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Showing 19 posts in Trade Secrets.

California Court SLAPPs Down Employee’s Malicious Prosecution Suit Based on Employer’s Trade Secret Case Against Him

Stop ThereCompanies prize their formulas for best-selling products like nothing else.  Visitors to the World of Coca-Cola can visit the vault holding the soda syrup recipe.  And KFC’s fried chicken seasoning method has been described as one of its most valuable assets.

NuScience Corporation makes the skin product CELLFOOD, which it describes as an “oxygen and nutrient supplement” using “proprietary water-splitting technology.”  And as recounted by the California Court of Appeal in a recent opinion, NuScience  has fought hard to keep the CELLFOOD formula secret.  The California court’s decision addressed an unusual spinoff of NuScience’s trade secret battle: a malicious prosecution complaint filed by a former employee, David McKinney, who alleged that NuScience wrongfully brought a prior racketeering and misappropriation case against him.  See McKinney v. NuScience Corp., No. B240831 c/w B244074 (Cal. Ct. App. 2013).

According to the court, most of NuScience’s trade secret troubles involved the Henkel family – father John and sons Michael and Robert – who found a copy of the CELLFOOD formula after it had been purchased by NuScience.  After discovering the formula, the Henkels then repeatedly sought to sell it to other buyers, get money from NuScience to hand it over, or sell a competing product.  NuScience won federal court injunctions against the Henkels, but Michael and Robert didn’t stop their efforts.  And after NuScience fired McKinney, its vice president of sales and marketing, the Henkels got him involved in their efforts to discredit NuScience and use the formula.  NuScience then filed its racketeering lawsuit against McKinney and Robert Henkel, alleging that the two engaged in a conspiracy to disparage CELLFOOD and violate the federal judgment against Robert.  NuScience eventually dismissed that case without prejudice, asserting that it did so because Robert was threatening to disclose the CELLFOOD formula.

McKinney then filed a malicious prosecution lawsuit based on NuScience’s decision to voluntarily give up the case.  However, NuScience quickly moved to strike his lawsuit based on California’s anti-SLAPP statute (Cal. Code Civ. Proc., § 425.16).  Read More ›

I’ve got a secret. Or do I?‎

Top SecretListen…
Do you want to know a secret?
Do you promise not to tell?

With all due respect to the Beatles – and the full lyrics of their 1963 hit are here – perhaps they weren't asking the most important questions to ask about secrets.  Maybe the more important, or at least existential question is: is the secret really a secret at all? And how exactly do you tell?

The Fifth Circuit Court of Appeals confronted that issue last week in Heil Trailer v. Kula, et al. The question came up in a suit brought by Heil – which makes tractor-trailers – against three of its former employees and their new employer, Troxell.  We’ve written often about confidentiality agreements between employers and employees, and the issues those agreements can raise when an employee goes to work for the competitor down the street.  But we don’t see too many opinions about whether the trade secret or other protected information is really “secret-worthy,” although our friends in the federal government sector seem to have it down to a whole system.    Read More ›

Federal Judge Upholds Jurisdiction Based on Employer’s Computer Fraud and Abuse Act (CFAA) Claim Against Former Employee

Laptop locked with padlockIn a decision last week, Judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas addressed the question of whether an employer had successfully alleged a claim under the Computer Fraud and Abuse Act (“CFAA”), such that the employer could properly bring its numerous claims against former employees and their companies in federal court.  He ruled that the employer had properly pleaded the CFAA claim, and that as a result, the court had subject matter jurisdiction over the case.  Beta Technology, Inc. v. Meyers, Civ. No. H-13-1282, ‎2013 WL 5602930‎ (S.D. Tex. Oct. 10, 2013‎).

Before we get into the substance of the decision, some background is in order.  Subject matter jurisdiction is an important issue for federal judges.  If there’s no basis for subject matter jurisdiction, a case doesn’t belong in federal court.  First-year civil procedure students learn this rule from the venerable decision in Capron v. Van Noorden, in which the Supreme Court allowed a plaintiff to obtain reversal of a final judgment because he hadn’t properly alleged that the court below had subject matter jurisdiction over his claim.

The two main categories for federal jurisdiction in non-criminal cases are diversity jurisdiction and federal question jurisdiction.  Diversity jurisdiction, as defined in 28 U.S.C. § 1332, permits the federal courts to hear disputes between citizens of different states – i.e., “diverse” citizens – so long as more than $75,000 is at stake.  Federal question jurisdiction, which is defined in 28 U.S.C. § 1331, allows the federal courts to address “all civil actions arising under the Constitution, laws, or treaties of the United States.”  And under 28 U.S.C. § 1367, once the court has jurisdiction to hear one claim, it can hear any other claims that form “part of the same case or controversy,” even when those claims drag additional parties into the mix. Read More ›

Trade Secrets - Even if You Didn't Use or Disclose Them You Can Be Liable

Data TheftA recent decision by a federal court in Alexandria, Virginia, illustrates an important point about the trade secrets laws that is often missed:  you can be liable even if you merely took your former company’s trade secrets (such as by downloading them onto your thumb drive) but did not use them or disclose them to anyone else.  That’s what a company executive in the Alexandria case allegedly did, and the court allowed her former employer’s claim that she violated the Virginia Uniform Trade Secrets Act (the VUTSA) (which parallels many states’ trade secrets laws) to go forward. Read More ›

Cough Syrup Manufacturer Suffers Bad-Tasting Appellate Defeat

Cough SyrupWhen Yu-Hsing Tu worked at pharmaceutical company UCB Manufacturing, he signed a strict confidentiality agreement.  In the agreement, Tu promised that he would never disclose any of UCB's “secret or confidential information,” including a laundry list of items such as “designs, formulas, processes, . . . techniques, know how, improvements, [and] inventions.”  Tu's work was important to UCB: he helped formulate its cough syrup products, including Delsym, and had significant knowledge of its “Pennkinetic system” for controlled release of cough medication in liquid form. 

In 2001, Tu left UCB and started working for his friend Ketan Mehta at Tris Pharma.  Soon after, Tu and Tris Pharma began formulating generic versions of UCB’s cough syrups.  Six years later, Tris's competitive products were on the market, and UCB lost a lot of market share. 

UCB immediately went to court and sued Tu and Tris for misappropriation of trade secrets, breach of contract, and unfair competition.  It asked for a preliminary injunction -- a court order early in the lawsuit that would require Tris to stop using its trade secrets until the merits were finally decided.  After a five-day hearing focused on the misappropriation claim, the trial judge denied the injunction, maintaining the status quo for Tris.

Shortly after that win, Tu and Tris took the offensive in the litigation, moving for summary judgment.  At that point, UCB made a decision that would end up costing it later on: it voluntarily gave up its claim for misappropriation of trade secrets.  The trial court then granted Tu and Tris’s motion for summary judgment on the other claims, relying on its finding during the preliminary injunction phase that Tu and Mehta were credible when they testified that they didn’t misuse UCB’s confidential info.  UCB appealed. Read More ›

The Inbox - August 16, 2013

It’s unseasonably cool here in Washington, DC, where most of our Suits by Suits editors toil.  News about the latest in disputes between employers and executives, however, is always in season.  Here are the latest headlines:

  • Ruth Simon and Angus Loten of the Wall Street Journal brought us this excellent take on the rising tide of non-compete litigation.  According to Simon and Loten, non-compete agreements are spreading beyond the executive ranks to sales representatives, engineers, and researchers.  For more, check out our ongoing State-by-State Smackdown series on the changing law of non-competes in various states (here, here, here . . . and here).
  • A conference call hosted by AOL’s chief exec Tim Armstrong took an unpleasant turn when Armstrong fired – on the spot – Abel Lenz, an employee who was videotaping the call.  The New York Times reported that Armstrong later admitted that he made a “mistake” in the hasty firing, which was broadcast to a thousand employees.  Lenz’s photos of his last moments at AOL later surfaced online at jimromenesko.com
  • The Third Circuit upheld a decision by the Luzerne County (PA) Retirement Board to terminate the benefits it was paying to a former county clerk, William Brace, based on Brace’s guilty plea to a bribery charge.  Brace claimed that the termination violated his constitutional rights, but the court disagreed, holding that Brace was not entitled to a hearing before the decision.  Brace’s crime appears to have been the acceptance of a $1,500 tailor-made suit from a county contractor, which puts this case in the unique category of Suits by Suits over Suits.
  • Matt Reynolds of Courthouse News Service reported that IMAX has sued a competitor for trade secret misappropriation.  IMAX’s complaint alleges that Gary Tsui, a former IMAX employee, sold its 2-D and 3-D conversion technology to the competitor, GDC Technology USA, which is now using the secrets to compete with IMAX.  It calls Tsui an “international fugitive.”  Sounds like this case may be exciting enough for the big screen.
  • A former U.S. Bank manager, Serge Adamov, has successfully appealed the dismissal of his claim that he was terminated in retaliation for complaints of discrimination based on his Azerbaijani origin.  The Sixth Circuit held that when an employee does not exhaust his remedies in the Department of Labor before bringing suit in federal court, that failure does not deprive a district court of jurisdiction over the case.  As a result, because the bank did not raise a failure to exhaust as part of its motion to dismiss Adamov’s suit, the district court could not raise it on its own as a ground to get rid of the claim.

An Offer Letter Is Good, But Read The Final Employment Agreement Carefully

CNC MillingNon-Compete In Employment Agreement Enforceable Even If It Wasn’t Mentioned In Offer Letter

Non-competes – those contractual agreements that, when enforceable (and enforced) can keep an executive from leaving one job for a job with a competitor – are frequent topics here at Suits-by-Suits, almost as common as the Brood II cicadas were supposed to be here in our home base of Washington, D.C

So, a story on non-competes is not unique for us, but this one has a twist.  It raises an unusual enforcement question: does a non-compete have to be included in both an offer letter and an employment agreement, or is including it in the agreement alone – and conditioning the offer of employment on signing that agreement – enough to make it enforceable? 

Last week, the Pennsylvania Supreme Court held that it’s the final employment agreement that matters, and if the non-compete clause is in the final agreement, then it doesn’t matter if the clause was in the offer letter or not.  Read More ›

The Basics: "Hacking," the Computer Fraud and Abuse Act, and You

Computer HackerToday we're going to look at a federal statute that is increasingly becoming central to disputes between outgoing executives and their former employers -- a statute originally designed to prohibit computer "hacking."

Now, if you’re anything like me, when you hear the word “hacking,” you probably envision Matthew Broderick using a dial-up modem to break into his high school’s computer and change his grades.  (In fact, Broderick pulled this same trick twice in the 1980s; first in WarGames and then again in Ferris Bueller’s Day Off.)  Indeed, if you asked the average person to define “hacking,” they would probably come up with something like WarGames; that is, they would consider hacking to be breaking into a computer or network to which you were not given permission to access, in order to do something nefarious, like changing your grades or starting World War III.

It probably comes as no surprise that after those blockbuster movies (and some real-life events, too), Congress enacted a statute to prohibit “hacking” back in the heyday of the 1980s.  That statute – the Computer Fraud and Abuse Act (“CFAA”) – is still the law today, and is codified at 18 U.S.C. §§ 1030.

But what you might not know is that in many areas of the country, there's a court-interpreted disconnect between the CFAA’s definition of hacking and Matthew Broderick.  That disconnect, in turn, has become a very real issue today for departing executives and their employers.  For example, if you’ve been fired and you delete files off of your laptop before returning it, you may be civilly and even criminally liable under the CFAA in some jurisdictions.  (International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006).  (Less relevant – but more salacious – is the Justice Department’s efforts to prosecute a mom under the CFAA for lying about her age on MySpace.)  United States v. Drew, 259 F.R.D. 449 (C.D. Calif. 2009).

It all depends on how the courts in your area interpret the CFAA.  Read on.... Read More ›

Is A Bad Job Interview Evidence Of Discrimination? (Part 2)‎

Interview In ProgressIn Part 1 of this series, we relayed the case of Pamela Hill, an engineer with the Virginia Department of Transportation.  Hill was passed over for promotion.  Another applicant, a man, who has less experience than Hill and doesn’t have a college degree like she has, got the job.  VDOT’s only reason for the decision is that the man did better in the interview. 

Hill sued VDOT, alleging sexual discrimination in violation of Title VII of the Civil Rights Act.  VDOT moved for summary judgment – an early resolution in its favor – and at the end of this post, I’ll tell you if Hill won or not.  Read More ›

Court Order: You Shall Not Start Your New Job at that Oil Company Because We're Worried About Irreparable Harm to the Oil Company You Just Quit

Oil Well Engineer Milos Milosevic may have thought that he and Schlumberger Technology Corporation were like oil and water when he recently left Schlumberger, which provides services to the oil and gas industry, to work for Halliburton Company, a direct competitor.  On Friday, a Texas state court said not so fast, and issued a temporary restraining order (or TRO) against Dr. Milosevic that prohibits him from starting his new job at Halliburton.  The court also ordered Dr. Milosevic to “restrain from using or disclosing [Schlumberger’s] trade secrets,” and to “immediately return” any of Schlumberger’s documents or other property.  Schlumberger requested the TRO at the outset of a lawsuit that it filed against Dr. Milosevic for breach of a non-compete contract and misappropriation of trade secrets.  Read More ›