The Freedom of Information Act (“FOIA”) grants the public a powerful right of access to records in the possession of federal agencies. However, this right of access is subject to nine distinct exemptions. As demonstrated by D.C. District Court Judge Trevor N. McFadden’s opinion in Story of Stuff Project v. United States Forest Service, it is relatively easy for the federal government to withhold records under Exemption 4 which protects “trade secrets and commercial or financial information obtained from a person” which are “privileged or confidential.” 5 U.S.C. § 552(b)(4). READ MORE
As two recent cases show, how one pleads its case under the Defend Trade Secrets Act can be the difference between whether “aloha” means hello or goodbye to federal jurisdiction.
A district court in Hawaii recently dismissed a plaintiff’s claim under the DTSA because it failed to establish subject matter jurisdiction. In that case, DLMC, Inc., a health care service provider for elderly and infirm residents of Hawaii, accused a former employee of stealing client lists. The cause of action under the DTSA was the only federal claim in the complaint and, therefore, the only basis for federal jurisdiction. However, to plead a cause of action under the DTSA, the trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.” The only argument DLMC made as to this required nexus was that its clients “have federal patient identification numbers so as to allow for their receipt of federal funds for the services provided to them by [DLMC].” DLMC also argued that because it was an entity whose very existence relies on and is conditioned upon federal application, certification and approval,” its services “are subject to federal law….” Neither of these arguments persuaded the court as they both failed to show whether and how the alleged trade secrets themselves (as opposed to DLMC’s business generally) related to interstate commerce. The court granted defendants’ motion to dismiss, however, with leave for DLMC to amend its complaint to allege a DTSA (or other federal) claim. READ MORE
Last week, the United States Senate Judiciary Committee announced the creation of a new subcommittee on intellectual property. The IP subcommittee will address a range of IP issues, including theft by state actors such as China. The announcement of the subcommittee comes in the wake of increasing tension over trade with China and shortly after the Department of Justice announced criminal charges against China’s Huawei Technologies for alleged trade secrets theft. READ MORE
Last November, we discussed the potential impact of a recent California appellate court decision, AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), which called into question long-standing California precedent enforcing certain employee non-solicitation provisions. However, we noted it was too soon to forecast the implications of that case.
Though it is still early, it appears the tide may be turning, as a California federal district court recently issued a decision that relied upon AMN’s holding and found that the employee non-solicitation provision in the plaintiff’s contract was unenforceable under California law.
Employers in many industries use non-compete agreements as a key tool to protect trade secrets. According to U.S. Treasury reports, non-compete agreements impact approximately 30 million – nearly one in five – U.S. workers, including roughly one in six workers without a college degree.
Some employers have imposed non-compete agreements across a broad segment of their workforce, including imposing them on low-wage earning employees and employees who are not privy to trade secrets or other confidential information. Non-compete agreement opponents argue that such broad non-compete agreements can interfere with the employee’s right to make a living without any off-setting benefit for the employer. In the past few years, state attorneys general have been successfully suing companies to invalidate what many see as overly-expansive non-compete agreements.
“Bad Artists Copy. Good Artists Steal” – Pablo Picasso
In the small world of exclusive and upscale art sales, competing galleries inevitably form and maintain relationships with one another. This is the case for Lévy Gorvey gallery partner Dominque Lévy, and Lehmann Maupin Group co-founder Rachel Lehmann, who have known each other for over 20 years. Now, Lehmann Maupin is involved in a trade secrets fight with their former sales director, Bona Yoo, who is currently employed by Lévy Gorvey. In this tightknit artist’s community, the news of a trade secrets lawsuit against a former employee is admittedly more shocking than the typical Silicon Valley trade secret theft story, where employees leave for competitor companies as frequently as they come. But it should not be surprising that trade secrets in the art industry are just as valuable to their owners as they are to tech industry leaders—because in both worlds, client relationships are key.
That’s why Lehmann Maupin Group is not taking lightly their suspicion that their former sales director destroyed company trade secrets and stole client information upon her departure to a competing gallery. According to the complaint, when Bona Yoo left Lehmann Maupin to join Lévy Gorvey last fall, she copied files containing valuable trade secrets and “maliciously corrupted” or deleted other files. Lehmann Maupin alleges that Ms. Yoo did so to gain a competitive advantage in the industry, while simultaneously impeding Lehmann Maupin’s business. The complaint “claims damages from the violation of the Defend Trade Secrets Act, the Stored Communication Act, confidentiality agreements, and New York law.”
Dominque Lévy of the Lévy Gorvey gallery has come to Ms. Yoo’s defense, publicly stating that she is “tremendously saddened” by the allegations against Ms. Yoo, and adding that the art world “is not the place for this aggressive behavior.” Lévy Gorvey gallery is not named as a defendant in this litigation. Ms. Yoo’s response is due January 29.
This case brings to light some interesting issues that permeate across much larger, more publicized industries. The first is that no industry is immune from trade secrets litigation. When key employees bring invaluable and irreplaceable knowledge to the table, they often become embroiled in trade secrets litigation with their former employers. Regardless of whether Ms. Yoo is liable for the allegations leveled against her in this case, it remains the case that departing employees are often unaware of their obligations with respect to protecting their former employees’ trade secrets. It is important to counsel individuals on the laws surrounding trade secrets theft prior to their exit from one company to a competitor company—whether they work for an art gallery or a tech-industry giant.
With the holidays behind us and our calendars flipped over to 2019, we’re taking a look back at some key trade secrets developments of the past year. Here are some of the big cases and legislative developments from 2018. READ MORE
When Congress enacted the DTSA on May 11, 2016, it left open the issue of whether the DTSA would apply to misappropriation that occurred prior. As we previously reported, many federal district courts have since found that it does apply if there were continuing acts of misappropriation after enactment of the statute. Now, the 10th Circuit Court of Appeals has weighed in, upholding a district court’s dismissal of a DTSA claim where the plaintiff failed to allege a continued act of misappropriation after the date of enactment. READ MORE
Amid a growing body of unsettled law regarding the patentability of software and business methods patents, companies are increasingly choosing to maintain their valuable innovations as trade secrets rather than risk a rejected patent application. There are pros and cons to both forms of intellectual property protection. However, the decision need not be binary – at least not during the pendency of the patent application. Instead, by opting to go the “non-publication” route, inventors can maintain trade secret protection over an invention during the patenting process and decide whether to forego trade secret status and allow the patent to issue at the end of the patent prosecution process. READ MORE
A $700 million jury award for trade secrets misappropriation and fraud is the product of a collusive scheme to deceive the jury, claims title insurance and valuations provider Amrock, formerly known as Title Source, in its recent bid for a new trial.
The blockbuster award to technology start-up HouseCanary arose out of its 2015 contract to provide Amrock with access to its proprietary app designed to generate real estate valuations for house appraisers based on a proprietary automated valuation model. Several months later, Amrock accused HouseCanary of breaching the contract by failing to provide any usable products. Amrock terminated the agreement and sought a declaratory judgment in Texas state court that it need not pay HouseCanary the contracted $5 million in annual access fees. HouseCanary countersued, claiming that Amrock used HouseCanary’s products and offerings without paying for them, collected a “critical mass” of HouseCanary’s proprietary data, and ultimately used that information to “secretly replicate” HouseCanary’s protected technology and intellectual property. HouseCanary ultimately convinced the San Antonio jury that Amrock lied about its intended purpose in entering the contract and that Amrock misappropriated HouseCanary’s data and technology to develop competing property analytics and software. In March 2018, the jury awarded HouseCanary $200 million for trade secrets misappropriation, $400 million in punitive damages for the misappropriation, $34 million for fraud relating to the contract, and $68 million in punitive damages for the fraud. In October 2018, the judge upheld the award and ordered Amrock to also pay $29 million in prejudgment interest and $4.5 million in attorneys’ fees. READ MORE