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Thursday, June 28, 2007, 6/28/2007 04:44:00 PM

Lexis/Nexis Noncompete Battle Involves Allegations of Theft of Trade Secrets

By Todd is reporting that the LexisNexis Risk and Information Analytics Group claims in a federal lawsuit that a former senior sales and marketing executive breached his noncompete agreement by taking a job as president and chief executive for a competitor.

The Boca Raton, Fla.-based data company is seeking permanent injunctive relief and punitive damages in U.S. District Court for the Southern District of Florida in West Palm Beach against former vice president of sales Paul Colangelo. The suit claims the violation of Colangelo's confidentiality and noncompete agreement is causing harm to LexisNexis, including loss of profits and client relationships and diminution of its competitive position.

LexisNexis Risk and Information Analytics Group provides intelligence information about individuals and businesses as part of Miamisburg, Ohio-based LexisNexis division, a research arm of Reed Elsevier.

Colangelo worked for LexisNexis for more than six years where he had access to business strategies, customer contacts, confidential information and trade secrets, according to the suit filed June 6.

LexisNexis said it conducted a forensics examination of Colangelo's work computer and found he had burned hundreds of files containing confidential information to a CD before he announced his resignation and attached an external hard drive to his work computer before he left his job.

Last month, Colangelo left LexisNexis to work at LocatePLUS Holdings Corp., a competing Beverly, Mass.-based provider of online investigative products to law enforcement and businesses. LocatePLUS is not a defendant.

The suit claims LexisNexis only heard about Colangelo's new job when it read Securities and Exchange Commission filings by LocatePLUS touting his knowledge about the industry through his prior employment with LexisNexis.

Litigation based on noncompete cases has grown, as companies move to take aggressive steps to protect trade secrets and other confidential information. Employers have grown bolder about requiring high-level employees to sign such agreements as more courts uphold them, said labor and employment attorney Suzanne Bogdan of Fisher & Phillips in Fort Lauderdale, Fla., who is not involved in the LexisNexis case.

A growing number of employers are turning to computer data mining technology to determine if confidential information has been taken by former employees, said labor and employment attorney Robert Turk, a shareholder at Stearns Weaver Miller Weissler Alhadeff & Sitterson in Miami. He is not involved in the case.

"It used to be that someone would walk out the door with a briefcase of papers," Turk said. "Now, with computer disks and sticks and iPods that you can download things to, if an employer has a question [about their confidential documents] it is appropriate to look at the electronic activities going on."

Other plaintiffs in the case include LexisNexis parent company Reed Elsevier, a publicly traded company that reported more than $10.5 billion in revenue in 2006, and Boca Raton, Fla.-based affiliate Seisint.

Scott S. Cairns, a partner at McGuireWoods in Jacksonville, Fla., who is representing LexisNexis, declined to comment. Colangelo did not return a call for comment by deadline.

Representatives of LexisNexis Risk, including president and chief executive James Peck, could not be reached for comment.

LexisNexis Risk and Information Analytics Group Inc. serves the risk information industry, comprised of government agencies, law enforcement, financial service firms, and human resources. The company, according to the suit, uncovers fraudulent transactions, prevents identity theft, tracks down terrorists and helps find missing children. It also offers screening services,such as criminal background checks, to governmental organizations.

Colangelo began working for LexisNexis in 2000. During his tenure, Colangelo served as federal marketing manager, director of business development and senior director of market planning. His most recent position was vice president of sales for the group, where he was in charge of product development and led the sales effort focusing on federal, state and local government agencies.

The suit alleges that during Colangelo's time at LexisNexis, he became an expert in serving the security and information needs of law enforcement, government agencies and businesses that arose after Sept. 11, 2001.

In August 2000, before Colangelo began working for LexisNexis, he signed a noncompete agreement. This agreement said, "During and after my employment with LexisNexis … I will hold in strict confidence all LexisNexis confidential information and I will not use, either directly or indirectly, LexisNexis confidential information for any purpose."

The agreement also stated that -- for the year following his employment with LexisNexis -- Colangelo will not "own, manage, operate, join, control or participate in the ownership, management, operation or control of … [any enterprise] which competes with LexisNexis' business as conducted during the period of my employment." That applied to a zone of a 100-mile radius around each of the counties or parishes where customer accounts are located or where LexisNexis has offices or customers.

Yet, Colangelo obtained a job with LocatePLUS, a publicly traded company and a direct competitor of LexisNexis. Colangelo’s last day of work was May 23. On May 29, a LocatePLUS filing with the Securities and Exchange Commission announced that he was appointed president and CEO.

The suit alleges that he "intentionally and wrongfully disclosed the confidential information and trade secrets" of LexisNexis as "an incentive" to LocatePLUS to employ him as its president, chief executive and board member.

In addition, the suit claims that not only did he not tell LexisNexis about his new employer but he also promised LocatePLUS that he would seek an exemption to the noncompete agreement. He never obtained that exemption, the suit said.

According to the suit, the LocatePLUS SEC filings stated that Colangelo brought in $56 million per year in revenue while at LexisNexis.


LexisNexis alleges breach of contract and violation of Florida's trade secrets act. The company is also attempting to permanently enjoin Colangelo from serving as a member of the board of LocatePLUS and disclosing trade secrets to that company. In addition, it's seeking punitive damages.

A week and a half after filing the complaint, LexisNexis asked Southern District of Florida Judge Donald M. Middlebrooks to enter a temporary restraining order or a preliminary injunction preventing Colangelo from continuing to work for LocatePLUS or disclosing any trade secrets.
The June 15 request contends that Colangelo, who lives in Virginia, already took valuable LexisNexis information. It claims that there is "imminent irreparable harm to [LexisNexis] due to disclosure to a competitor of its trade secrets by its former executive and the loss of goodwill caused by Colangelo's breach" of the noncompete agreement.

The motion alleged that Colangelo also assisted LocatePLUS in its effort to obtain financing while he was still working for LexisNexis.

The company is asking Middlebrooks to issue an injunction that requires Colangelo to return to LexisNexis all copies of confidential and proprietary information that he wrote, copied, printed or downloaded onto disks or recreated after he left.

Since filing the suit, LexisNexis moved to take expedited discovery for all documents and property that Colangelo possesses that refer to the company, its employees, customers and trade secrets.

Middlebrooks granted that motion, ordering that plaintiffs may take the defendant's deposition 10 days after he receives service of the complaint and other motions. Cairns said discovery has started.

LexisNexis' ability to prevent Colangelo from working at his new company depends on how valid the noncompete agreement is in terms of geographic and time restrictions, Turk said. Barring someone for more than two years is seen as unreasonable.

The suit argues that, because the noncompete agreement calls for it, the case should be decided under Ohio state law.

Florida law used to be more pro-employer and it was easier to enjoin an employee from working with a competitor, Turk said. A 1996 statute spells out for judges when a noncompete agreement has unreasonable clauses.

Restaurant Trade Secrets?

From the New York Times (subscription req'd), a story of two feuding restaurateurs and claims of unfair copying and trade secrets.

The combatants are Rebecca Charles, owner of the Pearl Oyster Bar in New York's West Village, and Ed McFarland, chef and co-owner of Ed's Lobster Bar which Rebecca considers a knock-off. Ed was Rebecca's sous-chef at Pearl for six years.

As the New York Times puts it:

In recent years, a handful of chefs and restaurateurs have invoked intellectual property concepts, including trademarks, patents and trade dress — the distinctive look and feel of a business — to defend their restaurants, their techniques and even their recipes, but most have stopped short of a courtroom. The Pearl Oyster Bar suit may be the most aggressive use of those concepts by the owner of a small restaurant. Some legal experts believe the number of cases will grow as chefs begin to think more like chief executives.

The trade secrets portion of the claim apparently revolves around "Ed's Caesar Salad" which Rebecca claims is based on her Mom's recipe and which Rebecca taught Ed. It calls for a coddled egg and English muffin croutons.

Sounds like a tough case to make. No doubt, though, it's a good Caesar Salad.

Wednesday, June 27, 2007, 6/27/2007 11:24:00 AM

Lionel Trains Has Its Bankruptcy Reorganization Plan Criticized By Trade Secrets Claimant

By Todd
In 2004, Lionel Trains was sued by Mike's Train House for allegedly stealing toy-train technology and trade secrets. The case went to a jury and the jury awarded $40.8 million to Mike's Train House, forcing Lionel Trains to file for bankruptcy in November, 2004.

Lionel Trains appealed the $40.8 million verdict and their appeal was successful - in December, 2006 the Sixth Circuit Court of Appeals reversed the trial court verdict and remanded for a new trial. Mike's Train House appealed that decision to the Supreme Court of the United States but they have not decided whether or not to accept that appeal.

Perhaps the most interesting aspect of this case is that Lionel Trains is owned by the Estate of Martin Davis (former CEO of Paramount) and Neil Young. The only comment we have is "hey hey, my my . . . . "

Tuesday, June 26, 2007, 6/26/2007 11:30:00 AM

Florida Court Refuses to Reverse Lower Court Ruling That Election Machine Manufacturer Doesn't Have to Disclose Trade Secrets in Battle Over Election

By Todd
In the November, 2006 election for Florida's Thirteenth Congressional District, Democrat Christine Jennings lost to Republican Vern Buchanan by less than 400 votes (see,2933,230844,00.html). A company named Elections Systems & Software, Inc. apparently manufactured the voting machines that tabulated the vote count. Ms. Jennings and her attorneys sued over the certification of the election results, claiming the machines and their allegedly undercounting software programs were to blame. Ms. Jennings asked the trial court for an order compelling the manufacturer to reveal its software's source code in the discovery phase of the lawsuit; the manufacturer refused on trade secrets grounds. The trial court granted a protective order, reasoning that Elections Systems & Software need not turn over its trade secrets to Ms. Jennings and her attorneys in this action.

Ms. Jennings appealed the lower court order and the attached decision is the appellate court's refusal to reverse that ruling. We suppose this battle is not over but Ms. Jennings is surely spending a lot of money, and time, litigating the propriety of her election defeat. We'll keep an eye on this one for you.

Monday, June 25, 2007, 6/25/2007 07:37:00 AM

Newspaper Advertisers are not Trade Secrets

From the LA Times, a story concerning a brutal battle between two LA area weekly newspapers, the established Beverly Hills Courier and the upstart Westside Chronicle.

According to the Times, in March 2006, just days after the Chronicle published its first issue, the Courier filed a lawsuit "accusing the Chronicle's publisher, Vipin Sahgal, and several people on his staff — most of them former Courier employees — of stealing 'trade secrets' and asked the courts to block the paper from contacting its advertisers."

After six days of court testimony, the court denied the motion for preliminary injunction.

The Times quoted lawyer Fred Fenster, formerly counsel to publisher Sahgal, who trenchantly observed that "[t]he information that you are trying to protect must be something that is unavailable to competitors," adding that names of newspaper advertisers cannot be considered trade secrets because they are in the paper.

Fair enough. It's always a bit odd watching the media trying to -- at least on some level -- restrict speech.

Thursday, June 21, 2007, 6/21/2007 08:09:00 AM

$20 Million Settlement in Hedge Fund Trade Secrets Case

From MarketWatch, a story concerning a settlement -- for $20 million -- paid by hedge fund Millennium Partners to Renaissance Technologies Corp. The case arose out of Millennium's hiring of two former Renaissance employees, Pavel Volfbeyn and Alexander Belopolsky. In a December 2003 lawsuit, Renaissance claimed that the two planned to use information about the firm's business as part of a new trading system they developed at Millennium.

According to the story, "Renaissance employs a small army of PhDs who develop computer models to track down price anomalies and generate trading ideas, following a strategy known as statistical arbitrage. If lots of other traders got hold of its models and copied its trades, those arbitrage opportunities could dwindle."

Under the terms of the settlement between the two hedge fund firms, Millennium denied any misconduct or liability. Millennium also agreed to fire Volfbeyn and Belopolsky and Renaissance's case against them will continue.

MarketWatch reports that "Volfbeyn said that the trade secrets Renaissance has been working to protect 'are nothing more than general ideas that are well known to people familiar with statistical arbitrage and quantitative finance.'"

We've heard that defense before.

Wednesday, June 20, 2007, 6/20/2007 08:01:00 AM

Economic Espionage. By US?

Okay, okay, I know it sometimes sounds like we only talk about the Chinese when we discuss the subject of economic espionage.

So, in the interest of equal time, we have to report on this story about concerns of economic espionage by the United States. The concerned party? The French, of course.

France24 reports that "French security officials are worried that e-mails sent by government officials from a BlackBerry might be picked up by the US National Security Agency because the servers for BlackBerry mail are located in the United States and Britain." The story comes from the French daily, Le Monde.

"The risk of interception is real, it's an economic war," Alain Juilllet, a senior French economic intelligence official, told Le Monde.

The reaction of French government officials? Well, they're largely ignoring the warning and using their BlackBerrys in secret.

Plus ça change, plus c'est la même chose. Or something like that.

Saturday, June 16, 2007, 6/16/2007 11:43:00 AM

Trade Secrets & Cheese

From the North Colorado Business Journal, a story, following up to our earlier story here in March, concerning a judgment in favor of Bingham Hill Cheese Co. for $550,000 in damages, exemplary damages and attorneys' fees in a trade secrets lawsuit filed against a competitor, Morning Fresh Cheese Co. The case was filed in Bellvue, Colorado.

The judge found that Morning Fresh Cheese Co. hired Brad LaRocco, a former cheese maker at Bingham Hill, with the intention of making and selling Bingham Hill's award-winning cheeses. While employed at Bingham Hill, LaRocco had signed an agreement he would not disclose their recipes or make their cheeses elsewhere.

Friday, June 15, 2007, 6/15/2007 12:33:00 PM

U.S. General Accuses China of Trying to Be The World Cyberpower - Theft of Trade Secrets Alleged

By Todd is reporting that a U.S. Air Force General has identified China's desire to be the world's "cyberpower" - and accuses China of utilizing a concerted cyber-espionage strategy in order to get there.

Lt. General Robert Elder is quoted as attributing the espionage to a mix of criminals, hackers and "nation-state" forces. Virtually all potential U.S. foes also were scanning U.S. networks for trade and defense secrets, he added.

General Elder reserved a slight for North Korea, however. "Everyone but North Korea," he said. "We've concluded that there must be only one laptop in all of North Korea--and that guy's not allowed to scan" overseas networks, Elder said.

Wednesday, June 13, 2007, 6/13/2007 12:17:00 PM

Yeong Lin Pleads Guilty to Federal Charge of Trade Secrets Theft of Corning Blueprints

By Todd is reporting that a California man admitted Tuesday to conspiring to steal highly valuable flat-panel-glass blueprints from Corning Inc. and turn them over to a rival business in Taiwan.

Yeong Lin, 67 years old, of Fountain Valley, Calif., could get up to five years in prison after pleading guilty to a federal charge of theft of trade secrets. Sentencing was set for Sept. 14.
While working as a consultant for Taiwan-based PicVue Electronics Ltd., prosecutors allege Lin put PicVue officials in contact with a Corning employee who offered drawings he had illegally obtained from his employer, which is based in western New York.

Jonathan Sanders, who worked at a Corning glassmaking plant in Harrodsburg, Ky., pleaded guilty last year and drew a four-year sentence and a $20,000 fine. He admitted stealing the blueprints of Corning's liquid-crystal-display glassmaking process and selling them to PicVue for $34,000 in 2000.

The materials, which were returned to Corning after it sued PicVue, were valued at more than $100 million, prosecutors said. PicVue, which later declared bankruptcy, had intended to use the technology to manufacture thin-filter- transistor LCD glass and compete with Corning, prosecutors said.

Defense attorney James Harrington described Lin as "a small player in this" and noted that no PicVue officials in Taiwan were charged even though at least one of them owns property in the United States.

Corning is the world's biggest maker of ultra-thin LCD glass for flat-screen televisions and computers. The specialty glass accounts for the bulk of its profits, which reached $327 million in the first quarter.

Sanders, of Lawrenceburg, Ky., said he found the documents at the Harrodsburg plant in 1999 in a hopper containing confidential material that was to be destroyed.

PicVue engineers took digital photographs of the blueprints, which described a proprietary glassmaking process called "fusion draw," and downloaded the pictures to a disk that was taken to Taiwan, court records showed. The original blueprints were then destroyed.

Corning learned about the theft in 2001 and notified the FBI, which began an investigation that led to the arrests of Sanders and Lin in 2005.

Tuesday, June 12, 2007, 6/12/2007 03:07:00 PM

The "Nut Dust" in The Cookies Made Them Mmmm, So Good

By Todd
Kudos to the Worcester Business Journal for its piece on trade secret protections. But the article contained a weird reference to a trade secret claim brought over twenty years ago that we found, um, intriguing.

Seems that in 1984, Peggy Lawton Kitchens Inc. of Walpole, Massachusetts sued its former employee Terence M. Hogan after he opened a business selling chocolate chip cookies identical to Lawton's highly successful brand, including a secret ingredient: the "chaff" from walnuts, or "nut dust." A Superior Court judge ruled that the nut dust-laden recipe qualified as a trade secret, despite the vast majority of it - eggs, flour, chips - being no different from the make-up of most cookies.

Makes sense. But doesn't everybody now know that "nut dust" is how Lawton got those cookies tasting so good? We're going to try that one and report back.

Monday, June 11, 2007, 6/11/2007 09:39:00 AM

Ethanol Manufacturer

By Todd
The Sioux Falls Argus Leader is reporting that a former ethanol plant manager has resolved the lawsuit brought against him by his former employer, the Poet-owned ethanol facility in Jewell, Iowa.

Gary Hanson was reportedly the plant manager at that ethanol facility and had e-mailed company documents to his girlfriend prior to taking another position with a different ethanol manufacturer in Colorado. That new employer, Sterling, has terminted Mr. Hanson as a result of the litigation, the report states.

In one of the weirder settlement terms we've come across, another former Poet employee named Akers can KEEP his job with the Colorado company but cannot be promoted to a position other than maintenance manager of that facility without Poet's approval.

Friday, June 08, 2007, 6/08/2007 03:11:00 PM

FBI Warns North Carolina Businesses About Trade Secrets Theft

By Todd
TechJournal South is reporting that presenters at the June 7th North Carolina Technology Association's "Five Pillars" meeting warned that competitors, foreign agents and former employees represent serious risks in the fight to keep trade secrets safe.

Tom Mahlik, section chief for counter-intelligence strategy at F.B.I. headquarters, and John Slattery, Deputy Assistant Director for Counterintelligence, F.B.I., pointed out the threats to protecting intellectual property stemming from numerous sources. The F.B.I. actively seeks ways to help technology companies and academic institutions protect their IP.

The F.B.I. offers help with companies that want to know how to better protect their technology secrets or suspect that it may have been compromised and want to know how to handle it. Agents make it clear that they act with discretion.

Wednesday, June 06, 2007, 6/06/2007 10:41:00 AM

Coca-Cola Trade Secrets Accomplice Gets Two Years

By Todd
The St. Louis Dispatch is reporting that Joya Williams' accomplice and co-conspirator, Edward Duhaney, received a two year sentence for his participation in the scheme to steal Coca-Cola's trade secrets and sell them to Pepsi. Pepsi, as readers of this blog will recall, turned the conspirators in to the feds and this resulted in the investigation and prosecution that resulted in the guilty verdicts and guilty pleas all the way around.

Tuesday, June 05, 2007, 6/05/2007 01:18:00 PM

China Denies Attempting to Steal Military Technology Trade Secrets

By Todd
India's Khaleej Times Online is reporting that China denied it was trying to steal US military secrets, one day after US federal prosecutors said three people had pleaded guilty to trying to send China sensitive data on submarine technology.

‘The idea of so-called Chinese theft of US military secrets is groundless and reflects ulterior motives,’ foreign ministry spokeswoman Jiang Yu told reporters.

The three suspects were relatives of a US engineer of Chinese origin who was found guilty in a US court last month of conspiracy to smuggle sensitive technology about US Navy submarines to China.

The engineer, Chi Mak, worked for a US Navy contractor that develops the technology to silence submarines.

The charges date back to 2005, when police arrested two of the suspects at Los Angeles airport as they were ready to board a plane for Hong Kong carrying a CD with the data in their baggage.

The case is the latest in a string of prosecutions in the United States involving arms trade with China.

Bills Seek Tougher Penalties for Computer Fraud & Abuse

From Wired, a story about the proposed Cyber-Security Enhancement Act, introduced by Rep. Adam Schiff (D-CA). The bill seeks to stiffen penalties and sentencing times for cybercriminals by classifying computer-fraud offenses as a predicate offense for the Racketeer Influenced and Corrupt Organizations (RICO) statute. Authorities could also seize any ill-gotten gains obtained through online racketeering.

The bill would also change the damage threshold that qualifies a cybercrime for FBI attention. According to Wired, "[c]urrently, a financial loss of $5,000 spread out among victims makes an intrusion into a federal case; under the bill, damaging 10 or more computers in a year would automatically qualify, even with no financial harm."

Another proposed bill, the I-SPY Act, introduced by Rep. Zoe Lofgren (D-CA), also seeks to amend the Computer Fraud & Abuse Act by setting a five-year sentence and/or fines for anyone caught using subversive software "in furtherance" of a federal criminal offense. Scam artists who distribute software coded with keystroke loggers or other covert functions such as bots, a type of malicious software that secretly puts a vulnerable PC under the control of an attacker, would be liable. Persons who use such techniques, and who use them to steal Social Security numbers, credit card numbers, passwords or any personal identification information could face new and enhanced charges.

Friday, June 01, 2007, 6/01/2007 01:53:00 PM

Government Asks For Reduced Sentence For Co-Conspirator in Coca-Cola Trade Secrets Theft Case

By Todd is reporting that the prosecutor asked the judge Friday to give a conspirator in a scheme to steal Coca-Cola trade secrets a lighter sentence than federal guidelines recommend partly because he helped the government convict a former secretary for the beverage company involved in the case.

Assistant U.S. Attorney Byung J. Pak said in a court filing that because Edmund Duhaney pleaded guilty to conspiracy and testified against Joya Williams at her trial he deserves about a year shaved off his recommended sentence.

"The government submits that the defendant's testimony played an important role in proving Ms. Williams' guilt beyond a reasonable doubt," Pak wrote in his motion.
As a result, Pak asked the judge to sentence Duhaney to 27 months to 33 months in prison instead of the 37 months to 46 months recommended in federal sentencing guidelines.

We'll cover the sentencing of Mr. Duhaney once it is made public.

Convicted Coca-Cola Secretary Will Appeal Her Conviction and Sentence

By Todd
MSNBC is reporting that the secretary convicted in the attempted theft and sale of Coca-Cola's trade secrets is appealing her conviction and sentence.

A lawyer for a former Coca-Cola secretary notified a federal court Thursday that she was appealing her client's conviction and eight-year prison sentence for conspiring to steal trade secrets from the world's largest beverage maker.

Janice Singer filed a brief notice of appeal on behalf of her client, Joya Williams, in U.S. District Court in Atlanta, where The Coca-Cola Co. is based.

The notice did not state a basis for the appeal of Williams' "conviction as well as the judgment and sentence," and there were no further appeal documents immediately filed with the 11th U.S. Circuit Court of Appeals in Atlanta. Supporting documents are typically filed later.

Hewlett-Packard-Dell Spying Update

From the Austin (TX) Statesman, a follow-up indicating that the story about H-P's alleged spying on Dell might be heating up and isn't going away anytime soon.

According to the story, Dell said on Wednesday that it might increase the pressure it's putting on Hewlett-Packard Co. over allegations that the rival computer maker stole inside information about Dell's move into the printer business four years ago.

Dell spokesman Bob Pearson said the company twice asked H-P to investigate the allegations, which were raised in a January lawsuit by a fired H-P executive. With no response to two letters it sent H-P, Pearson said, Dell is "committing resources to explore our concerns."

As the paper puts it: "[i]f the allegations prove true, H-P could be in violation of the Economic Espionage Act of 1996."

We'll keep on top of this one.

[Disclosure: the undersigned and his law firm represent Dell Inc.]
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