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Posts Tagged ‘Trade Secret’

Presence of EULA Fails to Convert Reverse Engineering Into an “Improper Means” Within Definition of California Trade Secret Law

In EULA, Improper Means, Reverse Engineering on February 21, 2012 at 3:13 pm
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In an unreported case from the Central District of California, Senior District Judge Ronald S.W. Lew held that plaintiff may not maintain a trade secrets claim for reverse engineering of software code, where plaintiff alleged that a trial version of the software was properly downloaded pursuant to an end user license agreement (“EULA”).  Aqua Connect, Inc. v. Code Rebel, LLC, et al., No. CV 11 5764 RSWL (MANx), 2012 WL 469737 (C.D. Cal.  Feb. 13, 2012).

Background

Plaintiff Aqua Connect, Inc. sued Defendants Code Rebel, LLC and others.  Defendants brought a motion to dismiss plaintiff’s claim for misappropriate of trade secrets.  Id.  Plaintiff alleged that defendants downloaded a trial version of Plaintiff’s Aqua Connect Terminal Server software (“ACTS”) and subsequently reverse engineered ACTS in violation of the End User License Agreement (“EULA”), which defendants had to agree to in order to use the trial version of ACTS.  Id. Plaintiff alleged that defendants misappropriated the trade secrets within ACTS and used that information to create and distribute a competing software product.  Id.


Discussion

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Publicly Visible “Images” and “Features” of Gaming Applications Not Trade Secret, Even If Source Code Kept Confidential

In Public Availability on February 17, 2012 at 6:20 am
MyFarm

MyFarm (Photo credit: Benjamin Pender)

In a slip opinion, District Judge Yvonne Gonzalez Rogers of the Northern District of California struck portions of trade secret allegations regarding certain gaming applications where those “images” and “features” were visible to the public. SocialApps, LLC v. Zynga, Inc., No. 4:11 CV 04910 YGR, 2012 WL 381216 (N.D. Cal. Feb. 6, 2012) (slip op.).

Background

Plaintiff SocialApps LLC (“SA”) sued Defendant Zynga Inc. (“Zynga”) for violation of the California Uniform Trade Secrets Act (“CUTSA”), copyright, and various other contract-based common law claims.  Id. Zynga moved to dismiss, inter alia, the CUTSA claim.  Id. Plaintiff alleged that it developed the first farming social network game to be accessed through Facebook.  Id.  The game was publicly released on Facebook in November 2008 as “myFarm.”  Id.  In May 2009, Zynga approached SA about acquiring the intellectual property rights and other information about myFarm, and the parties entered into a letter agreement on May 19, 2009.  Id.

Plaintiff alleges that Zynga violated the express terms of the agreement, as well as the implied understandings the parties had reached in connection with the agreement, by making use of the myFarm confidential source code, processes, and other information revealed pursuant to the letter agreement. Id. SA goes on to allege that Zynga thereafter used the confidential source code and other information it acquired from SA to create its own game, “FarmVille,” without SA’s permission and without compensating SA. Id.

Discussion Read the rest of this entry »

In Trade Secrets Case Related to Barnes and Noble’s Nook Device: Court Grants Partial Summary Judgment Based on Disclosure of Secrets in Patent Applications, But Rejects UTSA Preemption Argument as Premature

In Disclosure of Secret in Patent Application, Motions for Summary Judgment/Adjudication, Patents and Copyrights, Preemption on January 2, 2011 at 10:03 pm
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The Northern District of California granted partial summary judgment to a defendant in a trade secrets case on the ground that plaintiff disclosed its information to the public in its published patent applications.  Spring Design, Inc. v. Barnesandnoble.com, LLC, No. C 09-05185 JW, 2010 WL 5422556 (N.D. Cal. Dec. 27, 2010) (slip op.).  The court rejected defendant’s argument that plaintiff’s UCL claim was preempted by the UTSA because “if the confidential information is not a trade secret, then preemption would not apply because the claim would seek a civil remedy not based on the  misappropriation of a trade secret.” Id. *10.

Background

In 2006 and 2007, Plaintiff filed several patent applications which claim different variations of an eReader with a dual-display design, consisting of an electronic paper display (“EPD”) and a liquid crystal display (“LCD”).  Id. *1.  In 2009, Plaintiff and Defendant explored possible collaboration on an eReader, and the parties entered into a nondisclosure agreement (“NDA”) in which the parties agreed not to disclose, reproduce, transmit or use the other’s confidential information except to certain employees on a need-to-know basis.  Id. From February to October 2009, Plaintiff and Defendant conducted several meetings and exchanged emails regarding Plaintiff’s eReader technology.  But on October 20, 2009, Defendant announced the release of the NOOK—its Android-based, dual-screen eReader.  Id. *2.  In 2010, Plaintiff launched its competing eReader device, the Alex, which is also a dual-screen eReader. Id.

Plaintiff Spring Design, Inc. brought an action Barnesandnoble.com, LLC alleging, inter alia, misappropriation of trade secrets and violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code section 17200, et. seq. Id. *1.Plaintiff alleged that Barnesandnoble.com used Plaintiff’s confidential information to develop a competing eReader device, the Nook, in violation of the parties’ non-disclosure agreement. Id. The parties brought cross motions for summary judgment.

Discussion

Defendant moved for summary judgment on the UTSA cause of action on the grounds that, inter alia: Plaintiff’s information does not qualify for trade secret protection because Plaintiff disclosed its information to the public in its published patent applications.  Id. **3-4. Read the rest of this entry »

Southern District Holds That Misappropriation of Trade Secrets Claim Properly Pled Even Where Complaint Lacks Allegation of Use to Plaintiff’s Detriment

In Motion to Dismiss on November 17, 2010 at 7:47 am
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The Southern District of California denied a motion to dismiss a claim for misappropriation of trade secrets even where counter-claimant does not allege plaintiff’s use of the trade secret to counter-claimant’s detriment.  Young v. Fluorotronics, Inc., No. 10cv976-WQH-BGS, 2010 WL 4569996 (S.D. Cal. Nov. 3, 2010) (slip op.).

Background

Plaintiff John Young, M.D. filed a complaint against Fluorotronics, Inc. and others relating to his investment in Fluoro-Raman technology, which was purported to be a portable, non-destructive and rapid screening device able to detect problems with food and drugs before they are distributed and detect counterfeit drugs.  Id. *1.  Plainitff alleged that the Private Placement Memorandum and Balance Sheet falsely stated that Fluorotronics was the owner of the “iStar ICCD Intensified CCD Detector Head camera” (“Camera”) and “certain Laser Equipment” (“Laser”). Id. Young for himself and others invested in Fluorotronics, but contrary to the representations of defendants, Fluorotronics allegedly did not own the Camera, but borrowed it from Andor Technology.  Id. **1-2.  When Fluorotronics failed to pay Andor for the camera, Young purchased it from Andor. Id. *2.  Plaintiff brought claims for (1) fraud; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) securities fraud in violation of the Securities and Exchange Act of 1934, Section 10(b) and Rule 10b-5; (5) sale of unregistered securities; (6) breach of fiduciary duty; (7) violation of Section 1507(a) of the California General Corporation Law; and (8) violation of Section 2201 of the California General Corporation Law. Read the rest of this entry »

Defendant Pleads Guilty to Charge of Criminal Theft of Trade Secrets, 18 U.S.C. § 1832, and Faces, Inter Alia, up to 10 Years in Prison and Deportation

In Criminal Theft of Trade Secrets on November 16, 2010 at 9:33 am
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The U.S. Attorney’s office announced that a defendant entered a guilty plea to a charge of theft of trade secrets from Bristol-Myers Squibb, in violation of Title 18, United States Code 1832.  According the U.S. Attorney, the defendant Shalin Jhaveri holds a Ph.D. from Cornell University and was employed at the time of his arrest in February of 2010 as a Technical Operations Associate in Bristol-Myers’ management training program.  The U.S. accused defendant of stealing trade secrets during his employment with Bristol-Myers and devising a plan to convert them to his own use.  At the time of his arrest, Jhaveri was allegedly meeting in a Syracuse hotel room with an individual he believed was an investor willing to finance a business venture Jhaveri planned to start in his native India.  According to the U.S. Attorney, Jhaveri transferred Bristol-Myers trade secrets to this investor, an individual he knew was not employed by or associated with Bristol-Myers in any capacity.

Jhaveri admitted the following as part of his plea: (1) while employed by Bristol-Myers in its management training program at its Syracuse facility, he devised a plan to steal trade secrets of Bristol-Myers and convert them to his own use; (2) he did steal trade secrets from Bristol-Myers, and in doing so used methods to disguise his actions and evade detection by the Company; (3) he communicated, using a specially created email account and password he set up expressly for that purpose, with an individual he knew was not employed by or affiliated with Bristol-Myers, who he believed to be an investor willing to finance a business venture Jhaveri planned to start in his native India; (4) Jhaveri discussed with and transferred to that individual trade secrets he had stolen from Bristol-Myers; and (5) when asked by this investor whether the information he had taken from Bristol-Myers was everything he needed, responded that it was.

Jhaveri also consented to the entry of an order of removal/deportation from the United States by an Immigration Judge, to take place upon completion of any jail term imposed, and to not seek relief or take an appeal from such order.  Jhaveri faces up to 10 years in prison, a $250,000 fine, up to three years of supervised release, and deportation.

Attorneys

Stephen C. Green was the Assistant United States Attorney prosecuting the case.

Second District Vacates Arbitration Award for Failure to Resolve Misappropriation of Trade Secrets Counterclaim

In Arbitration on November 15, 2010 at 11:08 am
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The Second District Court of Appeal vacated an arbitration award for failure to resolve defendants’ counter-claim for misappropriation of trade secrets.  Rad v. Keehan, No. B222049, 2010 WL 4487142 (Cal. App. 2d Dist. Nov. 10, 2010).  Defendants Michael Keehan, Lucy Keehan, Lucy’s Silk Store, Inc. and Michael’s Imports, Inc. (collectively defendants) appealed from a judgment entered after the trial court denied their motion to vacate an arbitration award against them and instead confirmed the award.  Id. *1.  Defendants contended that the arbitrator failed to decide their counter-claim for misappropriation of trade secrets, and thus the trial court should have vacated the arbitration award for failure to resolve all issues submitted to arbitration. Id. The Second District Agreed. Id.

Background

Plaintiff Ira Rad, on behalf of his company Bita LLC, executed an agreement (Sales Agreement) with one of defendants’ corporations, Michael Imports, Inc., to sell and distribute silk products from defendants’ “Lucy’s Silk” label. Id. Bita paid defendants $60,000 as partial consideration for the exclusive right to sell the products in the eastern United States, but after execution of the Sales Agreement, defendants continued to sell the products directly to East Coast customers, undercutting Bita’s sales.  Id. Plaintiffs sued defendants, alleging, inter alia, causes of action for breach of contract, fraud, negligent misrepresentation, and rescission with respect to the Sales Agreement. Id. The parties ultimately stipulated to submit their disputes to binding arbitration and a stay of the litigation was entered. Id. Read the rest of this entry »

Approaches to Damages in Trade Secret Cases

In Damages, Practice articles, Reasonable Royalty, Unjust enrichment on October 20, 2010 at 7:59 pm
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Once a trade secret lawsuit progress beyond the preliminary injunction stage, the key battleground usually shifts to damages.  Assessing damages can be particularly difficult in a trade secret case because of the problematic uncertainty in measuring the value of trade secrets.  Marc Pensabene and Christopher Loh summarized some of the flexible approaches that plaintiffs and defendants might pursue in arguing for and against trade secrets damages calculations.

From the plaintiff’s perspective, the authors offer the following aggressive approaches (not all of which have been accepted by California courts):

  • In calculating lost profits, argue that the amounts should include not only lost sales that were diverted from the plaintiff to the defendant, but also losses attributable to price erosion or to increased costs cause by the misappropriation, such as the costs of an advertising campaign to recoup market share stolen by defendant
  • Argue for provable future profits, overhead costs, general and administrative expenses, lost profits on reorder or spare parts or other natural follow-on items
  • Ask the court to calculate plaintiff’s lost profits by applying the defendant’s profit margins to the plaintiff’s lost sales
  • In seeking unjust enrichment, if the defendant does not incorporate the trade secret into a product but rather uses it to promote its existing products or to develop new and different products, ask for a portion from those products
  • If plaintiff is unable to prove lost profits or unjust enrichment, seek development costs (so-called “head-start” damages), the diminution of the value of the plaintiff’s business or stock, or a reasonable royalty based either on the actual royalties that have been paid to the plaintiff, or a hypothetical royalty that the litigants would have negotiated at the time of the misappropriation Read the rest of this entry »

Trade Secrets Issues in Cloud Computing

In Uncategorized on October 14, 2010 at 5:05 pm
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Roy E. Hadley, Jr. and John L. Watkins have written a useful article on the legal issues relating to cloud computing.  As they state in the article, cloud computing refers to the practice of providing access to computer software through an Internet browser, with the software and data stored at a remote location at a “data center” or “server farm,” instead of on the computer’s hard drive or on a server located on the user’s premises.

The same protective measures that businesses apply to protecting trade secrets on local area networks (“LANs”) are likely to be useful in showing “reasonable” measures to a court.

Although it is difficult to predict how courts will react to trade secret claims based on information stored in cloud-based systems, a key factor will likely be the steps taken to maintain the secrecy of the information. Courts will likely inquire into whether the cloud provider has access to the data and whether it is bound to maintain the secrecy of such data. Other inquiries will focus on who from the client is permitted to have access to the information, password protection, and other security measures, much as in cases involving information stored on local networks. Read the rest of this entry »

Trade Secrets Basics for Small Businesses

In Seminars and MCLE on October 12, 2010 at 10:54 am
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Steve Obenski  posted a useful video directed to small business, entitled Trade Secrets for Small Businesses 101.  In the video, he discusses what a trade secret is, ways to protect trade secrets, and limitations of trade secrets compared to patent and other areas of intellectual property law.

By CHARLES JUNG

Benefits of Adding Claims Under the Computer Fraud & Abuse Act in Trade Secret Misappropriation Cases

In Uncategorized on October 7, 2010 at 9:03 am
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David Smith has written a useful article discussing the Benefits of Trade Secret Misappropriation Claims Under the Computer Fraud & Abuse Act (“Benefits“), and comparing these claims to those under the Uniform Trade Secrets Act (“UTSA”).  The CFAA, 18 U.S.C. § 1030, is a federal statute outlawing “theft and destruction of data, hacking, use of viruses, theft of passwords and extortionate threats to damage computers.”  SeeBenefits at 1. The CFAA now allows a civil right of action.  See 18 U.S.C. § 1030(g).  The author points to the following three benefits of a CFAA cause of action in a trade secrets dispute:

  • Federal Question Jurisdiction: “The CFAA provides for federal question subject matter jurisdiction, which then allows a plaintiff to bring appropriate state law claims under the court’s supplemental jurisdiction.” Benefits at 1.  Smith points to the benefits of nationwide service of process in trade secrets disputes.  Id. He notes that this “benefit [nationwide service of process] cannot be downplayed because often in complex trade secret litigation the plaintiff resides in one state, the defendant resides in a different state, and both the evidence of trade secret theft and key witnesses are in different states around the country. Litigating this type of case in state court might require filing motions and proceedings in multiple jurisdictions throughout the country in order to depose key witnesses and obtain necessary evidence. Nationwide service of process avoids this entire situation and saves substantial amounts of time.” Id. (citing Liccardi, The Computer Fraud and Abuse Act: A Vehicle for Litigating Trade Secrets in Federal Court, 8 J. MARSHALL REV. INTELL. PROP. L. 155 (Fall 2008) at 13-14). Read the rest of this entry »