BLOGS: Trade Secrets Blog

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Wednesday, December 30, 2009, 12/30/2009 10:03:00 AM

South Carolina Man Charged With Trade Secret Theft from Company He Last Worked With 8 Years Ago

By Todd

The Sun News from Myrtle Beach, South Carolina is reporting that Thomas Flynn, 60, who was a plant manager at Metglas for more than 20 years beginning in 1975, was arrested last week and charged with misappropriation of trade secret information with intent to injure.

"He was there for quite a while and certainly had a lot of access to a lot of different information and a lot of different proprietary things," said Rachel Platt, Metglas' executive director for human resources. Metglas, which is based in Conway, makes metal ribbons used in electric transformers.

Mr. Flynn's attorney raised an interesting defense "Our position is that not only did he not do anything wrong, but he never worked for Metglas," said Gene Connell, Flynn's attorney. Flynn worked for Honeywell and not Metglas, he said. Tokyo-based Hitachi Metals bought Metglas Solutions Division of Honeywell in 2003.

Flynn retired from the company in 2001 and several years later was approached by Vijai, where he now works, Connell said. When Flynn left the company, he didn't sign any covenant not to compete or any form about trade secrets, said Connell, who said he handled the separation package.

"His reputation is being besmirched for something he didn't do," he said. "We deny categorically that any documents were taken, any plans or any electronic records or anything else."

Metglas began to suspect something was wrong when company officials got a call from one of their manufacturers. The manufacturer told the company it had been contacted by Vijai Electricals and asked to produce a product that was similar to the product it makes for Metglas.

The drawings Vijai submitted raised questions with the manufacturer and prompted them to call Metglas.

"It was specific enough to our vendor that they were concerned and it sent a red flag," Platt said.

Shortly after Metglas got that information, it turned the investigation over to the solicitor's office, which investigated and filed the charges against Flynn. Flynn was arrested Dec. 23, held briefly and then released after posting $25,000 in bail.

We'll keep an eye on this one for you, but we'd like to revisit Mr. Flynn's attorney's defense of "he didn't even work there." It is not necessary that someone be an employee of a trade secret owner for a misappropriation claim to be made. All one needs to think of is the computer hacker - they aren't employees (usually) and they can misappropriate trade secrets. Nor does the attorney's protestation "he didn't sign a noncompete" and "he didn't take any written materials" really matter. Courts have held that memorizing a trade secret, as opposed to stealing paper or data files that the trade secret is contained on, can constitute misappropriation. The trade secret laws are statutues. Those statutes are codified in law. They don't require a contract between the trade secret holder and the alleged misappropriator.

We aren't passing judgment on whether the methodologies Metglas claims this person stole actually rise to the level of trade secrets OR whether Mr. Flynn even assisted Vijai Electricals in doing anything improper. We just thought the attorney's public statements to be interesting.

Monday, December 28, 2009, 12/28/2009 10:44:00 AM

Documents "Filed Under Seal" in Eaton Aerospace Trade Secrets Case in Mississippi

By Todd

We've been following this intrigue-filled trade secrets lawsuit pending in Mississippi and the non-trade secrets elements of it:

Seems there are a lot of "sealed" documents being filed in this case that is currently on hold while the court permits the defendants to discover and file evidence regarding Eaton's allegedly improper use of a local Mississippi attorney, Ed Peters, in the case. The defendants allege Eaton hired Mr. Peters to improperly influence the former judge on the case, Bobby DeLaughter. Peters and DeLaughter went way back to a time when Peters was actually DeLaughter's mentor. DeLaughter has since pled guilty to obstruction of justice charges and has been removed from the bench. Eaton Aerospace denies ever improperly retaining or improperly using Peters in their trade secrets case.

We'll keep a watchful eye on this one.

Wednesday, December 23, 2009, 12/23/2009 09:49:00 AM

Sanctions Issued in California Trade Secrets Case - Against A Party and its Attorneys

By Todd is reporting that a special master has ordered sanctions against Applied Materials Inc. and attorneys at Boston-based Goodwin Procter for stalling in releasing an e-mail by the company's chief executive.

Special master Thomas Denver, in the U.S. District Court for the Northern District of California, ordered Applied Materials and Goodwin Procter on Friday to pay Advanced Micro-Fabrication a yet-to-be-finalized monetary award. The sanctions follow Advanced Micro-Fabrication's repeated demand during discovery for an e-mail written by Applied Material's Chief Executive Michael Splinter.

Applied Materials, which makes machines that manufacture semiconductor chips, sued competitor Advanced Micro-Fabrication for allegedly stealing trade secrets, interfering with contractual relations, conversion and unfair competition under California laws.

Advanced Micro-Fabrication asked for $25,777.50 in sanctions based on the costs associated with filing a second motion to compel, and Denver asked the company to produce invoices to support the request.

Denver also ordered Applied Materials to review its discovery responses, particularly interrogatory responses "to see that they have been appropriately supplemented in light of the subject email."

The judge wrote, "Plaintiff's failure to produce the email in question is all the more troubling in that defense counsel had provided significant detail as to the document sought in the course of this litigation."

Denver later noted, "Any reasonably organized electronic search should have identified this document, resulting in production."

The order further noted that the plaintiff's estimated cost for searching for the e-mail is not disproportionate "to litigation of this magnitude" and "not a justification for an inadequate search."

Tuesday, December 22, 2009, 12/22/2009 10:38:00 AM

Credit Suisse Accuses Former Vice President, Departed For Nine Years, Of Trade Secret Theft and Attempting to Patent Certain Proprietary Methodologies

By Todd

Attached above you'll find a link to the recently filed complaint in federal court in Manhattan that alleges a former VP of Credit Suisse, who was severed in 2000 and received a substantial separation package, has misappropriated certain trade secrets related to an equities valuation model that Credit Suisse says it developed with the former employees assistance. The methodology went by the name Value Dynamics Framework.

The complaint goes on to allege that by happenstance in late 2008, Credit Suisse learned that their former VP, David Trainer, was seeking a patent for an equities valuation model that tracked many of the same capacities fo the Credit Suisse valuation model. Some letter writing ensued, and Trainer's patent attorney returned to Credit Suisse a compact disc that allegedly contained a significant amount of Credit Suisse data on it relating to Trainer's former work there. The complaint acknowledges that Trainer's counsel objected to any characterization of the data and information Trainer retained as "confidential or proprietary."

The complaint also notes the perverse irony of the situation alleged - that the former VP (Trainer) is seeking a patent to obtain rights that could possibly used to deprive Credit Suisse of their interest in continuing to market and utilize their Value Dynamics Framework methodologies (it's now been renamed) without paying Trainer a licensing fee.

This is a very interesting case for two reasons: (a) it involves an employee defection that is almost a decade old; and (b) it involves a former employee allegedly trying to patent a procedure that his former employer allegedly introduced him to.

We'll keep an eye on this one for you.

Thursday, December 17, 2009, 12/17/2009 09:32:00 AM

China Detaining U.S. Citizen on Alleged Theft of "Commercial Secrets"

By Todd is reporting that the Chinese police have detained an American automotive engineer for more than a year on accusations he misused trade secrets — the latest case of vague secrecy laws being used against an American in China.

Hu's wife, a China-born naturalized American like her husband, said Tianjin authorities' real target is a China-based company she managed and whose cutting-edge products competed with those of the former business partner, the Hysci (Tianjin) Specialty Materials Co. Hysci, she said, complained that her startup was developing products unusually fast, prompting the trade secrets investigation.

"You don't sue someone just because you think their R&D is too fast," said Hong Li, who lives in the Los Angeles area with their two teenage children. "This case is being conducted illegally."

Hysci declined comment, as did the Chinese company that employed Hu at the time of his detention. Prosecutors referred inquiries to the Tianjin police. The police information office said the criminal investigation is continuing but refused to elaborate other than to say "it is a complicated case."

Hu's detention comes amid other similar prosecutions of China-born foreign nationals. In recent months, Australian national Stern Hu — an executive with the global mining giant Rio Tinto involved in big-money and politically touchy iron ore negotiations — was detained on state secrets charges that were later reduced to infringing trade secrets.

Another China-born, naturalized American, geologist Feng Xue, disappeared into custody two years ago and has been put on trial for passing on state secrets — for arranging the purchase of a detailed commercial database on the Chinese oil and gas industry.

Late last year, Hu was detained for reasons Li said are not wholly clear to her. Hysci began accusing her and the Chinese company that she ran of developing competitive materials too quickly for a startup, she said.

"I don't know what happened. I didn't ask him what was going on with him, and he didn't ask what was going on with me. We were all busy in our work," she said.

Li said she did not know what patented technology Hu is accused of violating. She declined to name the company she chaired or its location, saying it was under a proprietary supplier relationship with Wuxi Weifu.

Wuxi Weifu and Hu's lawyer, Shanghai-based intellectual property rights expert Zhu Miaochun, declined comment. Engelhard was acquired in 2006, two years after Hu left, by the German chemical maker BASF. A BASF spokeswoman said the company had not been contacted by Hu, his lawyer or Chinese authorities about the case.


Tuesday, December 15, 2009, 12/15/2009 10:14:00 AM

After $36 Million Jury Verdict and Contentious Battle, Former Adversaries Hansen Medical and Luna Innovations Form a Partnership

By Todd

We reported about the $36 million jury verdict in this trade secrets case here:

Well, is reporting that Hansen and Luna have settled their ongoing dispute on the following terms: (a) a $5 million promissory note, (b) a block of Luna’s stock, and (c)
agreements that will provide its fiber-optic technology to Hansen.

Under the agreement, Luna will reportedly give Hansen the four-year promissory note, 9.9 percent of its common stock and a warrant to purchase additional stock for three years. In addition, Luna will provide Hansen with fiber-optic shape sensing and localization technology to be used in Hansen’s robotic and non-robotic instruments.

“This settlement with Hansen Medical clears the largest hurdle on our pathway to emerge from Chapter 11 reorganization and pay our creditors what they are owed,” Kent Murphy, Luna’s chairman and CEO said in a statement. “We look forward to integrating our shape sensing technology with Hansen’s surgical devices, as we expand the potential market for our products in robotically assisted procedures. It’s exciting for Luna and Hansen to move forward together in a long-term partnership that is focused on creating enhanced procedures that help save lives.”

Let the hostilities end and the partnership begin.

Monday, December 14, 2009, 12/14/2009 12:10:00 PM

Reed Construction Data Sues McGraw-Hill Construction Dodge For Trade Secret Theft

By Todd

BusinessWeek is reporting that Reed Construction Data, a construction information provider, has amended a federal lawsuit against McGraw-Hill Construction Dodge, raising new claims of unlawful misappropriation of trade secrets.

The original lawsuit, filed Oct. 8 in the U.S. District Court for the Southern District of New York, charged that Dodge used a series of fake companies since 2002 to pose as RCD customers and gain access to RCD's construction project information database.

Reed Construction Data is a subsidiary of Reed Elsevier. McGraw-Hill Construction Dodge is a unit of The McGraw-Hill Companies Inc.

The amended complaint alleges that Dodge downloaded hundreds of RCD project-related documents and viewed details for thousands of construction projects.

The lawsuit alleges Dodge made misleading claims that its products were superior to RCD's, preventing companies from making fair and objective comparisons of the companies' products.

Hundreds of companies made misinformed buying decisions, the lawsuit said.

The amended complaint alleges multiple counts of fraud, misappropriation of trade secrets, misappropriation of confidential information and unfair competition, among other allegations.

Spokeswoman Patricia Walsh for McGraw-Hill Construction Dodge said the company denies the allegations. "We believe their legal claims are without merit and we intend to defend against them vigorously," she said.

The suit seeks an unspecified amount in lost profits, punitive damages and a jury trial.

Wednesday, December 09, 2009, 12/09/2009 10:45:00 AM

Trade Secrets of . . . Shoe Design: Crocs Gets Sued in Trade Secrets Case

By Todd is reporting that Crocs is being sued Columbia Sportswear for allegedly misappropriating Columbia's trade secrets received from a former Columbia employee.

In a filing in Multnomah County Circuit Court, Washington County-based Columbia accused the Colorado-based company of misappropriating trade secrets, intentional contract interference and aiding and abetting breach of duty of loyalty. The suit seeks at least $310,000 in damages and asks a judge to halt sales of certain footwear and give up all profits.

Tia Mattson, a Crocs spokeswoman, declined comment because she had not seen the amended complaint. The accusations were added to a lawsuit Columbia filed in August accusing Brian O'Boyle of designing footwear for Crocs while working as a senior footwear designer at Columbia. O'Boyle said Tuesday he could not comment on the allegations while the lawsuit was pending.

Columbia alleges Crocs earned $10 million in revenue and $3 million in profit on four models that incorporate O'Boyle's designs, including Electro clog and Prepair collection of recovery footwear, said Peter Bragdon, general counsel and vice president for Columbia. Columbia alleges Crocs paid O'Boyle more than $120,000 for the work.

"We just can't allow a competitor to sneak in the back door to take advantage of the investment we made," Bragdon said. O'Boyle, who spent nearly seven years at Nike before joining Columbia in 2003, no longer works at Columbia. Records show he invented a side element of a shoe upper for which Nike holds a patent.

Tuesday, December 08, 2009, 12/08/2009 01:21:00 PM

The Prodigal Son-In-Law: Trade Secrets Theft Damages Issue Submitted to Florida Jury in Weird Family Legal Battle

By Todd is reporting that a decade-old legal battle launched by members of a once-close Palm City, Florida family torn apart by million-dollar financial disputes, arson and industrial espionage is back in court with a new jury seated Monday to pick up where a 2004 jury left off.

Five years ago, a Martin, Florida jury found that in 1998, Port St. Lucie plastics manufacturer Premiere Lab Supply stole a machine and its design — considered trade secrets — from Chemplex Industries, a rival Palm City business founded by Monte Solazzi that uses a thin plastic film to make medical and industrial sample cups and containers.

This jury will determine damages owed to Chemplex.

The machine thief, court records show, was Solazzi’s son-in-law, Anthony Norelli, who worked for Chemplex until Solazzi in 1998 terminated him and sales manager Donato Pompa.
According to court records, Norelli and Pompa established Premiere in part by using the production machine stolen from Chemplex, and soon after began luring away hundreds of thousands of dollars in business from Chemplex.

Norelli though, bent on destroying Chemplex, twice hired someone to torch the building at its former Stuart site. After the second fire in 2000, Chemplex relocated to Palm City.

Federal authorities arrested Norelli, who pleaded guilty to tax charges and arson for hiring an accomplice to burn Chemplex. He was sentenced to five years in prison, but last month a judge ordered him back to prison for three months for violating the terms of his supervised release.

Pompa, who in court on Monday said Norelli was no longer his partner in Premiere, was also convicted in federal court for a theft of trade secret from Chemplex. He was ordered to serve five months in prison, followed by three years of supervised release.

Court records filed in May show Pompa is hoping a judge will dismiss a $240,000 federal restitution order, the amount of money he was ordered to pay to Chemplex following his guilty plea.

In court Monday, Solazzi’s attorney, William Davis of Miami, grilled Pompa about the revenue generated at Premiere Lab between 1999 and 2007, the time frame for which the firm utilized the machine taken from Chemplex.

“Would you agree sir that between 1999 and Aug. 3, 2007, that on average Premiere was selling these thin film products for roughly 57 percent less in terms of price than Chemplex?” Davis asked.

“I don’t know what the calculations is as far as what their selling prices are,” Pompa said. “I don’t have those figures in front of me.”

The trial is expected to last through Friday.

Friday, December 04, 2009, 12/04/2009 08:18:00 AM

Former Quicken Employee Indicted for Allegedly Stealing Trade Secrets

By Todd

A Michigan man stole computer secrets from his former employer, Quicken Loans Inc., according to a grand jury indictment unsealed Thursday in Detroit.

Michael Hummel, 35, is charged with wire fraud and theft of trade secrets and faces up to 20 years in prison if convicted of the most serious charge, wire fraud.

Hummel worked at Quicken's Livonia, Michigan offices from February 2005 until November 2006 as a senior Web developer and software engineer, according to a news release issued by the U.S. Attorney's Office.

He stole developed secrets about how to make the company's Web sites operate quickly and effectively, the news release said.

Beginning in May 2006, while still working for Quicken, Hummel began consulting with another company and stole Quicken secrets to help the other company build its Web sites, the indictment alleges.

"Protecting the competitive edge technology of our companies through vigorous enforcement of our federal trade secret laws is a top priority of this office," said interim U.S. Attorney Terrence Berg.


Thursday, December 03, 2009, 12/03/2009 03:48:00 PM

Former Home Depot Executive Gets Nailed By the Trade Secrets Hammer

By Todd

The Atlanta Business Chronicle is reporting that former Home Depot executive Guillermo Martinez of Cumming, Ga., pleaded guilty Wednesday in federal district court to stealing trade secrets from the home improvement retailer.

Martinez was Home Depot’s senior manager of product engineering, responsible for helping company vendors prep to sell products to the company. In his position, he had access to Home Depot’s confidential information and other trade secrets, including pricing and profitability spread sheets and documents relating to product line reviews.

Starting in January 2008, Martinez was assigned to assist a potential local vendor that subsequently invited by Home Depot to participate in a product line review. A product line is where potential vendors make presentations for their products, packaging and marketing ideas. It also involves the submission of the potential vendors’ prices.

From around May 2008 and continuing until around July 2008, Martinez began supervising the local vendor’s presentation to Home Depot (NYSE: HD) as if he was a high-level employee of the vendor. In an effort to have the vendor gain an advantage over its competitors during the product line review, Martinez provided the vendor with Home Depot trade secrets. Specifically, he gave out confidential and proprietary pricing information, including the price the company was paying the vendor's competitors for the products that the vendor wanted to sell to the company.

Martinez provided a document titled “Wire Devices: RFP Summary,” which was marked at the bottom as “Proprietary & Confidential to The Home Depot,” and which contained a summary of the vendor's line review of competitor's price quotes. Martinez also provided a binder containing the line review presentation submitted to the company by a competitor of the vendor.

During this same time, Martinez was negotiating an employment agreement with the vendor.

Sentencing is set for Feb. 3, 2010.

Wednesday, December 02, 2009, 12/02/2009 09:14:00 AM

Court Refuses to Give the Hook to The Nook - Preliminary Injunction Denied in E-Reader Trade Secrets Case

By Todd

We first identified this Barnes & Noble "Nook" case here:

You'll recall that Spring Design has sued Barnes & Noble and the lawsuit asserts Barnes & Noble misappropriated Spring Design's trade secrets and violated the parties' non-disclosure agreement when it copied Spring Design's features into its recently announced Nook e-book.

Spring Design moved for a preliminary injunction and that motion was denied yesterday.

The Court preliminarily found that "Spring Design has not presented sufficient evidence to show that Spring Design is likely to succeed on the merits. Moreover, Spring Design’s motion was heard on the day that Barnes & Noble launched its nook™ product, at which time Spring Design did not have a commercial product available. Thus, the requested preliminary injunction halting the saleof Defendant’s product would alter the status quo, not preserve it."

You can read the full order here: This is not the end of the case, folks. This federal judge was just convinced that an injunction stopping Barnes & Noble from marketing and selling its reader wasn't warranted because the court couldn't decide whose evidence made them more or less likely to win later on at trial and and an injunction wouldn't protect Spring Design's interests anyway because its e-reader device wasn't on the market. In other words, the injunction would tend to penalize Barnes & Noble but not benefit Spring Design and protect its real commercial interests.
We'll keep a nightlight on to watch and read about this one as it progresses.
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