Articles Posted in Trade Secrets

If you’re going to sue a bunch of former employees for various business torts, you need to be clear in your allegations as to who did what. It’s all too easy to lump all the defendants together when describing the wrongful conduct in the complaint, especially when there are numerous defendants. Increasingly, however, Virginia courts are dismissing defendants from cases in which their specific involvement cannot be ascertained from the face of the complaint.

Recently in a Virginia federal court, Alliance Technology Group, LLC (Alliance), an IT services provider, sued a cadre of its employees and Achieve 1, LLC (Achieve), a competing company, for conspiracy, fraud, misappropriation of trade secrets, and other claims. One defendant, William Ralston, moved to dismiss due to the fact that many of the allegations of the complaint lumped all the defendants together, accusing all the defendants of committing tortious conduct collectively.

The rules are pretty lenient on what a complaint must contain to survive a motion to dismiss. A complaint must include a short and plain statement of the claim showing that the pleader is entitled to relief, and enough factual information to give the defendant fair notice of the nature of the claim. It must allege enough facts–not conclusions–to make the asserted right to relief plausible on its face rather than merely speculative or conceivable.

The law presumes that the public should have access to judicial records. This presumption stems from both common law and First Amendment concerns and may be abrogated only in unusual circumstances. Fourth Circuit case law indicates that a district court can seal court documents if competing interests outweigh the public’s right to access.

When faced with a request to seal documents, a court must first determine the source of the right to access in order to weigh the competing interests. The court must then (1) give notice of the request to seal and allow interested parties a reasonable opportunity to object; (2) consider less drastic alternatives to sealing the documents; and (3) provide specific reasons and factual findings supporting its decision to seal the documents. A local rule in the United States District Court for the Eastern District of Virginia requires the party moving to seal documents to provide (1) a non-confidential description of the documents to be sealed; (2) a statement as to why sealing is necessary; (3) references to governing case law; and (4) a statement as to the period of time the party seeks to have the matter sealed and as to how the matter is to be handled upon unsealing.

In a recent case in the Eastern District of Virginia, East West, LLC v. Rahman, the plaintiff sought to seal four exhibits relating to the parties’ expert reports. The reports were designated “Attorney’s Eyes Only” under a confidentiality order entered during discovery that allowed the parties to so designate documents that contained highly sensitive business or personal information,Seal.jpg the disclosure of which might cause significant harm.

Does an employer have any sort of ownership interest in its employees’ tweets or Twitter following? This very current social-media question may be tested in a lawsuit originally filed last July in federal court in California by PhoneDog, a South Carolina-based company that reviews mobile phones and services online, against former employee Noah Kravitz. An amended complaint in the case, filed on November 29, 2011, has attracted considerable media attention.

When Kravitz worked for PhoneDog as a product reviewer and video blogger from 2006 to 2010, he tweeted under the handle @PhoneDog_Noah and attracted some 17,000 followers for his comments and opinions on Twitter. When he left the company, he continued tweeting under the name @NoahKravitz. But he didn’t create a new account with that name; instead, he kept the account (with all its followers) and just changed the Twitter handle to @NoahKravitz. Eight months later, PhoneDog sued Kravitz, alleging that his continued use of the account and his tweeting to his followers constitute a misappropriation of PhoneDog’s trade secrets, intentional interference with prospective economic relationships, and conversion. Phone Dog said that it had suffered loss of advertising revenue as a result and that Kravitz “was unjustly enriched by obtaining the business of PhoneDog’s Followers.”

PhoneDog essentially claims ownership rights due to the fact that it directs its employees to maintain Twitter accounts and instructs them to tweet links to PhoneDog’s website, thus increasing PhoneDog’s page views and generating advertising Kravitz.jpgrevenue for PhoneDog. PhoneDog said in the complaint that since Kravitz now works for TechnoBuffalo, a competitor of PhoneDog, he is exploiting PhoneDog’s confidential information on behalf of a competitor. PhoneDog is seeking $340,000 in damages — $2.50 per month per Twitter follower for eight months. Although PhoneDog said in the complaint that “industry standards” peg the value of a Twitter follower at $2.50 per month, the company did not give a source for that estimate. Nor did PhoneDog attempt to distinguish between people who followed Kravitz because of his connection to PhoneDog and those followers who are merely friends of his or enjoy his commentary.

It’s clear that dances composed by choreographers can be subject to copyright as creative works, just like paintings or photographs. It’s also clear that no matter how creative a football player’s evasive “spin move” can be, neither he nor his team can copyright it so as to prevent others from using it without paying royalties. What about a series of yoga poses? Where does that fit into the world of copyright? Three cases now pending in the U.S. District Court for the Central District of California involve that question, and although the issue remains very much in dispute, the U.S. Copyright Office has taken the view that yoga exercises are more like athletic activities or health regimens, which cannot be copyrighted, and less like dance routines, which can be.

In the lawsuits, Bikram’s Yoga College of India, based in California, and its founder, Bikram Choudhury, have sued three yoga providers for copyright and trademark infringement, contending that they have unlawfully used the specific movements and poses of Choudhury’s brand of yoga, known as Bikram Yoga. Bikram Yoga, performed for precisely 90 minutes in a room heated to 105 degrees Fahrenheit, has become quite popular in recent decades. Bikram Yoga includes 26 poses, two breathing exercises, and a carefully scripted dialogue.

Greg Gumucio is a defendant in one of the cases, along with the company he founded, New York City-based Yoga to the People. Gumucio is a former student of Choudhury. According to the complaint in that case, Choudhury “created an original Yoga Pose.jpgwork of authorship consisting of a series of instructions and commands that accompany, and correspond to, each poster of Bikram Yoga.” This “original work is recited in a precise manner,” according to the complaint, and the sequence of poses received protection from the U.S. Copyright Office on several occasions. Gumucio and the other yoga studio owners, Choudhury said, had infringed upon the copyrights.

The online coupon industry, led by companies such as Groupon Inc., is growing rapidly, and it’s still not clear which company or companies will end up the winners. With so much money potentially at stake, it’s not surprising that firms are going to court to battle over their trade secrets. On October 24, 2011, Groupon filed a lawsuit in Illinois state court in Chicago, accusing two former sales managers of taking confidential trade secrets with them when they left Groupon for Google Offers, a website that competes with Groupon. Google developed the competing website after Groupon rejected its $6 billion merger offer last year.

The two men, Michael Nolan and Brian Hanna, both left in September 2011 to join Google. “In their new positions with Google Offers and/or Google, Hanna and Nolan will provide the same or similar services as they provided at Groupon,” the complaint said. The two would “employ confidential and proprietary information that they learned while employed at Groupon,” according to the complaint.

Trade secrets generally consist of commercial information that (1) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other businesses which would benefit from its disclosure; and (2) is the subject of reasonable efforts by the business to be kept secret. As examples of the “confidential and proprietarycoupons-moms-groupon-300x200.jpg information” that the two allegedly took with them to Google, the complaint cites Groupon’s deal history with merchants, the way in which Groupon structured such deals, the way in which Groupon identified merchants to participate in the deals, and Groupon’s in-house sales Wiki that provided information regarding Groupon’s sales practices and strategies.

What kind of expense amounts to a “loss” under the Computer Fraud and Abuse Act (CFAA), and did a Virginia litigation-support company incur the required minimum of $5,000 in losses when it investigated an alleged breach of its computer systems, retaining the services of both an attorney and a computer forensics company to aid with the investigation? That was the issue recently before Judge T.S. Ellis III of the Eastern District of Virginia, who held that the investigative activities could support a CFAA claim, even if the expenses were not paid in cash.

The issue was particularly important to the plaintiff, Animators at Law, a graphics and technology litigation support company, because of the 13 claims it brought against two former employees and a competitor, all but the CFAA claim were based on state law, meaning that without it, there would be no basis for federal-court jurisdiction.

The CFAA provides for a civil action against anyone who intentionally gains access to a computer without authorization and obtains information from it. The CFAA has a minimum jurisdictional requirement of $5,000 in losses. Animators at Law claimed screen.jpgthat its former employees conspired with a competitor to leave Animators’ employment and join the competitor, taking with them confidential and proprietary information about Animators’ services, projects, and clients.

Lacoste Alligator, S.A., which sells tennis shirts and other apparel with the distinctive green crocodile logo in high-end stores like Nordstrom and Saks Fifth Avenue, will get a chance to find out, through discovery in a lawsuit, which of its distributors (if any) have been selling its products to Costco and other warehouse stores without its express permission, in violation of its trademark rights and in breach of contract.

Lacoste, a Swiss company, is attempting to prevent its clothing from being sold in big-box and other unauthorized retail locations. The first problem facing Lacoste, however, was that although it believed that some distributor was making sales to those stores, it didn’t know who it was. Accordingly, it filed a “John Doe” complaint in Arlington County Circuit Court on trademark-infringement, breach of contract, and other grounds, hoping to use discovery in the case to ferret out the identity of the distributor responsible for the unauthorized sales. After filing the “John Doe” suit, Lacoste promptly served a subpoena on Costco Wholesale Corp., trying to ascertain the source from which it was receiving Lacoste products for resale in its stores. Costco objected to handing over any documents, and Lacoste filed a motion to compel compliance with the subpoena.

Judge Joanne F. Alper overruled most of Costco’s objections and held that Lacoste was entitled to the discovery subject to the entry of an appropriate protective order to prevent misuse of the information.

During discovery, an examining party has the power to compel the deposition of a corporate defendant’s “managing agents.” If the plaintiff’s lawyer designates an individual to testify who is not an officer, director, or managing agent of the corporate defendant, the lawyer must resort to Federal Rule of Civil Procedure 45, which governs subpoenas issued to third parties. For that reason, there is often a lot of disagreement among litigants regarding whether a particular individual qualifies as a managing agent of the corporation. Another common point of contention is whether foreign managing agents must come to Virginia for their depositions.

In DuPont v. Kolon Industries, a trade secrets case involving alleged misappropriation of confidential commercial information relating to Kevlar, Judge Payne of the Eastern District of Virginia (Richmond Division) utilized a four-factor test to determine whether employees could be classified as “managing agents,” adopting a test laid out in a 1996 Maryland case. Judge Payne wrote that courts faced with the issue should consider:

  1. the discretionary authority that the corporation vests in the employee;

Recovering damages for copyright infringement may be difficult in situations where the infringing party is “dummy” or “shell” corporation with no assets that can be used to satisfy a judgment. Sometimes, however, there may be a parent corporation or other entity that may be held liable on a theory of “vicarious liability.” As demonstrated by a recent decision of Judge Cacheris of the District Court for the Eastern District of Virginia, this doctrine may be utilized to pursue a contractor for the infringing activities of its subcontractor, even if the contractor knows nothing about the alleged infringement.

In Softech Worldwide, LLC v. Internet Technology Broadcasting Corp., Fedstore Corporation entered into a contract with the United States Department of Veterans Affairs (the “VA”) to develop various software, including software relating to the Digital-Media-Architecture (“DMA”) Pilot Project–a platform for scaling electronic media to various electronic devices. Fedstore subcontracted the work to Internet Technology Broadcasting Corporation (“ITBC”), who in turn hired the Plaintiff, Softech Worldwide, LLC, to perform various software services under the VA contract. Softech claims it performed these services from 2002 until early 2010, and that in early 2010, ITBC stopped making regular payments. Shortly thereafter, Softech claims it delivered the DMA source code and other proprietary information to ITBC at its request, and that ITBC refused to return the materials while continuing to use, maintain, and update Softech’s products.

Softech sued both ITBC and Fedstore for copyright infringement and violation of Virginia’s Uniform Trade Secrets Act. Fedstore moved to dismiss the case for failure to state a claim. Fedstore’s position was essentially that the claims pertained to actions allegedly taken by ITBC, not by Fedstore. Softech responded that Fedstore should be held responsible under theories of contributory liability and vicarious liability.

What is a trade secret? In Virginia, trade secrets generally consist of commercial information that (1) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other businesses which would benefit from its disclosure; and (2) is the subject of reasonable efforts by the business to be kept secret. (The full definition is provided in the Virginia Uniform Trade Secrets Act itself, found at Va. Code § 59.1-336). Judge Bellows of Fairfax County Circuit Court recently had the occasion to consider the extent to which vendor and customer lists may qualify as protectible trade secrets.

Tryco, Inc. v. U.S. Medical Source, LLC involved a dispute chiefly between Tryco, a small business authorized to sell medical and dental equipment to the United States government, and former employee Brian Thomas, who had left Tryco to join U.S. Medical Source, LLC (“USMS”), a competing firm founded by his sister-in-law. Prior to leaving, Mr. Thomas cleaned out his desk and copied his personal files onto a flash drive. In the process, however, he also (inadvertently, the court found) copied two Tryco documents, one containing a list of buyer contact information and other providing certain information regarding Tryco’s vendors. When accused by Tryco of stealing confidential information for the purpose of benefiting a competitor, Mr. Thomas promptly returned the entire flash drive, explaining that the copying was inadvertent and stating that he never copied the drive, never showed it to anyone at USMS, and never used it.

Tryco sued both Mr. Thomas and USMS for misappropriation of trade secrets. Tryco also brought claims for civil conspiracy under Virginia’s business conspiracy statute, breach of fiduciary duty, and tortious interference. After four days of trial testimony, the defendants moved to strike Tryco’s evidence as insufficient to state a claim. Judge Bellows agreed with the trade_secret.jpgdefendants the Tryco had failed to prove theft of trade secrets within the meaning of the Virginia Uniform Trade Secrets Act, and found in favor of the defendants on all counts.

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