BLOGS: Trade Secrets Blog

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Wednesday, December 24, 2008, 12/24/2008 11:48:00 AM

Pfizer Loses $38 Million Trade Secret Jury Verdict in California - Punitive Damages Phase Still to Come

By Todd
A Santa Clara County jury has ordered drugmaker Pfizer to pay $38 million in compensatory damages to a leading medical research nonprofit for stealing trade secrets to develop a pain relief drug.

The Superior Court jury reached the verdict Monday in a 2004 lawsuit filed against Pfizer by the San Bruno nonprofit Ischemia Research and Education Foundation. The jury's foreman said after the trial that evidence showed Pfizer had conspired with a former employee of the foundation to acquire data that otherwise would have cost tens of millions of dollars.

The lawsuit said Pfizer in 2002 wanted to use the foundation's database for clinical trials on Bextra, a drug to treat acute pain chiefly caused by arthritis. The drug was eventually taken off the market over concerns it posed a heart risk.

After the New York drugmaker and the foundation could not agree on terms for use of the database, the lawsuit alleged Pfizer arranged a side deal with Ping Hsu, a lead statistician at the foundation. Hsu provided the data without approval, according to the suit.
Pfizer said it plans to appeal.

"The company stands by the belief that its conduct was proper," Pfizer said in a written statement Tuesday. "Pfizer continues to believe that it was unjustly caught in a crossfire between (the foundation) and one of its former employees."

The lawsuit also claims that Pfizer and Hsu destroyed evidence when confronted about the data theft, said Mark Geragos, one of the foundation's lawyers.

"They hired Hsu on the pretext of his expertise, but it was all bull," Geragos said. "They just wanted access to (the foundation's) database. That database is like the Holy Grail."

Geragos said the company and Hsu could also face punitive damages that could increase the verdict to more than $120 million. Attorneys in the case are expected to appear for post-trial motions Jan. 16 before Judge Gregory Ward, who will decide whether to assess more damages.

The foundation's head, Dr. Dennis Mangano, said Monday that spending $15 million in legal fees instead of accepting a financial settlement was worth it.

"It's very risky going against a big company like Pfizer," Mangano said. "The right thing has been done . . . . This verdict was extremely satisfying to me, because I had felt that Pfizer had stolen the information we had gathered in order to manipulate it to keep their drug Bextra on the market. They were willing to profit at the expense of patient safety, something I have fought against my whole life."

Tuesday, December 23, 2008, 12/23/2008 03:13:00 PM

Memphis “VeinViewer” Trade Secrets Case

From the Memphis Daily News, a story concerning Memphis-based Luminetx Corp. which is accusing two former executives of allegedly taking trade secrets to a company that it is suing for patent infringement called AccuVein LLC.

AccuVein, based in Cold Spring Harbor, N.Y., is launching a product that enables veins to be viewed easily underneath the skin. Luminetx began selling a product with this function, the VeinViewer, in fall 2006.

A former Luminetx employee, now an employee of AccuVein, is alleged to have provided his new employer with information on Luminetx customers and its sales force. The complaint alleges that a representative of AccuVein began trying to recruit members of the Luminetx sales force. Luminetx contends that those names of the sales staff could only have been obtained through the former employee.

Monday, December 22, 2008, 12/22/2008 07:43:00 AM

Grocery Secrets - Whole Foods Obtains Competitor's Competitively Sensitive Info

By Todd
In 2007, Whole Foods acquired Wild Oats in an acquisition that many questioned on legal grounds. Well, now the FTC has brought on action challenging the legality of that acquisition/merger and Whole Foods is attempting to defend itself by subpoenaeing the records of OTHER companies in the business footprint.

To prepare its defense, Whole Foods subpoenaed 93 grocery stores around the country for sensitive business information, saying it needed its competitors' data and documents to prove that a competitive marketplace still exists even after the Wild Oats deal.

Whole Foods said that no one inside its company would see the sensitive data, only its outside lawyers. The FTC, meanwhile, has put in place a protective order that bars unauthorized disclosure of trade secrets.

But New Seasons Market, a nine-store chain in Portland, balked at the request and filed a legal challenge with an FTC administrative law judge, arguing that it should not have to turn over its most closely held business secrets to Whole Foods, which, it said, "has a history of taking a predatory approach toward its competition."

"If New Seasons were required to produce the information Whole Foods seeks, it would provide Whole Foods with a blueprint to New Seasons' success and the means for Whole Foods to engage in anti-competitive conduct against one of its primary competitors in the Portland market," the company said in a legal brief.

New Seasons said Whole Foods' document requests were burdensome and estimated that it could cost at least $250,000 to produce everything Whole Foods requested.
The grocer also said that it was not confident that its trade secrets would be protected as promised. The FTC accidentally disclosed confidential business information earlier in the case, while other sensitive information was given to a Whole Foods in-house lawyer, New Seasons said.

An FTC administrative law judge rejected New Seasons' request Tuesday, saying its information would be protected and that turning it over was not an undue burden.

"The implied allegations that Whole Foods may be using the document requests to gain a competitive advantage over New Seasons are without support," wrote Administrative Law Judge D. Michael Chappell.

Whole Foods spokeswoman Kate Lowery said the company had no choice but to seek New Seasons' information.

"We have to defend ourselves," Lowery said. "Not only did the FTC put us in this position, they need the same information."

New Seasons Chief Executive Brian Rohter said he disagreed with the ruling and would meet with the company's attorneys "to get guidance on options for our next steps."

Friday, December 12, 2008, 12/12/2008 02:07:00 PM

Fed Refuses to Disclose Who's Getting What - Claims Trade Secrets Involved

By Todd
The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Bloomberg lawsuit said the collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression.”

In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank’s customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.

“I understand where they are coming from bureaucratically, but that means it’s all the more necessary for taxpayers to know what exactly is going on because of all the money that is being hurled at the banking system,” Johnson said.

Thursday, December 11, 2008, 12/11/2008 09:26:00 AM

MySpace Suicide Results in Prosecution and Conviction Under Computer Fraud and Abuse Act

By Todd
Lori Drew's was a suburban housewife whose daughter was friends with a certain Megan Meier. Drew's daughter and Megan Meier had a falling out that didn't sit well with Mrs. Drew - so she hatched a plan to create a fake MySpace young man who would communicate with Megan Meier. After weeks of online courtship with “Josh,” Megan Meier was distressed one afternoon in October 2006, according to testimony at the trial, when she received an e-mail message from him that said, “The world would be a better place without you.” A witness who testified under an immunity agreement that shortly after that message was sent, Megan wrote back, “You’re the kind of boy a girl would kill herself over.” Megan Meier hanged herself that same afternoon in her bedroom.

Prosecutors were under the gun - what would they prosecute Lori Drew for?

Enter the Computer Fraud and Abuse Act. Prosecutors argued that Lori Drew got access to communications with Megan Meier by fibbing about her own identity online and pulling a fraud on MySpace and exceeding authorizations provided her in the MySpace agreement and consent. The violation was of the site's terms of service which requires users to provide "truthful and accurate'' registration information. The jury instructions can be reviewed here:

Lori Drew was convicted. Many are wondering whether the Computer Fraud and Abuse Act was itself abused by prosecutors who were bending it to the facts of their case. Obviously the jury felt there had been a violation of the law.

Wednesday, December 10, 2008, 12/10/2008 06:19:00 PM

Actress Kate Hudson "Sent Packing" Back to State Court in Trade Secrets Case

By Todd
We first blogged about this case here:

The U.S. District Court ordered today that Kate Hudson and David Babaii for WildAid LLC respond to 220 Laboratories' lawsuit as it was originally filed against them. The District Court rejected the defendants' argument that 220 Laboratories' claims are preempted by the Copyright Act; the lawsuit will be sent back to be heard by the Superior Court of the State of California. The Defendants would have reframed the case as copyright infringement in contrast to the seventeen counts filed by 220 Laboratories that include misappropriation of trade secrets, fraud and breach-of-contract.

William E. Crockett, managing partner at Woodland Hills law firm Dion-Kindem & Crockett, issued the statement, "Though we are as comfortable representing 220 Laboratories in Federal Court as we are in State Court, we believe that the California Superior Court is a far more appropriate venue. This removal to the District Court was a Hail Mary attempt by the Defendants to confuse the issues and the case. The District Court saw it as we do and sent the defendants packing. We look forward to taking immediate steps to stop the ongoing damage to our client."

Monday, December 08, 2008, 12/08/2008 01:32:00 PM

China Says "Show Us How You Protect That Stuff"

By Todd
The Associated Press is reporting that the Chinese government is stirring trade tensions with Washington with a plan to require foreign computer security technology to be submitted for government approval, in a move that might require suppliers to disclose business secrets.

Rules due to take effect May 1 require official certification of technology widely used to keep e-mail and company data networks secure. Beijing has yet to say how many secrets companies must disclose about such sensitive matters as how data-encryption systems work. But Washington complains the requirement might hinder imports in a market dominated by U.S. companies, and is pressing Beijing to scrap it.

"There are still opportunities to defuse this, but it is getting down to the wire," said Duncan Clark, managing director of BDA China Ltd., a Beijing technology consulting firm. "It affects trade. It's potentially really wide-scale."

Beijing tried earlier to force foreign companies to reveal how encryption systems work and has promoted its own standards for mobile phones and wireless encryption.

Those attempts and the new demand reflect Beijing's unease about letting the public keep secrets, and the government's efforts to use its regulatory system to help fledgling Chinese high-tech companies compete with global high-tech rivals. Yin Changlai, the head of a Chinese business group sanctioned by the government, has acknowledged that the rules are meant to help develop China's infant computer security industry by shielding companies from foreign rivals that he said control 70 percent of the market.

The computer security rules cover 13 types of hardware and software, including database and network security systems, secure routers, data backup and recovery systems and anti-spam and anti-hacking software. Such technology is enmeshed in products sold by Microsoft Corp., Cisco Systems Inc. and other industry giants.

Giving regulators the power to reject foreign technologies could help to promote sales of Chinese alternatives. But that might disrupt foreign manufacturing, research or data processing in China if companies have to switch technologies or move operations to other countries to avoid the controls. Requiring disclosure of technical details also might help Beijing read encrypted e-mail or create competing products.

Thursday, December 04, 2008, 12/04/2008 09:49:00 AM

IBM Seeks Discovery from Apple - Steve Jobs to Be Deposed?

By Todd
The IBM/Papermaster lawsuit is getting hot.

ComputerWorld is reporting that IBM has asked for information from several unnamed senior officials at Apple as part of the discovery process in the lawsuit to block a former executive from joining Apple, according to court documents made public Monday.

Those documents also revealed that the federal judge overseeing the case denied IBM's request to postpone the trial while awaiting a decision from an appellate court.

U.S. District Court Judge Kenneth Karas rejected IBM's call to delay the trial of Mark Papermaster, the 26-year veteran of the company who resigned in October to take a senior position at Apple, where he was to head iPhone and iPod development. IBM made the request after Papermaster appealed Karas' Nov. 7 ruling that forced him to stop working at Apple .

IBM objected to the simultaneous pursuit of both the original lawsuit and the appeal, arguing that the former should be delayed until the results of the latter had been decided.

"There is little point in requiring this Court and the parties to expend the very substantial efforts required to prepare this case for trial in February if the question of Mr. Papermaster's ability to commence his proposed new employment at Apple is to be determined by the Court of Appeals in late January or early February," said IBM's lawyers in a memorandum to Karas dated Nov. 21.

Instead, said IBM, Karas should put the trial on hold until Papermaster's appeal is heard.
Karas turned down IBM, writing on the memo: "The Court sees nothing wrong with Mr. Papermaster's decision to expeditiously appeal the preliminary injunction and to try this case. Accordingly, the Court has adopted, with minor changes, the schedule greed to by the Parties." He then set trial to begin on or after Feb. 24, 2009.

Papermaster went to the U.S. Court of Appeals for the Second Circuit in the hope that it will overturn Karas' injunction that prevents him from working at Apple. Karas barred him from the California company after five days on the job, agreeing with IBM that he might cause "irreparable harm" to his former employer.

At the heart of the lawsuit is a 2006 non-competition agreement that Papermaster signed. IBM claimed that the agreement barred him from working for competitors for a year after leaving the company. According to IBM, Papermaster had information of "highly confidential IBM trade secrets" that would damage the firm if he was allowed to work for Apple.

Elsewhere in the documents posted yesterday were references to requests by both IBM and Papermaster for depositions and documents as part of the discovery process, under which the parties are allowed to gather evidence.

IBM apparently has asked to depose several "senior executives of nonparty Apple Inc.," according to the company's memo to Karas. Those executives, however, were not named. Earlier filings had spelled out Apple's recruiting of Papermaster, and said that he interviewed in October with, among others, CEO Steve Jobs and the senior vice president, Tony Fadell, who currently heads the company's iPod business. Fadell is stepping down from his post, but will remain as an advisor to Jobs.

Stephen Madsen, an attorney with Cravath, Swain, & Moore of New York, the firm representing IBM in the case, was not immediately available to answer questions about who at Apple had been asked to provide information.

For his part, Papermaster has asked that IBM turn over documents his lawyers believe pertain to the case.

In its memo, IBM noted the requests in a footnote. "Our conviction that the trial preparation will be substantial has been heightened by discovery demands just served by Mr. Papermaster, which seek, among many other things, 'all documents since 2006 concerning IBM's business plans' [and] 'all documents concerning IBM's server business segment,'" the footnote stated. IBM said that it had been served those requests, and others, on Nov. 20.

Papermaster has countersued IBM , arguing that the non-competition agreement is unenforceable and too broadly written, while IBM has had to post a $3 million bond to cover any costs or damages that Papermaster might suffer if Karas' injunction is, in fact, overturned.

Monday, December 01, 2008, 12/01/2008 01:34:00 AM

$44,000 Sanction Against Attorney and Client Upheld in California Trade Secrets Case

By Todd is reporting that a California appellate court has upheld a $44,000 sanction against an attorney and her client in a matter where documents filed under seal were inadvertently placed in the public case file and then used by the attorney and client in an attempt to prove that they weren't secret any longer.

Twelve years into a trade secrets dispute between an animal vaccine manufacturer and a former employee, lawyers for the manufacturer attempted to submit a document under seal that contained the purported secrets. Somehow the document wound up in the court's public file.

On Tuesday, California's 3rd District Court of Appeal in Wallis v. PHL Associates affirmed sanctions totaling almost $44,000 for what the former employee and her attorney, Joanna Mendoza, did next. Despite a long-standing order that excluded the parties and the public from viewing documents labeled confidential and filed under seal, Mendoza, of Sacramento, Calif.'s Malovos & Mendoza, told her client, Dale Wallis, that the document was in the public file.

Wallis had sued her former employer, Davis, Calif.-based PHL Associates Inc., in 1994 for manufacturing and profiting from a vaccine she claimed to have invented for bovine mastitis, an inflammation of cows' udders. But Wallis was slapped with a countersuit from PHL claiming that the vaccine was its trade secret and that she had stolen it.

After learning that the PHL filing containing the vaccine formula was public, Wallis and her ex-husband, who is still her business partner, enlisted friends and a courier service to view and copy the document in the hope of defeating PHL's claim that the vaccine was a trade secret, according to Tuesday's ruling. Two weeks after the PHL lawyers filed the document, on Jan. 25, 2005, Mendoza wrote in a court motion that "they have put all of PHL's alleged trade secrets on display for the world to see in a publicly filed document" and that "if PHL ever had trade secrets, it does not anymore as a direct result of a huge violation of the Protective Order."

Almost four months later, over Mendoza's objection, the court granted a PHL motion to seal the document. A fight ensued over whether PHL's trade secrets had already become public, and the next month, after Mendoza's and the Wallises' actions became known, PHL won a motion for sanctions. Mendoza and her clients "are willing to obfuscate and misdirect when confronted with their duties under the protective order," wrote Justice George Nicholson in Tuesday's ruling. '

In an interview, an emotional Mendoza, who chairs the State Bar's intellectual property section, defended her conduct and called the ruling by the 3rd District Court of Appeal "devastating." Mendoza said she had warned PHL's counsel multiple times on conference calls that they had filed the document publicly, but that the opposing lawyers called her warnings "background noise." Before telling her client about the PHL document, Mendoza called the State Bar's ethics hotline for advice, she said, and determined that she had to tell Wallis the document was public.

But she did not give Wallis any advice on what to do next, she said. But Mendoza should have known she was violating the protective order, even if the document was publicly available, the court ruled. Of the 800 pages, 250 were marked confidential, according to the ruling, and the front page said it was filed under seal. According to Mendoza, the court clerk said the documents did not come in under seal. "The protective order does not apply if you don't follow its terms," she said. But the court ruled that the "minor deviations" didn't nullify the protective order and that Mendoza "acted surreptitiously to have her clients or others ... view the contents ... while they appeared unprotected in the court file in order to argue later that the trade secrets had been made public."

Mendoza said she probably should never have warned the PHL lawyer, Tory Griffin of Sacramento's Downey Brand, about the document at all. "If I had not said anything, it could've been in that file for public access for years," she said. Griffin was not available for comment Tuesday. Mendoza said she can file a motion for the court to reconsider its judgment but added that it is not likely to succeed.
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