While treats are in abundance on Halloween, a Minnesota employer recently received a trick when a federal court denied its temporary restraining order application. A Minnesota federal court held that an ex-employer’s apprehension that a former employee violated or would violate a non-compete and confidentiality agreement was entirely speculative and, thus, did not warrant a TRO.  Sempris, LLC v. Watson, Civil Ac. No. 12-2454 ADM/JJG (D. Minn., Oct. 22, 2012) The court found that there was insufficient evidence of damages or harm to warrant injunctive relief.

In 2009, Watson was hired to work out of his Texas home for Provell which was a Minnesota company that developed, sold and managed membership reward clubs. His title was Vice President for Business Development, and his employment agreement included non-compete and confidentiality provisions. The non-compete agreement prohibited him from directly or indirectly soliciting any current or potential Provell client for one year after termination of his employment.

In January 2011, another Minnesota company, Sempris, purchased Provell’s assets. Sempris develops membership and customer loyalty rewards programs for businesses. Watson did not sign a new employment agreement, but Sempris claimed that it assumed Provell’s rights under the prior agreement. Sempris made no significant changes in the terms of Watson’s employment until October 2011 when the maximum amount he could earn as a commission was capped at 40% of his base salary (previously there had been no cap). He resigned in September 2012 and accepted a position with a new employer, Reunion, based in Ft. Lauderdale, Florida. Sempris sued him, alleging that Reunion was a competitor and that Watson was violating his non-compete and confidentiality commitments. He denied any such violation and asserted that the covenant against competing with Sempris was unenforceable.

In support of a motion for a TRO, Sempris submitted no evidence that any of its current or potential clients was lost to Reunion. No proof was offered of an identity between Reunion’s products or sales methods and those of Sempris. The two companies never competed directly for the same client. In fact, neither company was aware of the other until Watson transitioned.

The court said that even if Watson did work for a competitor, Watson was not shown to have been in contact with any current or potential Sempris client, and his mere possession of trade secrets did not warrant injunctive relief. Further, Minnesota law disfavors enforcement of a non-competition agreement. Under the circumstances, the harm that would be caused to Watson by enjoining him from gainful employment for one year outweighed the risk to Sempris of denying the TRO. The court did not resolve the dispute concerning validity of the non-compete covenant.

The target of Sempris’ litigation was a single former employee whose conduct apparently had not injured his ex-employer. Of course, Sempris’ motive in filing the case may have been primarily to discourage other employees from following or emulating Watson. Significantly, perhaps, Reunion was not named as an additional defendant. Or, Sempris may have merely wanted to warn Watson that his activities were being monitored, and to an extent the company succeeded. The court’s opinion concluded by cautioning him that “he remains bound by the terms of his employment contract” and “may ultimately be found to be in breach of his Non-Compete Agreement; and, if so, Watson will be responsible for damages to Sempris.”

By Joshua Salinas and Jessica Mendelson

Think that patents, trademarks, and copyrights are the only intellectual property where reasonable royalties are available? Think again! On September 27, 2012, a district court for the Northern District of Oklahoma found “exceptional circumstances” existed to award a royalty injunction for the misappropriation of trade secrets.  Skycam, LLC v. Bennett, No. 09-CV-294-GKF-FHM, 2012 WL 4483610 (N.D.Okla. Sept. 27, 2012).

Background Facts and Procedural History

The case involves two competitors in the aerial camera industry, Skycam and Actioncam. Both companies manufacture aerial camera systems used for sporting event broadcasts. The cameras are suspended by a set of cables over the playing field and maneuvered to provide a unique above-action perspective during live sporting events. Many viewers who watch football games or soccer matches are familiar with these “flying” robotic-like cameras. Videos of these aerial cameras in action can be seen here.

A dispute arose when Skycam’s Chief Engineer, Patrick Bennett, allegedly left to join a competitor, Actioncam. Bennet was responsible for the research and development of Skycam’s aerial camera systems and allegedly had full access to Skycam’s engineering and design documents. Skycam alleged that Actioncam developed a competitive aerial camera system under the guidance of Bennett and through the use of Skycam’s trade secrets.

Skycam sued Bennett, alleging he had breached a non-disclosure agreement, misappropriated trade secrets, and engaged in unfair competition. The trade secrets allegedly misappropriated included the use of lasers and reflectors for aerial survey, site surveys and field guides, management techniques, obstacle avoidance systems, as well as numerous other Skycam systems.

In September 2011, a jury found in favor of Skycam on the breach of contract, misappropriation of trade secret, and unfair competition claims, and awarded damages to Skycam. Skycam subsequently filed a motion for permanent injunction on the misappropriation of trade secrets and unfair competition causes of action. Skycam sought a prohibitory injunction that would prohibit Actioncam from utilizing Skycam’s trade secrets and from placing false and/or misleading advertisements and representations about Actioncam’s systems. Skycam also requested, in the alternative, reasonable royalties under the Oklahoma Uniform Trade Secrets Act (“OUTSA”) should the court find “exceptional circumstances” existed regarding Actioncam’s future or potential use of Skycam’s trade secrets.

Trade Secret Misappropriation Claim

With respect to the trade secret misappropriation claim, rather than granting the prohibitory injunction, the court held a royalty injunction was appropriate. The court found that granting an injunction would eliminate Actioncam’s ability to use its aerial camera systems and essentially put Actioncam out of business. The court further reasoned that a prohibitory injunction would eliminate competition and technological innovation in the relatively small aerial camera market, and thus, would be harmful to the public interest. Thus, the court found the imposition of a royalty was adequate to protect the parties’ interests, and the case presented “exceptional circumstances” that would permit such a remedy under the OUTSA.

On this basis, the court awarded damages based on royalties of $5000 per event covered by Actioncam during the period of September 3, 2011, through February 28, 2013. This time period was based on Skycam’s expert’s testimony stating that it would take approximately three to four years for a camera system like Skycam’s to be developed.

Unfair Competition Claim

The court granted the injunction for unfair competition, finding “the threatened injury outweighs the harm that the injunction may cause” and that an injunction would not “adversely affect the public interest” as required by Tenth Circuit law.

In the original jury verdict, five different types of false and misleading statements were alleged as the basis for the alleged violations of the Oklahoma Deceptive Trades and Practices Act and the Lanham Act: statements regarding (1) speed and accuracy, (2) field graphics for a “First and Ten line,” (3) secondary supporting cable and power safety reels, (4) other capabilities of the Skycam system, and (5) other capabilities of the Actioncam system. The jury failed to specify which types of statements it found false and misleading, and the defendants argued that Skycam should not be entitled to an injunction prohibiting all five types of statements as a result. However, the court found otherwise, since, “where a verdict is general, a court must presume that any and all issues were decided in favor of the prevailing party.”

Based on the jury verdict, the court found irreparable injury, and found the balance of hardships weighed more heavily in Skycam’s favor. The court granted an injunction prohibiting false or misleading claims regarding any of the previously mentioned topics. Finally, the court also required Actioncam to place a corrective advertisement on any public advertising over the next six months.

Takeaways

This case reminds us that reasonable royalties are available under the UTSA for trade secret misappropriation. Although reasonably royalties were not available under the UTSA when the statute was originally drafted in 1979, its subsequent amendments have since allowed this remedy. States differ in the availability and application of reasonable royalties for trade secret misappropriation based on their implementation of the UTSA. California, however, has recently allowed this remedy regardless of whether actual damages are unprovable as a matter of fact or law. See Ajaxo, Inc. v. E*Trade Financial Corp., 187 Cal. App. 4th 1295 (2010).

Thus, trade secret holders should consider requesting reasonable royalties as an alternative to a permanent injunction when appropriate. While prohibitory injunctions are often preferred, this alternative remedy helps trade secret holders avoid leaving the court empty handed.

Several Seyfarth Trade Secret and IP attorneys are scheduled to attend and participate at the California State Bar Intellectual Property Law Section’s “IP Institute” in San Diego on November 8-10th.

Seyfarth is a silver sponsor of this prestigious IP event and will have a sponsor table staffed throughout the event.

High level experts will cover a wide range of IP law topics from a practitioner’s standpoint including “nuts and bolts” and advanced CLE sessions on patents, copyrights, trademarks, trade secrets, entertainment law, internet law and licensing. The program will also feature an internet, cloud and mobile law “year in review”, a lunch keynote by DirectTV’s Steve Tapia, and speakers from Intel, Pinterest, the SFMOMA, LACMA, and more.

Seyfarth partners Jim McNairy and Robert Milligan will speak at the event.

Jim will speak, along with trade secret specialists Randy Kay and Bec Edelson,  at a program entitled “Obtaining Injunctive Relief in Trade Secret Cases.”  The panel will discuss how best to position your motion for injunctive relief and give tips for preparing for the injunction hearing.

Robert will speak, along with Intel’s Director of Legal Counseling Janet Craycroft and John Marsh of Hahn Loeser and creator of the popular Trade Secret Litigator blog.  Their program is entitled “Protecting and Maintaining Trade Secrets and Confidential Information In The Age of Social Media and Cloud Computing.” This panel will discuss a wide range of issues regarding trade secrets in the online world including cyber threats posed by explosion of cloud computing and social media, effective vendor, employment agreements and policies to protect trade secrets in the cloud, and key considerations in selecting a cloud provider from a security and trade secrets perspective, and the effective use of social media in non-compete and trade secret litigation.

There will be many fun networking opportunities, including the 4th Annual Vanguard Awards lunch (honoring the GC of Twitter and the Honorable William Alsup, among others), a tequila and microbrew tasting reception on Thursday, and an Interactive Farmer’s Market dinner and Casino Night (sponsored by Seyfarth) on Friday. 13 Hours of CLE including 1 Hour of Substance Abuse.

Please invite your colleagues, friends, and clients to attend and don’t forget to stop at the Seyfarth booth at the Institute. Registration information can be found here

Seyfarth attorneys Bret Bocchieri, Nguyen Nguyen, Joe Lutz, Robert Milligan, Jim McNairy, Joshua Salinas, and Yandie Fashu-Kanu are presently scheduled to attend.

On October 12, 2012, Zynga, a major provider of social game services based in San Francisco, filed suit against its former general manager of its highly successful CityVille game, Alan Patmore. Zynga alleges that Patmore, after allegedly refusing to acknowledge his confidentiality obligations, wandered out of the offices of Zynga with 760 computer files, which he uploaded to his personal Dropbox account. Adding fuel to the fire, Patmore then allegedly attempted to uninstall Dropbox from his computer, leaving forensic artifacts in his wake. Included in the allegedly copied files were:

• Data concerning the method by which Zynga identifies which games and game mechanics will be successful;

• Internal assessments of every game feature rolled out over the last quarter for CityVille;

• Internal assessments and lessons learned for Zynga’s other hit games;

• The green-lit design document for an unreleased game in development; and

• Confidential revenue information.

In addition to the various files, Zynga alleges Patmore also copied his entire email box, containing fourteen months of confidential communications.

Published reports indicate that Patmore is joining Zynga rival Kixeye.

Although there are many things notable about this lawsuit (including the decision by Zynga not to bring a CFAA claim following the recent 9th Circuit decision in United States v. Nosal), perhaps the most interesting aspect of this case is an element often over-looked in trade secret cases: proving Zynga actually has a proprietary interest in the information removed.

As some readers may recall, we blogged on the litigation between Zynga and its competitor, SocialApps, LLC (“SA”), wherein SA alleged that Zynga had stolen the source code for FarmVille during due diligence of its company. There, the court held that while certain images and features were available in the public domain, issues remained as to whether Zynga had improperly accessed and used SA’s proprietary source code. Complicating this further, Zynga is enmeshed in litigation with EA Sports, who, in August, sued Zynga for copyright infringement, claiming it  improperly utilized copyrighted material from EA’s “The Sims Social,” which EA claims Zynga learned through its recent hire of key EA employees. Last month, Zynga countersued, alleging that EA had engaged in improper anti-competitive behavior by attempting to induce Zynga to enter into a no-hire agreement. In response, EA’s spokesman alleged that Zynga had engaged in a persistent plagiarism of other artists and studios.

In the end, Zynga may resolve this matter with Patmore without ever having to provide its proof to a jury (although based upon Kixeye’s recruiting video, it appears that Kixeye may put up a fight). This new case does, however, present a strong illustration of some of the underlying decisions a company has to consider before bringing trade secret litigation against a former employee who may know a company’s most internal secrets.

A private medical transport service was recently unsuccessful in persuading the U.S. District Court for the Northern Mariana Islands to enter a preliminary injunction prohibiting two ex-employees from competing with and soliciting customers of their former employer. The judge cited Section 188 of the Restatement of Contracts (Second) as authority for denying injunctive relief where the potential harm to the public and the defendants outweighed the likely benefits to the plaintiff. Further, according to the court, the names on the plaintiff’s customer list are not trade secrets. The relevant community is small, and so the names of people likely to need medical transport services are readily determinable. August Healthcare Group, LLC v. Manglona, Case No. 1:12-CVI-00008 (D. Northern Mariana Islands, Oct. 12, 2012).

The plaintiff does business as St. Michael’s Medical Response. Until recently, it provided the only non-public ambulance and medical transportation service in Saipan. All of St. Michael’s workers, including defendants Takai and Pelisamen, signed a “Confidentiality and Non-Disclosure Statement” which contained a confidentiality provision but not a non-competition clause. In addition, Pelisamen signed a “Non-Competition Agreement” (whether Takai signed one was in dispute). Shortly after they signed the Statement and Pelisamen signed the Agreement, Takai and Pelisamen were terminated. Both went to work for Priority Care, a start-up competitor. According to St. Michael’s, before they left its employ the two individuals memorized the names of its customers who they then solicited for Priority Care.

The court observed that because of their specialized skills and the fact that there are no other private ambulance services in Saipan, an injunction would result in “an extreme financial burden” to Takai and Pelisamen. “Furthermore, the public will be harmed if enjoining Takai and Pelisamen from working for Priority Care reduces Priority Care’s ability to serve its customers to the point of removing St. Michael’s only competitor from competition.” Finally, St. Michaels conceded that only three customers had been lost to Priority Care, and so St. Michael’s could calculate its damages.

Pelisamen also challenged the enforceability of the non-compete agreement on the ground that he received nothing of value in exchange for his signature. The court decided to save “the issue of consideration for another day.”

Although this case is pending in a federal court in which few of us practice, the recent opinion contains valuable lessons for all litigants and their lawyers. First, a judge is unlikely to grant an anti-competitive injunction unless the equities weigh heavily in favor of the party seeking injunctive relief. Second, courts scrutinize claims that there is no adequate remedy at law. Third, a party’s credibility with the court may be weakened by filing a motion which is minimally supportable. Consequently, parties filing motions that over-reach risk not only denial of the motion but also jeopardy to their chances for ultimate success in the litigation.

On October 10, 2012, the Supreme Court of South Carolina found in Jennings v. Jennings, et al., that a defendant who allegedly hacked into a plaintiff’s personal e-mail account to retrieve messages that were already read by the plaintiff was not liable under the Stored Communications Act (“SCA”), 18 U.S.C. § 2701.

The Defendant allegedly hacked into plaintiff’s Yahoo! account once she learned that plaintiff was allegedly cheating on his wife. At issue in Jennings was whether the hacked e-mails — which were single copies of e-mails on the Yahoo! server and not downloaded or saved to another location — were in “electronic storage” under the SCA. While all of the Justices agreed that the e-mails at issue were not in electronic storage under the statute’s definition, and therefore, not protected under the SCA, their rationale in reaching their conclusion diverged and resulted in a 2-2-1 decision.

Section 2701(a) of the SCA proscribes accessing an electronic communication while it is in “electronic storage.” The SCA defines “electronic storage” as

(A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and

(B) any storage of such communication by an electronic communication service for the purposes of backup protection of such communication.

18 U.S.C. § 2510 (17).

The lower court held that the e-mails were in “electronic storage” because they were stored for backup protection pursuant to subsection (B) of Section 2510 (17). On appeal, Broome argued that the plaintiff needed to establish that the e-mail met both subsections (A) and (B) to constitute electronic storage. The Supreme Court’s decision, written by Justice Hearn, noted that although the Department of Justice espoused Broome’s interpretation of Section 2510(17), called the “traditional interpretation,” it was not one favored by the majority of courts that have considered the topic, which have instead found that subsection (A) or (B) must be met. In any event, plaintiff only argued that his e-mails were in electronic storage pursuant to subsection (B), and therefore the court found that it was unnecessary to determine whether to adopt the traditional interpretation or the interpretation recognized by most courts.

In discussing the applicability of subsection (B), the Justice Hearn relied upon Merriam-Webster’s definition of “backup,” which is “one that serves as a substitute or support.” The court concluded that Congress’s use of the word “backup” necessarily presupposes the existence of another copy to which the e-mail would serve as a substitute or support. The court found that because the plaintiff’s e-mails were a single copy of the communication, they could not have been stored for backup protection, and thus, not protected by the SCA.

Chief Justice Toal, on the other hand, in his separate concurring opinion, disagreed with Justice Hearn’s reliance upon the dictionary definition of “backup,” arguing that an e-mail message on an internet service provider’s website could be considered stored for “support” in the event the user needs to retrieve it. Instead, he argued that the traditional interpretation advanced by the DOJ (requiring that both subsections (A) and (B) are met for it to be considered in “electronic storage”) should be adopted. In his view, an e-mail is in electronic storage only if it has been received by a recipient’s service provider but has not yet been opened by the recipient. Because the e-mails at issue had already been received, opened and read by the plaintiff when they were retrieved by Broome, they fell out of the scope of electronic storage under the statute.

A third opinion written by Justice Pleicones concurred in result but noted that it was also necessary to consider that, in addition to the fact the e-mails at issue were not in temporary storage during the course of transmission (subsection A), they were also not copies made by plaintiff’s service provider for purposes of backup (subsection B), and therefore not protected by the SCA.

Given that the Justices could not agree even amongst themselves on the basis for their decision, it’s not surprising that other courts considering the applicability of the SCA have reached differing results, most notably the Ninth Circuit in the case of Thoefel v. Farey-Jones, 359 F.3d 1066, 1075 (9th Cir. 2004). In Thoefel, the court found that e-mail messages which were delivered to the recipient, read, and stored by the internet service provider were in “electronic storage” under the SCA.

The Justices in Jennings were quick to acknowledge that even if Broome did not violate the SCA, her alleged actions weren’t necessarily acceptable either. Justice Hearn said that “this should in no way be read as condoning her behavior. Instead, we only hold that she is not liable under the SCA because the e-mails in question do not meet the definition of ‘electronic storage’ under the Act.” Similarly, Chief Justice Toal noted that the SCA, which was enacted in 1986, “is ill-fitted to address many modern day issues, but it is this Court’s duty to interpret, not legislate.”

The Jennings decision has led commentators to express frustration with the SCA’s lack of protection for webmail and information stored in the cloud. Most agree that Supreme Court review of the SCA or even a new federal statute addressing this type of activity is necessary to protect information stored using today’s technology. While the Computer Fraud and Abuse Act might be another possible avenue for plaintiff Jennings, plaintiffs oftentimes are unable to prove the requisite amount of damages under the CFAA, which was recently demonstrated in the case of Eagle v. Morgan, et. al., no. 11-4303 (E.D. Penn. Oct. 4, 2012). Because this issue is far from resolved, employers (and, yes, even scorned lovers) shouldn’t necessarily view the Jennings decision as a green light to hack into one’s personal e-mail.

By Robert Milligan and Jessica Mendelson

With the NBA basketball season almost upon us, a high profile legal battle between an aspiring NBA sports agent and his former agency continues to heat up in Los Angeles federal court. The case involves some interesting non-compete, trade secret, and privacy issues.

In April 2012, we first alerted you to the colorful case of Mintz v. Mark Bartelstein & Associates d/b/a Priority Sports & Entertainment, Case No. 12-02554 SVW (SSX), (C.D. Cal.), where Aaron Mintz, a National Basketball Players Association (NBPA) certified player-agent, brought a declaratory relief suit seeking to invalidate his non-compete agreement with his former employer, Priority Sports & Entertainment (“Priority”).

Mintz, based in Los Angeles, left Priority in March 2012, accepted a position with competitor Creative Artists Agency (“CAA”), and immediately sought declaratory relief to invalidate his two year non-compete agreement.

As the case has progressed, Mintz has added additional claims against Priority for violations of the Computer Fraud and Abuse Act, the Electronic Communications Act, and California Penal Code section 502, as well as claims for defamation, invasion of privacy, intentional inference with contractual relations, and violation of Business and Professions Code section 17200. Mintz has also asserted some of the claims against Priority principle Mark Bartelstein.

Mintz alleges that he worked eleven years for Priority and then decided to pursue a better opportunity with CAA. Apart from the two year non-compete, which he claims violates Business and Professions Code section 16600, Mintz claims that the fourteen-day notice of termination provision in his employment agreement violates section 16600 as well. Mintz claims that the notice provision restricts his ability to terminate his employment, and thereby prevents him from competing with Priority, at its discretion, for two weeks after termination in violation of California law.

The non-compete contains an Illinois choice of law provision but no separate action to attempt to enforce it has been initiated in Illinois to date.

Mintz also claims that after he resigned Priority hacked his personal email account, reviewed his contract with CAA, and disclosed its terms to third parties. He also claims that defamatory statements were made to basketball executives, players, and family members of players to persuade players not to follow Mintz to CAA. Among some of the NBA players on the parties’ joint witness list are Dominic McGuire, Jordan Crawford, Paul George, Danny Granger, and Acie Law.

Priority counterclaimed against Mintz asserting claims for breach of contract, breach of covenant of good faith and fair dealing, breach of duty of loyalty, misappropriation of trade secrets, intentional interference with contractual relations, intentional interference with prospective economic advantage, conversion, violation of California Penal Code section 502, defamation, trade libel, conspiracy, and unfair competition. Priority has also asserted some of the claims against CAA.

Priority alleges that under his employment agreement Mintz was required to provide Priority fourteen days’ notice prior to his termination. Instead, Priority alleges that Mintz immediately terminated his employment and filed suit against Priority depriving it of “its negotiated opportunity to communicate with its clients before Mintz’s departure and to attempt to retain their business and manage an orderly transition process.” Priority claims that Mintz formulated a strategy designed to keep Priority from learning of his plans to join CAA in order to give CAA an unfair advantage in its efforts to attract several of Priority’s clients. Priority also alleges that Mintz disclosed information regarding Priority’s contracts with its NBA clients and used confidential information to solicit Priority’s clients. In essence, Priority claims that Mintz and CAA conspired to steal Priority’s clients.

Mintz has brought a motion for summary judgment on his claims and Priority’s claims, along with CAA. Priority brought a motion for partial summary judgment on its claims against Mintz for breach of contract and breach of duty loyalty. The summary judgment hearings are set for October 29, 2012 along with the pretrial conference. The trial is set for November 13, 2012 before the Honorable Stephen Wilson.

Mintz claims in his opposition papers, among other things, that Priority’s duty of loyalty claim fails because California employees have every right to take preparatory steps to look for a new job and consult an attorney to protect one’s legal rights without violating their duty of loyalty to their existing employer. He also claims that Priority’s trade secret claim fails because, among other things, client names, contact information, contract terms and commission splits with third party handlers do not qualify for trade secret protection.

It will be interesting to see how the court addresses the notice of termination provision and section 16600 argument as some employers use notice provisions in their employment agreements, particularly with executives. Additionally, the court may provide some guidance on what trade secrets, if any, exist, in the context of a sports agent dispute, as well as what other information may be protectable under a contract theory.

One interesting discovery issue handled by Magistrate Judge Segal in the case involved Priority’s attempt to obtain Mintz’s phone records from a smart phone he used during his employment with Priority.

Priority subpoenaed Mintz’s phone records from the cellular provider, seeking ten categories of documents, including dates, times, originating and receiving telephone numbers, as well as the text messages from the cellular phone. In response, Mintz filed a motion to quash the subpoena, arguing that it was overbroad and sought confidential information. Priority argued the information was necessary to prove their counterclaims that Mintz had made false and defamatory statements regarding Priority and improperly solicited Priority’s clients. Furthermore, Priority argued that Mintz lacked an expectation of privacy in the phone, since Priority argued it owned and paid for the telephone account. Additionally, Priority argued that by acknowledging an employee manual stating that “personal information on company telephones shall be the property of Priority Sports,” Mintz waived any right to privacy he might have had.

Ultimately the court granted the motion to quash with respect to the content of the text messages, but denied the motion to quash with respect to the non-content information, which consisted of the dates, times, and telephone numbers for specific calls during a relevant period.

Under the Stored Communications Act (“SCA”), communication service providers are traditionally prohibited from divulging private communications to certain entities or individuals. The SCA does not contain an exception for civil discovery subpoenas. However, under the SCA, communication providers can divulge “non-content information to non-governmental entities.” According to the court, the bulk of the information requested in the subpoena was subscriber information, rather than the content of the messages. Furthermore, the court reasoned that since Priority was not a government entity, the information was “not barred from disclosure” under the SCA.

With respect to the content of the text messages, the court granted the motion to quash. The court ruled, however, that while Priority could not obtain the messages directly from the provider, it could obtain the messages directly from Mintz pursuant to a document request under Federal Rule of Civil Procedure 34, subject to Mintz’s privacy objections, which were not before the court. According to the court, the information was within “Mintz’s control” and could be obtained by Mintz from the provider.

The court also addressed Mintz’s privacy interest in the non-content information. Judge Segal reasoned that the phone started out as Mintz’s personal phone, but eventually became his business phone. Since the phone was used for business purposes, the court reasoned that Mintz had a limited expectation of privacy in the non-content information, and a protective order could be used to guard against any unwarranted intrusion into his privacy. Please see Eric Goldman’s blog for a more detailed discussion of Judge Segal’s ruling and SCA developments.

For litigants in trade secret and non-compete cases, the ruling is important because it provides guidance concerning discovery directed to probing allegations of solicitation, trade secret misappropriation, and other business and privacy torts. It is also an important reminder for employers to have strong policies that provide for ownership interests in company smart phones as well as that permit employer monitoring of company owned devices. The court credited those facts in requiring the production.

We will continue to follow this case, and keep you apprised of future developments as it moves towards the November trial date.

Pursuant to the “Gist of the Action” doctrine, tort claims may be dismissed if they are “intertwined with,” and not just “collateral to,” contract claims in the same complaint.

In a Pennsylvania federal court case, an ex-employee was accused by his former employer of breaches of confidentiality, non-solicitation and non-compete agreements, and related causes of action. The portion of the plaintiffs’ tortious interference with contract claim that was “intertwined” with the cause of action for breach of the non-solicitation agreement was dismissed pursuant to Federal Rule 12(b)(6) and the “Gist of the Action” doctrine, but the motion to dismiss those allegations that were “collateral” to the breach of contract claim was denied.The court also found that plaintiffs’ Computer Fraud and Abuse Act (CFAA) allegations, to the extent that the ex-employee, for his personal benefit, induced a current employee to access the plaintiffs’ computers, survived the motion to dismiss. Synthes, Inc. v. Emerge Medical, Inc., Civ. Ac. No. 11-1566 (E.D. Pa., Sept. 19, 2012).

Synthes makes and sells implant devices used for orthopedic surgery. Powell, a Synthes salesman, signed — and was accused of violating — the company’s confidentiality, non-solicitation and non-compete agreements. After a half-dozen years with Synthes, he resigned to join two other former Synthes employees at Emerge, a competitor company. Synthes’ 13-count complaint included, among other causes of action against him (and in some instances against one or more other defendants), claims for breach of contract, tortious interference, misappropriation of trade secrets, and violation of the CFAA. A total of six briefs were filed supporting or opposing Powell’s motion to dismiss. The decisions announced in the court’s 74-page slip opinion mostly were adverse to Powell.

The “Gist of the Action” doctrine serves to prevent an award of punitive or exemplary damages for what is basically a breach of contract. The doctrine also helps in some cases to avoid the potential confusion resulting from different statutes of limitation applicable to tort and contract claims alleged to have arisen out of the same incident.

Synthes’ non-solicitation agreement with Powell was intended to prohibit him from encouraging the company’s workers to accept employment elsewhere. His alleged violation of that agreement was “intertwined” with the claim that he thereby tortiously interfered with the company’s contracts with those workers. So, the court dismissed that tort claim. Synthes also charged him with tortiously interfering with the company’s vendor relationships, but since the non-solicitation agreement said nothing on this subject his motion to dismiss that claim was denied. His non-competition agreement was somewhat convoluted, and the court could not determine at the pleading stage whether the “Gist of the Action” doctrine required dismissal of Synthes’ tortious interference claim relating to Powell’s efforts to sell Emerge’s products to Synthes’ customers.

Powell’s motion to dismiss the CFAA cause of action asserted that (a) the allegations did not satisfy the statutory mandate that a claim against him must aver that he improperly accessed a protected computer and, even if the allegations did satisfy that mandate, (b) no compensable loss could be shown to have resulted from any such improper access. The court held that the CFAA mandate regarding improper access was adequately pleaded by allegations that, after leaving Synthes’ employ, he induced the company’s workers to provide him with confidential and proprietary computerized information. Regarding the requirement that “damage or loss by reason of a violation” must be shown, the court determined that Synthes’ pleading that it had incurred “the costs of responding to [Powell’s] wrongful actions, conducting damage assessments, and restoring data and programs” met the statutory test.

The Synthes opinion provides the reader with an exhaustive analysis of Pennsylvania law, mainly derived from unofficially reported rulings, relating to the “Gist of the Action” doctrine (in some cases from courts in that state and elsewhere, the principle that tort damages cannot be recovered for a breach of contract is referred to as the “Economic Loss” doctrine). In addition, the Synthes ruling contains an extensive discussion of what conduct does, and what conduct does not, violate the CFAA. Parties to disputes potentially involving those issues will want to study this opinion.

On September 20, 2012, a trade secret misappropriation lawsuit was filed against rock star drummer Tommy Lee and his band Mötley Crüe in Los Angeles Superior Court.

Plaintiff Howard Scott King alleges in his complaint that in 1991 he developed an idea and concept for a “Tommy Lee Loop Coaster.” The concept consists of a platform on wheels that follows a loop-shaped track. A drum set is attached to the wheeled platform and follows the track in a complete loop, allowing the drummer to play the drums upside down. Other drummers in rock bands have used similar stunts at live shows for many years.  Media outlets have previously reported on the dispute and the parties’ contentions. 

King alleged that he disclosed the idea to Lee and Lee’s band in 1991, and subsequently received signed confidentiality agreements (which have been misplaced or lost) from Lee’s agents. King also alleged that he has since maintained the secrecy of his idea and only disclosed the idea as necessary to implement it.

King allegedly brought action against Lee and Mötley Crüe after he discovered that they were allegedly using his alleged drum set loop coaster idea for a worldwide concert tour in 2011. King alleges that the defendants disclosed the purported trade secret to another company, which made a similar loop coaster for use by the defendants at the concerts. He alleges that the idea is the centerpiece of many performances and was used in commercials and promotions for the band.

King alleges that he has suffered damages in excess of $400,000. King has asserted claims for trade secret misappropriation, unfair competition, and breach of promise.

It will be interesting to see how the court deals with the absent confidentiality agreements, especially since the parties may have difficulty remembering the exact terms and provisions of any purported confidentiality obligations.

Additionally, while this case is still in its infancy, the plaintiff will likely have a very difficult time establishing that his alleged idea qualifies as a trade secret under California law, particularly demonstrating that the information provided derives independent economic value from not being generally known to others or to others who can obtain economic value from its secrecy and is subject of efforts that are reasonable to protect its secrecy.

While a separate idea theft claim may still be actionable under California law, to pursue such a claim, the plaintiff will need to demonstrate that the defendants voluntarily accepted the disclosure knowing the conditions on which it was tendered and that the defendants used his work. Defendants may also challenge the claim on the grounds of independent development, which constitutes a complete defense.

A response is not yet due to the complaint and defendants have yet to file their response. We will keep you posted on this entertaining case.

Please join Seyfarth Shaw on October 25, 2012 in Costa Mesa, California and on November 1, 2012 at our downtown office in Los Angeles, California for an informative breakfast briefing on best practices when dealing with newly hired or departing employees and the incumbent trade secret and information protection issues.

In today’s highly mobile and competitive world, employees frequently move between companies within the same industry.  Rarely a day goes by without a news report of another high-profile theft of important data from a company, or the loss of key employees to competitors.

Employee mobility, coupled with the digitalization of company assets, has increased the need for creative and thoughtful protections of valuable company data.  It has become extremely easy for employees, especially disgruntled or irresponsible ones, to take and disseminate confidential information to the detriment of their current or former employers.  This trend illustrates the need to protect your company’s trade secrets and data against departing employees, and follow proper practices when hiring a competitor’s employees.

Serving as trusted advisors and based on years of experience advising clients and trying cases in this area of law, Seyfarth Shaw Partners Breton Bocchieri, Robert Milligan, and Erik von Zeipel will discuss these issues in two interactive and informative Breakfast Briefings.

Topics slated for discussion include:

  • Best practices when hiring new employees:
    • Proper interview and employee orientation techniques
    • Employing effective non-disclosure and invention assignment agreements and computer access and bring your own device policies
  • Best practices for protecting your company when employees depart:
    • Proper exit interview techniques and certifications
    • Reducing risk of disclosure of trade secrets in social media
  • Discussion of recent cases/legislation
    • The current circuit split on the Computer Fraud and Abuse Act
    • Trade secret preemption
  • High level strategies for addressing California’s prohibition on non-compete agreements

You can register for the complimentary breakfast briefing set for October 25, 2012 between 7:30  a.m.- 9:30 a.m. p.s.t.  at the Westin South Coast Plaza, Costa Mesa, California here.

You can register for the complimentary breakfast briefing set for November 1, 2012 between 7:30  a.m.- 9:30  a.m.  p.s.t.  at Seyfarth’s downtown Los Angeles office here.

The program is designed for in-house counsel, business leaders, HR professionals, and technology specialists.