BLOGS: Trade Secrets Blog

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Wednesday, October 27, 2010, 10/27/2010 09:52:00 AM

Goldman Sachs Wants a Sealed, Closed Courtroom For Trade Secrets Theft Criminal Trial Against Former Employee

By Todd

The Wall Street Journal and Bloomberg are reporting that federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm's computer code. The move was a formal request to empty the courtroom of the general public when details of Goldman's trade secrets are being discussed. The trial is set to start to late November.
Prosecutors also asked that any documents related to Goldman's trading strategies remain under seal.
Such requests are common when proprietary corporate information could be exposed in a trial.

Lawyers for Mr. Aleynikov (that's Sergey Aleynikov in the picture), whom the indictment alleges uploaded Goldman code to a server in Germany and then downloaded it to his home computers, are expected to contend that the code he took only represented a fraction of the broader strategy and couldn't be used to hurt Goldman's business, court documents suggest.

Court documents filed by the government in July 2009, soon after Mr. Aleynikov's arrest, state that Goldman's strategies involve "sophisticated, high-speed and high-volume trades on various stock and commodities markets."

Prosecutors allege that Mr. Aleynikov transferred a substantial portion of that code to a computer server in Germany. He then downloaded the code to his personal laptop, which he allegedly brought to Chicago, where he had a meeting a firm that had hired him, start-up trading shop Teza Technologies LLC.
Teza became embroiled in its own legal battle following Mr. Aleynikov's arrest. Founder Mikhail "Misha" Malyshev and Teza employees were sued by their former employer, Chicago hedge fund Citadel LLC, for violating agreements not to work for a competitive firm. In mid-October 2009, a Chicago court granted sanctions against Teza.

Tuesday, October 26, 2010, 10/26/2010 09:23:00 AM

Treasury Produces 560 Pages of Highly Redacted E-Mails In Response to Bloomberg FOIA Request

By Todd

This blog's readers know that the federal Freedom of Information Act and state open records laws create issues for governments in fulfilling their obligations to create transparency but also protect the properly protectable.

When it comes to trade secrets or competitively sensitive information the government obtains, the relevant FOIA exemption from disclosure is at 5 U.S.C. § 552(b)(4). “Exemption Four applies if a tripartite test is satisfied: (1) The information for which exemption is sought must be a trade secret or commercial or financial in character; (2) it must be obtained from a person; and (3) it must be privileged or confidential.” The major issue the appellate court was attempting to deal with with regard to the Bloomberg FOIA request was: "was the information Bloomberg sought (e.g., loan amounts, maturation dates, securities guaranteed) obtained from a person" -roughly speaking, from somebody else who is not the government? The Second Circuit Court of Appeals found that the information Bloomberg sought was not OBTAINED from a person, it was generated by the Federal Reserve in the guarantee process and therefore not exempt from disclosure under Exemption 4.

Well, now the Federal Reserve has printed and released 560 pages of e-mails and they are reportedly heavily redacted. Bloomberg, even in its reporting of the facts, appears steaming mad.

We'd imagine this one is going back to court again.

Monday, October 25, 2010, 10/25/2010 11:15:00 AM

Social Media and Trade Secrets – Time to Panic?

From London’s Daily Mail, the story, almost obligatory in some respects, about some “top German firms” banning Facebook and Twitter in the workplace on grounds, in part, that employees “could give away trade secrets” through social media.

According to the story, a majority of the German firms in the DAX 30, including VW and Porsche, are banning access because of fears of industrial espionage.

As with most stories that fall into this category, there is not a single example of trade secrets being lost through use of social media, although one computer security expert is quoted saying “'Before it was email that was the favorite gateway for damaging software - today it is social networks.” Again, though, no actual instances are cited.

Expect to see these fears -- founded or unfounded -- spread beyond Germany.

So, is it time to panic? Only if that’s what you are paid to do.

DuPont Ex-Employee Sentenced to 14 Months, Faces Deportation After Release

By Todd

BusinessWeek is reporting that former DuPont chemist Hong Meng has been sentenced to 14 months in prison in connection with his guilty plea to violations of the Economic Espionage Act. We've covered this case a number of times, including most recently here:

Meng, whose work involved research on organic light emitting diodes, accepted a position at Peking University in China in 2009 without DuPont's knowledge. He then transferred information about DuPont's work with OLED displays to his Peking e-mail account and his personal computer.

Authorities say Meng also lied to investigators about sending DuPont chemical samples, some considered trade secret compounds, to a colleague at Northwestern University with instructions to forward them to China.

Assistant U.S. Attorney Robert Kravetz told Robinson at the sentencing that Meng's actions were "a very serious intellectual property offense ... and represents an abuse of trust" and that Meng continues to cling to a story that is inconsistent with the facts.

According to prosecutors and court papers, Meng was and is a "brilliant researcher" who made significant advances in the field of paper-thin displays involving nanoelectronics and organic semiconductors, also known as organic light-emitting diodes.

Meng co-edited a book on the technology, which is expected to be the next generation of displays for televisions, computers and other video-based technology.

In summer 2009, Meng, who had been based in Delaware, was set to transfer to a DuPont facility in Shanghai. During the screening for that move, company officials uncovered e-mails and other documents that indicated Meng was preparing to accept a job at Peking University in Beijing, his alma mater, and planned to head a department focused on OLED technology.

While District Judge Sue L. Robinson originally gave Meng until Dec. 1 to report to prison, she reversed her position at a follow-up proceeding Thursday, and Meng was taken into custody immediately. Prosecutors and probation officials expressed concern about Meng's uncertain residency, and federal immigration officials were seeking to take Meng into custody -- if the court did not -- because of the felony conviction.

Friday, October 22, 2010, 10/22/2010 07:58:00 AM

Trade Secrets of the Stars

From the Beverly Hills Courier (which bills itself as the best read paper in Beverly Hills), comes a story about an inventor of a pudding for body builders who is suing Sylvester Stallone in a trade secrets case.

William Brescia, the inventor, claims that Stallone and a co-defendant took his recipe for a pudding for body builders, a high-energy, low-carbohydrate meal, and marketed it as their own product.

Stallone denies the allegation:

Now, I never stole ... all I know is I'm getting sued for something that I have no recollection, no involvement in. I just sold a product. I never was involved in ripping off anyone's pudding and it's costing me a lot of money and harassment for something I did not do, or would ever do and have never done.

Among other things, Stallone is contending that the pudding embodies no trade secrets and that the inventor cannot show how it differs from the general knowledge of those in the pudding field.

The case is pending in Los Angeles Superior Court.

Wednesday, October 20, 2010, 10/20/2010 10:21:00 AM

The Trade Secrets of Corn Prices in Ethanol Production

By Todd

Interesting reporting from The Sioux Falls Argus Leader regarding a new employee defection matter. Seems a Sioux Falls based ethanol producer has sued a former employee named Jodi Heath alleging misappropriation of trade secrets regarding corn purchase pricing strategies for Poet.

Heath was commodities manager for Poet's plant in North Manchester, Ind., from 2008 through August, when she allegedly took knowledge of the company's customers and pricing strategies to work for Interstate Commodities, Inc.

Poet's lawsuit says Heath e-mailed herself information about production costs at the plant and used it to calculate the maximum amount the plant would pay for corn at any given time.
Within days of her resignation, the lawsuit says, she was buying from the same farmers she did during her tenure at Poet.

"Shortly after Heath went to work for Interstate, Poet Risk Management was forced to instruct all Poet plants, including Poet North Manchester, to refrain from entering any forward contracts with Interstate because it was taking contract positions around the Poet plants and driving up the corn price," the lawsuit says.

Poet wants an injunction issued against Heath that would force her out of her job at Interstate. The lawsuit also seeks $25,000 for each breach of contract.

We've always said that the story regarding how trade secrets were allegedly misappropriated plays a major role in deciding these cases. If the evidence supports Poet's allegation regarding the surreptitious e-mailing of data to Ms. Heath's personal e-mail account, this may be a tough case in which she defends her pre-departure and post-departure activities.

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

Even the New York Times Recognizes the Trade Secrets Problem

There’s an old saw that if something is in the New York Times, it has arrived as a trend (and if it’s on the cover of Time Magazine, it’s over).

Well trade secrets, and specifically the phenomenon of employees stealing trade secrets on behalf of foreign competitors, is now officially a trend.

The case of Mr. Huang and Dow Chemical is the jumping off point for the coverage.

We’ve been covering these cases for five years now, but welcome the New York Times to the beat.

Tuesday, October 19, 2010, 10/19/2010 11:04:00 AM

The Trade Secrets of the Predator Drone's Software Systems

By Todd

ComputerWorld is reporting that a legal war is being fought over technology being used in the war in Afghanistan.

In a well-written piece by Jaikumar Vijayan, he reports that the Suffolk County (Massachusetts) Superior Court will soon decide if software vendor Netezza should be allowed to continue selling a product used by the CIA in its Predator drone program that another vendor claims is based on misappropriated technology.

The disputed Netezza technology was originally developed for and is currently integrated in targeting systems used by Predator drones in antiterrorist operations in Afghanistan, Iraq and elsewhere. It is also used in Netezza's Spatial technology, which the company started selling earlier this year.

Intelligent Integration Systems (IISi), a relatively small vendor of data analytics software, claims that Netezza stole its trade secrets and intellectual property (IP) in building the system for the CIA.

The company is seeking a court order that would bar Netezza from using and reselling the disputed technologies.

In its motion seeking a preliminary injunction, IISi accused Netezza of secretly reverse-engineering IISi's technology and of knowingly selling a seriously flawed "hack" of the original software to the CIA.

This battle isn't over - we'll keep an eye on this one for you.

Monday, October 18, 2010, 10/18/2010 11:13:00 AM

Trade Secret Theft and Economic Espionage Involving Mining Tires

By Todd

Inventors Digest has just released the fascinating trade secret and corporate espionage tale of Jordan Fishman, the designer and distributor of massive "underground mining tires" - some of which stood as tall as a grown man, could shoulder 50 tons and sold for upward of $6,000 apiece.

The story reveals that Fishman hired a long-time friend named Sam Vance as his company's (Fishman's company is called Alpha Tyre) marketing manager. Vance then surreptitiously copied all of the relevant drawings and fabrication details for these mining tires and worked with Alpha's China-based joint venture partner and tire manufacturer, China-based Guizhou Tire Company or GTC, and Vance encouraged Alpha’s customers to cancel their orders with Alpha and place their orders directly with GTC.

Fishman found out about the scam, fired Vance, and sued him in Florida.

During discovery in the Florida litigation, Fishman found out Vance also had met secretly in early 2005 with Surender Kandhari, the chairman and managing director of Dubai-based tire distributor Al Dobowi, and John Canning, a consultant for the company, at the Jefferson Hotel in Richmond, Va. Canning had known Fishman for many years and previously worked at Alpha.

At the meeting, Vance offered to provide Al Dobowi with Alpha’s customer lists, pricing information, customer databases and – most important – the proprietary blueprints drawn by Fishman necessary to make molds of Alpha’s highly specialized tires.

Vance began working for Al Dobowi in the summer of 2005 from his office in Tazewell, Va. Meanwhile, LingLong copied Fishman’s blueprints – clearly labeled as proprietary documents – so it could make molds and produce the tires.

By the end of the first quarter of 2006, Al Dobowi and LingLong were producing nearly the full range of Alpha’s underground mining tires and were filling orders for customers once loyal to Alpha – all without Fishman’s knowledge.

Fishman, in fact, came across the forged tires at a tradeshow in Las Vegas in 2006. The tires used the same specs, markings, tread design and even the same size designation – a size that Fishman had conceived and were not based on any conventional tire sizing. The only difference was a variance of the name. Fishman called his tires the Mine Mauler. LingLong called its tires the Mine Handler.

“I saw our tires on display at the LingLong booth,” Fishman tells Inventors Digest. “There were about 25 of them on display. I never experienced something like this before. I pulled the tires out onto the floor and took pictures of them.

Well - you know how this one ends.

On Jan. 24, 2008, the Florida court found that Vance provided Al Dobowi with Alpha’s trade secrets, including Alpha’s tire drawings, profit-margin reports, production schedules and buying prices and enabled Al Dobowi to enter the market for underground mining tires.

The court also found that Alpha suffered irreparable damage because of Vance’s theft of Alpha’s trade secrets. The court awarded Alpha $19.6 million compensatory damages and $39.3 million in exemplary damages.

But Vance fled to China, where he reportedly now resides.

Alpha subsequently sued Al Dobowi and a bunch of other companies in on the scam and was awarded an additional $26 million in damages for unfair competition.
This piece is an interesting story and read. You can read the piece by clicking on the title to this blog.

Wednesday, October 13, 2010, 10/13/2010 02:23:00 PM

Surveyor, and Accused Trade Secret Thief, Arraigned in Minnesota

By Todd

Well - Park Rapids, Minnesota surveyor Tom Miller was arraigned yesterday and accused of downloading a database of proprietary trade information from his former employer Arro of Park Rapids, LLC, and taking it with him when he began work at Lindow Surveying & Mapping, LLC, where he works as a consultant.

His attorneys are apparently arguing that because surveyors are legally liable for 10 years after a survey is completed, Miller only took materials he may need in court later on surveys he conducted for Arro.

Kind of reminds us of the argument that financial services industry employees need to take all of their client files in order to insure that they get paid properly for commissions earned on those files. NOT exactly a winner . . . but we'll see.

Tuesday, October 12, 2010, 10/12/2010 12:15:00 PM

"ICAP Stifling Healthy Competition" Says Compagnie Financiere Tradition SA

By Todd

Bloomberg is reporting that a primary argument made by Swiss trading company Compagnie Financiere Tradition in a Singaporean court is that"there are no trade secrets in inter-dealer broking where prices change constantly and clients are shared by all."

Apparently Tradition has contracted to hire 38 of ICAP's Singapore-based brokers and ICAP won an injunction stopping that, arguing that the workers had access to confidential data including client lists, trading strategies and brokers’ pay.

The case is pending in the Singapore High Court.

Friday, October 08, 2010, 10/08/2010 02:52:00 PM

Bank of America Sues Ex-Programmer for Trade Secret Theft

By Todd

Reuters is reporting that Bank of America has accused a former computer programmer of stealing trade secrets from databases before he left the bank last month. The litigation against Rao Chalasani was filed in federal court in New York and is capitioned Bank of America v Rao V. Chalasani, U.S. District Court for the Southern District of New York, No. 10-7681.

The complaint alleges that Mr. Chalasani sent an email on Sept. 20 from his company address to a personal email address containing 21 files. The files allegedly "contain confidential and proprietary, nonpublic information concerning Bank of America, including profit and loss figures for different lines of its businesses throughout the world." Additionally, the bank alleges the information included the bank's "current trading positions in numerous securities and the company's assessment of risk."

The lawsuit said the email transfer was discovered on Sept. 30 in a regular review of emails containing unusually large attachments that company employees send to address outside the company.

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

Thursday, October 07, 2010, 10/07/2010 11:52:00 AM

Char-Broil Bribes Customers to Reveal Their Trade Secrets!

By Todd

Okay, we're kidding - there's no bribery for trade secrets going on here. But Char-Broil, apparently the leading U.S. marketer of infrared, gas, charcoal, portable and electric outdoor barbecue grills, is asking its customers to enter a "trade secrets" contest as to the secrets of killer cooking on a Char-Broil infrared grill.

"The Trade Secrets contest is a direct way for us to connect with our consumers. We're excited for the chance to give away our own insider information for perfect outdoor cooking, and to learn some great secrets ourselves," says Michelle Zeller, vice president of marketing for Char-Broil.

Through October 29, 2010, consumers can visit, and share their trade secret for a chance to win the latest in Char-Broil® Infrared grills just in time for tailgating season.

This is purely a public service message to the customers - you may be deemed by a court of competent jurisdiction of having waived your right to trade secret status of your recipe or trick but you'll apparently be in the running for a killer grill if you participate.

Wednesday, October 06, 2010, 10/06/2010 05:00:00 PM

Former Akamai Technologies Employee Thinks He's Dealing With Israelis But, Alas, He Was Dealing with the FBI

By Todd

Oh what a tangled web we weave,

When first we practice to deceive!

Well, you're always assuming a risk when you reach out to someone you don't know and suggest that they might be interested in some confidential information that you have. According to a Boston Business Journal report, that's what Elliott Doxer got caught up in when he tried to offer the Israeli Consulate some information that he had access to in his employment with Akamai Technologies.

According to the filed affidavit of an FBI agent, this is how he took the matter to Israel: "“I am a Jewish American who lives in Boston. I know you are always looking for information and I am offering the little I may have.” Oops! Israel apparently immediately contacted the FBI and that's when the FBI started acting, well, Israeli and got Mr. Doxer to turn over his stolen stash.

And note that this one goes back a good while - beginning in the summer of 2006, Doxer provided documents such as contracts, employee lists and employee contact information to the FBI agent. As of late Wednesday, Doxer was being held pending a detention hearing. He asked for a court-appointed lawyer but a judge denied the request, finding he could afford to hire an attorney.

Tuesday, October 05, 2010, 10/05/2010 05:23:00 PM

Italian Court Sentence Thief of Ferrari Secrets to 20 Months in Prison

By Todd

Okay, admit it - you've seen a Ferrari before and you've thought to yourself "the only way I would ever get to drive one of those is by stealing it." Then, like the driver in our picture to the left, you might have some trouble driving it without a instruction manual.
Well, apparently a former Ferrari engineer stole more than a Ferrari - he was convicted of stealing Ferrari's racing secrets and taking them to benefit his new employer, McLaren. McLaren was apparently fined $100 million by the World Motor Sport Council for its role in this theft. Yes, that's correct - $100 million. And it had some racing points stripped from its column and this means that Ferrari may win the championship, after all.

If you ever had any doubts concerning how seriously the Italian legal system treats trade secret theft, this report should erase some of them. But, we admit and acknowledge, this was a theft from Ferrari. That's akin to stealing the secrets of the Gucci handbag or the recipe for the Ragu sauce. Do that and you better watch out for the telephone pole.

Monday, October 04, 2010, 10/04/2010 12:19:00 PM

Trade Secrets of Pharmacies Allegedly Misappropriated By CVS Caremark

By Todd

CVS Caremark is reportedly an integrated provider of prescriptions and related health services. They claim on their website that "It won't be long before every one of Caremark's patients can walk into a CVS/pharmacy with the confidence that his/her Pharmacist has a complete overview of his/her individual history." This prediction has got some private pharmacies angry. And they've sued alleging, among other things, that CVS Caremark is misappropriating THEIR trade secrets.

BusinessWire is reporting that this lawsuit alleges CVS Caremark violates the reported "firewall" between the retail pharmacy and the pharmacy benefit manager (PBM) entities as required when the Federal Trade Commission approved the CVS and Caremark 2007 merger. The complaint goes on to allege that the combined company built an information technology platform that straddles all of CVS Caremark’s business segments, capturing in-depth patient data for marketing and other purposes in violation of HIPAA patient privacy laws.

The plaintiffs go on to allege that patients report being forced, via higher copayments and refusal to cover maintenance medications, to leave their pharmacy where the patient and pharmacist have a long-time professional and personal relationship. Other patients report moving to a CVS Caremark network pharmacy out of fear of losing all health insurance coverage.

We haven't read CVS Caremark's side of the story yet but this one will likely turn into a barn-burner. The private pharmacies' complaint sounds like "bet the farm" allegations. We will print and report on CVS Caremark's response and rebuttal when we find it. This case is pending in federal court in Texas.

Friday, October 01, 2010, 10/01/2010 09:27:00 AM

Secrets of Staying Dry at The Ryder Cup

By Todd

Well, we don't know what the American and European Captains have up their sleeves for this weekend but it obviously includes . . . rain gear.

Good luck to both sides. The Welsh countryside looks damp and cold but we're certain things will warm up once the putts start dropping.

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