From our friends at IPfrontline

Tuesday, September 16, 2008
by: William A. Nolan

Departing employees can all too often spawn trade secret litigation in the chemical industry. This longtime issue is now frequently combined with the newer issues associated with electronic discovery. A recent example is provided by a lawsuit between two rival chemical companies.

Software Licensing Agreements

Bro-Tech Corp. v. Thermax, Inc., Case No. 05-2330, is a trade secrets case involving Bro-Tech, a designer and manufacturer of Purolite products for purifying air and water. Bro-Tech sued Thermax, one of its competitors, when some of its former employees went to work for Thermax. Thermax counterclaimed, asserting that Bro-Tech was interfering with its contractual relationships by making false accusations of trade secret misappropriation.

Bro-Tech alleges that the defendants stole proprietary Bro-Tech information, generally the basis of nearly any trade secrets case. What is different about this case compared to "old fashioned" trade secrets cases is that both parties, to effectively advocate their positions, must work through a staggering volume of electronic evidence.

Earlier in the case, the parties had agreed to an order that Thermax had to return any Bro-Tech electronic files in its possession and purge any copies of them. At issue earlier this year was whether Thermax had breached that order. Bro-Tech sought full production of Thermax's servers, located on two continents, for examination by its forensic computer expert. Thermax took the position that, at least initially, it would produce only those electronic documents containing certain indications of possible relevance based on file names or key word and other electronic searches. Also, Thermax asserted that it should, before producing the files, be permitted to inspect them to remove any attorney/client privileged information.

The judge held that the defendants should in fact be able to protect their attorney/client privileged documents and, further, that production of the entire contents of the servers was, at least, premature, pending some initial showing of a need for that based on a narrower production. In a move fairly typical of these cases, the court set out in its order details for working through this process.

This case illustrates some interesting possibilities. First, it is likely a company will reveal its wrongful use of its competitor's proprietary information through electronic "fingerprints." A company that utilizes a competitor's proprietary information in its business probably has committed it to electronic form, and, if you are the plaintiff, you may well be able to find it. As a closer examination of this decision demonstrates, the tools available to scan files and identify key words and other patterns are mind-boggling.

Second, no matter which side of litigation you are on, you will benefit by establishing electronic control over your electronic information. One illustration in this case is the importance to the defendants of having properly maintained attorney/client privileged information so they could effectively protect it from discovery, as the judge has allowed. Every company's stated objective should be to establish the same level of control over electronic records that it has over physical inventory. Given the exponentially increasing volume of electronic files, this is necessarily a long-term goal, but an essential one.

Third, a closer examination of the case illustrates the extreme complexity of these issues in litigation - issues that few lawyers, let alone nonlawyer managers, had dealt with at all until the last few years. Companies need to establish response plans for litigation so they are prepared to enlist the necessary expertise immediately upon the institution of litigation to most effectively (and cost-effectively) handle these critical litigation issues.

Squire, Sanders & Dempsey LLP