Posts Tagged: "Trade Secret Litigation"

Andy Bitter, a former sports journalist covering the travails and triumphs of the Virginia Tech football team, was sued last month by his former employer, a local newspaper, for trade secret theft. According to the plaintiff Roanoke Times he was obligated by the company’s employee handbook to turn over all company property, and this necessarily included the Twitter account he had used to stay in touch with his 17,000+ followers… In spite of the mess it created, the Roanoke Times has reminded us of some important questions for industry in the information age. Who owns social media accounts? What role do they play in building competitive advantage? And how should companies manage their use?

The Lex Machina report supports the notion that trade secret litigation has ramped up in U.S. district courts in the time since the passage of the DTSA. Between 2009 and 2016, trade secret suit filings generally remained within a range of 860 cases per year and 930 cases per year. In 2017, however, U.S. trade secret case filings saw an increase up to 1,134 cases filed. Through the first half of 2018, 581 trade secret cases have been filed, putting this year on pace to slightly exceed the number of trade secret cases filed in 2017.

This is where the drama begins its teaching. Title Source believed its own narrative, in which it was a victim of HouseCanary’s breach… Why didn’t Title Source see the potential disaster when deciding whether to sue? The answer almost certainly lies in the emotional content of disputes where information has been shared between companies. The relationship starts, as it must, with declarations of trust on both sides. So when things start to go downhill, disappointment morphs into loathing and a sense of victimhood. Each side, anxious to see its own behavior as fully justified, develops a committed perspective.

Although the amount of the settlement was far less than $2.7 billion in amount sought by Waymo, the settlement apparently did include a payment from Uber of 0.34% of Uber equity—or about $244.8 million in stock based on a $72 billion valuation of Uber… Both sides had a lot riding on the outcome of the trial. In addition to the billions in damages, Waymo was seeking an injunction to prevent Uber from using any technology that may have originated from Waymo, which would have been a huge set back for Uber’s program. Indeed, during his first day of being questioned, the former CEO of Uber, Travis Kalanick, agreed that developing autonomous vehicles amounts to an “existential question” for Uber, and that the market for driverless cars is likely to be “winner-take-all.”

Earlier today Alphabet subsidiary Waymo settled with Uber in the midst of a trade secret infringement trial. This lawsuit originated when Waymo brought suit against Uber in 2017, alleging that a former Waymo engineer Anthony Levandowski, who was hired by Uber to lead Uber’s self-driving car project, took with him thousands of confidential documents… The U.S. Department of Justice is conducting a separate, criminal investigation into the alleged theft of trade secrets. Levandowski has claimed a Fifth Amendment privilege and has not spoken about the events leading to this dispute.

Recently a client asked me for advice on setting up a “reverse engineering” project. He no longer had access to any trade secrets of his former employer; what could possibly go wrong?… In most circumstances, there is nothing wrong with reverse engineering. The recently-enacted Defend Trade Secrets Act declares that it cannot be an “improper means” of acquiring information. (In fact, if you properly reverse engineer a product, the information you discover can be held by you as your own trade secret.) The reason behind the rule is apparent when you consider the limits of trade secret protection: selling a product that reveals the design and method of its manufacture means the secret is imperiled. If it is very easy to discern, then the secret is lost immediately. If it might take some time to figure out, then that’s called reverse engineering, and anyone is allowed to do it.

Among the most disastrous mistakes with trade secrets is believing you own them when you do not.  A number of highly-contentious trade secrets disputes have arisen when joint ventures and similar business partnerships were dissolved.  Even companies with forward-thinking legal departments who carefully document such deals may find that they inherit new issues with acquisitions of companies where the prior legal department wasn’t as careful or complete.  Compounding these issues is the fact that documentation varies globally – and over time.  Even in a well-documented deal, upon dissolution of the relationship, it can turn out that the ownership of trade secrets the company thought belonged to it is unclear, or is joint.  In a poorly-documented deal, it may be unclear who owns contributed or even jointly-developed trade secrets – or it may never have been considered in the first place. Even where the documentation is clear, the facts may not be, because over time the history of “contributions” can be lost or muddied by time, additional facts, or complexity.

Every trade secret case is built around a story. Sure, the plaintiff’s story is different than the defendant’s, even though each draws on the same facts. For the rest of us that don’t have a dog in the fight, helpful lessons are available. But sometimes you have to look hard to find them. Here’s one. When Waymo, the Google self-driving car company, filed its lawsuit against Uber earlier this year, the story was remarkable enough… This case is instructive for any business considering hiring an executive from a competitor: be aware that the cost of this recruitment might include the legal fees, disruption and liability risk of a trade secret claim.