Articles Posted in Trade Secrets

Recently, our cyber liability team discussed the impact internet data scraping has had upon trade secrets litigation.  Trade secrets cases are tough to win as plaintiffs.  The availability of competitive data online presents defenses and may even support an award of attorney fees to the victorious defendant.  We share our thoughts in this video.

Perhaps no other claim in federal litigation runs afoul of Rule 11 more than trade secrets claims.  As trade secrets lawyers, we have defended a number of frivolous cases.  That is why, in California, there is a fee shifting provision for bringing specious trade secrets cases.  The standard closely mirrors Rule 11’s requirements.  Please enjoy our conversation on this topic.

Data security and privacy lawyers Steve Gebelin and Erik Syverson talk the NFL draft and how a hacking incident impacted the draft status of prospect Laremy Tunsil.  The Raines Feldman cyber liability team then pivots to hacking scenarios that often affect businesses with respect to former employees stealing trade secrets.

Every business will experience hacking incidents.  There is no way to achieve 100% prevention.  However, when such incidents occur, companies have a multitude of legal claims that can be brought under statutes ranging from the Uniform Trade Secrets Act to federal claims under the Stored Communications Act in addition to the Computer Fraud and Abuse Act.  Often common law claims related to interference with contractual relations are warranted.  Damages include actual, statutory and punitives.  Injunctive relief is typically available in the form of a temporary restraining order and preliminary injunction.

The big baseball news relates to the St. Louis Cardinals hacking of the Astros scouting database and not the latest deal for a high priced middle reliever.  As a data breach attorney and baseball fan, it is rare that two of my main interests collide.  I must confess to feeling some schadenfreude since I am a long suffering Brewers fan.

The New York Times has been all over this, reporting that the Cardinals had an acrimonious breakup with former GM Jeff Luhnow.  The hack was initiated by current Cardinals employees with an apparent ax to grind with Luhnow.  The motivation appears to have been to embarrass Luhnow by exposing his private conversations about talent.

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As a follow up to my previous post, I now want to get into a liability analysis relating to the type of claims Sony could advance against media companies.  Though not addressed in the letter itself, liability is highly questionable because of robust First Amendment defenses that may be deployed by publishers in this case.  Sony and its executives could deploy a couple of conceivable legal claims in their fight against publishers.  First, there could be claims for violations of California’s Uniform Trade Secrets Act.  This Act ascribes liability to parties that disclose trade secrets information.  This requires that the disclosed Sony information actually constitute a trade secret.  In California, data can qualify as a trade secret if it derives economic value by virtue of being not generally known to the public.  Secondly, the owner of the trade secrets, in this case Sony, must have maintained reasonable efforts to keep the data secret.

Sony would likely have major difficulty qualifying much of the released data as trade secrets.  Thus far, the published data does not contain information that derives independent economic value by virtue of being a secret.  Much of the reported disclosed data is in the category of industry gossip and insults.  Similarly, data such as executive salaries lacks economic value.  Movie release date information and production expenses like actor salaries and profit participation likely would hold economic value by virtue of its secrecy.  However, Sony’s knowingly deficient data protection efforts may ensure that it fails to satisfy the element of reasonable efforts to maintain secrecy.  As a trade secrets litigator, I think Sony would be fighting an uphill battle on such claims.

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After serving as an industry punching bag for the last month, Sony recently decided to punch back regarding its recent data breach and attendant publicity surrounding the incident.  The method chosen by Sony was to hire one of the country’s best known and expensive lawyers to send an aggressive cease and desist letter to various media companies reporting on the incident.  David Boies became famous, by among other things, representing Al Gore in the 2000 election case.  Among his media company targets, many internet companies such as Twitter feature prominently.  Not surprising given the SOPA battles waged between Silicon Valley tech companies like Google and old guard Hollywood and its mouth piece, the MPAA.

This action by Sony raises three questions.  First, as a practical matter, is the letter a wise strategic decision?  Second, is the letter effectively drafted to accomplish Sony’s strategic goals.   Third, do digital media publishers face a legitimate risk of liability if they do not comply with the letter’s demands?  For the last question, First Amendment doctrine plays a prominent role.

As a digital media attorney, I think the letter was probably a wise strategic decision in concept.  An offensive response was long overdue given that Sony’s brand has been so badly damaged because of its handling of employee private data.  Sony had to take some action to protect employee data beyond the formality of providing a data breach notice.  California law, and forty-six other states, requires prompt notice to victims of a data breach regarding disclosure of personally identifiable information.  See  California Civil Code s. 1798.29(a) and California Civ. Code s. 1798.82(a).

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A secret loses its mystery once it’s told. For businesses, the value of a trade secret depends upon how well confidential information is protected. Trade secret leaks put companies and, ultimately, the nation’s economy, at great financial risk and gives competitors an unfair advantage.

California now has the distinction of having the first ever jury trial to convict defendants of economic espionage. In fact, fewer than two dozen people in the U.S. have ever been convicted of the crime since the 1996 passage of the Economic Espionage Act. The defendants, a former California businessman and an ex-DuPont engineer, were found guilty in March.

The one-time entrepreneur recently was sentenced in federal court to a 15-year prison term. The defendant also was fined $28 million — the same amount the East Bay man reportedly took from Chinese government-controlled companies to swipe a DuPont trade secret. The convicted man was found guilty of employing three former DuPont engineers to steal an intellectual recipe for a protected white pigment.

Most California intellectual property cases do not involve criminal charges. The cases are worked out through settlements or civil court judgments. One party may walk away from a ruling poorer or richer, but penalties are financial ones.

You probably don’t give much thought to why the middle of Oreo cookies look so white, but DuPont Co. does. DuPont uses a special process to make titanium dioxide, an unappetizing-sounding chemical used to whiten Oreo centers and other worldwide products. U.S. prosecutors said when China’s offer to buy the valuable chemical was rejected by DuPont, the only other option was to steal it.

Five people, some with strong Chinese government connections and others with inside DuPont information, were charged with collaborating to steal the trade secret and sell it overseas. The buyer, Chinese government-controlled Pangang Group Co. Ltd., allegedly funneled over $20 million to a husband-and-wife owned California business, to fund the pursuit of the intellectual recipe. Three defendants have been convicted of economic espionage; DuPont also initiated a civil suit.

Los Angeles employers don’t assess job candidates simply for qualifications, talent and a good fit with the internal business culture. Companies are more concerned than ever about internal information security. A rogue player on the payroll can pilfer a trade secret that rattles or collapses the foundation of a business.

A federal judge recently sentenced a business owner for stealing confidential information from his ex-employer. The defendant once worked for the San Francisco-area executive recruitment firm Korn/Ferry International and later opened a business of his own.

Prosecutors said that after the former regional director resigned in 2004, the defendant persuaded three Korn/Ferry workers to download protected inside information. Stolen customer lists and other trade secrets allegedly were used to help the ex-employee’s personal business succeed.

Pretend you invented the 11-spice recipe for Kentucky Fried Chicken. Would you patent the mix of herbs and spices or follow the Colonel’s route and lock up the recipe? A marketable technique for cooking chicken is just one of many possible examples – California inventors and businesses have to make patent vs. trade secret choices all the time.

Forbes reported in 2010 that the original 1940 recipe for Colonel Sander’s “finger lickin’ good” chicken is secreted away in a 770-pound safe, surrounded by non-stop video surveillance and a very thick wall of concrete. In fact, someone who could reverse engineer the recipe – figure it out through analysis – still might not be able to duplicate the chicken’s unique taste. Cnbc.com reported last year that the pressure-cooking process KFC uses is patented.

Keeping trade secrets can be a lot like hiding money under a mattress – it’s safe until it’s not. One advantage of hiding company information from competitors is the expiration date. If you can keep a trade secret from being leaked, it’s yours for good. A patent, on the other hand, gives the inventor exclusivity for up to 20 years.