Today's post features Nos. 4 through 6 of the Top Ten Trade Secret and Non-Compete Decisions of 2011. They are:
6. IBM v. Visentin (U.S. District Court for the Southern District of New York and U.S. Court Appeals for the Second Circuit) and Aspect Software v. Barnett (U.S. District Court for Massachusetts)These two cases presented the same issue -- to what extent should a non-compete be enforced when the new employer and former employee have put safeguards in place to protect the plaintiff's trade secrets and customer relationships. Both of these cases provide a fine example of what a company should do if it wants to hire an employee with a non-compete but minimize potential entanglements with the former employer (see my previous blog post on the Aspect Software case where the former employee and new employer incorporated 8 steps to safeguard the plaintiff's interests). However, taken together, these two cases also reinforce another feature of non-compete and trade secret cases -- their unpredictability. In Visentin, the Southern District of New York (and later, the Second Circuit) found that the former employee and the new employer (HP) had acted reasonably to protect the business interests of the former employer (IBM) and that the non-compete should not be enforced to prevent the employee's new job with HP. In contrast, in Aspect Software, although the district court commended the former employee and his new employer, Avaya, for "the scrupulous steps" they took to safeguard the plaintiff's trade secrets and customer relationships, it still enforced the non-compete because of concerns that the employee would inevitably use his former employer's trade secrets.
As increased employee mobility and a poor economy continue into 2012, look for more cases like Visentin and Aspect Software. Courts will be forced to balance the interests of all parties and still protect the legitimate interests of the former employer. These cases may have a profound impact on the viability of the inevitable disclosure doctrine, the traditional counterweight to an employee's assurances about his or her good faith efforts to protect the former employer's trade secrets.
5. Mattel v. MGA (U.S. District Court for the Southern District of California, Los Angeles)Will it ever end?
When I first started putting this list together, I thought about using movie titles to highlight the key qualities of each case. When it came to selecting a title for this bitter case, plenty came to mind -- "There Will Be Blood" and "Drag Me to Hell" certainly would have captured it nicely. However, the most fitting title is probably "Reversal of Fortune" as this epic lawsuit, at least in its most recent round, has swung decisively in favor of MGA.
If you are reading this post, you are likely familiar with the history of this dispute which began in 2003, when Mattel first sued MGA for stealing the idea for the pouty-lipped Bratz Line through a former Mattel employee. In 2008, Mattel won a $100 million jury verdict, only to see that judgment reversed by the Ninth Circuit. Then, in April 2011, MGA prevailed during the second jury trial, not only persuading the jury to reject Mattel's claims but also to award MGA $83 million on its trade secret counterclaims. That award swelled to $310 million when the district court imposed exemplary damages and attorneys fees in post-trial proceedings. What will the next ruling bring? No one really knows, as the trade secret version of Jarndyce and Jarndyce continues to work its way through California's federal courts.
4. U.S. v. Nosal (U.S. Court of Appeals for the Ninth Circuit)The scope of the Computer Fraud and Abuse Act (CFAA) continues to beguile litigants and courts alike, and no CFAA case raised more eyebrows in 2011 than the Ninth Circuit's decision in U.S. v. Nosal, 642 F.3d 781 (9th Cir. Apr. 28, 2011). In Nosal, the Ninth Circuit held that the violation of a computer use policy that placed "clear and conspicuous restrictions on the employees’ access” to the employer’s computer system and the specific data at issue could be enough to qualify as conduct that exceeded authorized access, a necesssary element of a CFAA claim.
We will reveal our top three cases next week, so please stay tuned. In the meantime, have a safe and happy new year.
Tags: trade secrets, non compete, covenant not to compete, confidential information, IBM, Visentin, Aspect Software, Avaya, Barnett, Nosal, Computer Fraud and Abuse Act, CFAA, Mattel, MGA, Facebook, MaxBounty
Computer Fraud and Abuse Act (CFAA) | General | Intellectual Property | Copyrights | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
At this morning's plenary session, Wil Rao of McAndrews Held & Malloy in Chicago presented "Illuminating the Dark Side of IP: A Practitioner’s Look at Recent Thefts, Crimes and Other Developments in Trade Secrets Law in 2010-2011." It was an excellent summary of the significant developments in trade secrets law over the past year. Wil covered all the bases -- the high profile cases (including the Mattel/MGA and DuPont/Kolon verdicts), the legislative developments (the recent proposed amendment of the Economic Espionage Act and proposals in New Jersey and Massuchusetts to adopt the UTSA), the many recent criminal convictions, and, of course, the many important civil cases (including the SyncSort, Tewari, Faiveley and TianRui Group cases, among others). I will write a post or two in the coming weeks discussing some of the other developments Wil raised. Also, I joined a fine panel on Thursday afternoon entitled "Ten Things In-House Counsel Would Like to Tell Outside Counsel about Trade Secrets and Vice Versa." Dan Westman of Morrison & Foerster, Chair of the Trade Secret Law Committee, moderated the panel, which included Phil Petti, Chief Intellectual Property Counsel for USG Corporation and member of AIPLA's Board of Directors, Dewayne Hughes, and experienced IP lawyer and currently IP counsel at Drager, and Warrington Parker of Orrick Herrington, an experienced trade secret litigator. It began as a standing-room-only presentation and the vast majority of the audience stayed for the entire 2 hour presentation. Thanks to those who attended and for your thoughtful questions, and a special thanks to Dan for organizing the presentation and panel (and, not the least of which, inviting me). For us outside counsel, the key takeaway was the importance of providing objective advice to your in-house clients. The panel made clear that in-house counsel do not want their outside counsel serving as cheerleaders; instead, they want direct and straight evaluations of the litigation, with the risks and rewards stated plainly so they, as business advisors, can in turn advise their management and board. The panel also agreed that efforts by outside counsel to work with other officers or managers within the client's organization (IT, sales, management) are important. They reinforce the 'team" approach in litigation and provide an opportunity for other employees to become familiar with the status and responsibilities of that litigation. Budgeting, as you would expect, remains an important tool. The development of project management skills to accurately predict and control costs was suggested as a course that should be offered in law school, or by law firms. One of the panelists noted that the most important communication an attorney has with his/her client is the invoice. As a result, we, as outside lawyers, need to make sure that it accurately explains and conveys the value that the client expects. In-house counsel also recognize that there may be unexpected developments in the litigation that require a budget's adjustment; that being said, it is important for outside counsel to promptly advise in-house counsel of that possibiity to minimize any surprises. Finally, Dan made the inspired point that it might be prudent to budget senior management's time so they fully appreciate the commitment that they will need to make in discovery and trial preparation.
Finally, there was an awful lot of discussion about the impact of the America Invents Act on the future of patents and trade secrets protection throughout the Annual Meeting. For brevity's sake, this will be the subject of a future post. All in all, a very productive few days.
Tags: Trade secrets, AIPLA, Economic Espionage Act, Dupont, Kolon, Mattel, MGA, American Intellectual Property Law Association, UTSA
General | Intellectual Property | IP Litigation | Trade Secrets
Has Mattel finally had enough? A press release issued after a withering ruling by U.S. District Court Judge David Carter suggests that the embattled toymaker may be prepared to finally throw in the towel in its epic battle with rival MGA. Yesterday, Judge Carter assessed an additional $85 million in punitive damages and $139.5 million in attorneys fees against Mattel. This will be added to the $88 million that a Southern California jury awarded to MGA last spring when it found Mattel had misappropriated MGA's trade secrets.
The following lines from Judge Carter's opinion have generated the most media attention: "Mattel asserted a copyright claim that was stunning in scope and unreasonable in relief it requested," Judge Carter wrote. "The claim imperiled free expression, competition, and the only serious competitor Mattel had faced in the fashion doll market in nearly 50 years." Ouch.
Some day, someone will write a very, very, very long book about this case, which is best described as the legal equivalent of an ultimate fighting cage match between the two very bitter rivals. Mattel won round one, persuading a jury to award $100 million against MGA in 2008 for the theft of trade secrets for the Bratz dolls line, arguing that the idea was conceived by former employee Carter Bryant while he was still employed by Mattel. However, after the Ninth Circuit reversed, MGA won round two earlier this year, securing an $88 million verdict against Mattel on evidence that Mattel employees slipped into MGA’s showrooms at toy fairs using phony business cards. The jurors awarded MGA $3.4 million for each of the 26 instances in which they found that Mattel had misappropriated a trade secret; in his post-trial rulings, Judge Carter reduced the overall award to $85 million. (As a matter of full disclosure, I litigated a commercial injunction case against Mattel several years ago).
Now to the "tell" in the Mattel press release: "Mattel strongly believes that the outcome at the trial level is not supported by the evidence or the law," Mattel said in a statement. "We remain committed to finding a reasonable resolution to the litigation." Roberto Duran could not have said it better.
The takeaway? Avoid blood feuds.
Tags: Mattel, MGA, Bratz, Judge Carter, punitive damages, trade secrets, copyright, attorneys fees
General | Intellectual Property | Copyrights | IP Litigation | Trade Secrets
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