Posts Tagged: "Trade Secrets"

Trade secret theft is often an inside job. Employees who know they’re about to leave for a competitor or start their own competing business will sometimes try and get an unfair head start by taking their employer’s confidential information—customer lists, strategic plans, etc.—as they head out the door. A necessary tool for preventing the misappropriation and use of a company’s valuable trade secrets is a well-crafted employee restrictive covenant agreement. Having employees under at least some form of such an agreement is important for two reasons. First, both state and federal trade secret statutes require employers to take reasonable steps to protect the secrecy of information sought to be protected under those statutes. Second, restrictive covenant agreements provide employers contractual remedies, over and above the statutory trade secret protections, that can be used to prevent theft and use of a company’s confidential information.

This week in Other Barks & Bites: the Federal Circuit strikes down a district court’s finding of design patent infringement on summary judgment; the USPTO advises trademark attorneys to monitor filings to prevent against the unauthorized use of their names; the U.S. Copyright Office issues final rules eliminating options for physical material submissions for newspaper and serial registrations; the U.S. Supreme Court will take up Booking.com’s appeal of the rejection of its trademark application by the USPTO; AG Barr supports the FCC’s plan to restrict Huawei and ZTE equipment purchases through the Universal Service Fund; Nirvana’s copyright case against Marc Jacobs moves past a motion to dismiss; Biogen loses $3 billion in market value after PTAB hearing; and Amazon seeks an injunction against a patent owner asserting infringement claims against Amazon Fire product retailers.

Imagine the following scenario: You have an idea for a new mobile application. As adoption of the app picks up, so does your business, and you hire more employees to provide sales and support assistance. You are on your way to transforming your startup into a successful business. Needing additional capital to scale the business more quickly, you identify a strategic partner interested in investing in your business. Before you can close on the funding, several employees report that they did not receive their paychecks through the direct deposit system. The investigation reveals that several months ago, your organization received a series of spear phishing emails. You learn that multiple employees opened the email and its attachment giving the cybercriminals access to your systems. Not only are you out the payroll money, but you also learn that in addition to your employees’ banking information, the criminals had access to your customer contact information and the source code for your app. A cyberattack is an unwelcome event for any company, but the effects can be especially detrimental to a startup, with 60% or more of small businesses that experience a data breach going out of business within a year of the breach. It is impossible for any size business to guarantee a system that is fully secure. However, not all companies have millions of dollars to invest in cybersecurity and by allocating even limited funds to assessing your data privacy risks, implementing a protection plan and creating an incident response plan, a startup can significantly improve its chances of surviving a cyberattack.

Recent multi million-dollar jury verdicts on trade secret misappropriation claims reflect that there can be significant risk to companies when employees leave or joint development relationships dissolve. Coupled with the passage of the federal Defend Trade Secrets Act of 2016, which created a federal civil cause of action for such claims, these verdicts have heightened the need to refine intellectual property protection strategies. But even with greater attention paid to improving protection measures, litigation can be inevitable, and such cases, as demonstrated by a recent survey conducted by the American Intellectual Property Law Association (AIPLA), can be expensive. Companies should consider whether insurance coverage is available to cover litigation costs. In this article we examine a sampling of cases where coverage questions were raised in connection with intellectual property disputes and the differing outcomes which ensued.

When an employee who has left a company to work for a competitor shares a coveted trade secret, his or her former employer can experience devastating effects, including lost business and reputational damage. As a result, the former employer may want to file a lawsuit; and to stop the former employee and the competitor from using the proprietary information while the suit is pending, the employer can also seek preliminary injunctive relief. Preliminary injunctive relief requires an evidentiary showing that the former employer is suffering irreparable harm. That is, harm that cannot be remedied with money damages. The former employer must also show a likelihood that the employer will prevail on its claim against the former employee. As such, the former employer must develop preliminary evidence that the information taken is a secret that is not readily ascertainable from public sources, that the employer took reasonable precautions to protect the information from disclosure, that the former employee took the information without authority and is using the information or has disclosed the information to others. If successful, the former employee, and those acting in concert with the former employee, will be enjoined from using the former employer’s information while the litigation proceeds. As such, seeking and obtaining preliminary injunctive relief can, and is often, an important milestone in a trade secret case.

The spectacular failure of blood-testing firm Theranos is the subject of a riveting book, Bad Blood by investigative reporter John Carreyrou, and an engaging documentary, “The Inventor” on HBO, focusing on Elizabeth Holmes, the once-celebrated wunderkind who dropped out of Stanford at age 19 to “change the world” with a device that would perform hundreds of diagnostic tests with a few drops of blood from a finger stick. It’s a story made for Hollywood (Jennifer Lawrence will play Holmes in the forthcoming movie), filled with lies, deception, threats and sex, set in a Silicon Valley startup. But even the Theranos story doesn’t mean that trade secret law is inherently dangerous. Consider Apple, one of the world’s most secretive companies. (Holmes famously modeled her clothing and business habits after Steve Jobs.) Apple has consistently used NDAs and secrecy management to protect products under development, to great effect when they are ultimately unveiled, all without touting non-existent technology. And it’s easy to imagine how Theranos might never have happened if investors and business partners had been less credulous and more insistent to understand the technology.

This week in Other Barks & Bites: the Federal Circuit issued a pair of precedential opinions affirming the USPTO’s determinations on patent term adjustment; Chuck Yeager filed a trademark lawsuit against Airbus; Facebook CEO Mark Zuckerberg met with Capitol Hill lawmakers and President Trump; the Office of Technology Assessment Improvement and Enhancement Act was introduced into both houses of Congress; the Sixth Circuit affirmed the dismissal of a copyright case lodged against musician Steve Winwood; the U.S. Department of Justice announced criminal charges over the theft of pediatric medicine trade secrets; and the NMPA doubled the damages sought against Peloton after finding more unlicensed songs used by the streaming exercise companies.

The normally staid world of intellectual property law was buzzing last year about one of the biggest trade secret cases and largest punitive damages awards in American history. The case involves automated valuation models (AVMs), which are computer models typically generated by machine learning—a form of artificial intelligence—and used to estimate property values by analyzing the property’s attributes, comparable properties, and the like. Jaws dropped last March when a Texas jury awarded HouseCanary, a Silicon Valley company specializing in residential real estate data and analytics, more than $700 million in compensatory and punitive damages after accepting its claims that it possessed AVM-related trade secrets that were allegedly misappropriated by Amrock (formerly Title Source), one of the nation’s largest appraisal and title service companies. The jury’s verdict might lead you to believe that Amrock is guilty of one of the most blatant and outrageous intellectual property thefts in history. But when you look closer, it is the jury’s verdict that is outrageous and nearly impossible to justify. I say that not only as a lawyer, but also as someone who built AVMs much like those at issue here before attending law school.

Tesla recently filed two lawsuits for theft of trade secrets. In March, the auto maker sued several former employees and the two companies they joined, Zoox and Chinese EV automaker Xiaopeng. The trade secrets involved their driverless vehicle technology. Haliburton just sued a former employee for stealing information, getting a patent on it, and then trying to sell it back to Haliburton. Phillips is suing a former employee for stealing secrets that will give competitors a “decades long head start.” Waymo, Google’s self-driving car program, settled with Uber for theft of trade secrets. The settlement was reported by CNN Business to be a portion of Uber’s equity, estimated at $245 million. In In August, the United States Attorney’s Office (USAO) for the Northern District of California charged former Google employee Anthony Levandowski with 33 counts of theft and attempted theft of trade secrets from Google under 18 U.S.C. § 1832 of the Economic Espionage Act (EEA). These cases, and many more like them, involve employees leaving and taking trade secrets with them. Employees come and go, but they shouldn’t take your valuable secrets. You can stop them if you have systems in place, but you have only yourself to blame if you don’t.

In August, the United States Attorney’s Office (USAO) for the Northern District of California charged a pioneer of self-driving car technology, Anthony Levandowski, with 33 counts of theft and attempted theft of trade secrets from Google under 18 U.S.C. § 1832 of the Economic Espionage Act (EEA). According to the indictment, Levandowski downloaded more than 14,000 files containing critical information about Google’s autonomous-vehicle research before leaving the company in 2016. The indictment alleged that Levandowski then made an unauthorized transfer of the files to his personal laptop. Some of the files that Levandowski allegedly took from Google included private schematics for proprietary circuit boards and designs for light sensor technology, known as Lidar, which are used in self-driving cars. Levandowski joined Uber in 2016 after leaving Google when Uber bought his new self-driving trucking start-up, “Otto.” Levandowski has repeatedly asserted that he never disclosed the download, nor made use of the information while he was at Uber.

Management of trade secrets is fraught with competing interests. There is the tradeoff between security and inconvenience—for example, the annoying wait for a special code to allow “two-factor identification” when you already have your password handy. There is trusting your employees while knowing they might leave to join a competitor. And there is the tension between corporate secrecy and the public interest, such as when the fire department insists on knowing what toxic chemicals are used in your facility. And now we have the cloud (like “internet,” its ubiquity merits lower case), which offers unparalleled convenience and flexibility to outsource corporate data management to others. But moving IT functions outside the enterprise creates new vulnerabilities for that data, which happens to be the fastest growing and most valuable category of commercial assets. So understanding this environment has to be a high priority for business managers.

This week in Other Barks & Bites: The Supreme Court today agreed to hear two trademark cases next term; Senators Thom Tillis and Chris Coons issue a statement regarding the recent round of patent eligibility hearings by the Senate Intellectual Property Subcommittee; four bills that would impact pharmaceutical patents and practices have passed out of the Senate Judiciary Committee; Huawei publicly calls out negative impact of Senator Marco Rubio’s legislative amendment preventing it from seeking U.S. patent infringement damages, one day after losing its trade secret case against CNEX Labs; Spotify settles a pair of major copyright suits targeting its music streaming service; Intel will reportedly auction thousands of IP assets related to wireless device technology; and revised data shows that U.S. GDP grew 3.1% during the first three months of 2019.

In late May, news reports surfaced regarding allegations of trade secret theft committed by Chinese telecom giant Huawei Technologies that had been made in an Eastern District of Texas case. The claims targeted an executive working for Huawei who is accused of participating in a scheme to misappropriate trade secrets from California-based semiconductor startup CNEX Labs. The recent filings mark a new turn in the case, which was originally filed in 2017 by Huawei when it accused CNEX of committing trade secret theft and poaching employees in an effort led by a former Huawei employee and CNEX co-founder. CNEX Labs might be a startup, but it has been attracting venture capital funding for its cloud software and solid-state drive controller products from major names in the tech industry, including Dell and Microsoft. While Huawei has made its own allegations against CNEX, news reports indicate that Huawei’s attempt to access a closely guarded research project by working through a Chinese university professor isn’t an isolated incident. In fact, such activities may be a major factor behind the company’s rapid rise in recent years.

After three hearings and 45 witnesses, there were few new fundamental arguments advanced for or against reforming patent eligibility law at today’s final Senate IP Subcommittee hearing on the topic, but several key—and some alarming—messages were underscored. A few takeaways off the bat: there are going to be considerable changes to the working draft. In particular, there were four issues that Senator Thom Tillis (R-NC) noted were raised repeatedly. First, both sides agreed the new proposed definition of “utility,” which requires “sufficient and practical utility in any field of technology through human intervention” needs to be further defined; those for reform felt that the language could be too narrowly interpreted, while those against feared it was not definite enough. “Clearly, those terms need better definition or more meat on the bones,” Tillis said. Secondly, everyone was concerned with Section 112(f). Tillis pointed to the practical argument made by inventor Paul Morinville about the impossibility of meeting that requirement in the context of software coding language, for example, while Tillis said the tech companies were afraid the language wasn’t strong enough to weed out overbroad software and business method claims that most agree should not be patent eligible.

Over the course of two weeks, the United States has imposed tariffs on hundreds of billions of dollars of Chinese goods and has blacklisted Huawei, the world’s largest telecommunications company, on national security grounds. Google, Intel, Qualcomm and Micron have announced that they will stop doing business with the company. The United States has even threatened to withhold intelligence from our key allies if they go forward with plans to use Huawei equipment. Although there are many issues driving this newly escalated trade war between the United States and China, chief among them is the concern that China and its companies are engaged in intellectual property theft. Say what? Upend global markets over infringement of private technology rights? This must be pretty serious. Let’s take a closer look.