Trade Secrets

Lightlab Wins Trade Secret Case, Recovers No Damages

August 6, 2014

This case, decided by the Massachusetts Supreme Judicial Court on July 28, 2014, shows how difficult it can be to recover damages in a trade secret case. The facts (boiled down) are straightforward. Lightlab manufactures optical coherence tomography systems (OCT). Lightlab had a joint development/non-disclosure agreement with Axsun. Axsun disclosed Lightlab secrets to Volcano, a competitor to Lightlab and would-be acquiror of Axsun. Lightlab obtained a preliminary injunction enjoining the use of its trade secrets by Axsun and Volcano, and also enjoining Volcano’s acquisition of Axsun until after the Lightlab/Axsun agreement expired in 2014, more than five years later. At trial Lightlab was able to obtain a verdict for trade secret misappropriation (and related claims) from a Massachusetts Superior Court jury. However, the trial was bifurcated, and before presenting its damages case to the jury Lightlab first needed to run the gauntlet of expert disqualification thrown down by the defendants (Axsun and Volcano). It failed to do this – outside the presence of the jury the trial judge questioned Lightlab’s damages expert for three days, following which she disqualified the expert, leaving Lightlab with no damages case to present.* *[note] In business and intellectual property cases damages are almost always established through the testimony of a damages expert. Lightlab had some unfavorable facts to overcome in order to prove damages. The trial judge held Lightlab’s damages experts’ proposed testimony to be speculative…

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Massachusetts Court Finds There Was No Trade Secret. Should Defendants be Awarded Attorney’s Fees?

February 12, 2014

We’ve been telling clients for decades that if you think you have trade secrets or confidential information, you need to protect them. Far and away the best way to ensure you’ve done that is to require anyone who receives access to the information to sign a non-disclosure agreement, an “NDA.” In a Massachusetts state case reported on the front page of this week’s Massachusetts Lawyer Weekly, the plaintiff didn’t do that. In fact, it appears that the plaintiff, CRTR, Inc., did next to nothing to protect its allegedly confidential information from an independent contractor to whom it provided access, and then later sued for trade secret misappropriation. To quote from the court decision: [The first CRTR employee] states that she knew the customer lists were confidential, though no one had ever told her so, and [a second CRTR employee] states that on one occasion, she was told not to bring work out of the office. This is not adequate evidence that CRTR took any meansures to protect its purported trade secrets. There is no evidence of a policy regarding confidential information. …  It is undisputed that CRTR never required any of the defendants to sign a confidentiality agreement. … On this basis, the court granted the defendants summary judgment. It is often said that in America, you can sue anyone for anything. This is true, as far as it goes,…

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Inevitable Disclosure Doctrine Fails Again (This Time In New York)

November 5, 2013

I’ve written about the “inevitable disclosure doctrine” many times over the years, most recently in a blog post focusing on Massachusetts case law.  This line of cases arises when an employee does not have a noncompete agreement, but does have a non-disclosure/trade secret agreements.  The employer then argues, based on the NDA/trade secret agreement, that the employee will  ”inevitably” disclose the former employer’s trade secrets or confidential information in the course of working for a competitor, and therefore should be enjoined from working for the competitor. Disclosure of the employer’s trade secrets is, the employer argues, “inevitable” without an injunction. Lawyers have been bringing cases under this theory for years, with lottery-like success. As I stated in a July 2012 post, “cases where the courts have accepted this theory without evidence of actual misappropriation are almost as rare as hens teeth.” Nevertheless, lawyers are a persistent bunch, and they Just. Keep. Trying. In September a New York federal court, applying New York law, proved the near-futility of this legal  theory once again. In Janus et Cie v. Andrew Kahnke (S.D.N.Y. Aug. 29, 2013), the district court judge dismissed an employer’s complaint against a former employee, where the case was based entirely on the alleged inevitable disclosure of trade secrets. As is typical in these cases, the former employee had not signed a non-compete agreement with Janus (the former employer), but had signed a non-disclosure agreement that prohibited him from sharing Janus’s “confidential information.”  Janus’ suit sought a…

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Oh, Did I Forget to Tell You That Was Confidential? Better Overkill Than Underkill

July 9, 2013

A lot of non-disclosure agreements (NDAs) provide that if one party gives the other a document and expects it to be treated as confidential, the document must be marked “confidential.”  Or, if the confidential information is communicated orally, the party that wants to protect it must notify the receiving party in writing within a specified number of days. (“Hey, the stuff we told at our meeting on Monday relating to our fantastic new product idea? That’s all confidential under our NDA”). This was the situation in Convolve, Inc. v. Compaq Computer, decided by the Court of Appeals for the Federal Circuit on July 1, 2013.  The NDA at issue in that case provided that to trigger either party’s confidentiality obligations “the disclosed information must be: (1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information.” Big mistake. People sign agreements like this and a year later they have completely forgotten that they need to follow them. Or, employees come and go, the NDA is buried away someplace, and new employees are blithely unaware that they need to follow the terms of the NDA. That’s what happened to Convolve. It had trade secrets relating to hard disk drive technology. It disclosed the secrets at a meeting, but it failed to…

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Massachusetts Quick Links – October 2012

November 5, 2012

Oriental Financial Group, Inc. v.  Cooperativa De Ahorro y Crédito Oriental (1st Cir. October 18, 2012) — In this case the First Circuit adopts the trademark law “progressive encroachment doctrine,” joining the 6th, 7th, 8th, 9th and 11th circuits. The progressive encroachment doctrine may be used as an offensive countermeasure to the affirmative defense of laches (delay in brining suit) where the trademark owner can show that “(1) during the period of the delay the plaintiff could reasonably conclude that it should not bring suit to challenge the allegedly infringing activity; (2) the defendant materially altered its infringing activities; and (3) suit was not unreasonably delayed after the alteration in infringing activity” (quoting Oriental Financial). Harlan Laboratories, Inc. v. Gerald Campbell (D. Mass. October 25, 2012) — Applying Indiana law, Judge Patti Saris issues a preliminary injunction enforcing a one year non-compete agreement. However, the opinion makes liberal use of Massachusetts and First Circuit precedents. Blake v. Professional Coin Grading Service (D. Mass. October 6, 2012) — In this case, which involves alleged trade secrets associated with a method to grade the “eye appeal” of coins, Judge William Young concluded that the “method” was not subject to trade secret protection due to the fact it had been publicly disseminated before being disclosed to the defendants. However, Judge Young ruled that the case could proceed based on the alleged misappropriation of a proposed marketing plan.  In addition to…

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Hair Color Formulas and Salon Client Contact Info Not a Trade Secret, Says Superior Court Judge

July 24, 2012

When I think of trade secret cases I tend to think of “high end” stuff: secret manufacturing processes, software algorithms, chemical or biological secrets, maybe even the formulas for Coca Cola or Kentucky Fried Chicken.  The truth, however, is more mundane, as shown by a case decided by Judge Nicholson in Barnstable County. In this case, which was dismissed in favor of the defendant hair stylist on summary judgment, the court held that a hair salon’s hair color formulas and customer contact information were not trade secrets.   This was an easy case, since the stylist knew many of her clients socially outside the salon and there was no employment or secrecy agreement other than an employee handbook, which is a weak basis on which to make a trade secret claim. After all, how many employees read handbooks? The judge also ruled that the hair color formulas belonged to the stylist who had developed them for the salon’s clients, not the salon, since there was no agreement to assign the formulas to the salon.  I find this latter rationale suspect, since “inventions” created within scope of employment and while on the job typically belong to the employer.  However, I question whether the color formulas qualify as trade secrets in the first place.  Case closed. Esalon, Inc. v. Isolde Hoffman    

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Not Every Great Idea Is a Trade Secret

March 7, 2009

You have a brainstorm: there is a market for dumpster rentals, and what better place to make the rentals than The Home Depot? You go to Home Depot and have it sign a non-disclosure agreement before you disclose this idea to it. You disclose the dumpster idea to Home Depot executives, but after much discussion and a great deal of back and forth over several years with many Home Depot employees, Home Depot turns you down. The next thing you know, Home Depot is renting dumpsters, using a business model not too different from the one you proposed. You cry foul. You sue Home Depot in Massachusetts state court for misappropriation of trade secrets. Home Depot removes the case to Massachusetts federal district court where it grinds through a couple of years of discovery. During that process you claim that the damages you’ve suffered are between $19 and $60 million. Home Depot files a motion for summary judgment. U.S. District Court Judge Douglas Woodlock grants summary judgment. Judge Woodlock observes that the idea of renting dumpsters through Home Depot is not a trade secret. (1) the idea of Home Depot renting and (2) the idea of renting dumpsters [was not a trade secret] . . . anyone even vaguely familiar with the home improvement industry could have put these two concepts together easily based upon information in the public domain….

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How To Protect a Trade Secret (or, calling Ocean's Eleven)

February 11, 2009

Clients often ask what measures they need to take to protect their trade secrets, should it be necessary to enforce them in court and prove that they were treated as secrets. Here’s how Kentucky Fried Chicken does it, according to an AP story published today: The recipe lays out a mix of 11 herbs and spices that coat the chain’s Original Recipe chicken, including exact amounts for each ingredient. It is written in pencil and signed by Harland Sanders. The iconic recipe is now protected by an array of high-tech security gadgets, including motion detectors and cameras that allow guards to monitor the vault around the clock. Thick concrete blocks encapsulate the vault, situated near office cubicles, that is connected to a backup generator to keep the security system operating in times of power outages. The recipe is such a tightly held secret that not even Eaton knows its full contents. Only two company executives at any time have access to the recipe. KFC won’t release their names or titles, and it uses multiple suppliers who produce and blend the ingredients but know only a part of the entire contents. “We’ve very comfortable with the security,” [KFC President Roger Eaton ]said. “I don’t think anyone can break into it.” Hmmmm …. perhaps a real-life George Clooney will be interested. Of course, we don’t really know what’s in that vault, do…

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Uniform Trade Secret Act Legislation – In Massachusetts, the Sixth Time May Be a Charm

November 6, 2008

Steve Chow at Burns & Levinson has sent me the legislation attached below, which the Massachusetts Uniform Law Commission, of which he is a member, filed with the Massachusetts House of Representatives on November 5, 2008. This is the sixth attempt since 1995 to get the 1985 Uniform Trade Secret Act (UTSA) enacted in Massachusetts; although there was no opposition, the furthest that a prior attempt progressed was to third reading in the House. The uniform act has been adopted by 45 states and the District of Columbia. Apart from Massachusetts, the only other states that have not adopted the act are New York, New Jersey, Texas and Wyoming. Steve Chow advises me that, because of some interest from the Joint Committee on Economic Development and Emerging Technologies and the Associated Industries of Massachusetts, there is a better than even chance that the legislation will be adopted in Massachusetts before the end of this legislative session, which ends in July 2010. Here is a link to the proposed legislation Update: As of April 2013, Massachusetts still has not adopted the UTSA.

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Zotero Lawsuit Illustrates Conflict Between Open Source and Contractual IP Rights

October 21, 2008

The following is background that may be necessary for some readers to understand the issues raised in the Thompson v. Zotero lawsuit, discussed below. The Mozilla Firefox web browser (the second-most popular web browser, after Microsoft Internet Explorer) allows anyone with the talent and interest to develop “add-ons”. An add-on is a computer functionality that is added to and integrated with the Firefox browser. The Firefox user downloads the add-on from the web, and the add-on is automatically “installed” by Firefox. The add-on can be used, disabled or deleted, at the user’s choice. What makes this possible is that Firefox is an open source web browser, allowing developers to fully integrate their software with the browser. Developers can register their add-ons with the Firefox web repository, where over 6,000 add-ons are available. The add-ons are rated and critiqued by users, creating a reliable marketplace based on reputation. Microsoft’s Internet Explorer has add-onsin name, but it is a much more restricted, less open and less integrated technology, and therefore is far less robust than the Firefox add-ons. For this reason, the Firefox add-ons are growing at an exponential rate, and their availability is contributing to the growing popularity of Firefox. Some of the add-on technologies are so robust that they are taking market share from conventional, for-profit companies. This seems to be the case with the Zotero add-on, which may be…

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Do Androids Dream …

November 6, 2007

As the lawyer drifts off to sleep the fantasy of the “perfect” IP case drifts across his mind. Not a patent case (way, way too complicated), not a copyright case (too boring if straightforward, and too difficult if not) ), not a trademark case (surveys, secondary meaning, no thanks), but a straightforward, meat and potatoes, trade secret case: there is a trade secret, and someone stole it, case over. The lawyer falls asleep thinking about the perfect case, a big case, but a realtively easy case. After all, most cases are so hard, everyone deserves an easy case once in a while, right? In the lawyer’s dream a former former employee of the lawyer’s client (lets call the employee him Jameel Ahed, or simply Mr. Ahed) has started a competitive company. The client has obtained the competitive product, taken it apart, and concluded that Mr. Ahed very likely used the client’s trade secrets to create the product. The lawyer files suit, and hires private investigators to follow and observe Mr. Ahed after the lawsuit is served on him. A thought drifts through the lawyer’s dreams – the stakes, the stakes need to be high, very high for this to be a good case. His unconscious mind provides the answer: his client and Mr. Ahed’s company are competing for a $280 million contract to sell “tactical robots” to the U.S. military,…

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Judge Gertner's Injunction in iRobot Case

November 5, 2007

iRobot’s trade secret case against Robotic FX has attracted a fair amount of attention in Boston, and has been reported in detail by Xconomy here. On Friday Judge Gertner issued her decision on iRobot’s motion for preliminary injunction, which has been posted by Xconomy here. I’ll update this posting once I’ve had a chance to read her Order in detail.

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