IP Law Blog

By James Kachmar

Under the California trade secret statute, the court may award attorneys’ fees where there has been a willful and malicious misappropriation of plaintiff’s trade secrets or when a trade secret misappropriation claim is brought in bad faith.  (See Civil Code §3426.4.)  In Weco Supply Company, Inc. v. Sherwin-Williams Company, 2013 U.S. Dist. LEXIS 1572 (January 3, 2013), a district court in the Eastern District of California, revisited the issue of what constitutes “bad faith” for purposes of awarding attorneys’ fees in trade secret cases.

Weco and Sherwin-Williams had entered into a “jobber” agreement by which Weco would distribute Sherwin-Williams paint products.  Weco alleged that Sherwin-Williams breached the jobber agreement by discontinuing certain of its product lines and then dealt directly with some of Weco’s end customers.  In addition to breach of contract claims, Weco asserted a claim for trade secret misappropriation against Sherwin-Williams.  Weco argued that its pricing arrangements with its end users were trade secret and were misappropriated by Sherwin-Williams to deal directly with these customers.  The court eventually granted Sherwin-Williams summary judgment against Weco as to its trade secret misappropriation claim and found that “the undisputed facts showed that Weco’s pricing to end users and cost of acquisition were not trade secrets” under California law.  Thus, the court found there was no misappropriation and dismissed Weco’s trade secret misappropriation claim.

By Scott Plamondon

As social media networks become part of the lives and daily routines of more and more people, the use of social media networks in the workplace has begun to highlight a number of issues where an employee’s use of a social media network may interfere with the rights of their employer. A recent case pending before the United States District Court for the Northern District of California presents a familiar problem from the realm of trade secrets, but casts it in a new social media oriented setting. The case is PhoneDog v. Noah Kravitz (N.D., Case No. C11-03474-MEJ).

Noah Kravitz worked for PhoneDog.com where he periodically would offer his opinions concerning new mobile phones as they were released for sale to the public. In order to drive traffic to the PhoneDog website, PhoneDog and Mr. Kravitz employed the use of a Twitter account. Using the Twitter handle of @PhoneDog_noah, Mr. Kravitz was able to attract approximately 17,000 followers, each of whom received real-time updates from Mr. Kravitz regarding his thoughts on various mobile phones, as well as some of his personal opinions on other topics. Upon his departure from PhoneDog.com in October 2010, Mr. Kravitz changed his Twitter handle to @noahkravitz, but continued to use the same Twitter account, effectively taking all 17,000 followers with him when he left. Obviously unhappy with this action, PhoneDog filed a lawsuit against Mr. Kravitz asserting (among other things) a claim for misappropriation of trade secrets. According to PhoneDog’s complaint, Mr. Kravitz’s Twitter account had been developed and maintained for the sole purpose of driving internet traffic to the PhoneDog website, for the sole benefit of PhoneDog. Therefore, according to PhoneDog, Mr. Kravitz’s Twitter account, as well as the password to that account, constitute proprietary, confidential information belonging to PhoneDog. PhoneDog alleged that each of Mr. Kravitz’s 17,000 Twitter followers was worth $2.50 for each month that Mr. Kravitz used the Twitter account after his departure from PhoneDog. Having conjured this $2.50 per user value, PhoneDog alleged that it had suffered $340,000 of damages as a result of Mr. Kravitz’s use of the disputed Twitter account for the eight months following his departure from PhoneDog.

By Dale Campbell

The Ninth Circuit has attempted to end the disputes arising from the creation of Facebook. As dramatized in the Hollywood blockbuster, The Social Network, the Winklevoss twins and other Harvard graduates claimed that Mark Zuckerberg stole the idea for Facebook from them. The Winklevosses claimed they conceived and created the idea for a social network, then known as Harvard Connection and later as ConnectU, and hired Zuckerberg to complete the programming.

The Winklevosses claimed that Zuckerberg was involved in all aspects of the website development and business planning for Harvard Connection and acted as a member of the Harvard Connection development team. Zuckerberg was allegedly entrusted with the basic idea for the project and enterprise, including database and website design. Moreover, the Winkelvosses alleged that Zuckerberg was provided information regarding the website’s business model, functionality, concepts, and information to be collected from users. The Winklevosses alleged that Zuckerberg utilized all of this information in creating Facebook and failed to advise the Winklevosses that he had stopped working on the Harvard Connection code but, instead, was developing a competing website. The complaint alleged a variety of business torts including copyright infringement, misappropriation of trade secrets, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and interference with prospective economic advantage. 

By James Kachmar

In today’s economic environment, bankruptcy is often the only viable option for struggling businesses. In Jasmine Networks, Inc. v. Superior Court (Santa Clara County), the Court faced the issue of whether a bankrupt company could maintain an action for trade secret misappropriation when that company had sold its “trade secrets” in connection with the bankruptcy. The Court concluded that a plaintiff did not have to be the present owner of trade secrets in order to pursue an action for trade secret misappropriation. 

By Dale C. Campbell and David Muradyan

The Seventh Circuit and the Ninth Circuit do not agree on what constitutes “authorization” under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (2004) (“CFAA”)?  The CFAA prohibits accessing computers “without authorization” or “exceed[ing] authorized access” to take various forbidden actions, ranging from obtaining information to damaging a computer or computer data.  See 18 U.S.C. § 1030(a)(1)-(7). Notably, the CFAA provides a private cause of action for persons who have suffered harm resulting from computer fraud.  Id. § 1030(g).  The CFAA provides, in relevant part: “Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief.” Id. To assert a viable claim, the harmed plaintiff must allege, among other things, that the defendant intentionally accessed its information “without authorization” or “exceeds authorized access.” Id. § 1030(a)(2). Congress enacted the CFAA in 1984 to enhance the government’s ability to prosecute computer crimes.  LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1130 (9th Cir. 2009).  The CFAA was targeted to rein in hackers who illegally accessed computers to steal data or to disrupt or destroy computer functionality. Id. The CFAA was also designed to target criminals who possessed the capacity to “’access and control high technology processes vital to our everyday lives . . ..’”  Id. at 1130-31 (citing H.R. Rep. 98-894, 1984 U.S.C.C.A.N. 3689, 3694 (July 24, 1984).

by Dale Campbell

A central issue in all trade secret litigation is the adequacy of plaintiff’s pre-discovery disclosure of the alleged trade secrets. The Fourth District Court of Appeal has contributed to the growing body of case law interpreting the adequacy of the initial trade secret disclosure required by California Code of Civil Procedure section 2019.210. (Perlan Therapeutics v. Superior Court of San Diego County (November 4, 2009), 178 Cal.App.4th 1333.) Section 2019.210 provides that a plaintiff suing for misappropriation of trade secrets must identify the alleged trade secrets with “reasonable particularity” before commencing discovery. The Perlan decision joins two other recent decisions evaluating the particularity required in the plaintiff’s trade secret disclosure. (See Brescia v. Angelin (2009) 172 Cal.App.4th 133 and Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826.) The Perlan court analyzes the Brescia and Advanced Modular decisions in addressing critical procedural and substantive questions.

by James Kachmar

Section 2019.210 of the Code of Civil Procedure requires that a plaintiff identify its alleged trade secrets with “reasonable particularity” before that party can commence discovery on its claims based upon trade secret misappropriation. In Perlan Therapeutics, Inc. v. Superior Court (NexBio, Inc.), a California appellate court revisited the requirements of section 2019.210 and held that a trial court has “broad discretion” in determining whether a plaintiff has complied with its obligations under section 2019.210. 

by James Kachmar

On June 15, 2009, the Court of Appeal for the Second District issued its ruling in FLIR Systems, Inc. v. Parrish and affirmed an award of attorneys fees and costs in the amount of $1.6 million to a defendant in a trade secrets misappropriation case. The FLIR Systems ruling demonstrates that a trial court has wide discretion to award sanctions against a plaintiff who brings a trade secrets misappropriation claim in bad faith.

Plaintiffs manufactured and sold microbolometers, which is a device used in connection with infrared cameras, night vision and thermal imaging. The defendants were former employees of plaintiffs and at least one defendant was responsible for creating a significant portion of plaintiff’s technology.

by Zachary Wadlé

Hilton Hotels Corporation and two high-ranking executives are facing a civil lawsuit and a federal grand jury investigation stemming from allegations that they developed Hilton's new luxury lifestyle brand, “Denizen,” using proprietary information stolen from rival hotel company Starwood.

The civil complaint filed in federal district court in White Plains, New York, alleges that Ross Klein and Amar Lalvani, two former Starwood executives who joined Hilton last summer, stole more than 100,000 electronic and paper documents containing Starwood’s trade secrets.

By Dale C. Campbell

Most states have adopted some form of the Uniform Trade Secret Act (the “UTSA”). The USTA provides that “actual or threatened misappropriation may be enjoined.” (See Cal. Civ. Code § 3426.2(a).) However, neither the UTSA nor California’s version of the USTA defines the term “threatened” misappropriation. Unlike other areas of intellectual property law, the protectability of trade secrets is defined by state law. Despite almost nationwide adoption of the USTA, state law differs greatly concerning which acts may be enjoined as “threatened” misappropriations.

By Scott Cameron

California Code of Civil Procedure Section 2019.210 requires a plaintiff in a trade secret case to identify “with reasonable particularity” the trade secret it claims was misappropriated before commencing discovery. This usually leads to the first dispute in such a lawsuit – whether the plaintiff has adequately identified the trade secret. In a recent case, Brescia v. Angelin, (2^nd Dist. Mar. 17, 2009) --- Cal.Rptr.3d ---, 2009 WL 684744, the California Court of Appeal provided additional guidance for settling this dispute. 

The California Uniform Trade Secrets Act (“CUTSA”), Civil Code Section 3426 et seq., creates statutory protection for a company’s trade secrets. The CUTSA defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (1) derives independent economic value from not being generally known, and (2) is protected from disclosure by reasonable means. The classic example of trade secret is the formula for Coke or Pepsi. 

By James Kachmar

Although several federal courts in California have previously considered the issue of preemption in trade secret misappropriation cases, the Sixth Appellate District, in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. ___ Cal.Rptr. 3d ____ (6th Dist. Mar. 3, 2009), became one of the first (if not the first) California state court to hold that the California Uniform Trade Secrets Act (“CUTSA”) preempts state common law claims based on the same facts as a misappropriation claim. This ruling could have a significant impact on how trade secret misappropriation cases are both pled and litigated in California. 

By James Kachmar

Last summer, I wrote about the appellate court’s decision in VL Systems, Inc. v. Unison, Inc. in which the Court struck down a “no hire” provision contained in a consulting agreement as violating section 16600 of California’s Business and Professions Code. Section 16600 provides “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” This summer, the California Supreme Court in Edwards v. Arthur Andersen used the same reasoning to strike down a “non-competition” provision in an employment agreement.

By James Kachmar

A California appellate court was recently faced with the issue of when the statute of limitations runs on a claim for trade secret misappropriation against a third party when the plaintiff’s trade secrets are stolen and sold to that third party. On May 30, 2008, the appellate court issued its opinion in Cypress Semiconductor Corporation v. Superior Court (Silvaco Data Systems) and held that the statute of limitations on a cause of action for trade secret misappropriation begins to run when the plaintiff has reason to suspect that the third party knows or reasonably should know that the information in its possession is a trade secret. The appellate court held that the third party’s actual state of mind did not matter for purposes of the running of the statute of limitations.

By James Kachmar

On March 5, 2008, the United States District Court for the Northern District of California (“District Court”) in First Advantage Background Services Corp. v. PrivateEyes, Inc., (“First Advantage”) found, inter alia, that the California Uniform Trade Secrets Act, California Civil Code section 3426, et seq. (“CUTSA”) preempts common law claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets. The First Advantage opinion holds that claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets may be preempted by CUTSA.

By Dale Campbell

Can a company go too far in preventing its employees from being hired away by its customers? The Fourth District Court of Appeal recently answered, “yes,” but gave some indication where the line of permissible restrictions is crossed. (VL Systems, Inc. v. Unisen, Inc. (June 2007) 152 Cal.App.4th 708.)

By James Kachmar

Businesses, especially consultants, frequently include a no-hire provision in connection with service or consulting agreements. These provisions are usually intended to prevent the client from soliciting or hiring away the consulting company’s employees. No-hire provisions have two primary goals:  First, to protect the employees of one business from being recruited away by the companies they provided services to. The second goal is to help retain customers, i.e., if the client business is able to recruit a consulting business’s employees, there would be no further need for the consulting company’s services.

 On June 25, 2007, the Court of Appeals for the Fourth Appellate District struck down a “no- hire” provision in VL Systems, Inc. v. Unisen, Inc. (Case No. G037334). Though the VL Systems Court emphasized that there were limitations on the extent of its holding, companies that rely on “no-hire” provisions, and the attorneys who advise them, should take heed of some of the concerns raised by the VL Systems Court.

By Andrea Anapolsky

The state of California is considered an at-will employment state, where both the employee and the employer may freely walk away from the employment contract at any time with little to no consequences.   This freedom, while intended to benefit both the employer and the employee, has enabled several employers to hire away their competitor’s employees. Last month the Ninth Circuit identified significant nuances concerning the issue of whether, under California law, a corporation’s allegations that its competitor lured away employees who signed term-based employment contracts, sufficiently plead intentional interference with contract, interference with prospective economic advantage and violation of the California Business and Professions Code section 17200 et seq., also known as the Unfair Competition Law (“UCL”). 

By Andrea Anapolksy

          In the wake of jury selection for the Coco-Cola Co. theft trade secrets trial and Apple Computer’s two-year quest to discover who leaked trade secret information about an unreleased Apple product to several online blog sites, misappropriation of a company’s trade secrets may have become increasingly more difficult to prevent. This article will be the first of  a two-part series which examines the trade secrets doctrine and recent developments related to it.  This article in particular will assess the doctrine of trade secrets under California law and will offer available remedies on avoiding misappropriation.  

By Audrey A. Millemann

            A business's intellectual property may be its most valuable asset. Whether it is biotechnology, trade names, business methods, or computer software, intellectual property should be protected to the greatest extent possible in order to maximize the value of the business. This article summarizes the types of intellectual property protection that are available.

By, Pam Bertani & April Gatling

Recent controversial media attention regarding the alleged misrepresentation and conveyance of pharmaceutical clinical trial results has spawned action in Congress. Currently pending federal legislation could, if enacted, require publicly accessible, detailed disclosure of clinical trial test results for pharmaceutical and biological products. Such a disclosure requirement will undoubtedly have a significant industry and consumer protection impact on the continued development and sale of pharmaceutical products in the United States.

By Todd Wilson

Many growing businesses face the problem of having ideas that will give them a leg up on the competition or new products that will revolutionize their industries but lack the financial or intellectual resources to, without the assistance of partners, bring those ideas to fruition or to bring the products to market. Even more established businesses often find it necessary to supplement their own internal resources with ideas and products from other businesses. These are situations in which confidentiality agreements become an important means of intellectual property protection for such businesses.

By R. Todd Wilson

All businesses have trade secrets. Stated slightly differently, every business has information that it would rather keep confidential. A trade secret can be any useful information that is not generally known. Trade secrets encompass both technical information such as formulas, designs, tools, manufacturing processes, and computer source code as well as business secrets including customer lists, employee lists, financial and accounting data, product plans and marketing plans. Such "confidential" or "proprietary" information is usually essential to the success of the business. Often, however, companies do little or nothing to protect that knowledge.