Posts in Trade Secrets

In Van Buren v. United States, argued December 1, the Supreme Court has a chance to address how the Computer Fraud and Abuse Act applies when a defendant is authorized to access and obtain information from a computer but subsequently uses this information for a purpose that is not permitted. The outcome of this case is important to every company that has computer data and will provide guidance on how best to protect that data.

The conversation begins, “Can you keep a secret?” “Yes, of course,” they say. What happens next? Naturally, you tell them what it is that you are going to trust them with. That’s the way it happens in personal relationships. In business, it’s usually more complicated. And it depends a lot on who you’re talking to. Let’s first consider the employee confidentiality agreement. In some smaller businesses, especially in the “low tech” economy, employee non-disclosure agreements (NDAs) may not be necessary, because workers neither create nor are they exposed to company secrets. But if you’re making things from a private recipe, or if employees learn sensitive information about customers, it’s a good idea to have these contracts. And if you’re in a knowledge-based industry, they’re more or less essential.

In the wake of urban unrest in the early 1960s, local governments imposed nightly youth curfews, and a Massachusetts legislator suggested that all radio and television stations begin their 10:00 evening programming with an announcement: “It’s 10:00 PM. Do you know where your children are?” The phrase was quickly picked up across the country and became a common (and sometimes mocked) cultural artifact of the era…. For modern business, if you can indulge the metaphor, we may think of data assets as the children of the enterprise, at least in the sense that valuable information is vulnerable to loss or compromise. Reminding companies of the need to be vigilant makes a lot of sense.

Plaintiffs in trade secret cases are often faced with the difficulty of protecting their trade secrets, especially during trial, when different rules apply than during the pre-trial proceedings. It certainly makes little sense for a party to seek to prevent a defendant from disclosing their trade secrets only to have them disclosed to the public during discovery or trial. In recognition of this dilemma, Congress included Section 1835(b) (“Rights of Trade Secrets Owners) in the Defend Trade Secrets Act, which seeks to address this issue by requiring district courts to permit the trade secret owner the “the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.”

Last week, the United States International Trade Commission (ITC) issued a notice in the Matter of “Certain Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same,” Investigation No. 337-TA-1145, stating that the ITC has “determined to review in part a final initial determination (FID) of the presiding administrative law judge (ALJ) finding a violation of section 337 of the Tariff Act of 1930.”Last year, Allergan, the U.S. manufacturer of Botox, and Medytox, the Korean manufacturer of a similar product, filed a joint complaint against Daewoong, a Korean drug maker, under Section 337 of the Tariff Act of 1930, alleging that Daewoong had stolen Medytox’s botox strain trade secret in Korea and introduced it to the U.S. market. The FID was issued on July 6, 2020, wherein the ALJ found that certain products sold by the Korean drug maker Daewoong and its partner Evolus, Inc. violated section 337 through their importation and sale in the United States of a botulinum neurotoxin product “by reason of the misappropriation of trade secrets.”

When people say that “data is the new oil,” they’re talking about new ways of creating wealth. No matter what business you’re in, success today depends on learning everything you can about your customers and competitors. And there’s so much information sloshing around the internet, every industry—from restaurants to manufacturers to sports teams—is busy extracting insights from “big data” analysis. But, like drilling for oil, prospecting for data sometimes gets your hands dirty. Recently, a court ruled that a startup company providing life insurance quotes to consumers had created its database – the engine of its busines – by taking data from an existing company (Compulife) that had built theirs from scratch.

Greenberg Traurig and The Rader Group – which is headed by retired Chief Judge of the U.S. Court of Appeals for the Federal Circuit, Randall Rader – have submitted a petition for certiorari to the U.S. Supreme Court on behalf of Acer America Corp. asking the Court to review the CAFC’s precedential opinion in Intellisoft v. Acer. On April 3, the CAFC held that the United States District Court for the Northern District of California (the district court) erred in refusing to remand a case to California state court where removal to a district court was improper under 28 U.S.C. § 1441 and §1454. Despite Acer’s contentions, the CAFC found that Intellisoft’s trade secret misappropriation claim did not “necessarily” raise patent law issues that would result in district court original jurisdiction.

Software is an extremely valuable good for those who produce it because it provides value to the software’s end users. That value, however, also makes it a target for those who would prefer to obtain the value without compensating the software producer. As a result, like with any valuable asset, software suppliers and Internet of Things (IoT) companies must implement safeguards to protect it. Since software is intellectual property, attorneys who work for or advise software producers (which, let’s be honest, is just about every technology company these days, given the addition of hardware manufacturers via the ubiquity of their “smart” devices to the existing desktop, mobile, and SaaS applications that we all use in both our personal and business lives), are frequently asked to advise on how to best protect this valuable asset. Unfortunately, as discussed below, most lawyers only deliver half of what they should.

On August 20, the Seventh Circuit in Epic Systems Corp. v. Tata Consultancy Services Ltd & Tata America Interntional Corp d/b/a/ TCS America No. 1950 (7th Cir. Aug. 20, 2020) upheld an award of damages against Tata for theft of trade secrets relating to Epic’s health care software. After a jury trial in 2016, a jury found that Tata must pay $240 million in a compensatory damages to Epic, and $700 million in punitive damages. The district court later struck $100 million in compensatory damages and reduced the punitive damage award from $700 million to $280 million under a Wisconsin statute that caps punitive damage awards at two times compensatory damages. In the August 20 decision, the Seventh Circuit agreed with the district court that the jury could award punitive damages but found that the $280 million punitive damages amount was excessive and remanded the case with instructions to reduce that award.

Tuning in to the recent sentencing of Anthony Levandowski for criminal trade secret theft, I was reminded of the wise observation about relationships, that remembering the ending is a way to forget about the beginning. But while that way of thinking can be a salve for the heart, it’s not so helpful when it comes to the kind of critical self-analysis that we need to improve our behavior, or at least certain outcomes, in business. It’s natural for us to be attracted to the drama of trade secret litigation. These cases typically involve claimed treachery of some kind, contrasted against an alternate narrative of entrepreneurship and helpful market disruption. Indeed, as I have often remarked to my students, trade secret cases are a trial lawyer’s dream, because you are dealing with the kind of emotional issues that can draw in a jury and make it easy to keep attention focused on the story you’re trying to tell.

During periods of economic instability, intellectual property (IP) can be a surprisingly attractive investment vehicle. Product innovation through patent investment can facilitate additional revenue generation through immediate lower-yield returns, as well as longer-term, higher-yield returns. When viewing IP as a true asset, the question for businesses is how to assess and maximize these advantages, particularly in challenging economic times. In-house legal departments are well-positioned to bring value to the business, particularly during an economic downturn, to create new and innovative opportunities and sources of revenue.

On August 14, the United States Court of Appeals for the Eighth Circuit affirmed in part and vacated in part a district court decision in MPAY Inc. v. Erie Custom Computer Applications, Inc, et. al. In particular, the Circuit Court affirmed the district court’s conclusion that MPAY had not shown a likelihood of success on the merits of its copyright infringement or trade secret misappropriation claims. The Circuit court also affirmed the district court’s decision to deny preliminary injunctive relief for MPAY’s source-code claim, but vacated in part the district court’s Order and Judgment denying that relief and remanded for the district court to consider whether a preliminary injunction against Erie Custom Computer Applications and Payroll World is appropriate.

Back in ancient times, in this case 1990, John Gray, an obscure “relationship counselor” with a correspondence degree in psychology, was perplexed. The communication problems of the heterosexual couples he worked with were so serious that he couldn’t explain them by individual circumstances. His clients seemed to be talking past each other, almost as if they were coming from different planets. With that tired metaphor in mind, he penned the book Men Are from Mars, Women are from Venus, generalizing what he thought were the universal, contrasting communication styles of the sexes…. In effect, [Gray] has become rich by talking about how incompatible men and women are, despite eons of evidence to the contrary. In our world of intellectual property, it once was like this between patents and trade secrets.

Part 1of this article addressed the Eleventh Circuit’s decision in Compulife Software, Inc. v. Newman, __ F.3d __, 2020 WL 2549505, (11th Cir. May 20, 2020) and the court’s dubious conclusion that information “scraped” from a public website could be a trade secret. In particular, on this issue, the court held that even if the “scraped quotes were not individually protectable trade secrets because each is readily available to the public…taking enough of them must amount to misappropriation of the underlying secret at some point. Part II will address the understanding of “improper means” under trade secret law and whether the Eleventh Circuit was correct in determining that the use of bots to scrape a very large amount of information from a website can constitute “improper means” for acquiring such information.