BLOGS: Trade Secrets Blog

Powered by Blogger
Add to Technorati Favorites

Monday, December 25, 2006, 12/25/2006 02:35:00 PM

Trade Secrets in Our Backyard

From the Winston-Salem Journal, a story concerning five engineers employed with Frisby Aerospace (now known as Triumph Actuation Systems), based in Clemmons, NC, who were indicted in federal court in Mississippi on allegations of stealing trade secrets from Eaton Corp.

The investigation of the company remains open, according to a spokeswoman for the FBI's office in Jackson, Mississippi.

According to the story, the engineers have been the focus of an FBI investigation into whether they stole patented designs from Eaton. That investigation culminated in 2004 when federal agents raided Frisby.

In the words of the Journal:

According to the affidavit of a federal agent, Frisby hired five former Eaton engineers and a former computer specialist at Eaton between 2001 and 2002. Before 2002, Frisby was unable to compete with larger engineering companies, such as Eaton, and was not in the business of designing and manufacturing aviation hydraulic pumps, the affidavit says.

Those employees had worked at a division of Eaton in Mississippi. Eaton, a Fortune 500 company based in Cleveland, Ohio, employs about 56,000 people.

Federal agents raided Frisby after receiving information that employees at Frisby were using computer-assisted design drawings that had been stolen from Eaton, the affidavit says. Computer-assisted design software helps create new products quickly, precisely and economically.

A civil case filed in Hinds County Circuit Court in 2004 names Bergstrom's clients as defendants. That lawsuit, which is pending, contains many of the same allegations included in the affidavit.

Oh, and by the way, Merry Christmas from us here at the Trade Secrets Blog!

Friday, December 22, 2006, 12/22/2006 02:15:00 PM

"The Prestige" - A Movie Involving the Trade Secrets of Magicians

By Todd
It's a slow day in the legal world of trade secrets so we thought we'd key you in to a movie we liked called "The Prestige" starring Hugh Jackman and Christian Bale. You won't learn much about trade secrets law or the trade secrets of magicians if you see this movie, but you will enjoy yourself. Have a happy holiday season. Regards. The Editors of Womble TradeSecrets.

Plot Synopsis: Rival magicians in turn-of-the-century London battle each other for trade secrets. The rivalry is so intense that it turns them into murderers. The title refers to the product of a successful trick.

Wednesday, December 20, 2006, 12/20/2006 11:56:00 AM

Disclosure/Production of the Coca-Cola Trade Secrets in the Criminal Matter?

By Todd
We've exhaustively covered the Coca-Cola trade secrets matter that the DOJ has commenced. Two defendants have pleaded guilty. The former Coca-Cola employee, Joya Williams, has not. Her attorney is now asking for production of some 4000 pages of so-called "trade secret" documents Ms. Williams is accused of having stolen. The government (and, behind the scenes, presumably Coke too) is objecting. This demand will put particular pressure on the prosecution and is designed to do so.

We'll keep you posted on developments.

Tuesday, December 19, 2006, 12/19/2006 07:52:00 AM

Federal Prosecutors Get First Foreign Government-Connected Economic Espionage Convictions

From the Fresno Bee, a story concerning what may be a harbinger of things to come, the government's "first-ever convictions for economic espionage to benefit a foreign nation." Two Silicon Valley engineers, Fei Ye (a U.S. citizen from China) and Ming Zhong (a permanent resident of the U.S. from China) pled guilty in federal court in San Jose to two counts each of stealing trade secrets and trying to smuggle them to China.

We've reported earlier on the case here.

According to the Bee, "Ye and Zhong were accused of stealing confidential microchip blueprints and other trade secrets from four technology companies - NEC Electronics Corp., Sun Microsystems Inc., Transmeta Corp. and Trident Microsystems Inc. - and planning to start a microprocessor company with the financial backing of various Chinese government agencies."


The pair were arrested in 2001 at San Francisco International Airport, attempting to board a flight to China. According to the indictment, their luggage was crammed with thousands of pages of documents stolen from their former employers, including schematic drawings of computer chips under development, internal instructions for the design and layout of circuits and components and other confidential information.

Monday, December 18, 2006, 12/18/2006 07:19:00 AM

Trade Secrets and Model Trains

From the Sixth Circuit, an interesting and potentially important trade secrets case, Mike's Train House, Inc. v. Lionel, LLC, 2006 WL 3627197 (6th Cir. Dec. 14, 2006). The two parties are both distributors of O-gauge model trains. Both contract with third parties for the manufacture of their trains, which, at least according to the court, are extraordinarily intricate.

Plaintiff, MTH, contended that defendant, Lionel, used drawings containing its trade secrets created by a Korean subcontractor for MTH. A jury trial resulted in a damages verdict in favor of MTH for over $40 million.

On appeal, Lionel contested the trial court's refusal to grant it judgment as a matter of law, as well as a new trial motion based on the trial court's refusal to exclude certain expert testimony and a claim that certain damages were double-counting.

The court affirmed the refusal to grant Lionel judgment as a matter of law. Lionel's argument on that aspect of its appeal was that MTH failed to specify which portions of the alleged misappropriated information were trade secrets and which were in the public domain. The court refused to bite on that issue holding that the engineering drawings at issue could contain a mixture of secret information and non-secret information, and, so long they contained a unique mixture of both protected and unprotected material, "a plaintiff should not be obligated to identify which components of the protected material is secret."

Plaintiff fared less well with respect to the testimony of its expert witness. MTH offered a professor of mechanical engineering who offered his opinion that a substantial number of the Lionel drawings were copied from MTH drawings. To do this, he created a 21-criteria scoring test for determining whether a drawing was copied. The problem here was that under Daubert this test had not been peer reviewed and was created with a degree of arbitrariness. Moreover, the experts lack of knowledge regarding the particular industry for Korean engineering drawings created an "obvious flaw" in his methodology.

On the issue of damages, the court found double-counting between lost profits awarded to MTH and unjust enrichment to Lionel ordered to be disgorged.

For those reasons, the court of appeals ordered a new trial.

Friday, December 15, 2006, 12/15/2006 07:51:00 AM

More Economic Espionage from China

From, a story about Xiaodong Sheldon Meng, 42, an engineer and Chinese national with Canadian citizenship, who was indicted in California federal court yesterday on 36 felony counts, including economic espionage to benefit a foreign government and various violations of military technology export laws.

According to the article, prosecutors say Xiaodong stole the code for software made by Quantum3D Inc. that is used to train military fighter pilots, and tried to sell it to the Thai and Malaysian air forces and a company with ties to China's military.

And, the article says, Xiaodong's case marks only the third time prosecutors have charged someone with economic espionage to benefit a foreign government, the most serious crime under the Economic Espionage Act of 1996. It carries up to 15 years in prison, but no one has yet been convicted of the charge.

The big quote from U.S. Attorney, Kevin Ryan:

"Silicon Valley understands full well the threat they are faced with here. It's not only a threat to the economic value of the products being produced, but in some cases it's a threat to our national security and military infrastructure."

Thursday, December 14, 2006, 12/14/2006 11:34:00 AM

The Secrets of the Sun Visor

By Todd
Mr. Burgess was a CAD operator with a history of designing sun visors for use in the automotive industry. Grupo Antolin Ingenieria, S.A. was a Spanish company interested in designing and selling sun visors (we've copied their web-link above). They hired Mr. Burgess, who in pre-hire interviews advised that he had some radical, and patentable, ideas for sun visors. As part of his hiring, Mr. Burgess signed a standard "works made for hire" agreement.

Grupo Antolin apparently put some of Mr. Burgess's ideas to good use. Mr. Burgess apparently expected a little something extra for his efforts other than his compensation. He didn't get it. He later sued, the case ended up in federal court in Michigan, and Grupo Antolin made a motion to dismiss the claims. They were dismissed. Of interest to our blog is the court's rationale for the dismissal of the trade secrets claim: "The Court has found that: While Burgess claims he made several inventions relating to sun visors while working at Lear, the record shows that from December 2001 and well into 2002, the sun visor features Burgess claims to be trade secrets were the subject of communications with Burgess and his co-workers. Burgess also made no attempt at the time of his hire to ask that the confidentiality agreement cover his inventions or in any way indicate that he had protected inventions relating to sun visors prior to working on the program [at Grupo NA]. It also appears from the e-mail correspondences that the designs for the sun visors were in a state of active development and being worked on by Burgess and others at Group SA. Burgess' only evidence of secrecy is his allegation that he kept a pencil sketch of his ideas in a safe and disclosed them only to Hanlon. This fact alone does not demonstrate reasonable efforts at secrecy under the circumstances, nor create a genuine issue of material fact as to secrecy. The design of the sun visors was being developed at Grupo SA with input from Burgess and his co-workers. Burgess' claim of secrecy is inconsistent with the work activities surrounding the development of the sun visor technology. It simply cannot be said that Burgess' alleged inventions are protected trade secrets. The record does not support a finding that Burgess maintained secrecy of his inventions, but rather shows that the inventions for the sun visors came out of a corporate development program in which Burgess was a willing participant."

SO - for all you inventors out there: make sure you sign an employment agreement that provides intellectual property protection to your pre-hire inventions and secrets. If you do not, you might end up like Mr. Burgess, an unsuccessful litigant who felt he was entitled to participate in the profits of his employer's creation but only got his wages for being a faithful servant and design participant. The case can be cited as: Burgess v. Grupo Antolin Ingenieria, S.A., 2006 WL 3542688 (E.D. Mich., December 7, 2006).

Video Debate on Hedge Funds and Trade Secrets

Video from CNBC of hedge fund manager, Phillip Goldstein of Bulldog Investors, who is challenging the SEC's Rule 13F which requires quarterly disclosure of hedge fund holdings in certain circumstances. Goldstein says it's a government taking of his trade secrets which the government puts to no use while his competitors use it against him.

We've covered the story here, here and here.

Debating Goldstein is former SEC prosecutor, David Marder, who found the arguments in Goldstein's petition to be "pretty weak." He notes that the government takes all kinds of things from private parties.

Goldstein, however, notes in a sidebar to us that when the government is involved in a taking it must provide just compensation (under the Fifth Amendment).

Thanks for the tip on the video, Phil. Keep up the fight.

Wednesday, December 13, 2006, 12/13/2006 02:20:00 PM

Victoria's Secret's Secrets? Or Were They Ms. Detsis's Secrets?

By Todd
Ms. Detsis apparently had some ideas for the S-hooks on a bra strap that Victoria's Secret would be interested in. So she entered into a written confidentiality agreement with Victoria's Secret and shared her ideas with the famous lingerie company. This idea apparently didn't lead to a commercial relationship but Ms. Detsis later claimed in a lawsuit in federal court that Victoria's Secret's S-hook ideas were hers. Victoria's Secret moved for summary judgment as to all of Ms. Detsis's claims. The court dismissed most of them but denied summary judgment as to the claim for breach of the confidentiality agreement they executed. Victoria's Secret thought the court was wrong on that ground, and moved for reconsideration of the denial of summary judgment on the breach of confidentiality agreement claim.

The court, in denying the motion for reconsideration, said: "The defendant insists that the S-hook at issue was commonly known and explains that this element was incorporated into the Personalize It Campaign through Kramer's (a Victoria's Secret employee) cooperation with a third-party vendor. (See Declaration of Kristin Kramer in Support of Defendant's Motion for Summary Judgment ¶¶ 28-29). The plaintiff's deposition of the vendor, however, raise factual questions regarding this vendor's familiarity with using the S-hooks on bra straps and whether the idea of using the S-hook on bra straps originated with the defendant's merchandise department. (See Deposition of Steven Abrams at 63 & 88). These specific factual disputes rebut defendant's characterization that the ideas presented by Detsis fall indisputably within the exclusions under the Agreement."

So, unless settled, that issue will go to trial. The idea for this special S-hook on a bra strap, and whether Victoria's Secret was prohibited from using it, will find its way to a federal trial. The case can be cited as: Detsis v. Victoria's Secret Stores, Inc., 2006 WL 3500021 (S.D.N.Y. December 4, 2006).

Tuesday, December 12, 2006, 12/12/2006 11:50:00 AM

Greenies Chew for Dogs and Trade Secrets

By Todd

We admit that we don't own a dog, other than our law firm's bulldog mascot named "Winston." Apparently, dogs love to chew something called "Greenies." The company that used to make Greenies was apparently acquired by Mars, Inc. Mars, Inc. decided it would produce and market a "new" Greenies dog chew and depart from the old method of making it. MGP Ingredients used to supply ingredients for the old "Greenies" and also supplied a lot of information about how to make the "new" Greenies that Mars sold. So they sued Mars for misappropriation of trade secrets. Mars moved to dismiss. The report of the court's handling of the dispute is identified below:

"Mars asks the court to dismiss MGPI's misappropriation of trade secrets claim because, Mars contends, MGPI has failed to plead an adequate trade secret under the Kansas Uniform Trade Secrets Act ("KUTSA"). Defendants' rationale is that MGPI's alleged trade secrets are either (1) not owned by MGPI, and therefore not actionable; (2) disclosed by MGPI's patent, and therefore generally known; or (3) described in vague or conclusory terms that fail to satisfy Rule 8 of the Federal Rules of Civil Procedure. The court finds that this argument is wholly without merit because it misconstrues and mischaracterizes the allegations in MGPI's complaint."

The Court reasoned that: "MGPI points out that the complaint alleges that SMN gave Mars access to the Greenies® formulation improvements (Compl.(doc.# 1), ¶ 16, at 4) and that Mars developed its purportedly "totally new" formulation which, in fact, took advantage of technical advances that MGPI and SMN developed for the improved Greenies® formulation (id. ¶ 22, at 5). Under the terms of the Confidential Technology Development Agreement, MGPI and SMN were to own the Greenies® formulation improvements on a 50/50 basis, thus indicating that these improvements should not have been generally known to or readily ascertainable by others, such as Mars. Based on these allegations, the court has no difficulty concluding that plaintiff has set forth sufficient factual allegations from which it can be inferred that the information Mars allegedly misappropriated constituted a trade secret. Consequently, it does not appear beyond a doubt that MGPI can prove no set of facts under which it would be entitled to relief on its trade secrets claim. Accordingly, this aspect of defendants' motion to dismiss is also denied."

The case can be cited as MGP Ingredient, Inc. v. Mars, Inc., 2006 WL 3530726 (December 7, 2006, D. Kan.).

Monday, December 11, 2006, 12/11/2006 08:56:00 AM

Compilation of Data Breaches

By Todd
We thought it might be interesting for you to see this compilation of security breaches identified by this compilation site. They report almost 100,000,000 security breach victims since they began tracking the data in 2005. The most recent report is indentified below.

"Dec. 9, 2006
Virginia Commonwealth University(Richmond, VA)
Personal information of 561 students was inadvertently sent as attachments on Nov. 20 in an e-mail, including names, SSNs, local and permanent addresses and grade-point averages. The e-mail was sent to 195 students to inform them of their eligibility for scholarships."

Friday, December 08, 2006, 12/08/2006 05:40:00 PM

Attorney for Coke/Trade Secrets Defendant Wants Access to Coke Employees

By Todd
Coca-Cola trade secrets defendant Joya Williams' lawyer, Janice Singer, said a lawyer for the Atlanta-based company has blocked her ability to contact current employees. Singer described the tactics as a "strong-arm approach and stonewalling."
Coca-Cola has asserted that direct contact with the employees is inappropriate and that it would prefer that Singer file her questions in writing to the company's lawyer, who would provide responses.
But Singer said interviewing the witnesses directly is essential to her defense. She said she wants to talk to at least five current Coca-Cola employees.
Singer wants a judge to enter an order allowing her to talk to those employees who are not managers. As to the ones that are managers, she wants the court to ask them if they'd be willing to talk to her.

Self-Directed Whistleblower Tagged For Computer Crimes

By Todd
Stephen Heller went from whistleblower to computer thief in a short period of time. As "The Argus" reports, "the Van Nuys actor and temporary worker recently pleaded guilty to a computer crime, agreed to pay a $10,000 fine, and write an apology to Diebold and its Los Angeles attorneys, Jones Day, for making confidential Diebold legal memos public in 2004.
Heller had copied and released 500 pages of memos and other data indicating that Diebold violated state election laws by peddling in Alameda and other counties software that had not been tested or approved for use in elections." The Los Angeles District Attorney's Office announced an indictment on charges of unauthorized access to a computer, second-degree burglary and receiving stolen goods.

Boeing Engineer Pleads Guilty in Lockheed Trade Secrets Case

From CBS 2 in Los Angeles, a story about a former Boeing Co. engineer, Kenneth Branch, who was accused of stealing trade secrets from Lockheed Martin.

Branch was sentenced to six months of home detention and a $6,000 fine.

He left Lockheed for Boeing in 1997, allegedly bringing with him information about a satellite launching project. It was alleged that he was offered the job at Boeing because he offered to turn over Lockheed's entire presentation about the project. Boeing's bids ultimately won it 19 of 28 contracts awarded on the project in 1998.

In June, Boeing agreed to pay $615 million to settle civil claims relating to the project.

Wednesday, December 06, 2006, 12/06/2006 07:34:00 AM

Trade Secrets in EEOC Investigations Redux

From Corporate Counsel via and two employment lawyers at Blank Rome in Washington, a further and more detailed take on the Venetian Casino Report v. EEOC, 2006 WL 2806568 (D.D.C. 2006) case that we reported on here in October.

The case concerns confidential information provided to the EEOC in connection with discrimination claims and the manner in which it becomes unprotected as a result.

The article concludes with some trenchant practical advice:

Documents turned over to agencies during the investigation phase of an administrative charge, even if marked as confidential, are subject to disclosure to third parties. A thoughtless response to an EEOC information request could lead to disclosure of confidential and proprietary information, trade secrets and other highly sensitive corporate data. As such, it is critical that companies responding to the EEOC do not ignore the importance of careful response and production of documents to the Commission at all stages of the administrative process. Care must be taken in analyzing the information to be provided, with consideration of whether a response can be made without producing otherwise confidential or proprietary information. Be knowledgeable and understand your rights to challenge and/or limit information requests. Talk to legal counsel about protective measures such as submitting motions to quash a subpoena or for a protective order. At the very least, take the time to carefully review documents and to redact sensitive company information.

Words to the wise.

Tuesday, December 05, 2006, 12/05/2006 02:32:00 PM

North Carolina Court Recognizes Potential Trade Secret Claim in Misappropriated Policies and Forms

By Todd
CNC/Access is a corporation with a principal place of business in Burke County, North Carolina. It was founded by a guy named Richard Greer. After the expiration of his noncompete agreement with CNC/Access, Greer started a company called Universal Mental Health Services, Inc. and Universal's principal place of business was also in North Carolina. Both companies provide services and treatment for persons with mental health issues, developmental disabilities, and substance abuse problems.

Richard Greer ultimately received copies of CNC's personnel policies to assist him in preparing Universal's human resources manual. These copies included policies, procedures and forms.

CNC ultimately sued Universal and Greer and one of the claims in that case was for misappropriation of trade secrets. The alleged trade secrets were these human resources materials - the manual, policies, procedures and forms. The defendants moved for summary judgment, presumably arguing that such forms are not documents that business or technical information that have commercial value.

The North Carolina court denied summary judgment to the defendants, reasoning that "there is a genuine issue of material fact as to whether certain CNC policies and forms were trade secrets worthy of the statute's protection."

We have not seen a misappropriation of human resources manual trade secret case before. We'll keep an eye on this one for you. Heck, it's in our backyard.

Asphalt Mixes Protected as Trade Secrets under Georgia Open Records Act

In Douglas Asphalt Co. v. E.R. Snell Contractor, Inc., 2006 WL 3393145 (Ga. App. Nov. 22, 2006), the Georgia Court of Appeals held that asphalt mix formulas submitted by contractors to the Georgia Department of Transportation (DOT) were exempt from requests for disclosure under the Georgia Open Records Act.

The plaintiff paving company requested production of all formulas from DOT and defendant and ten other contractors applied for an injunction forbidding any response to the request. The trial court ruled in favor of exempting the documents from disclosure and the Court of Appeals affirmed.

The court noted that the asphalt paving business was highly competitive and that material costs -- which make up the largest part of overall costs -- could be derived from the mix formulas, thereby giving a competitor an advantage in bidding.

The Georgia Open Records Act, while generally requiring disclosure of information given to the state, does not apply to "[a]ny trade secrets obtained from a person or business entity which are of a privileged or confidential nature and required by law to be submitted to a government agency . . . ." OCGA § 50-18-72(b)(1).

Because the mix formula was not readily ascertainable and cannot be duplicated by independent research, it was a trade secret under Georgia law and thus exempt from disclosure.
back to top