BLOGS: Trade Secrets Blog

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Tuesday, December 28, 2010, 12/28/2010 11:02:00 AM

Todd Quoted on Starwood Settlement

From the Los Angeles Times, here's a story on the recent settlement between Starwood and Hilton on their trade secrets case. Todd is quoted extensively.

In June, Todd discussed the Hilton-Starwood case in a major L.A. Times article.

Thursday, December 23, 2010, 12/23/2010 10:24:00 AM

The Secrets of Sausage

By Todd

Richmond BizSense is reporting that a butcher shop has sued a sausage wholesaler for misappropriation of trade secrets, among other things.

Belmont Butchery claims that Sausage Craft and its owners, both former Belmont Butchery employees, copied recipes to help launch their company.

“Belmont Butchery guards its recipes and methodologies namely, trade secrets, in order to protect its business’s niche in the gourmet butcher shop market and give it a competitive advantage in business,” it says in the suit.

Devon Cushman, an attorney with Hirschler Fleischer representing Sausage Craft, said she is confident that her clients will be vindicated.

“What Belmont Butchery is alleging to be a trade secret isn’t a trade secret and aren’t subject to trade secret protection,” said Cushman. “My clients didn’t take these recipes. They are using new recipes they developed to create what they hoped to be a better product.”

A preliminary injunction has already been denied. We may choose not to report again on this one.

Have a Happy Holiday folks!

Wednesday, December 22, 2010, 12/22/2010 05:14:00 PM


By Todd

The New York Times is reporting that Starwood Hotels and Resorts has settled its major trade secrets case against Hilton Hotels.

The settlement includes a substantial payment by Hilton to Starwood, according to a source with direct knowledge of the pact.

It subjects Hilton to an injunction, approved by a federal judge, that prohibits the hotel chain from starting any new “luxury and lifestyle” hotels for two years, a major blow for a company that had made this a major growth initiative.

Hilton will also hire two court-appointed monitors — effectively corporate baby-sitters — who will oversee the hotel chain’s compliance with the settlement.

A federal grand jury in Manhattan continues to investigate whether Hilton and its former executives should face criminal charges in connection to the claims, according to the court filing.

“Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels and Resorts Worldwide and is pleased to bring an end to this prolonged litigation,” Christopher J. Nassetta, Hilton’s chief executive officer, said in a statement.

“Given the facts, we had no choice but to stand up and protect our brands on behalf of our investors, associates, owners and customers,” Frits van Paasschen, Starwood’s chief executive, said in a statement. “This settlement reinforces this protection and restores a level playing field for fair competition.”

Saturday, December 18, 2010, 12/18/2010 10:15:00 AM

More Details on Trade Secrets and Insider Trading

Further to Todd’s posting yesterday, here’s a link from to the criminal complaint unsealed in the Southern District of New York.

The details are troubling.

Friday, December 17, 2010, 12/17/2010 10:25:00 AM

The Intersection of Trade Secrets and Insider Trading Law

By Todd is running an interesting piece regarding the newly filed criminal complaint that accuses former Flextronics Senior Director of Business Development Walter Shimoon and others of surreptitiously disclosing information regarding Apple product developments to a now-cooperating witness from an unnamed hedge fund. The alleged purpose of the disclosure? To aid the hedge fund in trading equities, including Apple, on the disclosures.

The FBI, apparently tipped off that these unfortunate exchanges of information were occurring, obtained a wire-tap and was able to tape these explosive exchanges initiated by Mr. Shimoon:

Apple, he is heard telling CW-2, was "coming out next year" with a new iPhone that's "gonna have two cameras ... It'll be a neat phone because it's gonna have a five-megapixel auto-focus camera and it will have a VGA forward-facing videoconferencing camera." Apple announced the iPhone 4 -- with its two cameras -- eight months later.

Then he is heard telling CW-2 that "they [Apple] have a code name for something new ... It's ... It's totally ... It's a new category altogether... It doesn't have a camera, what I figured out. So I speculated that it's probably a reader. ... Something like that. Um, let me tell you, it's a very secretive program ... It's called K, K48. That's the internal name. So, you can get, at Apple you can get fired for saying K48." The iPad -- code named K48 -- was unveiled four months later.

These are detailed allegations. We don't know the details yet regarding why Shimoon and his compadres would engage in this kind of conduct but we're guessing it has something to do with money. We'll keep an eye on this one for you. This, folks, is where trade secret law meets insider trading law and that makes for interesting reading.

Wednesday, December 15, 2010, 12/15/2010 08:35:00 AM

ANOTHER Trade Secret Theft Conviction and Sentence

By Todd

The Associated Press is reporting that Georgia resident Kevin Crow, 57, had pleaded guilty to stealing 100 computer discs containing trade secrets of the company that laid him off in 2007. Mr. Crow was an engineer for Turbine Engines Components Technologies.

Prosecutors say he contacted the company's employees requesting price sheets and contract reviews after he was hired at a competitor, Precision Components International. They say he also admitted in a conversation that he took the discs, blueprints and other information from his former firm.

Mr. Crow has been sentenced to three years in prison.

Monday, December 13, 2010, 12/13/2010 10:15:00 AM

Judge Halts Former U.S. Trust Team From Using Client Info

By Todd

Reuters is reporting that four former U.S. Trust employees have been enjoined by a New York state court from using client records they brought to their new employer, Dynasty Financial Partners.

Michael Brown, a U.S. Trust adviser whose clients hold $5.9 billion in assets under management, and three others joined Dynasty this week to help build a firm that will provide technology and other support to high-end investment advisers.

Brown and his team in their resignation letter contended "the protocol" allowed them to take client information, according to Bank of America's complaint. The “Protocol for Broker Recruiting” is a voluntary pact that many financial services firms have signed that provides the ground-rules for departing financial advisors.

Unfortunately for the defendants in this case, U.S. Trust is not a signatory to the protocol.

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

Friday, December 10, 2010, 12/10/2010 02:04:00 PM

Ex-Goldman Sachs Programmer Found Guilty of Theft of High Frequency Trading Source Code Secrets

By Todd

The Wall Street Journal and many other news agencies are reporting that Sergey Aleynikov, the former Goldman Sachs high frequency trading programmer, has been found guilty by a federal jury in New York of theft of trade secrets and transportation of stolen property in interstate and foreign commerce. This is the second conviction in the federal court in Manhattan for this identical crime. The first, you'll recall, was the recent conviction on November 24th of Samarth Agrawal for the same type of theft from Societe Generale.

These two prosecutions are major victories for the U.S. Attorney's Office in Manhattan. We anticipate that the government will not be as hesitant to bring these actions in the future now that they have found juries able and willing to convict in these matters. Sentencing for Mr. Aleynikov will take place on March 18th.

Thursday, December 09, 2010, 12/09/2010 10:44:00 AM

Former Valspar Employee David Yen Lee Sentenced for Criminal Trade Secrets Theft

By Todd

The Chicago Daily Herald is now reporting the thief, David Yen Lee, has been sentenced to 15 months in federal prison and ordered to pay restitution of $30,975. The restitution approximates Valspar's internal costs of investigating Mr. Lee's misconduct.

You'll recall that Mr. Lee resigned, shortly after a trip to China, and when he turned in his phone and computer, Valspar found a hidden file containing unauthorized software programs including a data copying program. Data including Valspar trade secrets had been downloaded to the computer without authorization. Mr. Lee had booked a one-way airline ticket from Chicago to Shanghai scheduled to depart shortly after his resignation. Valspar is a maker of a paints and industrial coatings. It was earlier reported that the US Attorney's office had been seeking a sentence of 5 years.

Wednesday, December 08, 2010, 12/08/2010 10:10:00 AM

No Trade Secrets Claim Against WikiLeaks

In a discussion of the prospect of a WikiLeaks prosecution, the New York Times considers – and then rejects – a possible trade secrets angle.

The article notes that “intellectual property law criminalizes the unauthorized reproduction of certain kinds of commercial information, like trade secrets,” but goes on to note that “those categories do not appear to cover government documents, which by law cannot be copyrighted and for which there is no ordinary commercial market.”

The article also quotes Duke Law School professor, James Boyle: “If you had large-scale dissemination of a private-sector company’s records, there might be some kind of argument there similar to commercial espionage.”

Interestingly, WikiLeaks is purported to have a cache of Bank of America documents for release which could, at least theoretically, pose a trade secrets issue.

New Employer in Goldman Trade Secrets Prosecution: "I Don't Think Goldman Is Good At High Frequency Trading"

By Todd

Catchy title to this blog post - but there's a reason that Teza's Mikhail Malyshev might want to offer an opinion that Goldman isn't that great at high-frequency trading: because some of the source code that Sergey Aleynikov stole from Goldman Sachs ended up on Teza's computers.

This report (click on the title to this post above) from FINalternatives is interesting because it shows how facts in this criminal trial are coming out that will be spun by both the prosecution AND the defense. This remains an interesting story and prosecution. You have to love Aleynikov's negotiating a $1 million plus comp package and then holding out for that $200 per month parking allowance.

Tuesday, December 07, 2010, 12/07/2010 10:50:00 AM

Lesson Learned from Ongoing Goldman Sachs Trade Secrets Criminal Trial: Shut Your Trap

By Todd

This is a pretty interesting piece penned by Forbes' Emily Lambert. She has derived three rules from following the Sergey Aleynikov criminal trial: (1) When you leave a job, leave it behind; (2) If you ignore the above, shut your trap; and (3) Improve your online image.

We've been thinking about a few others, including perhaps: (1) If you're being offered 3 times what you're currently earning, you're either a bad negotiator presently or you're going to be asked to use something other than your basic skills in the future; (2) If you're going to claim that you've only taken open-source code, obtain that code from the open-source and not your former employer; and (3) Drive, don't fly, if you've got a computer full of documents and data that doesn't belong to you.

Friday, December 03, 2010, 12/03/2010 09:18:00 AM

Goldman Sachs Trade Secrets Trial: First Courtroom Closing Reported

By Todd

You'll recall we are following the criminal trial of the guy pictured herein (Sergey Aleynikov) for allegedly stealing certain source code elements of the Goldman Sachs high frequency trading platform. You'll also recall that Judge Cote advised that she would only close the courtroom on a case-by-case basis as the testimony and evidence required it.

Well, Judge Cote has now closed the courtroom once - for approximately 40 minutes of testimony regarding the Goldman Sachs source code and its capabilities. Thanks to Reuters for this report. We'll continue linking you to online stories as the trial continues.

Thursday, December 02, 2010, 12/02/2010 10:29:00 AM

TCW Going After Gundlach's DoubleLine Funds Trust Now

By Todd

We first reported on the claims of trade secret misappropriation against California-based money manager and financier Jeffrey Gundlach and his new company here:

Bloomberg News is reporting that TCW is alleging in a newly filed suit that DoubleLine Funds Trust was started to market DoubleLine Capital’s mutual funds and to “generate fees and profit for Gundlach and the money management firm he had formed,” according to a new complaint filed yesterday in state court in Los Angeles. TCW provided a copy of the complaint to Bloomberg News.

TCW, a Los Angeles-based money management firm, accuses the trust and its trustees of misappropriation of trade secrets and unfair competition, among other allegations, and seeks unspecified damages.

“Jeffrey Gundlach and his co-conspirators built a business based on the wholesale theft of huge amounts of TCW’s proprietary data and analytical systems, and that business includes DoubleLine Funds Trust,” Steve Madison, a lawyer for TCW, said yesterday in an e-mailed statement. “When DoubleLine Funds was launched last spring, TCW notified the funds and their trustees of TCW’s intent to name the trust as a defendant.”

TCW, a unit of Societe Generale, in January accused Gundlach and several former employees who joined DoubleLine of breach of fiduciary duty, unfair competition and misappropriation of confidential information and demanded more than $200 million in damages.

Wednesday, December 01, 2010, 12/01/2010 09:09:00 AM

Goldman Sachs High Frequency Trading Trial Gets Underway - Defense Counsel Already Irritates Federal Judge

By Todd

Peter Lattman in the New York Times DealBook has provided us an inside seat in the Economic Espionage Act prosecution of Sergey Aleynikov. Nothing really too interesting so far, other than the fact that Mr. Aleynikov's defense counsel apparently twice suggested that this case should be a civil matter and that Goldman could have sued Mr. Aleynikov instead of referring the case to criminal authorities. That did not make Judge Cote happy and at the conclusion of the lawyers’ opening statements, she reminded the jurors that “this is a criminal trial” and the defendant has been accused of violating federal laws.

We get the sense that Mr. Aleynikov's counsel feels he might pull a juror or two over to his side if he can convince them that Goldman Sachs is prosecuting this case and not the United States Attorney. Sounds like Judge Cote won't have too much of that in her courtroom. More as it develops.
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