Trading Secrets : Trade Secrets Lawyers & Attorneys : Seyfarth Shaw Law Firm : Computer Fraud, Confidentiality Agreements, Corporate Espionage

I start by warning you that this case is old, over 5 years old, in fact.  However, when it arrived in my regular e-mail of case synopses, I thought I would take a look, and given the long, slow holiday week, I thought it might have a nugget to share and to keep in mind as we go into 2010. 

The case, The Newark Group, Inc. v. Sauter, Civ. Action No. C2:01-CV-1247, 2004 WL 5782100 (S.D. Ohio), was pending back in 2004.  This particular opinion, on Defendants' motion to strike Plaintiff's jury demand, was decided in April 2004.  Nevertheless, I think the point the court makes may be helpful. 

The question before the court on Defendant's motion was whether the plaintiff was entitled to a trial by jury on its claims for damages in a trade secrets case under a theory of unjust enrichment.  Defendants argued that under a trade secret case, an unjust enrichment claim was nothing more than a claim in equity, not triable to a jury. 

The court easily rejected the claim under Ohio's Trade Secret Misappropriation Act.  In explaining its decision, the court noted that the trade secret statute provides several methods by which to calculate damages, including unjust enrichment.  And, that the statute

acknowledges that calculating monetary damages for trade secret misappropriation may be difficult to ascertain, it therefore provides specific methods by which to calculate monetary damages.  One method for measuring damages is by calculating the amount of unjust enrichment caused by such misappropriation.  The fact that the statute contemplates different means of calculating damages does not transform the statutorily created legal theory of recovery . . . to become an equitable claim to relief. 

The other two methods of calculating damages:  actual loss caused by the misappropriation and imposition of a reasonable royalty also are not equitable relief, just other methods of calculating the monetary damages available to a successful plaintiff.  Even though the statute refers to "equitable," it means fair.  The damages remedies are legal in nature and thus triable to a jury -- even if difficult to ascertain.

Happy New Year to all!

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The California Court of Appeal’s recent decision in FLIR Systems, Inc. v. Parrish, 2d Civil No. B209964, 2009 WL 1653103 (Cal. App. 2d Dist. June 15, 2009), affirming a $1.6 million attorney fee award to defendants upon a finding that the action was brought in bad faith, provides a useful and interesting discussion of various factors that may lead a court to conclude that a misappropriation case has been brought in bad faith. The decision highlights the importance of considering carefully whether to bring a misappropriation claim against former employees, particularly where there is little or no evidence of actual damage, or of actual misappropriation or threatened misappropriation.

In 2004, FLIR acquired the assets of Indigo, of which defendants Parrish and Fitzgibbons were officers. Indigo manufactures and sells microbolometers, devices used in connection with infrared cameras, night vision, and thermal imaging. After the sale, defendants continued to work for Indigo. About a year later, defendants decided to start a new company to mass produce bolometers. The new company was based on a business plan developed by Fitzgibbons several years before FLIR acquired Indigo. Before leaving Indigo, defendants advised FLIR and Indigo of their business plan and invited FLIR and Indigo to participate. FLIR rejected the offer. 

In 2006, defendants began negotiations with Raytheon Company in accord with their business plan. Defendants assured FLIR and Indigo that they would not misappropriate Indigo’s trade secrets and that they would use an intellectual property filter similar to the one used at Indigo to prevent the misuse of trade secrets. In June 2006, FLIR and Indigo sued defendants on the theory that defendants could not mass produce low-cost microbolometers without misappropriating trade secrets. Upon learning of the lawsuit, Raytheon terminated business discussions with defendants, and one month after the suit was filed, defendants advised FLIR and Indigo that they would not go forward with their new business.

FLIR and Indigo, before trial, dismissed their damages claims and tried only the misappropriation of trade secrets and California Unfair Competition Act claims. On December 6-17, 2007, the case was tried. In a statement of decision issued in June 2008, the trial court found no misappropriation or threatened misappropriation of trade secrets. It was undisputed that defendants received no funding for their business plan, never started their new business, had no employees or customers, did not lease any facility or develop technology, and did not design, develop or sell any infrared products. The trial court ultimately denied permanent injunctive relief and awarded defendants $1,641,216.78 in attorney fees.

The California Uniform Trade Secrets Act allows for an award of reasonably attorney fees to the prevailing party where the claim was brought in bad faith. Civ. Code § 3426.4. The court ultimately held that FLIR and Indigo had essentially brought the action based on the doctrine of “inevitable disclosure,” as there was no evidence of misappropriation or threatened misappropriation, and the FLIR and Indigo witnesses were unaware of such evidence though they maintained suspicions that misappropriation would occur. Given that the “inevitable disclosure” doctrine has been definitively rejected in California, the Court found FLIR and Indigo to have brought and maintained the action in bad faith. The items the Court considered significant: 

•           The absence of any economic harm.

•           The absence of any evidence of misappropriation or threatened misappropriation of trade secrets. Notably, there was evidence at trial that one of the defendants, Parrish, had downloaded technological data onto a hard drive before leaving Indigo, and that he destroyed the hard drive a few months before the lawsuit was filed. Although evidence that an employee has downloaded confidential information shortly before leaving his employer is typically significant to support a misappropriation claim, here, the evidence was discounted because defendants first learned of the download after the complaint was filed, so it was not a consideration for bringing suit, and the download was not a threatened misappropriation because there was no evidence that the contents of the hard drive, “if such contents existed, were improperly accessed, used, or copied before the drive was destroyed.”

•           Evidence that FLIR and Indigo had an anticompetitive motive in filing the lawsuit.  On this point, the court found significant the testimony of FLIR’s CEO, who testified that “we can’t tolerate a direct competitive threat by [Parrish] and [Fitzgibbons],” inferring that the CEO had no evidence of wrongdoing but was bothered that defendants planned to compete with FLIR in the future. The Court also found significant the fact that another FLIR officer had voted to file the lawsuit but had no personal knowledge that defendants had committed a wrongful act.

•           Failure by FLIR and Indigo to identify what trade secrets would be subject to the permanent injunction. The Court found as “strong evidence of bad faith” FLIR and Indigo’s proposed injunction, which barred defendants from developing certain products for a 12-month period even if they did not use FLIR and Indigo’s technology or trade secrets.

•           Imposition of unnecessary settlement conditions. When defendants notified FLIR and Indigo of their business plan, FLIR and Indigo responded with a demand for $75,000, a non-competition agreement, and agreement that defendants would not hire FLIR and Indigo’s employees, and agreement that they would not challenge Indigo’s patent applications. The Court found these restrictions to be unlawful restraints on trade.

•           FLIR and Indigo’s experts at trial admitted there was no scientific methodology to predict trade secret misuse and agreed that no trade secrets were misappropriated.

The FLIR decision is a reminder to employers to be cautious when determining to bring a lawsuit against former employees for trade secret misappropriation. California courts may not tolerate the filing of misappropriation claims where it appears the employer is merely fearful or suspicious of wrongdoing. In such cases, the employer plaintiff risks not only a dismissal of its claims but the possibility of being sanctioned for bringing the action. 

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Associated Press (Anna Jo Bratton) is reporting that a state district court judge in Lancaster County, Nebraska tagged two Nebraska Municipal Power Pool executives with millions of dollars in damages arising out of their scheme to use American Public Energy Agency's "company information, financial data and copyrighted material."  View Article. It appears that Nebraska Municipal Power Pool ("NMPP") previously provided services to American Public Energy Agency.  Then the two NMPP executives decided to create their own agency to compete with American Public Energy Agency.  AP also reports that the two executives attempted to steal away American Public Energy Agency's customers in an effort to eliminate or severely harm the company. 

I have not been able to locate a copy of the opinion, but I am hoping that it will be up on a website or a search service soon.   If I find it publicly available, I'll try to post a link to the judge's decision.

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A company's trade secrets may be some of its most important assets.  Recent headlines underscore their importance, and vulnerability:

1. Recently, an employee was arrested at the airport and over 1,000 company proprietary documents containing trade secrets were seized that the employee was attempting to transport with her to her new job.
   
2.  A national retailer recently was hit with a $21.5 million verdict after a jury found the retailer liable for stealing the design of a popular home improvement tool. 
   
3. A former employee recently pleaded guilty in a U.S. District Court in California to stealing proprietary technologies from his former employer and selling or offering them for sale to foreign governments and military contractors.

A survey of companies estimated that in just one year, companies likely were to have lost as much as $53 to $59 billion dollars in proprietary information and intellectual property through theft and misappropriation.  Seeking trade secret counseling and an audit can assist clients to determine best practices to help protect their most important assets.

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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.

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The recent California appellate decision, Cypress Semiconductor Corp. v. Superior Court, is instructive not just on the issue of when the statute of limitations begins to run in a trade secret matter, but also contains important language with respect to the obligations of the trade secret owner to notify good faith, third-party users of the alleged misappropriation of trade secrets.

In Cypress, Silvaco Data Systems had developed and licensed electronic design automation software (“EDA”). This software was used by Silvaco’s customers to design their own products. One of Silvaco’s EDA products was known as Smart Spice, and Silvaco maintained the source code for SmartSpice as a trade secret. In late 1998, a former Silvaco employee began working for Circuit Systems, Inc. (“CSI”) and incorporated the SmartSpice trade secrets into a CSI product known as DynaSpice. Silvaco first suspected the trade secrets misappropriation in 2000 and sued its former employee and CSI at that time. Silvaco did not directly notify or take any action against CSI customers who had licensed DynaSpice. In August 2003, Silvaco and CSI entered into a settlement agreement and a stipulated judgment. The judgment included an express finding that Silvaco’s trade secrets had been incorporated into DynaSpice. The judgment also required CSI to discontinue licensing DynaSpice, as well as notify DynaSpice license holders that the software contained Silvaco trade secrets and to encourage customers to discontinue using DynaSpice.

Cypress Semiconductor Corporation (“Cypress”), which was one of CSI’s customers, learned of the judgment in late August 2003. After judgment was entered, Silvaco also directly notified CSI customers that DynaSpice contained misappropriated trade secrets from Silvaco. Silvaco contacted Cypress in September 2003 and demanded that Cypress cease using Silvaco’s trade secrets. Silvaco claimed that despite this notice, Cypress continued to use the DynaSpice program, and thus continued to use Silvaco’s trade secrets. Silvaco brought suit against Cypress in May 2004.

The central issue decided by the California Sixth Appellate District in Cypress involved the statute of limitations of Silvaco’s claims against Cypress. However, the decision also contains important language regarding the obligations of a trade secret holder with respect to third parties who are using the holder’s trade secrets.

The Cypress court stated that “a cause of action for misappropriation against a third-party defendant accrues with the plaintiff’s discovery of that defendant’s misappropriation.” The Cypress court also noted that trade secret owners have an incentive under the California Uniform Trade Secrets Act (“CUTSA”) to put good-faith third parties on notice. According to Section 3426.1(d) of the CUTSA, “a trade secret loses its protected status if the owner does not undertake reasonable efforts to keep it secret.” Also, according to Section 3426.1(b)(2)(C) of the CUTSA, good faith acquirers of trade secrets who do not receive notice before materially relying upon the trade secrets may not be liable for misappropriation at all. Therefore, according to the Cypress decision, “the failure of the trade secret owner to take prompt action to protect its trade secrets or to alert good-faith acquirers to the existence of its trade secret claims can serve as a defense in the event the trade secret owner eventually decides to pursue a misappropriation claim against the third party.” (emphasis added).

A trade secret owner, therefore, must promptly investigate instances of possible misappropriation and seek to notify any third parties who may have acquired the owner’s trade secrets. Failure to act promptly, under the CUTSA and the Cypress decision, can give rise to statute of limitations defenses, as well as the possibility that the Court may find that the claimed trade secrets are no longer protected trade secrets at all.

The full text of the Court's decision can be accessed here http://www.courtinfo.ca.gov/opinions/documents/H032114.PDF.

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A California appellate court recently held that the statute of limitations for trade secret misappropriation claims against third parties who receive stolen trade secrets from others begins when the plaintiff, not the third party, suspects a misappropriation of trade secrets.

The Court stated: "We conclude that with respect to the element of knowledge, the statute of limitations on a cause of action for misappropriation begins to run when the plaintiff has any reason to suspect that the third party knows or reasonably should know that the information is a trade secret. The third party’s actual state of mind does not affect the running of the statute."

The Court indicated that the trade secret holder's failure to take "prompt action" in notifying the third party about the purported misappropriation may diminish the holder's trade secret misappropriation claim.

Justice Eugene M. Premo, the author of the court decision, stated "A trade secret loses its protected status if the owner does not undertake reasonable efforts to keep it secret."

The Court's opinion is significant because the decision demonstrates that trade secret holders need to take "prompt action" once they suspect a misappropriation of trade secrets, including investigating potential misuses of their secrets.

A trade secret audit can be an invaluable part of protecting a company's trade secrets before and after a company's trade secrets have been compromised. For more information on Seyfarth Shaw LLP's trade secret audit capabilities, click here.

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The California Courts of Appeal recently concluded that a former employee could not have breached a duty of loyalty to his employer where he entered into competition with the employer only after leaving the company. Primetech Corp. v. Cohen, 2008 WL 1899976 (Cal. App. 4 Dist. April 30, 2008).

The plaintiff, Primetech Corporation, a supplier of aircraft parts to the military and civilian industry, hired defendant Jonathan Cohen to help produce a database of aircraft parts. A year after Cohen started, the United States Air Force suspended Primetech and “debarred” many of its principals from any government contracting because of allegations that the company had knowingly delivered counterfeit parts to the Department of Defense. Around this time, Cohen, and another employee of Primetech, formed Air Sonic, an aircraft parts business, where they continued to use Primetech’s database. Cohen ultimately separated from Primetech in July 2005, taking several computers with him, as well as a database program containing Primetech’s financial information.

Primetech sued Cohen and his new aircraft parts company, Air Spectrum, which had replaced the earlier Air Sonic. After a bench trial, the trial court entered judgment for Cohen on most of the causes of action, rejecting Primetech’s claims for breach of loyalty, misappropriation of trade secrets, and unfair competition, among others. Primetech argued on appeal that the trial court had erred in denying its motion for a directed verdict (nonsuit) on its cause of action for breach of loyalty. Primetech alleged that Cohen had breached his duty of loyalty when he began operating his own aircraft parts company while still employed at Primetech. The trial court, however, concluded that Cohen was never an officer of the company and furthermore, he had started Air Sonic with the consent of Primetech’s vice president and had not actually decided to compete with Primetech until after he had separated from the company, which he was entitled to do since there was no non-compete clause in his employment contract. Reviewing the facts, the Courts of Appeal observed that while substantial evidence supported a determination that Cohen was an officer of Primetech when he set up a competing business using Primetech’s database, Primetech had failed to demonstrate that Cohen had directly harmed the company with his competing venture, so any error was not prejudicial and thus reversal was not warranted. As a result, the Courts of Appeal held that the trial court’s factual findings precluded Primetech from succeeding under a breach of loyalty theory.

This case should prompt companies to consider carefully the circumstances under which they separate from former executives. Although non-competition agreements can protect an employer, a company should not rely on breach of loyalty claims to protect against contemporaneous competition where there is any inference of an amicable split. Employers should also realize that to pursue a breach of loyalty claim successfully , they must demonstrate that the employee “formed the design to compete” while still employed with the company. Similarly, without adequate trade secrets counseling and preparation, even a company’s most valuable asset (in this case the airplane parts database) can be used by former employees in competing businesses if the proper protections are not in place.

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By Scott Krol, New York

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 parties to this case are closely linked. Jerry Nims is an entrepreneur who obtained patents on many technologies used in making identification cards more difficult to temper with or counterfeit. Nims started Orasee which owned many of these patents.

In 2003, Nims formed EC4 Technologies Limited (“EC4 UK”), a wholly owned subsidiary of Orasee, to license the technologies.

In 2005, Nims set up Othentec Ltd. (“Othentec UK”) as a subsidiary of EC4 UK.

Nims’s son-in-law, Jeffrey Phelan, was appointed Managing Director of both EC4 UK and Othentec UK, and later was put in charge of better distributing the company’s product in the United States.

On March 17, 2005, Phelan formed EC4 Technologies, Incorporated (“EC4 USA”) and became that company’s CEO. He began to market and distribute Orasee technologies in the U.S. pursuant to a sublicense agreement between the EC4 UK and EC4 USA. In November 2005, another executive formed Othentec Limited (“Othentec USA”) for the same purpose as EC4 USA, this time as wholly owned by Othentec UK.

By early 2006, after a considerable amount of friction developed between the parties, Phelan was discharged from his positions at the UK companies, but continued to do business as EC4 USA. This gave rise to the case at hand, essentially Nims’ companies claimed that Phelan abused his position of power and trust to form EC 4 USA fraudulently and proceeded to use Othentec UK’s money and trade secrets to run the U.S. business successfully. Phelan moved for and won summary judgment against Othentec UK on all issues except whether Phelan breached his fiduciary duty to Othentec UK.

The district court explained that there are three elements of committing a violation of the VCCA: “(1) using a computer or computer network (2) without authority (3) intending to obtain, embezzle, or convert the property of another.” Va. Code Ann, §18.2-152.3.

The Court found that Phelan clearly was authorized to access Othentec UK bank account, Othentec UK was aware of the withdrawals, and Phelan did not directly withdraw the money using a computer. Instead, Phelan merely sent an email to the accountant asking for the withdrawal. Hence, there was no evidence of the unauthorized use of a computer to commit a crime. Othentec UK “produced no evidence outside of self-serving speculations that Phelan committed a violation. of the VCCA.”

The VUTSA makes it illegal for a person to misappropriate trade secrets from another. Othentec UK argued that Phelan, as Managing Director, was intimately familiar with the technology, “unless someone is foolish enough to believe that all that (EC4 USA’s technology) was developed in a clean-room environment without reference to, use of, or attempting to work around” Othentec UK’s proprietary and highly confidential software and manufacturing process, than Othentec UK had no basis for its argument. The Court agreed with the last part, ruling that these “allegations, speculations, and inference are not enough to survive summary judgment.” See Othentec Ltd. v. Phelan, --- F.3d ----, Case No. 06-2297, 2008 WL 2009740 (4th Cir. May 12, 2008) (emphasis added).

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The Topps Company, maker of “Bazooka” bubble gum, licensed Stani to manufacture and distribute the gum in Argentina. The original license was entered into in 1957 and was to expire in 20 years. It provided that Topps would share its “know-how, formulae, processes and techniques” with Stani in exchange for royalties on Stani’s sales. In 1976, the parties entered into a new 10-year agreement, with Stani given an option to extend it for another 10 years. The new agreement provided for the parties sharing Topps’ “manufacturing technology, marketing concepts and techniques, … and trademark use” in exchange for Stani’s payment of a yearly license fee. In the 1976 agreement, Topps also gave Stani “the exclusive non-assignable right and license to manufacture ... and sell within the [relevant] Territory, during the continuance of this Agreement, Licensed Products utilizing TOPPS Technology.” Emphasis added. Four years later, the parties entered into two new contracts: a third license agreement, and an escrow agreement. The 1980 license agreement, which expired by its terms in April 1996, gave Stani the same “exclusive non-assignable right and license” that had been given in 1976 except that the corresponding 1980 provision ended with the words “Licensed Products” and did not include "utilizing TOPPS' technology." The escrow agreement (for which Stani paid $100,000) recited that, absent a default, upon expiration of the 1980 license agreement legal title to the registration in Argentina of the trademarks “Topps” and “Bazooka” would pass to Stani.

In 1999, three years after the 1980 license agreement expired, Topps sued Stani and its parent corporation, Cadbury (to whom Stani had assigned the trademarks), alleging that Stani was continuing to use Topps technology which constituted misappropriation of trade secrets. In its answer, Stani denied that it was using Topps’ formulae but argued that, in any event, it had the right under the parties’ agreements to do so. The district court granted summary judgment to Stani and its parent, reasoning that the 1976 and 1980 documents (including the assignment to Stani of the Argentina registration of the trademarks) necessarily gave Stani the right to continue using Topps’ chewing gum formulae after April 1996. The Second Circuit reversed on the ground that summary judgment was inappropriate because the agreements were ambiguous with regard to Stani’s rights after April 1996. Topps Co. v. Cadbury Stani S.A.I.C., No. 06-5316-cv (2d Cir., May 15, 2008).

The court of appeals said that, on the one hand, the 1980 license agreement provided that the “TOPPS Trademarks and the Topps Technology shall at all times remain the exclusive property of TOPPS or its assigns” and gave Stani the right to use TOPPS formulae only “during the continuance” of the agreement. Those provisions suggest that Stani had no post-April 1996 rights. On the other hand, the “during the continuance” provision might have been intended to refer solely to what was to happen if there was an early termination of the 1980 license for cause, and there was no provision expressly granting or expressly denying Stani the right to the formulae after April 1996. Moreover, the assignment of trademark registration gave Stani at least the right to make a substantially similar product if it could do so without using the Topps formulae and without deceiving customers. Therefore, the parties’ intent was a material disputed issue requiring a trial.

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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.

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The Illinois Appellate Court affirmed a ruling granting summary judgment to American Family Mutual Insurance Company on its declaratory judgment action seeking a determination that it has no duty to defend the insured defendants in an underlying trade secret misappropriation action the company brought in federal court. American Family Mut. Ins. Co. v. Roth et al., No. 1-07-0526 (Ill. App., 2d Dist., Mar. 31, 2008).

American Family, a Wisconsin-based insurer, entered into written agency agreements with defendants Bonnie Roth and Connie Roth, owners of Roth & Roth Insurance, pursuant to which Bonnie and Connie worked as exclusive agents of American Family. The agency agreements provided that the policies, policyholder records, and other materials furnished by American Family to the defendants remained American Family’s property and that all originals and copies were to be returned to American Family within 10 days of termination of the agreements. The agreements also contained provisions, signed by the defendants, governing their access to American Family’s proprietary computer system, software and database, which included customer lists and confidential customer information. In addition, the agreements contained nonsolicitation agreements prohibiting the defendants from soliciting American Family policyholders for one year following termination of the agreements.

After terminating the agreements with Bonnie and Connie, American Family demanded the return of all of its property, including policyholder records, and reminded Bonnie and Connie that privacy laws and the agreements prohibited them from disclosing policyholder information to third parties. Nonetheless, the defendants solicited American Family customers, including sending a solicitation letter to at least one American Family customer that contained personal financial information Connie Roth obtained while an agent of American Family.

American Family sued the defendants in federal court alleging violations of the Wisconsin Uniform Trade Secrets Act, Wis. Stat. Ann. § 143.90(1)(c); federal law; and state common law for breach of contract and tortious interference. American Family also instituted a declaratory judgment action in the Illinois circuit court seeking a determination that it has no duty to defend the defendants in the federal court action pursuant to the terms and conditions of the business-owners’ package insurance policy it had issued to them as its agents. The circuit court granted summary judgment in favor of American Family.

On appeal, the defendants asserted that the circuit court erred because the underlying complaint contained factual allegations of “personal and advertising injury” that brought the action within the policy’s coverage. But the appellate court rejected this argument, finding that the defendants’ alleged retention and use of confidential information gleaned from American Family’s database and computer system amounted to trademark and trade secret infringement, thus bringing the action with the policy exclusion for injuries knowingly caused by the insured and arising out of such infringement. The appellate court also found that the defendants’ alleged retention of American Family’s information and use of that information to solicit American Family’s customers constituted a breach of the agency agreements, thus bringing the action within an exclusion to the policy’s coverage for injuries that arise from breach of contract. Accordingly, the court concluded that American Family did not owe a duty to defend its former agents in the underlying action.

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One of the nation’s large home builders recently filed suit against a former executive in federal court in Albuquerque, New Mexico for alleged misuse of the company’s trade secrets related to a highly confidential internal strategic plan.

Pulte Home Corporation filed suit against former executive Lynn Galindo, a former area vice president based out of Las Vegas, Nevada, in the United States District Court of New Mexico (Case 1:08-cv-00210-JB-LFG) alleging claims of trade secret misappropriation, conversion, breach of fiduciary duty, breach of contract, fraud, breach of implied covenant of good faith and fair dealing, and unjust enrichment.

The complaint alleges that shortly before Galindo’s departure from the company, she misappropriated an internal strategic plan related to the Albuquerque housing market and later used it to create a similar plan for a competitor.

According to the complaint, the plan, which cost in excess of $1 million dollars to produce, contained information that would allow a competitor at Pulte’s expense to make informative decisions regarding the “relative health of the market in terms of marco/micro economic and market forces; the size of the mobility of the population within the market; the organization of Pulte’s Target Consumer Groups; the location preferences by consumer group, price sensitivity, product preferences, over-and under-served consumers groups which indicates market opportunity; and the top performing communities in the market organized by Target Consumer Group.” The plan also contained Pulte’s analysis of this data, its strategy for increasing its presence in the market, an “identification of specific challenges of this market and Pulte’s proposed solutions to those challenges.”

According to Pulte’s complaint, “A knowledgeable person would be able to use Pulte’s . . . [strategic plan] to assess the viability of a specific location (or multiple locations), understand the best opportunities for targeting specific consumer groups in the locations under evaluation and be able to fine tune a product offering in terms of community layout, community design, community amenities, lot size and configuration, floor plan selection and specifications of homes.”

According to the suit, Pulte provided Galindo with notice of her termination in the spring of 2007 as part of a reduction in force. Galindo negotiated a lucrative severance package that paid her nearly $300,000 in severance pay, bonuses and other compensation. Pulte claims Galindo conspired to obtain the strategic plan while she was negotiating her severance from the company and that if it would have known she had obtained the highly confidential plan that it would not have entered the severance agreement. Galindo apparently obtained the plan by contacting a subordinate and induced the employee to send her a copy prior to her separation.

During Galindo’s employment and as part of her severance agreement, Galiando signed agreements to keep Pulte’s proprietary information, such as the strategic plan, confidential, according to the complaint. Pulte claims that Galindo agreed to provide a developer in the Albuquerque area with a marketing study and used material from Pulte's confidential strategic plan in the report.

The case has yet to be set for trial and has been assigned to District Judge James O. Browning and Magistrate Judge Lorenzo F. Garcia.

This case highlights the need for employers to review the activities of departing employees shortly before their departure to ensure that company confidential/trade secret information has not been compromised and that the employees understand their continued confidentiality obligations to the company. Employers should consider reviewing these employees’ e-mail activity and access to proprietary databases prior to their departure, as well as remind other employees to report any suspicious activities, to attempt to safeguard company secrets.

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A former software engineer for a Chicago-area telecommunications company has been indicted for allegedly misappropriating over 1,000 proprietary documents containing trade secrets which she was evidently attempting to transport with her to her new job in China. Neither company has been named.

The defendant, Hanjuan Jin, a naturalized citizen, took a medical leave of absence from the Chicago-based company (Company A) in February 2006. During her medical leave, she accepted a job with a company in China (Company B) where she was to develop communications software. She then informed Company A that she would return to work on February 26, 2007, without notifying the company that she had secured a job in China. After purchasing a one-way ticket to China for Feb. 28, 2007, Jin returned to Company A and allegedly downloaded hundreds of documents. She allegedly returned that night as well as the next night to copy more documents. These documents included descriptions of how Company A provides an interstate communication feature that cost the company hundreds of millions of dollars to develop, and federal authorities claim that had Jin succeeded in bringing them to China, Company A could have lost more than $600 million over the next three years.

Jin was arrested and the documents seized at O’Hare Airport on Feb. 28, 2007. She was charged with three counts of theft of trade secrets. If convicted, each count carries a maximum penalty of ten years in prison and a $250,000 fine.

For more information, see http://www.earthtimes.org/articles/show/suburban-chicago-woman-indicted-for,337647.shtml or http://www.chicagotribune.com/news/local/chi-trade-secrets-webapr03,1,1758307.story.

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The Chemical Abstracts division of the American Chemical Society (ACS) sued three software developers who left ACS to start their own company, Leadscope. ACS sued for trade secret misappropriation, alleging that the software developers used ACS trade secrets to develop their own product. The filing of the lawsuit scuttled several pending (very promising) deals that Leadscope was about to close on. Leadscope counterclaimed for defamation, tortious interference, unfair competition and deceptive trade practices.

The lawsuit was filed in 2002 was hotly contested. Among other things, there was a dispute over insurance coverage, resulting in a court of appeals decision in favor of coverage, see Am. Chem. Soc. v. Leadscope, Inc. , 2005-Ohio-2557.

The trial lasted 2 months in the Franklin County Court of Common Pleas (Columbus, Ohio). On March 27, the jury returned a verdict ruling in favor of Leadscope (the defendant and counterclaimant), awarding counterclaim compensatory damages of $27 million.

In closing arguments, Leadscope's attorney argued, that ACS "destroyed the reputations of three dedicated scientists...They have ruined the financial position of LeadScope...These scientists did their own work. They didn't take anything from [ACS]". Much of the case focused on expert analysis of Leadscope's source code. Leadscope presented expert testimony that the source code of their own product was NOT copied.

Certainly, a cautionary tale for people filing trade secret lawsuits!

The Columbus Dispatch has reported on the verdict. See
http://www.columbusdispatch.com/live/content/business/stories/2008/03/28/LEADSCOPE.ART_ART_03-28-08_C12_HF9P1EG.html?sid=101

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In almost every trade secret/restrictive covenant dispute, a company whose trade secret information has been stolen must confront the possibility that its customers will be dragged into the dispute. One company decided to take the bull by the horns pre-litigation and sent a letter to all of its customers notifying them of a misappropriation by one of its former employees and “suggesting” that, to avoid potential involvement in any ensuing litigation “as a material witness, or otherwise,” the customers should not do business with the former employee.

Unsurprisingly, the former employee sued his former employer for defamation. The former employer brought a motion to strike the defamation complaint under California’s anti-SLAPP statute, which authorizes a court to dispose of lawsuits that are brought to chill “the valid exercise of constitutional rights,” such as the right of free speech. The trial court’s decision to grant the former employer’s anti-SLAPP motion and strike the defamation complaint was upheld yesterday by the Court of Appeal . See Neville v. Chudacoff, __ Cal.Rptr.3d __, 2008 WL 650658 (Cal.App. 2d. Dist. March 12, 2008).

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In a February 29, 2008 Order, the Northern District of California entered a preliminary injunction against four defendants on behalf of Verigy US, Inc. Verigy demonstrated in discovery that Romi Omar Mayder, the principal of Silicon Test Systems, Inc., e-mailed a number of sensitive documents to a business partner, Robert Pochowski. The documents concerned technology for testing flash memory cards.

In granting the preliminary injunction, the district court rejected a number of arguments put forward by Defendants. Defendants first argued that a difference of opinion between Verigy witnesses regarding the application of Verigy’s confidentiality policy, but the court found that the existence of such a policy, along with non-disclosure agreements, was sufficient for Verigy to show reasonable efforts to maintain the secrecy of its information.

Defendants further argued that the items alleged by Verigy to be trade secrets were publicly known elements. However, the court concluded that Verigy demonstrated that the combination of those elements was not publicly known and was therefore entitled to protection as a trade secret.

Finally, Defendants argued that the product they ultimately developed did not utilize Verigy’s trade secrets because Defendants made significant changes to the final product. The court rejected this argument, holding that Defendants’ use of Verigy’s items gave Defendants a head start in ultimately developing their final product, even if the final product varied from the Verigy plans. Additionally, the court relied upon Defendants’ misappropriation of Verigy information regarding the requirements of other vendors in concluding that Defendants’ actions gave them an unwarranted competitive advantage.

The court was also forced to grapple with the question of the duration of the injunction restricting Defendants marketing or selling their product. To answer this question, the court had to determine how much of a temporal head start Defendants obtained by misappropriating Verigy’s trade secrets. The court determined that Mayder took eight months at Verigy working on the project in question, but then elected to shorten the injunction period to five months because: (1) some of the technology used on the project was publicly available; and (2) Defendants’ final product ultimately went in a different direction than the product sold by Verigy.

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After granting summary judgment for plaintiff in late November 2007, Judge Susan Illston of the U.S. District Court for the Northern District of California recently awarded plaintiff $6.6 million in damages, the majority of which related to future lost profits due to breach of contract and misappropriation of trade secrets. Although the motion for summary judgment was uncontested, the court's ruling and damages award highlights the importance non-disclosure and confidentiality agreements can play in trade secret disputes.

Plaintiff Oculus Innovative Sciences Inc. entered into non-disclosure and purchase agreements with Nofil Corp. related Oculus' MicrocynTM disinfectant, antiseptic and sterilization technology. Under the agreements, Nofil agreed to manufacture certain machines for the production of MicrocynTM and to not disclose confidential information obtained from Oculus.

After ruling that Nofil had breached the agreements, the court held that Nofil had misappropriated Oculus' trade secrets. The court first held that Oculus had established the existence of a trade secret through reference to language in the non-disclosure and purchase agreements ("while the Court does not find this evidence to be overwhelming, it will assume for present purposes that Oculus can establish the presence of some trade secrets that fall within the scope of the [non-disclosure agreement]").

The court then determined that Nofil had misappropriated such trade secrets through its manufacture and sale to a competitor in Mexico of two machines covered by the agreements between the parties . Specifically, the court found persuasive PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368 (2000), which held that "[e]mploying … confidential information in manufacturing, production, research or development, marketing goods that embody the trade secret, or soliciting customers through the use of the trade secret information, all constitute use."

In a January 23, 2008 Order, the Court awarded Oculus $916,206 for lost profits for 2006 through part of 2008. The Court awarded future lost profits of $5,727,829 for a period of 5 ½ years discounted to present value.

The case is Oculus Innovative Sciences, Inc. v. Nofil Corporation, et al., Case No. 06-1686, N.D. Cal. 2006.

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Trade secrets discovery in a suit for misappropriation, breach of contract, breach of fiduciary duty, etc., can give rise to a number of dilemmas. A recent Northern District of Georgia ruling, DeRubeis v. Witten Technologies, Inc., 244 F.R.D. 676, involves one of those dilemmas. The company asked for identification of the trade secrets the defendants were using in their competing business. The defendants objected, claiming that the company might use the response to “mold its cause of action around the discovery it receives.” On the one hand, the court emphasized, the defendants are entitled to know the nature of the company’s claim and to limit the company’s discovery accordingly. On the other, the company does not necessarily know exactly what trade secret information the defendants allegedly stole and are using.

In DeRubeis, the court required the company to “identify with ‘reasonable particularity’ those trade secrets it believes to be at issue.” The phrase “reasonable particularity” was defined as a sufficient description so that the defendants are “put on notice of the nature of” the claims and “can discern the relevancy of any requested discovery” propounded by the company. “Once [the company] has fulfilled its obligation, it will be entitled to discovery on [the defendants’] trade secrets, provided that what it seeks is relevant.”

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Polar Molecular Corp. v. Amway Corp., et al., No. 1:07-CV-460, 2007 WL 3473112 (W.D. Mich. Nov. 14, 2007).

A Michigan federal court recently declined to dismiss a petroleum additives company’s claim under the Michigan Uniform Trade Secrets Act (“MUTSA”) against several manufacturers and distributors of its fuel additive product, but held that the company’s common law claims of misappropriation and conversion were displaced by the statute.

Polar Molecular Corporation (“Polar”) sued twelve defendants, alleging violations of the Lanham Act, breach of contract, misappropriation of trade secrets under the MUTSA, and common law claims for misappropriation, conversion, and conspiracy. Polar had entered into a series of licensing agreements with certain defendants (the “Amway Defendants”) to make, use, and sell its fuel additive, called “DurAlt” and marketed as “Freedom Fuel.” Pursuant to the agreements, Polar provided the Amway Defendants with confidential formulas for DurAlt. After the parties had a falling-out over failed negotiations concerning royalties and fleet sales, Polar alleges that the Amway defendants provided its confidential formulas to another group of defendants (the “DNS Defendants”), who used the formulas to manufacture and sell a “knock off” of DurAlt called “ProFuel” and marketed as “Freedom 2.” Polar further alleges that the defendants misrepresented to potential customers that they had a licensing agreement with Polar for the manufacture and sale of “Freedom 2.”

The defendants argued that Polar’s claim under the MUTSA should be dismissed because Polar published the DurAlt formula in a patent, and thus it was no longer secret. Polar countered that, during the course of its licensing arrangement with the defendants, it had provided Amway with additional, improved DurAlt formulas that were not disclosed in the patent, including the specific formula at issue in this litigation. The court observed that “[a]lthough information disclosed in a patent cannot be a trade secret,…the existence of a patent covering the general subject matter does not necessarily mean that the patent disclosed the specific formula (the trade secret) used to produce a specific commercial product.” The court then concluded that the allegations in the complaint—that the defendants had obtained confidential information not known to others and that this information gave them a competitive advantage—were sufficient to state a claim for misappropriation of trade secrets under the MUTSA.

However the court also had before it the defendants’ motion for summary judgment on the MUTSA claim. The court found that Polar’s evidence was insufficient to controvert the seven affidavits produced by the Amway Defendants asserting that there had been no unauthorized disclosure of Polar’s confidential information and that ProFuel had been independently developed based on a reverse-engineering analysis of the Freedom Fuel product and the information in Polar’s expired patent. But the court concluded that Polar had shown a need for some discovery to resolve the issue, and thus declined to rule on the summary judgment motion until after a sixty-day period of limited discovery.

The court also dismissed the common law misappropriation and conversion claims, concluding that they were preempted by the MUTSA because Polar had not sufficiently alleged that these claims were based on wrongful conduct independent of the misappropriation that served as the basis for the MUTSA claim. But the court declined to dismiss the conspiracy claim as preempted, to the extent that, rather than being based upon the alleged theft of a trade secret, it was based on “palming-off or unfair competition” arising out of the defendants’ alleged representations that Pro-Fuel was a “knock off” of DurAlt and their alleged false statement that they manufactured it pursuant to a licensing agreement with Polar. The court also declined to dismiss the trademark infringement claim under the Lanham Act and granted summary judgment to the Amway defendants on the breach of contract claim to the extent that it was based upon a certain provision of the licensing agreement.

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A recent ruling from the U.S. District Court for the District of Delaware serves as a reminder that, in addition to civil liability, an ex-employee stealing his or her former employer’s trade secrets can face jail time and a fine. On November 6, 2007, former DuPont employee Gary Min was sentenced to 18 months in prison and two years of supervised probation, fined $30,000, and ordered to pay $14,500 in restitution to his former employer. According to a statement released by the company, Min had been a senior scientist. Shortly before he resigned to take a position with another company, he “misappropriated a significant volume of confidential and proprietary DuPont technical documents.” DuPont filed a civil suit against him in federal court, and that “suit was resolved to our complete satisfaction” according to the company's statement. Then, he was indicted for theft, entered a plea of guilty and was sentenced. United States v. Min, No. 1:06-cr-00121-SLR (D.Del.).

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RRK Holding Co. v. Sears, Roebuck & Co., No. 04-CV-3944, Verdict (N.D. Ill. Nov. 19, 2007)

A family-owned Wisconsin company that makes power tools recently won a $21.5 million verdict against Sears, Roebuck and Co. after the jury found the national retailer guilty of stealing the design for the popular Craftsman all-in-one cutting tool. Plaintiff RRK Holding Co., formerly known as Roto Zip, convinced the federal jury in Chicago that Sears had willfully and wantonly misappropriated its trade secrets under the Illinois Trade Secret Act and breached the parties’ nondisclosure agreement.

In the late 1990s, Roto Zip was one of Sears’ major suppliers of the rotary saw. The suit alleged that in 1999, pursuant to a nondisclosure agreement, Roto Zip disclosed to Sears drafts for a next generation, hand-held combination power saw, but after negotiations broke down over price, Sears declined to make a deal. Instead, Sears took the design to a Chinese manufacturer for lower-cost production. Unaware of Sears’ breach of the nondisclosure agreement, Roto Zip continued to develop the tool to bring it to market. While Roto Zip’s finished product sold for $119, Sears’ Craftsman combination tool undercut at just $59. Sales of Roto Zip’s rotary saw declined dramatically after the Sears version launched.

The $21.5 million verdict includes $13.5 million for lost profits and an additional $8 million in punitive damages. Sears plans to appeal. http://www.suntimes.com/news/metro/658969,CST-NWS-tool20.article; http://ip.law360.com/secure/ViewArticle.aspx?Id=41303

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The taking and using of customer lists is no longer just a matter for civil proceedings and injunctive relief. On Monday, November 26, 2007, the Georgia Court of Appeals affirmed a jury’s criminal conviction of an individual who took and used her former employer’s master client list to solicit customers, who used company computers to plan her new business venture, and otherwise misappropriated client files.

Defendant Shan DuCom was tried and convicted after it was discovered that she had attempted to wipe out her former employer (C&D)’s property management business completely by converting the property management function to her own, newly created entity. Indeed, DuCom conspired with other employees to start a new firm, used C&D’s computers to create new “letterhead and logos, press releases, solicitation postcards, and various ‘to-do’ lists,” as well as to engage in “massive” copying of information maintained on C&D’s computer hard drives to discs. Her actions were apparently so wanton that the day after she left, the former employers’ team came to work and found the office had “been left barren, ‘cleaned out.’ The computer server was turned off, the hard copies of client files were missing, the fax and credit card phone lines had been sabotaged, and office supplies and equipment were missing.” Once the computer service was restored, C&D found that entire databases were missing and that the C&D website had been transferred to DuCom’s new firm. Three of DuCom’s co-workers resigned and joined her new firm as well. Georgia’s Uniform Trade Secrets Act specifically protects client and customer lists as trade secrets, provided they

(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

O.C.G.A. § 16-8-13(a)-(b). The appellate court remarked, in particular, that as a new business, DuCom’s new firm “would have opened its doors with little or no property to manage, and with no property to manage, it would have very little income,” reflecting that her head-start approach runs afoul of the law. Noting the damage that she caused by her acts in stealing the client list, the court affirmed the lower court’s award of restitution based on valuation of C&D’s “book of business.”

DuCom also was convicted of “computer theft” under O.C.G.A. § 16-9-93(a) for using C&D’s computers without authorization. The appeals court reflected that she had downloaded data she was not permitted to use and that the jury could have found “beyond a reasonable doubt that DuCom used a computer, owned by her employer, with knowledge that such use was without authority and with the intention of removing programs or data from that computer and appropriating them for her own use.” Under Georgia law, unauthorized use includes “the use of a computer or computer network in a manner that exceeds any right or permission granted by the owner of the computer or computer network” O.C.G.A. 16-9-92(18). With a broad definition and unassailable facts, the appellate court did not waste much time in discussing its reasoning to affirm.

Although it is not unusual to hear tales of such wanton conduct in preparing to compete in a new business, it is not very often that we hear of criminal prosecutions of such matters at the state level in Georgia. We’ll be keeping our eyes and ears open for any further such cases.

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Adcor Industries, Inc. v. Bevcorp, LLC, 2007 WL 3104796, No. 06-4260 (6th Cir. Oct. 23, 2007).

Last month, the United States Court of Appeals for the Sixth Circuit affirmed an Ohio federal d istrict court’s grant of summary judgment in a trade secrets misappropriation case. Adcor Industries, Inc. sued Bevcorp, LLC, among other defendants, in the Northern District of Ohio for allegedly misappropriating Adcor’s trade secrets and violating a consent decree entered in 1988.

The consent decree was issued against Baron Haag and Chester Romp, individual defendants in the Adcor case, arising out of a scheme in which Haag and Romp, who owned Brau Manufacturing, Bevcorp’s predecessor corporation, illegally obtained drawings to manufacture replacement parts for beverage fillers created by Crown, the predecessor to Adcor. The main thrust of the decree was that it prohibited Haag and Romp from manufacturing Crown parts. Furthermore, the decree applied to their successors, among others.

In 2003, Adcor sued Bevcorp and the other defendants, claiming that Bevcorp, as successors to Brau, had violated the consent decree and misappropriated Adcor’s trade secrets by using the drawings obtained by Haag and Romp. The district court granted summary judgment on the breach of consent decree claim, finding that Adcor had failed to prove to a reasonable certainty that the owners of Bevcorp had acquired the drawings directly from Haag and Romp. The court also granted summary judgment in the trade secrets misappropriation claim, ruling that the claim was time-barred.

In affirming the district court’s decision, the Sixth Circuit pointed to Ohio’s Uniform Trade Secrets Act, which provided that a trade secret misappropriation claim must be brought within four years of the discovery of the misappropriation, or when the plaintiff should have reasonably discovered it. The statute further provided that a continuing misappropriate constituted a single claim. The court found that there was undisputed evidence that Adcor had inquiry notice of the misappropriation more than four years before the suit was commenced. Furthermore, the court noted that there was evidence in the record that Adcor’s delay in commencing the lawsuit was a “strategy deadlock.”

Finally, the court ruled that Adcor had failed to prove by clear and convincing evidence that the defendants had violated the consent decree, agreeing with the district court that there was not sufficient evidence to conclude that the owners of Bevcorp had obtained the drawings from Romp and Haag.

Judge Karen Nelson Moore concurred in part and dissented in part, arguing that Adcor had presented evidence that there were genuine issues of material fact as to when Adcor should have known that the defendants misappropriated the drawings.

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The Woburn Daily Times Chronicle has reported that iRobot Corp., a Burlington, MA corporation, has been granted a preliminary injunction in the District of Massachusetts in its case against Robotic FX, Inc., and its founder and president, former iRobot employee Jameel Ahed. iRobot is suing Ahed and Robotic for misappropriation of trade secrets.

iRobot’s lawsuit alleges that Robotic used iRobot’s trade secrets to develop the Negotiator, a replica of iRobot’s PackBot robot. iRobot describes the PackBot robots as “robots that perform dull, dirty or dangerous missions in a better way.” The PackBots were the first ground robots to be used in combat by U.S. forces.

The U.S. Army had a $280 million contract with Robotic for use of the Negotiator, but set aside the contract in October pending a re-examination of Robotic’s ability to deliver the Negotiator “as a responsible contractor.” The Army has notified both Robotic and iRobot that if Robotic is unable to provide the Negotiator, the contract will be awarded to iRobot instead.

In issuing the preliminary injunction, U.S. District Judge Nancy Gertner found that iRobot had shown a likelihood of success on the merits of its case. The exact terms of the order are under seal so as to further protect iRobot’s trade secrets; however, iRobot reports that the injunction prohibits Robotic from using “critical features” in the design of the Negotiator.

iRobot has a separate lawsuit pending in the Northern District of Alabama for patent infringement. iRobot sought the injunction in Massachusetts after discovering that Robotic had attempted to destroy evidence in both the Alabama case and the Massachusetts case. Judge Gertner ordered a trial date of no later than April 7, 2008.

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InstitutionalInvestor.com reported that the National Futures Association (“NFA”) has issued the new rules, “to prevent members from using illegitimate means to gain a competitive advantage if doing so would harm customers.”  InstitutionalInvestor.com noted, click here to view article, that new Compliance Rule 2-4 is directed at activity such as:

• Misusing customer information, for example by misappropriating social security numbers or deliberately violating the firm's privacy statement.
• Disclosing customer orders before execution.
• Obtaining or trying to obtain information disclosing a commodity trading adviser's historical trading positions without the CTA's permission.

 According to the article, Rule 2-4 became effective last month; however, the Securities and Exchange Commission has yet to rule on it.

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