33 Can.-U.S. L.J. 159

Canada-United States Law Journal
2007

Proceedings of the Canada-United States Law Institute Conference on Comparative Legal Aspects of Entrepreneurship in Canada and the United States
Cleveland, Ohio April 13-14, 2007
People Aspects of Entrepreneurs: Personal Service Contacts with Key Personnel Including Non-Compete Clauses, Methods of Reimbursement for Company Success, Incentives (Profit-Sharing or Other), and Effect of Immigration Restrictions on Entrance of Possible Entrepreneurs into Canada and the U.S.

INTRODUCTION

Gerald “Jerry” Torma

Copyright © 2007 by Canada-United States Law Journal; Gerald “Jerry” Torma

MR. TORMA: Good morning. Can everyone hear me all right? Can everyone hear me okay? Good morning to everyone.
My name is Jerry Torma from the Nordson Corporation, and I am very pleased to be here today. I would like to thank Henry King and the other advisors and other organizers for their kind invitation to be here to represent Nordson Corporation at this extremely valuable and worthwhile event.
I will introduce our two presenters in just a moment. Nordson Corporation was founded in 1954 by Walter G. Nord and his two sons, Evan Nord and Eric Nord. All three of them received their engineering degrees here at the Case Institute of Technology. The first product was airless electrostatic painting established and founded by and developed and discovered by a person from Case.
As early as 1965, when Nordson was a relatively small company, they began their operations in Canada, and it was still very entrepreneurial in nature. And ever since 1965, Canada has been a truly important source of road for Nordson in three ways:
*160 Number one: it provides sales, number two: it is a source of executive and managerial talent, and, three: it has always been managerial rather than entrepreneurial. It has always been rather unique in its innovative and technological contributions.
All of you have there in front of you a brochure called Northeast Ohio, and if I could ask you to open up to the center and look on the right-hand side. It reminds us that Northeast Ohio is a link to international business. The graph or chart or map on the right-hand side, in the middle there, also is very illustrative in that it shows us that Ohio and Canada are inextricably tied together.
There is a mutual interdependency in business, and many of us consider the Southern Canadian, Northern Ohio region, Northern United States and Midwest region as one economic unit, not two. So I think it is very fitting that we have this conference and presentation today to reinforce the oneness of that economic unit.
We are very fortunate to have with us this morning two presenters who are extremely experienced and extremely knowledgeable. I am sure we will all benefit from them. One of the principals I like to see sometimes is what I call three-way communication. Hopefully, one way is, from the three of us to all of you. Equally important I think is from all of you to us - your questions - and then sharing three-way communication participant to participant. So with no further delay, I would like to ask Benjamin Jeffers to introduce himself and to give the appropriate background and presentation followed by John Craig, our visitor and guest, pleased to have him from Canada.
Ben?

United States District Court,
District of Columbia.
ICM REGISTRY, LLC, Plaintiff,
v.
U.S. DEPARTMENT OF COMMERCE, et al., Defendants.
Civil Action No. 06-0949 (JR).
March 12, 2008.
538 F.Supp.2d 130 (D.D.C.,2008)

Freedom of Information Act (FOIA) suit was brought in an effort to ascertain government's involvement with the rejection of plaintiff's application for a new .xxx Internet domain. Parties filed cross-motions for summary judgment.

The District Court, James Robertson, J., held that:

(1) government's action in pressuring domain registrar to reject application for a new .xxx Internet domain was not misconduct within the meaning of “misconduct exception” to FOIA's deliberative process privilege, and
(2) documents reflecting government's active consideration of various responses to approval of application for a new .xxx Internet domain were protected from disclosure by deliberative process privilege.

Defendants' motion granted.

976 So.2d 1139 (Fl. 2008)

District Court of Appeal of Florida,
Fourth District.
ACOUSTIC INNOVATIONS, INC., a Florida corporation, Jay Miller, individually,
and Joanne Miller, individually, Appellants,
v.
Carey SCHAFER, Appellee.
No. 4D07-1603.
Feb. 20, 2008.
Rehearing Denied April 10, 2008.

Background: Former employee brought action against corporation, incorporator of corporation, and incorporator's wife, alleging breach of an oral contract to transfer 50 percent of the stock in corporation to employee upon request, and seeking judicial dissolution of the corporation. Corporation asserted counterclaim for misappropriation of trade secrets. The Fifteenth Judicial Circuit Court, Palm Beach County, Diana Lewis , J., severed the counterclaim and, after a bench trial, entered judgment in favor of employee awarding him the value of his shares, ordering incorporator to buy those shares, and placing a constructive trust on all the shares of corporation.

977 So.2d 109 (2008)

Court of Appeal of Louisiana,
Fifth Circuit.
INPUT/OUTPUT, INC. and I/O Marine Systems, Inc.
v.
WILSON GREATBATCH, INC. & Wilson Greatbatch, Ltd. d/b/a Electrochem Lithium
Batteries.
No. 07-CA-570.
Jan. 22, 2008.

Background: Marine seismic exploration products company brought action against battery manufacturer alleging various causes of action for breach of fiduciary duty, breach of contract, violations of Louisiana Unfair Trade Practices Act and Uniform Trade Secrets Act, unjust enrichment and conversion in connection with battery manufacturer's development of low priced battery for marine exploration product. The 24th Judicial District Court, Jefferson Parish, No. 578-881, Joan S. Benge , J., granted battery manufacturer's motion for summary judgment, and exploration product company appealed.

Megan Barnett

Eric Falkenstein isn't your typical 42-year-old hedge fund manager. Instead of trading stocks all day or courting new investors, he spends his time updating his blog, researching equity strategies, and talking to his lawyer. He's a hedge fund portfolio manager who is legally restrained from managing hedge fund portfolios.

But Falkenstein didn't embezzle funds, swindle unsuspecting investors, or violate insider-trading laws. Rather, he quit his job one September day in 2006 and he hasn't been able to work since.

OLUYINKA ALAWODE

Problems: only about five million people of the total adult population in Nigeria are skilled. The competition for the skilled manpower is very keen. No matter how much money is put in to float a project, it can be copied. So a business must be dynamic. One of the ways a company’s trade secrets go out is through disloyal staff.

Recent public sector scandals have brought expense management into the spotlight. So what's the best way to ensure your organisation doesn't get ripped off?

More than 50 MPs have reportedly laid-off members of staff following the expenses scandal surrounding Tory MP, Derek Conway, who used his expenses to employ two of his sons as researchers earlier this year. Soon after, House of Commons Speaker, Michael Martin, was also accused of abusing his expenses.

Aparna Kalra

New Delhi: After a few on-campus visits to recruit summer interns at the Indian Institute of Management, or IIM, in Ahmedabad, financial services company Edelweiss Capital Ltd created such a buzz that the students invited the company for final job placements last year.

That’s how important summer internships can be—to both employers and students.
These days, most companies are using internships as a tryout for a full-time job. Internships establish their brand on campus, judge candidates in a more effective way than exams or interviews, and, in the best scenario, lead to a permanent job offer. A well-done summer job gets noticed even by competitors.

TERENCE CHEA

SAN FRANCISCO—Tesla Motors Inc., a Silicon Valley company that makes electric cars, has filed suit against a competing company and its founders alleging they stole trade secrets to design a competing vehicle.

San Carlos-based Tesla recently started shipping its first vehicle, a two-door electric sports car called the Tesla Roadster, which has generated excitement among environmentalists and auto enthusiasts.

Last year, the company hired Fisker Coachbuild LLC, a well-known automotive design firm founded by Henrik Fisker and Bernhard Koehler, to help design the body and interior of Tesla's next vehicle, known as project White Star, a four-door sports sedan with a hybrid-electric engine.

In the lawsuit filed Monday in San Mateo County Superior Court, Tesla claims that Fisker and Koehler fraudulently accepted the design contract to gain access to Tesla's trade secrets and proprietary engineering and design information so they could develop their own hybrid sports sedan.

In a statement Tuesday, Fisker said, "We believe that the allegations set forth in the complaint are without merit and intend to defend ourselves vigorously."

Tesla paid Fisker Coachbuild about $800,000 for its design services last year, but Tesla officials said the styling work was "substandard" and decided last fall not to use it, according to the lawsuit.

Michael A. Scarcella

BRADENTON — The owner of a computer company is accused of stealing trade secrets from a business he was working for, according to Manatee County sheriff’s reports.

Authorities arrested David A. Gamache, 45, of Bradenton, this week. They say he stole computer files from his employers that contained addresses and passwords, among other information. He reportedly threatened to give the information to competing companies.

Gamache was hired by Scoring System to refine their business model, sheriff’s deputies said. The victims said Gamache, owner of Syber Masters, a consulting firm, put the stolen files on a personal laptop.

Authorities said the victims seized Gamache’s laptop as evidence. The victims estimated the value of the stolen information at $40 million, according to sheriff’s reports.

A reported victim, Brunhilde Merker, is seeking a restraining order against Gamache, who is on state probation in Florida until 2018 for an investment scheme.

- Click here to listen to the interview

It’s on a comparative benchmarking basis. That is somewhat difficult to do with patents and trade secrets and the like - because people don’t expose or disclose what they’ve paid or bought if there’s an assignment, or the licence fee if there’s a licence. One methodology is as I said is the market approach, there is the royalty or the punitive royalty income stream approach where you turn around and say “if I was a patentee, how much would I charge you as a prospective licensee, and how much would you be prepared to pay to use my rights?” You could base it on the cost approach - how much was invested to get that technology?

From our friends at Jurisnotes.com

Ideal Aerosmith, Inc. v. Acutronic USA (WD Pa 4/23/08)

Ideal sued Acutronic and others (collectively "Acutronic") for misappropriation of trade secrets and related claims. The court denied Acutronic's motion for judgment on the pleadings. Ideal briefly operated the business of a competitor, Carco Electronics, while Carco was in bankruptcy. In connection with its operation, Ideal hired Carco's employees and used Carco's email addresses. Carco was subsequently acquired by Acutronic. The former Carco employees hired by Ideal did not join Acutronic, but remained Ideal employees and were given new Ideal email addresses. Ideal alleges that despite these new email addresses, former Carco employees and third-parties doing business with Ideal inadvertently continued to send communications using the old Carco email addresses. According to Ideal, Acutronic, which now owned the Carco servers, caused the servers to redirect those email messages to an Acutronic server. Acutronic then read the messages, some of which allegedly contained Ideal trade secrets.

From our friends at Jurisnotes.com

Cemen Tech, Inc. v. Three D Industries, LLC (Iowa 5/2/08)

CTI sued Three, Longnecker, Jones, Luhrs, Yelton, Dorman, and others for misappropriation of trade secrets and related claims. The trial court granted Three's motion for summary judgment on virtually all of CTI's claims and the Supreme Court of Iowa affirmed in part, reversed in part, and remanded.

CTI is a manufacturer of mobile volumetric concrete mixers. Defendants Longnecker and Enos, through their business, Three, were interested in purchasing CTI. In 1999, Three sent a letter of intent to CTI requesting information regarding the business. CTI eventually provided Three with various documents, including strategic plans, financial statements, customer and supplier lists, and organizational charts. By 2001, it became clear that the purchase was not going to happen and CTI terminated Three's latest letter of intent, though discussions continued regarding the possible purchase of a portion of CTI business. In September 2001, Longnecker and Enos, through a third-party entity, submitted a letter of intent to CTI to purchase its "sludge" division. CTI apparently ignored this letter. By the end of 2001, the remaining employee defendants resigned from CTI and began working for Three developing volumetric concrete mixers. In 2002, Three exhibited a prototype cement mixer at a trade show closely resembling CTI's mixer.

884 N.E.2d 294 (In 2008)

Plaintiff company providing quality control services to manufacturers and suppliers brought action against competitor, its sister company, owners of sister company, and two former employees of plaintiff, asserting claims for misappropriation of trade secrets under the Indiana Uniform Trade Secrets Act (IUTSA) and Indiana's Racketeer Influenced and Corrupt Organizations (RICO) statute. The Superior Court, Marion County, Thomas J. Carroll, J., granted preliminary injunction to plaintiffs. Defendants filed interlocutory appeal.

Holdings: The Court of Appeals, Bailey , J., held that:
(1) as a matter of first impression, civil remedy portion of Indiana's Racketeer Influenced and Corrupt Organizations statute is not preempted by Indiana Uniform Trade Secrets Act;
(2) preliminary injunction was warranted, under Indiana's RICO statute;
(3) it was appropriate to subject sister corporation to the preliminary injunction; but
(4) it was inappropriate to include a two-year time frame in the preliminary injunction; and
(5) preliminary injunction was overbroad.

United States District Court, D. Connecticut.
PANTERRA ENGINEERED PLASTICS, INC., Plaintiff,
v.
TRANSPORTATION SYSTEM SOLUTIONS, LLC, et al., Defendants.
Civil Action No. 3:05-cv-01447 (VLB).
March 27, 2008.

Intellectual property holder brought action against corporate competitor and its officers claiming misappropriation of trade secrets, breach of fiduciary duty, violation of Connecticut statutes, conspiracy, and false advertising under Lanham Act. Competitor brought motion to dismiss for lack of personal jurisdiction and improper venue, or alternatively, to transfer. The District Court, 455 F.Supp.2d 104, Arterton, J., denied motion. Thereafter, defendants moved for summary judgment.

Holdings: The District Court, Vanessa L. Bryant, J., held that: (1) fact issues whether appropriation of trade secrets had occurred precluded summary judgment under Connecticut Uniform Trade Secrets Act (CUTSA); (2) same issues precluded summary judgment that defendants had not engaged in false advertising, in violation of Lanham Act; and (3) same issues precluded summary judgment that holder had not suffered injury, as required for suit under Connecticut Unfair Trade Practices Act (CUTPA). Motion denied.

James Quinn Craigslist, the classified advertising website, has accused eBay of stealing corporate trade secrets, in a counter-lawsuit that comes just three weeks after the online auction giant accused it of diluting its minority stake in the business. Craigslist has accused eBay of stealing corporate trade secrets, in a counter-lawsuit that comes just three weeks after the online auction giant accused it of diluting its minority stake in the business Craigslist chief executive Jim Buckmaster Craiglist accuses eBay not only of unfair competition and fraudulent business claims, but also of copyright infringement and using misleading advertising on Google - to run adverts for its rival Kijiji site that masqueraded as Craigslist adverts. The counter-suit comes in response to eBay's original lawsuit, filed in late April, which claimed that Craiglist held clandestine meetings in order to dilute eBay's 28.4pc stake in the business.

Jerry Markon

A New Orleans businessman pleaded guilty to espionage yesterday, admitting that he gave the Chinese government highly sensitive military information he obtained from a former Defense Department official.

Tai Shen Kuo, 58, said in court papers that he plied the official with gifts, cash and dinners to secure classified projections of U.S. military sales to Taiwan. He was paid $50,000 to pass the materials to his Chinese contact through e-mails and telephone calls to Beijing, the documents said.

Kuo pleaded guilty in U.S. District Court in Alexandria to conspiracy to deliver national defense information to a foreign government. He faces up to life in prison when he is sentenced Aug. 8.

The parties settled for $50,000 prior to trial. The settlement did not include an admission of guilt, as Zhang still maintains he did nothing wrong.

Plaintiff's counsel reported that all of the settlement proceeds were donated to charity.

Synder, Inc. sued Zhang, claiming he had misappropriated trade secrets. Synder alleged that Zhang gave the tapes and other documents containing trade secrets to a Chinese company, and that company got enough information from this transaction to attempt to replicate Synder's manufacturing facility.

Zhang denied providing the Chinese company with Synder's trade secrets. He maintained that he did nothing wrong.

SP Midtown, Ltd. v. Urban Storage, L.P. (Tex App 5/8/08)

SP sued Urban and The Jenkins Organization, Inc. (collectively "Urban") for misappropriation of trade secrets and related claims. The trial court granted summary judgment in favor of Urban and the appellate court affirmed in part, reversed in part, and remanded in part.

SP operates a self-storage facility in Texas. In 2005, Getz, SP's principal, hired Welch as the on-site property manager. As a condition of her employment, Welch was required to sign a contract that included a confidentiality provision. In November 2005, Welch met with Dames, an Urban manager. Dames offered Welch a job as a manger for Urban; Welch accepted, but continued working for SP until the end of the month. Upon inspection of his books, Getz discovered that Welch had no sales in the month of November, with the exception of four sales at the beginning of the month. Getz asked a friend to call Welch and pose as a potential customer. Welch informed her that Urban's prices were more reasonable. A private investigator hired by Getz received the same information while posing as a customer. Getz later discovered that Welch had sent SP's daily rental logs to Urban. These logs contained the names of SP's tenants, the dates on which the rental contracts commenced, the terms of the rental obligations, and the number and size of the units rented. In addition, Urban prepared proposals for two of SP's biggest customers using information obtained from Welch. Both customers transferred their business to Urban.

Evidence existed showing that the information contained in the daily rental logs was not known outside of SP's business. The physical copies of the logs were kept inside a filing cabinet, which was not accessible to the public. There was no publicly available way to ascertain the customers' names contained in these documents. There was also evidence that SP made an effort to keep this information secret. The information contained in the daily rental logs was valuable, as it would allow competitors to undercut SP's prices. Therefore, SP presented more than a scintilla of evidence to create a genuine issue of material fact as to whether the daily rental logs constituted trade secrets. In addition, the evidence showed that Urban improperly acquired SP's trade secrets through the actions of Welch, who violated her duties to SP. A fact-finder could reasonably infer that Urban sent Welch its vacancy reports in an effort to elicit SP's trade secrets. Moreover, SP presented evidence that Urban used its trade secrets for commercial purposes. Urban, with the help of Welch, contacted at least two of SP's customers and persuaded them to transfer their business to Urban. Finally, there was evidence of damages resulting from the actions of Welch and Urban. SP lost these customers and their monthly rental payments. Additionally, SP lost the value of its confidential information.

Southern Nuclear Operating Co, Inc v Electronic Data Systems Corp
Seyfarth Shaw LLP Jason Jarvis

Georgia’s Trade Secrets Act prohibits knowing misappropriation of trade secrets. See Ga. Code Ann. § 10-1-761. In a recent decision, the Eleventh Circuit briefly examined this principle in affirming a district court’s grant of dismissal and concluded that the Complaint must set forth facts from which the court could infer that any misappropriation of trade secrets was knowing. Southern Nuclear Operating Co., Inc. v. Electronic Data Systems Corp., 2008 WL 1700204 (11th Cir. Apr. 14, 2008). Southern Nuclear Operating Company had retained Electronic Data Systems (“EDS”) to provide computer and software services. Southern Nuclear eventually terminated that agreement and hired Computer Technologies Solutions, Inc., (“CTS”) to perform the same functions. EDS requested that Southern Nuclear return EDS’s products and documentation or certify their destruction. Southern Nuclear never did so, and so EDS filed an action against Southern Nuclear and CTS for misappropriation of its trade secrets. The only issue on appeal was whether the district court had erred in granting dismissal on the grounds that EDS did not allege that CTS knew or should have known at the time it was hired that it had misappropriated trade secrets of EDS. The court of appeals agreed with the district court and affirmed the dismissal in a very brief opinion because there was “nothing in the Complaint that provides facts from which the court could infer that CTS knew or should have known that it had misappropriated trade secrets of EDS.” Nonetheless, service providers such as CTS should still be conscious of trade secrets issues when they enter into new agreements to provide services or products, ensuring that information used by the client and made available to the service provider is not a competitors’ trade secrets, particularly if there is some reason to suspect that the information may be protected.

Rahul Jayaram