Julianne Dowling

"Often there is dissent about who owns the intellectual property rights in employee work product," he says. "Actual litigation has increased because of the tightening job market and rise in the 'knowledge-based' economy. 

Zusha Elinson

June 3, 2008

A California appellate court has clarified when the clock starts ticking for trade secret holders to sue third parties who have acquired their stolen intellectual property.

Three years after filing a suit over stolen computer source code, the subsequently victorious plaintiff also sued the defendant's customers for having acquired the proprietary information. At question was when the three-year statute of limitations had started -- when the plaintiff filed its original suit, or when it won.

Frank Byrt 

Financial Week

June 3, 2008 

A California Court of Appeals ruling late last week could have a far-reaching impact on companies accused of stealing trade secrets.

The ruling was in favor of an appeal of a lower court’s ruling by Cypress Semiconductor of San Jose, California. Cypress is one of 12 semiconductor firms sued by Silvaco Data Systems of Santa Clara for indirectly misappropriating trade secrets after Cypress purchased semiconductor software from a third party.

Silvaco claimed that Cypress and the other companies had stolen its proprietary software source code and integrated it into their own software products, which it then sold. Silvaco has sought billions of dollars in claims, arguing that the defendants’ semiconductor sales represented misappropriation of its product. 

Jennifer McAdams

United States IT officials can effectively prevent security breaches by customizing security plans for individual employees in every area of their organization. Bruce Schneier, a security expert in Mountain View, California, says that IT officials at all times need to gauge the company's level of risk and develop airtight audit trails. It is also advisable to avoid entrusting a company's most vulnerable or valuable assets to one individual and instead organizations should compartmentalize access whenever possible. Security is not the sole responsibility of a single employee or security department but is rather the responsibility of every employee within an organization.

The Recorder

A California appellate court has clarified when the clock starts ticking for trade secret holders to sue third parties who have acquired their stolen intellectual property. Three years after filing a suit over stolen computer source code, the subsequently victorious plaintiff also sued the defendant's customers for having acquired the proprietary information. The court ruled that the timer starts when the plaintiff has "any reason to suspect" that the third party knows it received tainted goods.

43 F.Supp.2d 70

United States District Court,

District of Columbia.

IN DEFENSE OF ANIMALS, Plaintiff,

v.

NATIONAL INSTITUTES OF HEALTH and U.S. Department of Health and Human Services,

Defendants.

Civil Action No. 04-1571 (CKK).

April 14, 2008.

Background: Animal rights organization brought Freedom of Information Act (FOIA)
case against the National Institutes of Health (NIH) and United States Department
of Health and Human Services (HHS) seeking information related to approximately
260 chimpanzees located at facility in New Mexico. The District Court issued an
order granting in part and denying in part the parties' cross-motions for summary
judgment. NIH filed a motion for partial reconsideration of order requiring it to
search the facility for clinical chimpanzee files and to release certain other
previously-withheld documents.

Holdings: The District Court, Colleen Kollar-Kotelly, J., held that:

(1) clinical files were agency records subject to FOIA;

(2) NIH could not withhold records under exemption for trade secrets and
commercial or financial information;

(3) NIH could not withhold information under exemption for personnel and medical
files; and

(4) NIH could not withhold information under exemption for materials related
solely to internal personnel rules and practices of an agency.

Motion for partial reconsideration denied.

Chris Dickerson

Window World, among other things, sells and installs replacement windows. It is suing Window Depot and Sisser collectively for breaking an Independent Contractor Agreement and to keep it from hiring, soliciting or encouraging employees and contractors to leave Window World. 

43-SPG Ark. Law. 10 (Spring, 2008)

Kevin M. Lemley

Information is often a firm's most valuable asset. Arkansas trade secret law has lost much of its strength to effectively protect this valuable information. Recent federal and state laws provide new methods for protecting information stored on computers. These new laws should cause a new dimension of thinking in how to protect business information. This article will focus on two of the most important new laws: (1) the Computer Fraud and Abuse Act (“CFAA”); and (2) Arkansas computer statutes.

Four our friends at Jurisnotes.com

Cypress Semiconductor v. Silvaco Data Systems (5/30/08)

The question here was if a party stole a trade secret and then sold it to a third-party, when did the statute of limitations begin to run on any misappropriation claim that the trade secret owner might have against the third-party. The trial court held that the limitations period did not begin to run until the third-party had actual notice of the trade secret owner's claim to the information. The appellate court disagreed and held that the statute of limitations on a cause of action for misappropriation began to run when the plaintiff had any reason to suspect that the third-party knew or should have known that the information was a trade secret. The third-party's actual state of mind did not affect the running of the statute. Thus, in this case, the statute began to run when Silvaco had any reason to suspect that the CSI customers knew or should have known that they had acquired Silvaco's trade secrets.

6/4/08 Mondaq Bus. Briefing

Protection of Trade Secrets And Confidential Information

Mr Edward Fan

Introduction

With the rise of the information age and growth of the knowledge economy, managing and protecting information, as well as enforcing against its misuse, have become increasingly critical to business enterprises. Aside from protecting the intellectual capital of a business through the patent, copyright and trade mark registration systems, the law further protects against misuse of confidential information, including trade secrets, to a business that takes the appropriate steps to protect such information.

Sari Kriger

Dow Jones Newsletters 

Already, law firms with intellectual-property practices are seeing an increasing number of clean-technology clients. 

CHAIM EVEN-ZOHAR

“ Some pundits,” she wrote, “want us to make a list of past suspects ‘public.’ ‘Naming names’ based on suspicion alone is wrong, and doing so would put GIA at great legal and moral risk. … It is troublesome that old rumors persist despite everything we have done – including being honest and forthright throughout this situation with you, the media and the industry through individual meetings, forums, news interviews, news releases, and the like. …We belong to an organization that was founded on the belief that truth, knowledge and transparency are the deterrents of fraud and misconduct,” wrote Baker. 

Background: Estate and two for-profit corporations that had been owned by
testator brought action against two non-profit corporations that testator had
founded alleging service mark infringement, copyright infringement,
misappropriation of trade secrets, unfair competition, and conversion. Non-profit
corporations counterclaimed alleging fraudulent trademark registration, trademark
infringement, deceptive trade practices in violation of Lanham Act, violation of
local law which required that annual board meetings comply with by-laws, unlawful
trade practices under local law, common law unfair competition, unjust enrichment,
and conversion. The United States District Court for the District of Columbia
granted summary judgment for defendants. Plaintiffs appealed.

Holdings: The Court of Appeals, Karen LeCraft Henderson, Circuit Judge, held
that:

(1) fact issues existed as to whether founder of non-profit corporations
controlled service marks under related companies doctrine and in what capacity he
registered those marks;

(2) non-profit corporation could be related company under Lanham Act whose use
of trademark was controlled by mark's registrant, without formal corporate
control;

(3) founder of non-profit corporations did not necessarily register service
marks in representative capacity on behalf of non-profit corporations;

(4) plaintiffs could be required to pay cost of mailing "remedial notices"
pursuant to temporary restraining order;

(5) potential for significant and irreparable harm to non-profit corporation
existed in absence of temporary restraining order;

(6) likelihood of success was substantial on Lanham Act deceptive trade
practices counterclaim;

(7) public interest was served by issuing temporary restraining order to prevent
people from being deceived into attending competing board meeting under same name
of non-profit corporation; and

(8) plaintiffs likely would not be harmed by issuing temporary restraining order
to prevent people from being deceived into attending their competing board meeting
under same name of non-profit corporation.

Affirmed in part, reversed in part, and remanded.

Seyfarth Shaw LLP
W. Scott Krol

The United States Court of Appeals for the Fourth Circuit recently upheld summary judgment holding that a former employee did not violate the Virginia Computer Crimes Act (“VCCA”) when the former company could not prove that they were unaware of employees’ use of company funds. Further, the employee did not violate the Virginia Uniform Trade Secrets Act (“VUTSA”) when the company could not show any evidence that the employee in fact used any of the otherwise protected trade secrets for his benefit.

The Recorder

Federal prosecutors' tactics are under fire as defendants in one Silicon Valley economic espionage case are used against defendants in another. For the government to succeed in its apparent strategy of trading sentencing leniency for one pair of defendants in order to help convict another pair on higher-profile charges, they'll have to first persuade Judge James Ware to turn aside defense challenges to the FBI's tactics, which were aired in his courtroom last week.

Technical Report 08-05 March 2008 - Changes in Espionage by Americans: 1947-2007, by Katherine L. Herbig, Northrop Grumman Technical Services. Released By – James A. Riedel [via FAS]

"Since 1987, the Defense Personnel Security Research Center (PERSEREC) has maintained a database on espionage by American citizens based largely on open sources, and has collected files on each of the 173 individuals in the database. Espionage by Americans is the worst outcome for the personnel security system that works to reduce the risk of insider threat. Although its main focus is the personnel security system, PERSEREC monitors and analyzes espionage by Americans in order to improve understanding of this betrayal of trust by a small minority of citizens. This report is the third in a series of technical reports on espionage based on the PERSEREC Espionage Database, files of information from the press, and scholarship on espionage. The focus of this report is on changes and trends in espionage by Americans since 1990, compared with two earlier periods during the Cold War."

Ford Gunter

With oil and gas company profits soaring and talented labor at a premium, lateral hires in almost all fields have risen, not just in technical and engineering positions but also in inside and outside sales positions. 

 "We're seeing this more and more," says John Zavitsanos, partner at Ahmad Zavitsanos & Anaipakos PC and co-lead counsel for A&B. "Many of these employment firms are busting at the seams with trade-secret litigation."

Through research, advocacy, and public education,the FAS Project on Government Secrecy works to challenge excessive government secrecy and to promote public oversight.

Go to their Library for a collection of juicy files and links.

Background: Former employees brought separate actions against employer, alleging
breach of contract and violation of the Wage and Hour Act, and sought declaratory
judgment that they were not bound by non-competition agreement. Employer
counterclaimed for breach of contract, misappropriation of trade secrets, and
unfair competition. The Superior Court, Watauga County, J. Marlene Hyatt, J.,
granted employees' motions for judgment on the pleadings as to their claims,
dismissed misappropriation of trade secrets claim, and granted employees judgment
on the pleadings on remaining counterclaims. Employer appealed.

Holdings: Upon consolidation, the Court of Appeals, Stephens, J., held that employer's allegations were insufficient to state a claim for misappropriation of trade secrets.

Affirmed.

Covad Communications Co. v. Revonet, Inc. (D.D.C.)

Summary judgment was precluded in a communications company's suit claiming breach of contract, misappropriation of trade secrets, and conversion of customer lead information, pursuant to contracts with a customer lead generation services provider. A genuine issue of material fact remained as to whether the term "client information" in their confidentiality agreement included "customer lead information," consisting of contact and other information for prospective customers of voice over internet protocol (VoIP) services that the communications company developed through a marketing campaign allegedly at great expense.

Cypress Semiconductor Corp. v. Superior Court of Santa Clara County (Cal Rptr 3d 2008)

Michigan Lawyers Weekly
Kelly Burris

Recent events have caused drastic changes in the legal landscape for patents, with yet additional threats looming.

First, a United States Supreme Court ruling in April 2007 (KSR International Co. v. Teleflex, Inc. et al., 550 U.S. ___, 82 USPQ2d 1385 (2007)) significantly raised the bar for patentability, making it much more difficult to obtain patents and also much easier to invalidate existing patents.

For example, the mere substitution of one known element for another is not patentable. Applying known techniques to the known art ready for an improvement, or if there exists a design need or market pressure, weigh against patentability, too. Inventions that create a new synergy, teach away from combining known elements, or combine known elements resulting in a change in function are where the patent fruits may now be borne.

Pending legislation (The Patent Reform Act of 2007 (H.R. 1908, S. 1145)) is gaining momentum and is slated to convert the United States Patent Laws from a "first-to-invent" to a "first-to-file" system. Additional measures include limitations on the amount of damages recoverable in an infringement action, limitations on venue, and allowing the USPTO to have substantive rule-making authority.

Late last year, the United States Patent and Trademark Office (USPTO) egregiously put in place new rules that limited the number of claims per patent and the number of continuation applications.

In the interim, a District Court recently ruled that these new rules promulgated by the USPTO are beyond their rule-making authority. However, the USPTO has appealed the ruling, and with the Patent Reform Act providing substantive rule-making authority to the USPTO, these rules may yet rear their ugly heads.

Finally, the legitimacy of "business method" patents is currently being considered by the Federal Circuit. (Ex Parte Bilski, BPAI 2006). As a result, the time is ripe to revisit an often overlooked alternative to patents as the rights of patentees and the scope of protection for their inventions continues to be squeezed.

James Pooley

I. Introduction

Despite the widespread adoption of the Uniform Trade Secrets Act, trade secret principles continue to develop primarily through the common law. It is this reliance on a few broadly stated rules, whether from the Uniform Act or from the Restatement (of Torts or, since 1995, of Unfair Competition), that distinguishes trade secret law from the other three main forms of intellectual property, each of which is based on a federal statute. That reliance also reflects the policy tension, present in most trade secret cases, between the need to support investment in useful data and the need to respect an individual’s right to pursue his or her career. As the information age continues to unfold, we can expect the stream of case law to continue.

What follows is a sampler of developments during the last year, with cases reported through February 2008. The cases chosen are those which seem to provide useful clarification of issues likely to come up repeatedly in the intellectual property lawyer’s caseload.

Dan Jamieson

Despite continued efforts to curtail litigation when brokers change firms, departing reps are still being sued, and some say that recent developments suggest the harassment won't stop anytime soon.

What's more, some observers think that proposed changes to the Securities and Exchange Commission's Regulation S-P, which governs privacy, could also impinge on broker mobility. 

Party A comes up with business idea, creates some samples, and meets with Party B for financing. Well, as you know, ownership of a pending ITU is not a basis for a demand against another party. In addition, if A's talks with B were circumstances giving rise to a duty of confidentiality (which they probably were, even if not memorialized in a written NDA), A could have a misappropriation of trade secret action against B. I think you'll find abundant case law under the trade secret rubric---though I don't know if any, or many, of those cases will involve the bad-faith filing of ITU applications. Robert C. Cumbow Graham & Dunn PC Pier 70 2801 Alaskan Way ~ Suite 300 Seattle, WA 98121-1128

Antony Savvas

The survey found that more than one in 10 people accessing leaked information had been able to use it for their own business purposes. 

Carlo Minassian, Founder & CEO, Earthwave 

While we seem to be inundated with reports of data breaches similar to the Coca-Cola example above, we may not know the full extent of the problem. More than 80 percent of our clients have experienced at least one and possibly more unreported insider-related security breaches within their organisation.  

Tresa Baldas

But the subpoenas are costly and upsetting to customers of Internet service providers who want privacy. 

Jordana Mishory
Daily Business Review
June 17, 2008

In 2007, the company was hit with nearly $23 million in sanctions for willfully violating a court order after a trial ended in 2006 with a deadlocked jury.

Judge Jeffrey Streitfeld decided that Motorola's renewed motion to stay proceedings pending appeal was "frivolous and filed in bad faith." 

Jordan Robertson

Associated Press

In Meng's case, investigators say he went around giving sales pitches to Asian military officials for software stolen from his former employer, San Jose-based Quantum3D Inc. 

John Coté, Chronicle Staff Writer 

A former Chinese citizen living in Cupertino was sentenced Wednesday to two years in federal prison for stealing military software from a Silicon Valley defense contractor and trying to sell it to the Chinese military, prosecutors said.

Xiaodong Sheldon Meng, 44, now a Canadian citizen, is the first person to be sentenced under a 1996 economic espionage law designed to prevent trade secrets from being handed over to foreign powers.

The prison term was the maximum that prosecutors said they would seek after Meng pleaded guilty in August in U.S. District Court in San Jose to one count of violating the Economic Espionage Act and one count of violating the Arms Export Control Act. Thirty-four other counts he had faced were dropped.

NOV initially sought $33 million for misappropriated trade secrets, breach of fiduciary duty and tortious interference with a confidentiality agreement. The plaintiff also sought punitive damages and attorney fees.

Plaintiff National Oilwell Vargo, LP claimed that A&B Bolt & Supply Inc., A&B Valve and Piping Systems LP a/k/a A&B Valve and Piping Systems and A&B GP, LLC (collectively A&B) misappropriated trade secrets, breached fiduciary duties and tortiously interfered with a confidentiality agreement NOV had with its employees.

According to plaintiff's counsel, NOV's DVA division sells primarily valves, specialty valves and actuated (automated) valves. A&B attempted to run a Houston office through traditional means, but was unsuccessful prior to 2006. A&B wanted to enter the actuated valve market after being purchased by new investors.

NOV allegedly got into the business legitimately through purchasing a company that had an existing actuated valve business in Houston. The plaintiff purchased that company's good will, trade secrets, facilities, custom lists and customer relationships. NOV operated a successful distribution service center in Houston selling valves and related supplies.
A&B allegedly usurped NOV's business by stealing the plaintiff's key employees, trade secrets and customer information. NOV claimed that it covertly contacted point people within the DVA division and throughout 2006 offered them extraordinary contractual inducements to work for A&B. A&B allegedly indemnified any employees who abandoned NOV against any claim for theft of trade secrets.

NOV claimed that confidential customers were subsequently solicited for business. The plaintiff contended that individual employees Connie Dobson, Martin Willmore, Tara Kolar and Linda Urbanek violated confidentiality agreements by providing confidential information to A&B.

NOV sued the A&B entities, Dobson, Willmore, Kolar and Urbanek. The employees were allegedly liable for breach of contract and theft of trade secrets. Another former employee, Don Lee, was dismissed from the suit prior to trial.

On April 16, 2007, a temporary injunction was entered, and six months later, NOV alleged that the agreement had been violated. In December, the court ruled in favor of NOV. The defendant filed an interlocutory appeal with the court of appeals, which vacated the injunction in January 2008.

The defendants argued that they did not take any confidential information belonging to NOV. The A&B entities contended that they did not take any confidential documents belonging to the plaintiff. A&B said that the information the accused employees had was publicly available and not confidential.

The defendants contended that NOV was effectively seeking a non-completion agreement against these employees via the litigation process.

At trial, NOV amended its damages demand to $5 million, plus $4 million in punitives and $1.7 million in attorney fees.

A&B contended that NOV's damages were $151.42 at most.

Leigh Jones

Many of the nation's most renowned law firms have felt the public relations wallop delivered by law gossip blogs, those online tabloids that can turn an interoffice memo into a virtual billboard of bad news for partners or associates.
Whether the topic is layoffs or love affairs, it seems no subject is too edgy for sites such as Above the Law, Greedy Associates, AutoAdmit and a few others that dig up the legal profession's dirt.
The immediacy --; and occasionally the brutality --; of the media form is presenting a challenge for firms that are wary of their private matters entering the public domain.
'We're sensitive to the issue that things can very easily end up in cyberspace,' said Mairi Luce, a partner at Duane Morris who also handles associate training and development. Duane Morris 'monitors' the blogs 'to see what's out there in terms of gossip.'
At bonus time last year, Duane Morris sat back and watched while some law firms sent e-mail to associates announcing their bonus amounts, which then were posted on Above The Law and elsewhere.
The postings prompted Duane Morris associates to press management for the details about their own pending bonuses, which the firm subsequently disclosed in one-on-one meetings, Luce said.
Although private meetings do not prevent anyone from revealing the content of a conversation to a gossip blog, they make it more difficult for the information to make the rounds without the glaring reality of a document.
'We're a little bit more cautious and slower to put information out there,' she said.

A rule to follow

Gossip blogs have created an immediacy of information and a quick way to share comments, compared with newspapers and magazines, said Rodgin Cohen, chairman of Sullivan & Cromwell.
But the rule for law firms to follow has remained the same over time: 'With any widely disseminated message, you have to ask if you're prepared to see it in a publication,' he said.
New York-based Sullivan & Cromwell was highlighted for months on law blogs after former associate Aaron Charney filed a lawsuit in January 2007 alleging he was subjected to sexual orientation harassment and retaliation by the firm. The case settled last year.
'I accept that publicity is a good disinfectant,' Cohen said.
Still, Sullivan & Cromwell has asked attorneys not to contact press regarding firm matters. And if it is a client matter, 'it would be cause for immediate dismissal,' Cohen said.
As a term of employment, a law firm can prohibit its attorneys from contacting the media about its inner workings, said Sarah Pierce Wimberly, a partner at Ford & Harrison, a labor and employment law firm. Whether the restriction is written or verbal, law firms have the power to fire attorneys if they violate such an agreement, she said.
But most firms do not have such agreements, partly because their leaders are older and do not realize the impact that leaks to blogs can have, Wimberly said.
'There's a generation gap,' she said. 'They need to be cognizant.'
With the rapid posting of innuendo, internal documents and reader comments, gossip blogs have empowered associates in an 'information revolution,' said David Lat, editor in chief of Above The Law. His blog gets more than 100,000 hits per day.
The rise of legal-gossip blogs coincided with a great demand for associate help at large law firms beginning about three years ago, he said.
'How much of that empowerment is due to blogs is not clear, but I'm happy to take whatever credit I can,' he said.
Above The Law's popularity mushroomed with its obsessive attention to associate pay hikes when attorneys could not post fast enough the news of their firms' raises. Big law firms that had not increased associate pay were included on the Web site's 'List of Shame.'
With biting sarcasm and often raunchy commentary from readers, Above The Law makes no apologies for posting rumors and gossip, and is careful to note when its information is unsubstantiated. So far, it hasn't been sued, Lat said.
One of the more popular posts included Nixon Peabody's pep song, 'Everyone's a Winner,' a funk-inspired tune produced last year and distributed to the firm's partners and employees after it made Fortune magazine's '100 Best Places to Work' list, he said. The song also was on YouTube.
The law firm's efforts to bolster teamwork with the song were shredded by blog commenters, one of whom wrote: 'This is so embarrassing. Can I rescind my acceptance of NP's offer?'
The story snowballed after a representative, unidentified by Above The Law, contacted the blog and asserted copyright infringement. Not only did Above The Law keep the link to the song alive, it reported on the law firm's reaction.
Richard Rochford, chairman of Nixon Peabody's intellectual property practice, said that in hindsight the firm's reaction was a 'PR gaffe.'
'You have to work through the legal consideration and consider whether you want to engage in dealing with it or let it ride,' he said.
Several law firm leaders did not return phone calls or e-mail messages seeking comment for this story. Other leaders said they did not read Above The Law, Greedy Associates or other gossip blogs.
But having someone in management or upper administration keeping track of gossip blogs, as with any other form of media, is important to help protect the firm's reputation, Luce said.
'Your firm can get in there,' she said. 'You should be aware of what the characterization is and why.'
Besides directing attorneys not to pass along information to gossip blogs, some law firms have used blocking software to keep attorneys from forwarding or printing internal e-mail, Lat said. But people who want to leak information seem to find a way.
In one instance, he received a photo taken from a cell phone of the tipster's computer screen, which displayed an inter-office e-mail.
'Anything that is visible with the human eye can be leaked,' he said.

886 N.E.2d 1149 (Appellate Court of Illinois, 2008)

An insurer that sued two of its former agents for breach of contract and
tortious interference, arising out of agents' solicitation of former customers
after termination of the agency using confidential information extracted from
insurer's computers, filed declaratory judgment action seeking to establish
whether it had a duty to defend agents pursuant to personal and advertising injury
coverage in a businessowners liability policy. The Circuit Court, Cook County,
William O. Maki, J., awarded summary judgment to insurer, finding no duty to
defend. Agents appealed.

Holdings: The Appellate Court, South, J., held that:

(1) claims in insurer's lawsuit did not fall within scope of personal and
advertising injury coverage in agents' liability insurance policy, and

(2) claims sounded in breach of contract and trade secret infringement.

6/23/08 BIOWORLD
Volume 19; Issue 121

Nuala Moran,
BioWorld Today Correspondent

SAN DIEGO - Recent Supreme Court rulings and reform at the U.S. Patent and Trademark Office (USPTO), coupled with activity in the World Health Organization and the World Trade Organization, are weakening patents and tipping the scales toward keeping innovation in biotech as trade secrets rather than risking patent disclosure.

"Most people would say the BIO [convention] is a love-fest for patents," said Michael Gollin, a partner at Venable LLP. "But everywhere else people hate them. Even the USPTO has a disdain for patents," he told a session on 'The Rise of Trade Secrets in Biotechnology," at the annual 2008 Biotechnology Industry Organization meeting.

While it would seem evident that industry in general ought to like patents, that is not the case. "The electronics industry has come out against them," Gollin said, "which leads us to think about their value [in biotech]. They may be considered vital to innovation, but the forces gathered against patents mean they are weaker and more difficult to enforce in the U.S. than 10 years ago."

And although there have been improvements in patent protection elsewhere, notably in India and China, the ruling against Novartis AG's Gleevec patent in India points to enforcement problems in those arenas too.

The flight away from patents can be seen in filing statistics. The number of chem/bio patents filed at the USPTO rose from 30,000 per year in the mid-1990s to 45,000 in 2001. By 2006, the level of filing had fallen back to where it stood 10 years earlier. Similarly, at the European Patent Office, there was a 13 percent year-on-year increase between 1995 and 2000, followed by a 6 percent year-on-year fall from 2000 to 2003.

But, Gollin said, "biotech is still innovative, so where is innovation going if not into patents?"

The answer seems to be that the scales are tipping back in favor of keeping trade secrets, posing the question of whether biotechs prefer the patent or trade secret approach when it comes to protecting their intellectual property.

For David McElroy, president of the agricultural biotech firm Targeted Growth Inc., the answer is "do-it-yourself" IP protection. "We sell plants all over the world . . . and where patent protection is weak or unclear you see the rise of other methods, particularly in agbiotech," he noted.

One example is hybrid systems, where the farmer cannot sell on seeds. Another is endpoint pricing, in which, rather than granting licenses to genes up front, farmers are charged when crops are taken to the mill for processing.

The issue of keeping trade secrets is imposing a limitation on the offshoring of R&D to countries where costs are lower but intellectual property protection is weaker. "The tendency is to keep trade secrets and know-how at corporate headquarters, and so this influences what R&D you do elsewhere," McElroy said.

The rise of synthetic biology will present even greater challenges he contended. "Synthetic biology is getting ahead of IP protection because there is more and more ease to work around composition of matter for genes."

On the other hand, agbiotech has very good protection of one fundamental piece of know-how, which is the technique for carrying out transformations.

"You can publish a method for juggling four balls in the air, but that doesn't mean your competitors can do it," McElroy said. In the case of crop transformation, knowing the method does not provide the know-how, as evidenced by how few organizations have managed to do it.

The increased reliance on trade secrets and know-how to protect IP raises cultural and management issues, given that the easiest route for those types of information to be disclosed is through current and former employees.

That is a particular problem in biotech said Kerry Flynn, vice president of intellectual property and licensing at Shire Human Genetic Therapies Inc. "It is an incestuous community; employees leaving to join a competitor down the street makes keeping trade secrets a bit of a challenge."

Flynn confirmed that Shire's view of the landscape for patenting has changed of late because of higher standards in the granting of patent rights and the fact that recent legal rulings make it less likely for the company to get injunctions.

"When we were a small biotech company, we were more aggressive in patent filing because that was important. Whether we could afford to protect them or not was another matter," Flynn said. "Now, as a bigger company, we think we can protect value better through trade secrets."

As a result, the company has set up a formal process to protect trade secrets. In addition to signing nondisclosure agreements on joining Shire, new employees are briefed by a lawyer on the company's policy. They are reminded also of their duty of confidentiality to previous employers, in a bid to ensure that Shire cannot be accused of stealing trade secrets from other companies.

The reforms to U.S. patent law mean the system will be friendlier to infringers than patentees, as it will make U.S. patents less reliable, easier to be challenged and cheaper to infringe, Ed Grieff, senior partner at Amylin Pharmaceuticals Inc., told conference attendees. However, Grieff said he believes that for small private biotechs without products, patents remain essential because that is where most of their value resides.

Patents are important in fundraising, doing licensing deals and needed at the point of going public.

"It is tragic for small companies that there is a movement against patents," Grieff pointed out. "It won't help innovation."

Ropes & Gray LLP
Bradford Badke, Sona De, Matt Traupman, Moriah Agovino, and Julie Cadatal

Ropes & Gray team has obtained a victory for client Nova Biomedical Corporation in a suit brought by rival Medtronic MiniMed, Inc. alleging misappropriation of trade secrets, unfair competition and several other related claims.

In the suit, Medtronic Minimed, Inc. v. Nova Biomedical Corporation et al, the U.S. District Court for the Central District of California denied the plaintiff's motion for a preliminary injunction, finding that Medtronic had failed to show it would be irreparably harmed and that it had not established that it was likely to succeed on the merits.

Medtronic sued Nova to stop the company's effort to manufacture and market its Nova Max Link blood glucose meter. The Nova Max Link meter has the ability to wirelessly communicate a patient's blood glucose level to a Medtronic insulin pump, which then recommends an insulin dosage to the patient. Medtronic alleged that the Nova Max Link meter utilizes trade secrets contained in Medtronic's "Communication Technology." Nova denies that it uses any Medtronic trade secret and asserts that Medtronic voluntarily disclosed its "Communication Technology" to Nova as part of an earlier joint development effort.

On March 18, 2008, Medtronic filed a motion for a preliminary injunction against Nova based on its misappropriation of trade secrets claim under California's Uniform Trade Secret Act. But on May 16, 2008, the court denied Medtronic's request and ruled that Medtronic had raised only speculative injuries and that should it ultimately prevail, Medtronic could recover money damages. The court went on to find that Medtronic had not shown that it made reasonable efforts to protect its Communication Technology secret, noting that "[a]s of December 2007, Nova was free to disclose the Communication Technology to the world." Finally, the Court found that because the Nova Max Link meter is the only meter of its kind currently on the market, permitting our client to distribute their meter serves the public interest.

Background: Defendants were convicted in the United States District Court for the
Northern District of Georgia, Nos. 06-00313-CR-3-1 and 06- 00313-CR-1-1, J. Owen
Forrester, J., of conspiracy to commit theft of trade secrets. Defendants
appealed.

Holdings: The Court of Appeals held that:

(1) limitation of cross-examination of government's witness did not violate
defendant's Sixth Amendment cross-examination rights;

(2) imposition of 96-month sentence was not unreasonable; and

(3) imposition of 60-Month sentence on codefendant was not unreasonable.

Affirmed.

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Edward T. Fan

The Duty of Confidence

A duty of confidence arises when a person acquires knowledge of confidential information, including trade secrets, under circumstances in which the person has notice or agreed that the information is confidential. A duty of confidence can exist beyond the traditional categories of contractual obligation, fiduciary duty or relationship between the parties and is based on elements of trust and reasonable expectations. The courts have considered an action for breach of confidence to be sui generis, with roots in contract, equity and property law.

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Montrenes Financial sought unspecified damages for the violation of its trade secrets.

In 2004, plaintiff Montrenes Financial Services, a credit card processing sales company, claimed that four of its salespersons, Calvin Lim, Jerry Vigil, Kirk Moore and Michael Littell, intended to set up a competing business and that Montrenes Financial's way of doing business was proprietary. The employees claimed they were fired after they refused to sign confidentiality agreements.
Montrenes Financial sued Lim, Vigil, Moore and Littell, alleging violation of trade secrets. Thereafter, Montrenes filed complaints with the Cypress Police Department and the FBI against each of the employees claiming they had stolen from the company.
Littell and the other employees each individually answered the complaint and countersued for wrongful termination, Labor Code violations (wrongful deductions of other employees' compensation from the salesperson's commissions), underpayment of wages, fraud, oppression and malice. Littell's countersuit, filed two weeks after Montrenes Financial filed suit, was against Montrenes Financial, RST Ventures and Dan Montrenes, owner of Montrenes Financial.
Littell, who worked for Montrenes Financial for eight years as a commissioned salesperson, argued that he had no intention or desire to set up a business, competing or otherwise. He contended that he had no proprietary information on his computer and that he had done nothing to threaten Montrenes Financial's proprietary information.
In his cross complaint, Littell claimed he attended a mandatory employee meeting on July 1, 2004, where Montrenes presented an agreement that all employees were expected to sign. Littell contended that he was not comfortable with the agreement because it included "at will" provisions, an overly broad non-compete clause and an ambiguous nondisclosure agreement. When he refused to sign, his manager took the keys to his office. On July 14, he claimed, he was fired for refusing to sign the agreement. When he attempted to obtain his personal property, including his computer, computer monitor and family photographs, Montrenes refused to return any of it.
Montrenes denied firing Littell, asserting that he "just stopped coming to work." Further, the defense contended that the confidentiality agreement was not illegal and so the terminations were appropriate were appropriate under law. He also argued that while the company kept the computers, it did so to preserve evidence that Littell had proprietary information on his computer.
Little moved the court for a determination of the legality of the agreement. After extensive briefing and argument, the judge found the agreement was legally unenforceable.
In his countersuit, Littell sought unspecified damages for wrongful termination in violation of public policy, conversion, reimbursement of deductions from Littell's commissions that Montrenes used to pay other employees, and a B&P § 17200 (unfair competition) claim because Montrenes made the same illegal deductions from all Montrenes' salespersons' commissions.
In addition, Littell contended that if he had not been fired, he would still be working at Montrenes Financial because he loved his job and intended to stay there until retirement.

Fishkin v. Susquehanna Partners, G.P.

The court found for counterclaim defendants on Susquehanna's misappropriation of trade secrets claim, as Susquehanna had failed to meet its burden of proving the existence of a protected trade secret. In short, the Dow Fair Value concept, formula, and spreadsheet were too widely known and too easily ascertainable to constitute protected trade secrets. The Dow Fair Value concept and formula were not unique to Susquehanna and were known and used by other traders. Several of these traders used the concept before 1999, when Susquehanna's employee Wisniewski first discovered it. The Dow Fair Value concept, formula, and spreadsheet that Susquehanna claimed as its trade secrets were not created by Susquehanna's own independent efforts, but were developed by others.

Google has been named in a trade secrets lawsuit alleging that the company's business software unit copied a tiny start-up's tool for moving customers off of Microsoft software onto Google's. LimitNone filed a complaint in an Illinois circuit court alleging that Google at first began promoting the smaller firm's tool for migrating Microsoft Outlook customers to Gmail, then copied the idea and went into competition with it. [Washington Post]

Elisabetta Ottoz, Franco Cugno
University of Turin

Copyright © 2008 by American Law and Economics Association; Elisabetta Ottoz, Franco Cugno

Different protection mechanisms may be employed at the same time when an innovation is comprised of separately protectable components. If patents and trade secrets can be mixed in protecting single innovations, a strengthening in patent breadth may induce a lower level of patenting, as innovators are more prone to rely on secrecy. (JEL K00, L49, O34)

1. Introduction

According to Cohen, Nelson, and Walsh (2000), for certain purposes the key difference between a complex and a discrete technology is whether a new product or process is comprised of numerous separately patentable elementsversus relatively few.
It is then well known that electronic products tend to encompass a large number of patentable elements--often hundreds--and, hence, may be characterized as complex. But product complexity is not a sector-specific feature: on the basis of an estimation of the number of patent applications per innovation, conducted on a survey of one thousand one hundred and sixty-five US firms realized in the mid-1990s, most innovations appear to be protected by more than one patent (Cohen, Nelson, and Walsh, 2000; Arora and Ceccagnoli, 2005). While the number of US patents per innovation is relatively small in biotech and pharmaceuticals (around two), it can rise to more than seven in fields such as semiconductors, transportation or rubber products, being on average 5.6 (Lévêque and Ménière, 2007). This suggests that product complexity--in the sense specified above--is pervasive, although its incidence differs among sectors.
In the case of complex innovations, firms can rely upon more than one mechanism to protect one product. Under some circumstances there is no choice, in that certain components are not patentable, but often the type of protection constitutes an option for innovators, who can choose the extent patents and trade secrets combine with one another. So, trade secret protection may be important not only during the pendency of a patent application, but also during the term of, or after the expiration of, the patent. As trade secret protection is relinquished to the extent an invention is disclosed in a patent application, there is sometimes motivation to minimize the disclosure made in a patent application in order to obtain broad patent protection and yet retain significant trade secret protection. In software terms, for instance, this can mean a patent disclosure that does not reveal any code.
In this paper, we present a model where an innovator, who possesses all the complementary pieces of the new technology and uses them directly, can choose the patent--secret mix. Assuming the technology proprietor aims at maximizing the present value of profits flows deriving from the chosen mix, we determine the conditions pertaining to patent and secret strength and to patent length allowing for an internal solution, that is to say a solution where patents and secrets actually protect a single product. We will see that, perhaps counterintuitively, an increase in the level of patent protection may induce the innovator to rely more on secrecy. Our results are obtained in a simple setting where signaling, à la Horstmann, MacDonald, and Slivinski (1985) or Anton and Yao (2004), plays no role.
The core intuition for our conclusions is that an increase in the patented and disclosed knowledge decreases the likelihood that a rival will invent around the patented knowledge, but increases the probability that the trade secret leaks out (since there is less knowledge that must leak). To enter the market as a competitor, the rival must do two things: circumvent the patent and get access to the secret. Rather reasonably, we assume that the probability of these two events together decreases with the disclosed knowledge, while the probability of keeping the trade secret forever also decreases with the disclosed knowledge. Because of these opposing effects, the optimal disclosure is (for many parameters) somewhere between none and all of the knowledge.
A second argument is that an increase in patent breadth (interpreted as a reduction in the probability of circumventing the disclosed knowledge, holding the amount of disclosure fixed) has ambiguous effects on the amount of knowledge disclosed. As for the first argument, two opposing effects operate, this time related to the policymaker's choice of patent breadth. First, when patent breadth increases, innovators tend to substitute patent protection for trade secret protection. But, second, an increase in patent breadth implies that innovators can enjoy the same total patent protection as with a lower patent breadth by disclosing a lower fraction of knowledge. This induces the innovator to rely more on secrets.
Section 2 contains a discussion of some legal aspects about the coexistence of patents and secrets and some historical examples. Section 3 expounds the model. The last section presents some concluding remarks.

Background: Owner of trade secrets brought trade secret misappropriation action
against buyer of its competitor's software. The Superior Court, Santa Clara County, No. CV019992, Marc B. Poche, J., granted owner's motion in limine to
exclude evidence relating to statute of limitations. Buyer petitioned for writ of
mandate.

Holdings: The Court of Appeal, Premo, Acting P.J., held that:

(1) statute of limitations began to run when owner had reason to suspect that
buyer knew or should know that software contained trade secrets, and

(2) a plaintiff's failure to discover defendant's identity does not postpone
accrual of cause of action.

Yesterday software developer LimitNone filed a trade secret suit against Google Inc. in Illinois, alleging that Google misappropriated software for migrating information from Microsoft Office to Google Apps. The developer says it was a member of an authorized Google developer program and was promised that Google would not build a similar tool itself. (Wall Street Journal)

Last Thursday Los Angeles Judge Marilyn Huff denied Microsoft's request for reconsideration of a jury award of more than $500 million damages in a long-running patent infringement suit against it by Alcatel-Lucent. (AP)

Seyfarth Shaw LLP

Tim Nelson

Tracy v. Winfrey, et al., No. 07-1630 (1st Cir. June 11, 2008).

The U.S. Court of Appeals for the First Circuit has affirmed the dismissal of Darlene Tracy's copyright infringement and trade secret misappropriation suit against Oprah Winfrey, Harpo Productions, and ABC Television.

In a pro se complaint filed in federal district court in Boston, Tracy alleged that she came up with the idea that eventually became the hit reality TV show "Oprah's Big Give." In the show, which recently completed its run, Winfrey gave money to ten contestants, who then competed to make the biggest impact on the lives of complete strangers by giving the money away. Tracy alleged that she conceived of the idea for a show entitled "The Philanthropist," and submitted a proposal to an executive producer for The Oprah Winfrey Show. She claims that a second producer told her the proposal was under review, but that the producers stopped returning her phone calls and ignored her requests to return her proposal. The complaint asserts that more than a year later, Winfrey announced at the end of her daily talk show that she was giving $1,000 to audience members to use for a charitable purpose in their communities. Shortly thereafter, Winfrey and ABC announced a new program with the working title "The Big Give," which Tracy alleged mirrored her concept for "The Philanthropist."

The district court dismissed the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failing to allege facts sufficient to support her claims. Tracy, now represented by counsel, appealed to the First Circuit. But the First Circuit affirmed the dismissal, concluding that "neither copyright nor misappropriation of trade secrets are apt legal theories for the facts as pled by Tracy, which, even construed in her favor, reveal that Tracy voluntarily and without reservation submitted her material to the defendants."

While the lawsuit was pending, it garnered widespread media coverage, which was rumored to cause at least one large publishing house to back out of discussions concerning a possible companion "Big Give" book out of fear that it, too, might be named in the suit.

Background: Motion was filed to dismiss debtor's Chapter 12 case, on ground that
at least 50% of debtor's noncontingent, liquidated debt did not arise out of
farming operation, as required for debtor to qualify as "family farmer" eligible
for Chapter 12 relief.

Holding: The Bankruptcy Court, Gerald D. Fines, J., held that debtor's
obligation to corporation that had sued him prepetition for misappropriation of
trade secrets, and that, prior to petition date, had obtained order establishing
debtor's liability on trade secrets claim and fixing minimum amount of that
liability, was neither "contingent" nor "unliquidated," even though debtor filed
for bankruptcy before judgment could be formally entered in corporation's favor,
so that this non-farming-related debt to corporation had to be included with
debtor's other noncontingent, liquidated debt in assessing his eligibility for
Chapter 12 relief.

Motion allowed.

6/23/08 Richmond Times-Dispatch A16

Philip Morris-VCU Deal Is Not Unusual

HENRY A. McGEE JR.

Editor, Times-Dispatch:

Criticism of VCU has appeared in the press recently concerning arrangements for publication of results from university research that has been supported by Philip Morris. Recognizing that it is popular in some quarters to blast big tobacco or big oil or big pharma, arrangements for delayed publication of research that may have commercial value is commonplace at all universities, for it is an essential step to protect patent rights.

Rather than patent intellectual property, the sponsor may wish to keep valuable results as a trade secret such as, for example, the formula for Coca-Cola. There was a time, but it was long ago, when university-based research was completely open to everyone. But today most research is very expensive and is sponsored by companies or by government agencies, and sometimes results have commercial implications that the sponsor must protect.

All universities have offices of technology transfer that manage the intellectual property created at that university, including the licensing of that property from which the university collects royalties. One might imagine that research projects supported by a federal agency would be open to all since, after all, the research was paid for with taxpayer dollars. But even that is not so.

Congress realized that intellectual property owned by everyone was in fact owned by no one, and the subsequent development of that property for the benefit of us all would never occur. The Bayh-Dole Act ensured that intellectual property created with taxpayer dollars would be owned by the university, not by the government, and all issues of patenting and development and licensing are the responsibility of the university.

As incentive to the professor leading the research, the university pays a generous fraction of the income from licensing directly to the professor as additional personal income. The relationship between VCU and Philip Morris and other companies is to be applauded, for it contributes real value to our society and it inspires students.

-- Henry A. McGee Jr., Founding Dean Emeritus and Professor of Chemical Engineering, School of Engineering, VCU.