairs Canada (INAC) has pushed the examination of trade secret law to new levels - addressing the apparent claim by "indigenous peoples" that some of their historic customs, including methods of fishing, are their community's trade secrets. Click here to read INAC's position paper on this issue, including the most interesting portion of that paper called "Aboriginal Perspectives on Trade Secrets".

If you've ever witnessed a lacrosse game played by indigenous Indian players from Canada, it is clear that there are community "trade secrets" that have never been disclosed to those who later settled there - the Gait brothers being two who obviously appropriated and incorporated the indigenous Indians' competitive advantages.

The History of the UTSA and 1985 Amendments

By Todd
The Uniform Trade Secrets Act (UTSA) represents the conceptual foundation for the legal treatment of trade secrets in most states in the United States. Currently, forty-five states (including the District of Columbia) have enacted statutes modeled after the UTSA. Two states (Alabama and Massachussetts) have their own statutes protecting trade secrets. Four states (New York, New Jersey, Texas and Wyoming) still rely upon the common law's principles for trade secret recognition and protection.

If you're interested in the history of the UTSA and its 1985 Amendments, click here. You might find the red-lined version of the Act as interesting as we did - it certainly demonstrates the pushes and pulls made to get the text approved.

Perils of Trade Secrets Litigation with the Government

From the Wilkes-Barre (PA) News-Leader, a report of trade secrets litigation between PA ChildCare LLC, operator of a Luzerne County juvenile detention center, and the county controller and two state auditors over the release of a draft audit critical of the company conducted by the state Department of Public Welfare.

After the trial judge sealed hundreds of pages of court documents under the Pennsylvania Uniform Trade Secrets Act, an appellate court reversed. Defendants called the judge's opinion "drivel" and immediately released all the documents to the public.

The controller was reported to be "tired of county judges ordering him to do things that later get overturned by higher courts on appeal." He claimed that "[t]he bottom line is that I'm doing this for the taxpayers."

The case is another cautionary tale about the implications of bringing trade secrets claims which can backfire into even greater disclosure of trade secrets.

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