BLOGS: Trade Secrets Blog

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Monday, February 28, 2011, 2/28/2011 01:14:00 PM

WSJ Reports that Prosecutors Are Seeking 6-8 Years for Convicted SocGen Trade Secret Thief

By Todd

The Wall Street Journal is reporting that a former Societe Generale SA trader should serve as much as eight years and a month in prison after he was convicted last year of stealing the French bank's proprietary code for its high-frequency-trading business, prosecutors said. We blogged about this case repeatedly as it was being tried:

Federal prosecutors in Manhattan had alleged that Samarth Agrawal secretly printed out copies of the bank's computer code in 2009 and planned to use it to build a copy of SocGen's trading program at a competitor. A jury convicted him of theft of trade secrets and transportation of stolen property in November.

"The defendant stole his employer's valuable high-frequency trading code for simple reason: greed," Assistant U.S. Attorneys Thomas G.A. Brown and Daniel W. Levy said in a court filing late Thursday.

High-speed trading and other financial firms aggressively protect their code, considering it a trade secret and a competitive advantage.

Mr. Agrawal, by bringing the code to a competitor, expected to "earn what he expected would be millions of dollars—far more than the hundreds of thousands of dollar he expected to make at SocGen," prosecutors said.

Prosecutors said Mr. Agrawal should serve six years and six months to eight years and one month in prison. Sentencing is set for Monday

In court papers earlier this week, Ivan Fisher, Mr. Agrawal's lawyer, argued that Mr. Agrawal should receive a more lenient sentence because SocGen suffered no loss and there was no intent on his part to cause one.

"In terms of specific deterrence, we respectfully submit based upon this submission, that more incarceration is not necessary," Mr. Fisher said. "It is inconceivable that any further punishment need be inflicted upon this defendant whose awareness on so many levels, whose remorse is felt so deeply and in so many ways, needs anything more to make certain that the law-abiding nature of his lifelong way of living, again presented in the letters attached to this submission, is easily sufficient."
A native of India, Mr. Agrawal, 27 years old, has been in custody since his arrest in April 2010.

Friday, February 25, 2011, 2/25/2011 10:46:00 AM

French Company SA Neurtelec Awarded $5.8 Million Trade Secrets Jury Verdict Against Boulder, Colorado's Otologics

By Todd

The Denver Post is reporting that a Denver jury Wednesday awarded $5.9 million to a French company that sued a Boulder firm for misappropriating trade secrets as well as several key employees who could help produce a highly specialized hearing implant for the deaf.

The verdict in Denver District Court for SA Neurtelec and against Otologics came after a three-week trial that detailed how the Boulder company, a manufacturer of an inner-ear hearing device, first planned to buy its competitor for $30 million, then hired away its top talent when the offer was rejected.

At issue is a cochlear implant that could revolutionize the industry because it would be entirely implanted. Currently the technology allows for only half of the device to be implanted.

Thursday, February 24, 2011, 2/24/2011 10:05:00 AM

Federal Court Issues Injunction Against Language Services Associates and Employees

By Todd

redOrbit is carrying a piece on a federal court injunction allegedly issued on February 15th in favor of Language Line Services and against against Language Services Associates LLC (LSA), and William Schwartz and Patrick Curtin - two former employees of Language Line Services who are accused of conspiring to take trade secrets and confidential information from their former employer to their new employer.

The injunction prohibits LSA, Schwartz and Curtin from "contacting, communicating, soliciting, dealing, or doing business with any of the customers or their representatives" on a list of over 1200 of Language Line Services' top customers that Language Line Services alleges was taken by the former employees and subsequently used by LSA. The injunction also prohibits the defendants in the suit from using, copying or destroying materials that Schwartz and Curtin allegedly took from Language Line Services. The company filed suit in June for misappropriation of trade secrets and breach of contract.

U.S. District Judge James Ware, who granted the preliminary injunction, said there is no dispute that LSA, Schwartz and Curtin improperly acquired and used the information. We'd imagine Language Line Services proved this impropriety through the use of computer forensic examination but we'll report back if we find more information regarding this case.

This case proves that California law will still punish certain types of unfair competition, even if their business law will usually not permit the use of noncompete agreements with employees.

Wednesday, February 23, 2011, 2/23/2011 03:10:00 PM

South Carolina Federal Court Takes Narrow View of Computer Fraud & Abuse Act

In WEC Carolina Energy Solutions, LLC v. Miller, 2011 WL 379458 (D.S.C. Feb. 3, 2011), South Carolina federal judge Cameron McGowan Currie came down on the side of a narrow view of employee liability under the Computer Fraud & Abuse Act.

The fact pattern was a classic one: employees of plaintiff who were working with a competitor company accessed the plaintiff-employer’s confidential computer information and then emailed it outside of the company to the competitor.

Courts are split as to whether these actions constitute accessing a computer “without authorization” or by “exceeding authorized access” under the Computer Fraud & Abuse Act.

Judge Currie took, as noted above, the narrow view holding that as employees they were authorized to “access” the information. That act, therefore, did not violate the CFAA even though their subsequent acts of downloading and emailing the information to a competitor were not authorized. Those subsequent unauthorized act, however, are not covered by the CFAA.

The case was dismissed because the CFAA was the sole federal claim supporting jurisdiction in federal court.

Huawei Wins Partial Injunction in Motorola Case

By Todd

Reuters is reporting that China's Huawei Technologies Co on Tuesday won a federal court order barring Motorola Solutions Inc from disclosing a variety of confidential Huawei information to rival Nokia Siemens Networks.

But Motorola Solutions said it was pleased that the judge denied Huawei's request to block its $1.2 billion sale of its networks business to Nokia Siemens.

Huawei had sued last month to block the sale, demanding that terms be altered to protect its trade secrets and intellectual property rights.

In her ruling, U.S. District Judge Sharon Johnson Coleman in Chicago said Huawei had shown a "reasonable likelihood of success" on the merits of its claim that Motorola Solutions and Nokia Siemens might misappropriate trade secrets, and that "irreparable competitive harm" could result.

We will attempt to find a copy of the injunction and post it.

Tuesday, February 22, 2011, 2/22/2011 11:42:00 AM

TechForward Claims Best Buy Misappropriated Its Trade Secrets

By Todd

The Minneapolis Star-Tribune is reporting that a California company is accusing Best Buy Co. Inc. of stealing trade secrets for its new, much-ballyhooed buyback program introduced to the nation earlier this month by Justin Bieber and Ozzy Osbourne.

TechForward Inc. alleges in a lawsuit filed in federal court in California earlier this week that Best Buy officials turned to TechForward for help in designing the program but eventually took the California company's proprietary information "and then cast the company aside while using TechForward's trade secrets to implement its own buyback program."

"Best Buy looked to TechForward for a solution," the lawsuit states. "Unbeknownst to TechForward, however, Best Buy had no intention of paying for TechForward's help."

Best Buy had no comment on the lawsuit. We'll follow this one as it develops.

Monday, February 21, 2011, 2/21/2011 09:56:00 AM

Former Bristol-Myers-Squibb Employee Sentenced to One Year, Deportation

By Todd

The Wall Street Journal is reporting that 30-year-old Shalin Jhaveri sobbed in court Thursday as he apologized for betraying the trust of his former employer and his family. The federal judge assigned to the case sentenced him to one-year in prison but he is reportedly being released due to his having already served the sentence in upstate New York. We blogged about this case earlier here:

He pleaded guilty last year to the thefts and e-mailing samples to an undercover FBI informant posing as a potential investor in the company he hoped to form.

Jhaveri has a doctorate in chemistry from Cornell University. He's expected to be deported to India.

Thursday, February 17, 2011, 2/17/2011 08:40:00 AM

Green Trade Secrets Verdict

From the Springfield (Mass.) Republican, a big verdict story concerning secrets for manufacturing a low-shrink encapsulant for solar panels.

Connecticut-based Specialized Technology Resources Inc. sued its former employee, James Galica, and his new employer, JPS Elastometrics Corp.

The case was tried last year in state court in Massachusetts, and the ruling was finally unsealed last week. The judge awarded the plaintiff $1,075,556 in monetary damages, $2,151,112 in punitive damages, $3,902,592 in attorneys' fees and $1,127,944in reasonable costs.

On top of all that, the judge permanently enjoined the defendants from using the stolen technology and barred them from selling any "low shrink" products for five years.

The judge wrote that the "conduct of the defendants in stealing the plaintiff's protected manufacturing process is so reprehensible that for it to go unpunished would undermine the most basic principles of commercial integrity." Finding the conduct, “pernicious,” she awarded treble damages.

She also laid into defendant Galica for his testimony which she did not find credible: "I found that Mr. Galica would say anything under oath, as long as it was to his benefit."

JPS and Galica have appealed the jury verdict.

Wednesday, February 16, 2011, 2/16/2011 09:36:00 AM

David Almeling's O'Melveny Team Does It Again - New Law Review Article on State-Filed Trade Secrets Litigation

By Todd

We've told you before - we really like David Almeling at the San Francisco office of O'Melveny & Myers. He and a team of his colleagues wrote an informative and interesting piece in the March 2010 Gonzaga Law Review called "A Statistical Analysis of Trade Secret Litigation in Federal Courts." They studied virtually every reported federal case that involved trade secret claims and culled data regarding those cases and published them. Great stuff - and we told you about that article back here:

Well - the trade secret freakazoid (that's you, David) is at it again, folks. Linked above is the follow-up Gonzaga Law Review article from the November 2010 edition that involves their analysis of STATE filed cases. Here are some of their key findings:

(1) In more than 90% of trade secret cases in both state and federal courts, the alleged misappropriator was either an employee or business partner of the trade secret owner.

(2) Just five states account for about half of all trade secret litigation in state appellate courts. California leads the pack (16% of cases), followed by Texas (11%), Ohio (10%), New York (6%), and Georgia (6%).

(3) State appellate courts affirmed 68% of trade secret decisions and reversed 30% of them.
State appellate courts favor defendants. Alleged misappropriators (the defendants) prevailed in 57% of cases and trade secret owners (the plaintiffs) prevailed in 41%.

(4) State courts appear to be a tougher venue for trade secret owners who are suing business partners than for those suing employees. Trade secret owners won 42% of the time on appeal when the owner sued an employee, but only 34% when the owner sued a business partner.

(5) For decades following its 1939 publication, the Restatement (First) of Torts “was almost universally cited by state courts, and in effect became the bedrock of modern trade secret law.” James Pooley, Trade Secrets § 2.02[1] (2010). Those days are over. Only 5% of the cases in the state study cited the Restatement.

(6) Unlike federal courts, which cite persuasive authority in more than a quarter of cases, state courts cited persuasive authority in only 7% of cases.

(7) In contrast to the exponential growth of trade secret litigation in federal courts, trade secret litigation in state appellate courts is increasing, but only in a linear pattern at a modest pace.
Of all the reasonable measures trade secret owners took, only two statistically predicted that the court would find that this element was satisfied: confidentiality agreements with employees and confidentiality agreements with third parties.
Folks, David Almeling's team has done the trade secret bar and legal topic a great service here. They are revealing for us what really happens in the reported cases. This is valuable, informative stuff and we thank David and his team for publishing it and permitting us to link you to their work.

Tuesday, February 15, 2011, 2/15/2011 09:38:00 AM

UConn Argues Donor List is University Trade Secret

By Todd

Bloomberg BusinessWeek is reporting that a Connecticut appeals court is considering whether the University of Connecticut's lists of library supporters, theater guests and sports season ticket holders should be public information.

Open-records experts say it's the first time that Connecticut courts are deciding whether a public entity can claim some of its records are trade secrets, even if they were created at public expense.

UConn says professional sports teams, theater organizations, casino operators and other competitors might use UConn's lists to chase those supporters' discretionary dollars.

Although Connecticut has not dealt with the issue, it's not entirely new. In New Jersey, a state council ruled in 2008 in favor of Rutgers University, which cited trade secrets and individual privacy rights when it denied a request for the names of season ticket holders to football and men's basketball games.

Monday, February 14, 2011, 2/14/2011 10:15:00 AM

Coca-Cola Trade Secrets – Has the Granddaddy of Them All Been Breached?

An interesting story from the UK’s Daily Mail, reporting that the website for radio’s This American Life, purports to have a photo showing the original formula for Coke, perhaps the world’s best-known example of a trade secret. The photo was supposedly unearthed from 1979 newspaper story.

Coca-Cola was invented in 1886 and its recipe has allegedly been in a vault in Atlanta pretty much ever since.

Among the potentially surprising ingredients: lime juice, coriander and nutmeg oil.

Expect to get some clarication from the company on this one soon.

Friday, February 11, 2011, 2/11/2011 11:10:00 AM

Spies At Work Piece in Bloomberg

By Todd

We've linked you to yesterday's opinion piece by Joel Brenner, an attorney at Cooley, LLP and former head of U.S. counterintelligence under the Director of National Intelligence and inspector general at the National Security Agency. It makes good points.

We agree with this key point: "Universal access to corporate information is normal at many companies. In government, where it isn’t normal, “information sharing” has become a slogan, and like all slogans, it’s bad for clear thinking."

Have a good weekend.

Thursday, February 10, 2011, 2/10/2011 09:40:00 AM

Intellectual Property Czar Releases 2010 Annual Report

By Todd

We've attached above the recently released 85-page report prepared by President Obama's "intellectual-property czar," a post he created just after he took office.

We're still reading the report but note that it identifies China as a continuing concern in trade secret theft issues, stating "Over the last six months, we have heard repeated concerns about enforcement of patents and trade secrets, particularly in China," the report read. "This year, DOJ and the Federal Bureau of Investigation (FBI) have increased their investigations and prosecutions of corporate and state-sponsored trade secret theft."

Take a look and we will too.

Wednesday, February 09, 2011, 2/09/2011 09:18:00 AM

Former Corning Consultant Gets 30 Month Prison Sentence for Trade Secrets Theft Conspiracy

By Todd

BusinessWeek is reporting that a California consultant has been sentenced to 30 months in federal prison by U.S. District Court Judge Charles J. Siragusa for conspiring to steal highly valuable flat-panel-glass blueprints from Corning Inc. and turn them over to a rival business in Taiwan.

Yeong Lin pleaded guilty in June 2007 to theft of trade secrets. Sentencing in federal court for the 70-year-old has been postponed numerous times over the last three years.

While working as a consultant for Taiwan-based PicVue Electronics, prosecutors allege Lin put PicVue officials in contact with a Corning employee who offered drawings he had obtained illegally from a Corning glassmaking plant in Harrodsburg, Ky.

Prosecutors say the materials, which were returned to Corning after it sued PicVue, were valued at more than $50 million. Corning, a specialty glassmaker, is based in the wonderful Finger Lakes region of Western New York. “As we go forward into the Twenty-First Century, the value of the unique and creative ideas of a person or company will often times become the difference between those who succeed commercially, and those who fail,” said U.S. Attorney Hochul. “For these and other reasons, this Office is committed to protecting the hard work and intellectual property of all of who call our region home.”

Tuesday, February 08, 2011, 2/08/2011 09:27:00 AM

Former Dow Scientist Convicted of Trade Secret Theft from Dow and Perjury

By Todd

Well, a federal jury in Baton Rouge, Louisiana has convicted of stealing trade secrets and selling them to companies in China. Prosecutors proved Wen Chyu "David" Liu worked with other Dow employees to steal confidential information on a polymer used in automotive hoses, electrical cables and vinyl siding.

Liu, 74, faces a maximum of 10 years in prison on the conspiracy charge and a maximum of five years on the perjury charge. Each count carries a maximum fine of $250,000.
Liu, also known as David Liou, retired from Dow, the biggest U.S. chemical maker, in 1992 after 27 years as a research scientist with the company.

Prosecutors said he traveled throughout China peddling information stolen from Dow. They said Liu paid an employee at a Dow facility in Plaquemine, Louisiana, $50,000 for a manual and other information relating to chlorinated polyethylene, an elastomeric polymer, that Dow sold under the brand name Tyrin. Liu told Chinese companies that he was the legal holder of the technical information he was selling. In court papers, Dow said that the only company licensed to make Tyrin was a joint venture between Dow and DuPont Co. called DuPont Dow Elastomers LLC.

Keith Stoecker was a senior engineer on one of the Tyrin production lines, according to court records. He allegedly downloaded the Tyrin process manual from his work computer to his home computer and then gave a modified version of it to Liu. Stoecker, who was fired by Dow in 1999, pleaded guilty to one count of perjury, cooperated with the government in the prosecution of Liu and is awaiting sentencing, according to court filings in Liu’s case.

Friday, February 04, 2011, 2/04/2011 09:25:00 AM

The Intersection of Trade Secrets Law and Insider Trading Law

By Todd

Bloomberg is reporting that James Fleishman, a former Primary Global Research LLC sales manager, was indicted on insider trading charges and also accused in a U.S. Securities and Exchange Commission lawsuit along with five other people of tipping investors including hedge funds.

Prosecutors in New York yesterday released an indictment charging Fleishman, 41, with one count each of conspiracy to commit securities fraud and conspiracy to commit wire fraud. Both charges carry a maximum punishment of five years in prison. Fleishman was arrested and released on $700,000 bond Dec. 16.

The charges are related to a federal investigation into hedge-fund insider trading that began with New York-based Galleon Group LLC. As part of the investigation, the SEC yesterday sued Fleishman and five others connected to Primary Global, an expert consulting firm.

“Company executives and other insiders moonlighting as consultants to hedge funds cannot blatantly peddle their company’s confidential information for personal gain,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement. “These PGR consultants and employees schemed to facilitate widespread and repeated insider trading by several hedge funds and other investment professionals.”

Mr. Khuzami and the SEC have not characterized this case as an Economic Espionage Act case - but it has some of those hallmarks, no? Information sets that have independent value in the fact that their secrecy is controlled in a reasonable way under the circumstances are called trade secrets. We'll keep an eye on these prosecutions and see if the trade secret angle ends up making sense to the prosecution.

Tuesday, February 01, 2011, 2/01/2011 09:59:00 AM

Volcano Corp. and St. Jude Medical Get Split Verdict - No Trade Secret Misappropriation But Volcano Did Engage in Unfair Trade Practices

By Todd

The Sacramento Bee and many other news organizations are reporting that a Massachusetts judge has ordered medical equipment maker Volcano Corp. to pay $400,000 in damages, plus attorneys' fees, to a competitor that alleged unfair competition and breach of contract.

But in filing with the Securities and Exchange Commission on Monday, San Diego-based Volcano, which operates a manufacturing facility in Rancho Cordova, said the court rejected LightLab

Imaging Inc.'s more serious claims that it misappropriated trade secrets.

LightLab is a unit of Minnesota-based St. Jude Medical Inc., which makes medical imaging equipment. Volcano's subsidiary Axsun Technologies supplies laser products for LightLab.

In a ruling last week, Suffolk Superior Court Judge Margaret Hinkle found that Volcano acquired Axsun in 2008 partly as means of "impeding the growth of a major competitor."

The judge also found that Volcano and Axsun schemed to supply its competitor with a less effective laser, which affected the marketability of LightLab's imaging system.

We bet this is not the end of this matter - there is probably going to be a fight about the reasonableness of St. Jude Medical's (or LightLab's) attorneys' fees. They will likely be many times the $400,000 awarded and it is not uncommon for the Volcanos of this world to argue "why should the other side get millions in fees in order to recover less than the fees expended?"

We'll see if our prediction proves accurate.
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