It’s been a hot year in the trade secrets field, with some huge verdicts and settlements, a renewed spotlight on cyberattacks, and an unusual flurry of trade secrets legislation. Trade Secrets Watch’s 2013 Year-in-Review highlights the notable trade secrets activity from the past year.
Legislation and Policy
One of the hottest topics throughout 2013 caught fire when security company Mandiant issued its blockbuster report in February, claiming that state-sponsored hackers in China had been engaged in massive cyberattacks in the United States. This set off a firestorm in Washington, with the White House issuing an Executive Order and five-point plan for combating cybertheft, the Pentagon publicly accusing China of cyberhacking in its annual report to Congress, and Senators calling for the creation of a watch list of foreign countries that engage in economic or industrial espionage.
But the United States lost some moral high ground with Edward Snowden’s now-infamous revelations about NSA surveillance programs, including spying on government leaders. With the NSA fallout, the United States undoubtedly took a credibility hit — after all, it’s hard to complain about others hacking you when you’re monitoring their calls.
Congress nonetheless pushed forward with one of the busiest years ever for trade secret legislation, kicking off the year with two amendments that expanded the breadth and penalties of the Economic Espionage Act. The Theft of Trade Secrets Clarification Act was intended to close a loophole and ensure that the EEA protected against the theft of trade secrets like internal source code, even if the code itself isn’t placed into interstate commerce. And the Foreign Espionage Penalty Enhancement Act increased the maximum fines for stealing trade secrets with the intent to benefit foreign entities from $500,000 to $5 million for individuals and from $10 million to the greater of $10 million or three times the value of the stolen trade secret for organizations. But Congress didn’t stop there, with members introducing an unprecedented number of trade secret bills that are currently under consideration in both the House and Senate.
This year also saw trade secret legislation in the states. Texas became the 48th state to adopt the Uniform Trade Secrets Act, and the Massachusetts legislature currently has two bills (H.27 and H.1225) that would also adopt the uniform act. Massachusetts and New York are the only states not to have adopted some form of the UTSA, which celebrated its 34th anniversary in August.
States were also active in passing trade secrets legislation concerning an oil and gas drilling process called hydraulic fracturing, or “fracking.” These laws regulate whether and to what extent oil and gas companies may withhold public disclosure of proprietary fracking processes on the basis that they are trade secrets. In case you missed it, we put together a handy state-by-state flipbook that highlights key provisions in states requiring disclosure.
Trade secrets fever even caught on across the globe:
- In November, EU officials issued a draft set of rules that would impose uniform trade secrets guidelines across the European Union;
- The UK Supreme Court examined the scope of the duty of confidence in Vestergaard Frandsen A/S & Ors v Bestnet Europe Ltd & Ors;
- China’s Supreme People’s Court reviewed two trade secrets cases brought by AMSC against Sinovel concerning source code related to wind turbine operation;
- Taiwanese authorities filed criminal trade secret charges against executives accused of selling HTC trade secrets to China; and
- Russia’s new IP Court debuted this year, a promising development designed to provide a uniform approach to resolution of intellectual property disputes in an important economy.
The U.S. International Trade Commission also heard trade secrets cases, continuing the trend sparked by the 2011 TianRui decision. One closely watched ITC trade secrets proceeding involves conflicting rulings from the ITC and a Chinese court in a case by chemicals manufacturer SI Group against Sino Legend. Dow also filed an ITC complaint against rivals accused of misappropriating trade secrets in a Dow seed polymer recipe.
Civil Court Filings
The year saw a surge in civil case trade secret filings relating to the alleged theft of technology ranging from antimicrobial compounds to solar panels, demonstrating the increasingly important role of trade secrets protection across all sectors of industry. Some notable civil case filings included:
- A suit by N8 Medical in Utah federal court in which it seeks more than $1 billion against Colgate for the alleged misappropriation of trade secrets on synthetic antimicrobial compounds;
- A suit in Philadelphia federal court in which mortgage insurer Radian Group accuses rival Arch Capital Group of misappropriating trade secret customer information allegedly worth $1.5 billion;
- A suit by EMC against Pure Storage in Massachusetts federal court in which it alleges that “dozens of former EMC employees have joined Pure Storage and stolen tens of thousands of pages of proprietary, highly confidential and competitively sensitive EMC materials — including highly specific information about EMC’s directly competing flash storage solution”;
- A suit against Google by Be In Inc. in California federal court, in which Be In alleges that Google surreptitiously arranged demos of Be In’s video-chat platform to figure out how it worked;
- A suit against Intel in California state court by a startup company called Zettaset, following failed discussions between the two companies;
- A suit by AMD in Massachusetts federal court against ex-employees who joined NVIDIA;
- A suit by Cantor Gaming in Nevada state court against London-based rival William Hill plc;
- A suit by Credit Suisse in New York state court against an ex-VP who moved to Goldman Sachs;
- A suit against the Weather Channel by Events Media Network in New Jersey federal court;
- Competing trade secret lawsuits between Lunex Telecom and Krush Communications in New Jersey federal court and Georgia state court;
- A suit by IMAX in California state court alleging misappropriation of trade secrets underlying its large screen digital projection systems;
- A suit by tractor-maker Deer & Co. against a former employee who joined competitor AGCO;
- A suit against USA Today and Gannett Co. in New York state court, in which UrbanDaddy accuses them of misappropriating trade secrets to win a digital publishing contract with Hilton Hotels allegedly worth hundreds of millions of dollars;
- A suit against Match.com filed by Speed Date in Pennsylvania federal court; and
- A suit by Solar City against a rival in California state court, for allegedly targeting employees with the intent of obtaining trade secret customer information.
Civil Verdicts and Settlements
This year Trade Secrets Watch put together Top 10 lists of the largest trade secret verdicts and settlements in history, and a number of our winners claimed their spots in 2013. Some of the more notable trade secrets verdicts and settlements included:
- A Minnesota appellate court affirmed a jumbo $630 million arbitration award in a trade secret case against Western Digital Corp.;
- Brocade Communications and A10 Networks reached a $75 million settlement of a patent/trade secrets case;
- The Fifth Circuit affirmed Wellogix’s $44 million award against Accenture for trade secret misappropriation and other claims;
- Marvell won a jury trial in California state court, defeating a decade-long trade secrets case prosecuted by Jasmine Networks involving an infamous voicemail in which Marvell’s former general counsel inadvertently failed to hang up the phone after calling his counterpart at Jasmine;
- Dairy and food processing equipment company Relco LLC also won a jury trial and was awarded $22.7 million on the basis that two ex-employees took its trade secrets to a Wisconsin-based rival;
- American Axle defeated trade secret charges filed by its rival Dana, with the court finding after a bench trial that although ex-Dana employees had taken trade secrets, they had not disclosed them to their new employer; and
- Ericsson and Airvana settled a trade secret lawsuit in which Ericsson was seeking $330 million, with Airvana agreeing to sell its wireless network business to Ericsson.
Criminal Trade Secrets Cases
In 2013, the U.S. government continued to file charges in criminal trade secret cases under the Economic Espionage Act and other federal laws:
- Federal prosecutors filed charges this week against three Chinese nationals for allegedly misappropriating seed technology in Iowa and Kansas;
- Last month, New York prosecutors charged fourteen people with a cyber theft conspiracy to steal $45 million in cash from ATMs;
- In October, an Indiana federal grand jury indicted former Eli Lilly employees for allegedly transferring trade secrets worth $55 million to a competing Chinese drug company, and a federal grand jury in Virginia indicted over a dozen alleged members of the hacking group Anonymous on conspiracy charges for coordinated cyberattacks known as “Operation Payback”;
- In September, two men were arrested in Florida on charges of attempting to steal trade secrets from a gun parts manufacturer; and
In June, the FBI arrested a former Becton, Dickinson & Co. employee in New Jersey on charges of stealing trade secrets for the development of a pen-like device for injecting medication. And in a separate case, Wisconsin authorities charged China’s biggest wind turbine company Sinovel with misappropriating software of American company AMSC, allegedly causing $800 million in damages.
A number of criminal trade secret cases concluded this year with convictions and the imposition of significant sentences:
- Bradley Manning was sentenced to 35 years in prison after being charged with dozens of violations of federal statutes, including the Computer Fraud and Abuse Act (CFAA), in one of the largest classified information leak cases in history;
- The Seventh Circuit upheld a conviction and four-year sentence of ex-Motorola worker Hanjuan Jin in a case in which Jin claimed she was just trying to improve her job prospects when she took thousands of confidential documents on a one-way trip to China;
- A San Francisco federal jury convicted David Nosal of CFAA violations following a remand from a notable Ninth Circuit decision;
- A federal judge in Detroit sentenced former GM engineer Shanshan Du and her husband after their convictions for conspiring to steal GM’s hybrid technology trade secrets;
- The Second Circuit affirmed the conviction of Samarath Agrawal for source code theft, distinguishing Agrawal’s case from Sergey Aleynikov’s case on the basis that Agrawal printed the source code (and in another twist, Goldman Sachs was ordered to pay Aleynikov’s legal fees incurred in connection with the criminal trade secrets case against him);
- A former Caltrans engineer pleaded guilty to conspiracy charges after trying to transfer high-tech defense chips onto a ship owned by the same Chinese company that fabricated the new Bay Bridge; and
- Andrew “Weev” Auernheimer appealed his conviction and 41-month sentence for allegedly hacking AT&T’s servers in a case that’s received widespread publicity about the alleged overbreadth of the CFAA.
Another notable trend in criminal trade secrets cases this year has been decisions by several federal district courts that have blocked trade secret prosecutions on the basis that foreign defendants were not properly served. This has proven to be a significant roadblock to the federal government’s ability to prosecute foreign companies for cybertheft.
Appellate courts also had their fair share of trade secret cases this year. Some of the more notable federal cases included:
- The U.S. Supreme Court denied certiorari in WEC Carolina Energy Solutions LLC v. Miller, leaving the federal courts split over whether the CFAA prohibits trade secrets theft by company insiders;
- In May, the Fourth Circuit heard oral argument on Kolon’s appeal of DuPont’s massive $920 million dollar verdict — one of the largest trade secret verdicts of all time;
- In Core Labs v. Spectrum Tracer Services, the Federal Circuit reversed the denial of a preliminary injunction on the basis that the threatened disclosure of trade secrets constituted irreparable harm;
- In another case, the Federal Circuit ruled that waiver of trade secrets protection can result from failure to comply with confidentiality designation protocols set forth in a non-disclosure agreement; and
- The Seventh Circuit issued a lengthy trade secrets opinion that construed Illinois law to permit a prevailing defendant to recover attorneys fees incurred in defending against a trade secrets claim brought in bad faith.
State appellate courts also decided some interesting trade secret issues this year:
- The Georgia Supreme Court rejected the inevitable disclosure doctrine;
- A New Jersey appellate court held that a confidentiality provision was invalid due to overbreadth;
- A California Court of Appeal refused to give preemptive effect to the California Uniform Trade Secrets Act;
- A Florida appeals court reversed a trial court order compelling production of trade secrets materials; and
- A Pennsylvania appellate court established a new test for awarding attorneys fees in trade secrets actions.
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We want to thank our readers for making Trade Secrets Watch a success in our inaugural year. You can stay abreast of the latest developments by following us on Twitter (@TS_Watch) or by signing up for our weekly email newsletter. If the past year is any indication of what is to come, we will be busy in 2014 as we continue to follow developments in trade secrets law in the United States and beyond.