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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. …

Continue Reading Two Senior Executives Liable for Millions in Misappropriation and Breach of Fiduciary Duty Case

A district court in Arizona recently issued a published decision limiting the use of the Computer Fraud and Abuse Act (“CFAA”) by employers who have been the victim of electronic data theft by their former employees. In Shamrock Foods v. Gast, — F.Supp.2d —-, 2008 WL 450556 (D.Ariz.), the district court held that a departing employee’s transmittal of confidential information to his personal e-mail account prior to his resignation did not give rise to a cause of action under CFAA.

According to the employer’s complaint, the employee, who had executed a confidentiality agreement with the employer, allegedly e-mailed numerous company confidential and proprietary files to his personal e-mail account shortly after the employee had begun employment negotiations with a competitor. The day after he sent the company material to his personal e-mail account he allegedly told his manager that he was considering leaving the company and shortly thereafter informed the company that he was joining a direct competitor.

In its complaint, the company alleged that the employee was acting as an agent of the competitor when he assessed and e-mailed the confidential information. The company further alleged that he provided the information to the competitor and that the competitor was using the information to the company’s detriment.

The company brought suit in federal court asserting CFAA claims under 18 U.S.C. § 1030(a)(2), (4), and (5)(iii), as well as state law misappropriation claims. The employee and the competitor moved to dismiss the CFAA claims for failure to state a claim.

The district court granted the motion to dismiss concluding that 1) a violation for accessing a protected computer “without authorization” occurs only when the initial access is not permitted; and 2) an “exceeds authorized access” violation occurs only when initial access to a protected computer is permitted but the access of certain information is not permitted.

The court analyzed the CFAA statute in some depth and the specific CFAA claims that the employer brought. The court stated that it is a violation of section 1030(a)(2) when a person “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains … information from any protected computer if the conduct involved an interstate or foreign communication.” Next, the court stated that section 1030(a)(4) is violated when a person “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value….” Finally, the court declared that section (a)(5)(A)(iii) is violated when a person “intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage. . . .”

In sum, the court reasoned that to state a claim under (a)(2) and (a)(4), the employer must allege conduct showing that the employee accessed a protected computer without authorization or exceeded authorized access and under section (a)(5)(A)(iii), the employer must allege conduct showing that the employee accessed a protected computer without authorization.

The competitor and the employee argued the CFAA claims were not actionable because the employee was authorized to access the computer and information at issue. The employer argued that the employee was no longer authorized to access its confidential information once he acquired the improper purpose to use this information to benefit himself and the competitor.

The district court acknowledged that there were two lines of cases interpreting the meaning of “authorization” under the CFAA. According to the court, some courts have applied principles of agency law to the CFAA and have held that an employee accesses a computer “without authorization” whenever the employee, without knowledge of the employer, acquires an adverse interest or is guilty of a serious breach of loyalty. The court cited the following the cases in support of that proposition: Int’l Airport Ctrs., L.L.C. v. Citrin, 440 F.3d 418, 420-421 (7th Cir.2006); ViChip Corp. v. Lee, 438 F.Supp.2d 1087, 1100 (N.D.Cal.2006); Shurgard Storage Ctrs., Inc. v. Safeguard Self Storage, Inc., 119 F.Supp.2d 1121, 1125 (W.D.Wash.2000).

The court also stated that other courts “have opted for a less expansive view, holding that the phrase ‘without authorization’ generally only reaches conduct by outsiders who do not have permission to access the plaintiff’s computer in the first place.” The court cited the following cases in support of this contrasting position: Diamond Power Intern., Inc. v. Davidson, Nos. 1:04-CV-0091-RWS-CCH and 1:04-CV-1708-RWS-CCH, 2007 WL 2904119, at *13 (N.D.Ga. Oct.1, 2007); Brett Senior & Assocs., P.C. v. Fitzgerald, No. 06-1412, 2007 WL 2043377, at *2-4 (E.D.Pa. July 13, 2007); Lockheed Martin Corp. v. Speed, No. 6:05-CV-1580-ORL-31, 2006 WL 2683058, at *5 (M.D.Fla. Aug.1, 2006); Int’l Ass’n of Machinists and Aerospace Workers v. Werner-Masuda, 390 F.Supp.2d 479, 495 (D.Md.2005). Continue Reading Arizona District Court Issues Decision Limiting Applicability Of Computer Fraud And Abuse Act Claims

A federal court in the Southern District of California recently burst the bubble on a plaintiff’s suit alleging that the defendant, the alleged creator of a novelty chewing gum product, had stolen the plaintiff’s idea for a NASCAR-themed bubble “chew” by granting the defendant’s motion for summary judgment.

The decision provides a reminder to companies that provide confidential and trade secret information to others under non-disclosure agreements that they need to follow the precise terms of those agreements, including properly designating all information that they seek to protect, otherwise they run the risk of their information being exposed and compromised.

In the colorful case, Hoffman v. Impact Confections, Inc., Case No. 06cv0489 BTM (NLS), 2008 WL 413751 (S.D. Cal.), the plaintiff alleged that together with a partner they established a bubble gum company named Ollie Pop Bubble Gum, Inc. (“Ollie Pop”). Plaintiff claimed that he came up with the concept of marketing novelty gum and candy “which was designed to combine the popularity of NASCAR and its drivers with the lure of the chew tobacco favored by many of NASCAR’s fans by providing a gum or candy in an original new packaging intended to appeal to all ages.” First Am. Complaint 11.

Plaintiff alleged that he contemplated two different packaging options, both to be sold under the mark “Pit Crew Chew.” Id. at 12. The first packaging option was a pouch containing gum or candy and the second packaging option was a plastic container shaped like a tire and wheel that would also contain gum or candy. Id. Plaintiff’s idea purportedly was to have the products licensed by NASCAR and bear NASCAR’s logos. Plaintiff also wanted to have the products endorsed by at least one NASCAR driver and display the driver’s image and/or his car and/or associated number. Id.

According to the plaintiff, he designed both packages and began working with Motorsports Management to establish a relationship between Ollie Pop and NASCAR. Id. at 13. Plaintiff claimed he entered into discussions with Joe Gibbs Racing to have one of its drivers endorse the product and allegedly was able to obtain the promise of an endorsement from Tony Stewart. Id. at 15.

Plaintiff claimed that in 2003, he entered into negotiations with the defendant regarding the marketing and selling of “Pit Crew Chew” products. Id. at 16. The parties entered into a written non-disclosure agreement in May 2003.

As part of his discussions with the defendant, plaintiff contended that he disclosed confidential information and materials to defendant, including, but not limited to, “the idea/concept of marketing and selling a NASCAR and NASCAR driver endorsed bubble gum, the idea/concept of providing gum and/or candy in a package which would appeal to NASCAR fans’ noted fondness for ‘chew,’ and the specific drawings of both the pouch and wheel to be marketed and sold.” Id. at 18. Plaintiff also claimed he introduced defendant’s employees to Motorsports employees.

According to plaintiff’s complaint, by July of 2003, defendant had submitted an application for a license to NASCAR seeking to market and sell “Pit Crew Chew” products with the NASCAR logos in place. Id. at 20. Following defendant’s submission of the licensing application to NASCAR, Motorsports allegedly informed defendant and Ollie Pop that NASCAR was indeed interested in licensing the “Pit Crew Chew” products. Id. at 21. Plaintiff alleged that by August 2003, Dale Earnhardt, Jr. was interested in endorsing “Pit Crew Chew” products. Id. at 22.

Then, around the beginning of September 2003, according to plaintiff, defendant abruptly ended its relationship with Ollie Pop and plaintiff. Id. at 24. With the failure to launch “Pit Crew Chew” products, Ollie Pop encountered financial difficulties and as a result plaintiff took a controlling interest in Ollie Pop. Id. Under the deal he allegedly struck with his former partner, plaintiff claimed that Ollie Pop granted him all right, title, and interest in and to and all intellectual property rights related to the “Pit Crew Chew” mark and products, all rights of Ollie Pop under the non-disclosure agreement, and all patent and copyright rights relating to the tire and wheel design and artwork. Id. at 26.

In 2005, plaintiff allegedly obtained copyright registrations for the two-dimensional artwork on Ollie Pop’s candy wheel design. Plaintiff also claimed in 2005 he learned that defendant had launched its own product, “Champion Chew.” According to plaintiff, the product consisted of gum enclosed in a tire and wheel and was designed to bear a resemblance to “chew” tobacco. Id. at 27. Plaintiff alleged that “Champion Chew” was licensed by NASCAR and was endorsed by one of NASCAR’s drivers. Id. at 28.

Plaintiff filed suit and his first amended complaint asserted claims for: (1) misappropriation of trade secrets under California’s trade secret misappropriation statute (Cal. Civ. Code § 3426.1); (2) intentional interference with economic relationships; (3) negligent interference with economic relationships; (4) breach of contract; (5) breach of implied contract; (6) copyright infringement; (7) quantum merit; (8) unfair business practices in violation of Cal. Bus. & Prof.Code § 17200 and California common law; (9) constructive trust/accounting; and (10) injunctive relief.Continue Reading Bubble Bursts On Plaintiff Who Failed To Demonstrate That Trade Secret And Confidential Information Related To His NASCAR-Themed “Pit Crew Chew” Was Protected By Non-Disclosure Agreement

Coldwell Banker Residential Brokerage v. D’Ambrosia, No. 08-CV-00166, Complaint (D. Md. Jan. 18, 2008)

On January 18, 2008, Coldwell Banker Residential Brokerage filed a federal lawsuit in Maryland against three former key employees and newly-formed competitor Car-Tay, Inc., an affiliate of GMAC Real Estate. The complaint alleges that the former employees, two of whom had been high-level executives, conspired…

Continue Reading Coldwell Banker Sues Former Executives Who Form Competing Brokerage, Take Staff, Clients, and Trade Secrets

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…

Continue Reading DuPont Scientist Sentenced for Stealing Trade Secrets

New lawsuit filed in Utah accuses a former research scientist employed by a nutritional supplement company of stealing trade secrets, customers, and employees when forming a rival vegan supplement company.

Systemic Formulas, Inc. claims that its former research director, Daeyoon Kim, is using Systemic’s trade secrets and proprietary information as the basis for its formula in the rival vegan supplement…

Continue Reading Former research director of vitamin supplement company accused of stealing precise formula he was hired to develop