Trade Secrets – Attorney Evan Brown

March 6, 2024 Computer Crime, Trade Secrets

Fifth Amendment did not save former employee from having to turn over his Gmail account

Gmail Fifth Amendment

Plaintiff biotech company sued a former employee for allegedly emailing proprietary information to his personal Gmail account and discussing employment with competitors. Plaintiff’s investigations revealed defendant had sent over a hundred emails with confidential data to his Gmail account, in violation of a confidentiality agreement defendant had signed when he was hired. Plaintiff sued defendant alleging misappropriation of trade secrets under both federal and state law. Plaintiff sought a temporary restraining order that required defendant to turn over his devices and online accounts for inspection. The court granted the motion.

Injunctive relief warranted

The court found that plaintiff had shown a reasonable probability of success in the litigation. It had successfully alleged ownership of trade secrets and had described specific instances (e.g., sending emails to a private Gmail account) that would be considered misappropriation.

Defendant could not be trusted

As for the likelihood of irreparable harm plaintiff would suffer if the injunction were not granted, the court considered plaintiff’s assertion that defendant “could not be trusted” based on his alleged conduct, and that plaintiff would suffer irreparable harm because of the continued presence of unsecured confidential information on defendant’s devices and accounts.

No Fifth Amendment Protection

Defendant argued under the “balancing of the equities” test that requiring him to turn over his devices and accounts would violate his Fifth Amendment rights against self-incrimination. The court rejected this argument, however, observing that in the course of plaintiff’s investigation of defendant’s conduct, defendant signed a document knowingly, intelligently and voluntarily, thereby admitting there was incriminating evidence to be found. Because of this, the court found defendant waived his Fifth Amendment rights.

Injunction favored the public interest

The court also found that entry of the injunction requiring defendant to turn over the devices and accounts would benefit the public interest. It noted that there is a generalized public interest in upholding the inviolability of trade secrets and enforceability of confidentiality agreements. It mentioned the general interest in preserving Fifth Amendment rights but reiterated that in these circumstances, because of defendant’s waiver, the Fifth Amendment did not shield defendant.

Legend Biotech USA v. Liu, 2024 WL 919082 (D.N.J. March 4, 2024)

See also:

January 31, 2024 Contracts, Trade Secrets

Unauthorized press release caused drone software deal to crash

drone software

Usually back in the boilerplate section, technology contracts often contain a provision saying the parties will not issue press releases without the prior written consent of the other party. Here is a recent case where failure to strictly abide by such a requirement resulted in the breakdown of an important licensing arrangement, followed by expensive and difficult litigation.

An exciting drone software collaboration

Plaintiff entered into a software licensing agreement with defendant whereby plaintiff could use defendant’s avionics software for drones. The agreement gave plaintiff a limited exclusive license to certain functionality in the software.

The licensing agreement defined confidential information to include the terms of the agreement. The parties could not use any confidential information other than as required to exercise a right or perform an obligation under the agreement. The agreement also restricted the parties from issuing press releases without the other party’s prior written approval.

Fateful quick email exchange right before vacation

On a Sunday in August 2022, an employee of defendant wrote to defendant’s CEO, letting defendant know that plaintiff was developing a press release. The message concluded with, “Let me know if you have any objections, or if you want to send us a quote or have our PR team make a quote[.]”

Three minutes later the CEO wrote back with the following: “That sounds great. I’m on vacay all week up in the Adirondacks. You guys can make up some quote – I’m sure it will be fine or at least a great start.”

Going public with what should have stayed private

On Wednesday of that week – without further contact with defendant – plaintiff issued a press release discussing the parties’ relationship. The press release stated, in part, that under the terms of the software licensing agreement between the parties, the “software will only be made available to [plaintiff],” and that “[c]ompetitors will have to develop their own software or secure licenses from others with inferior test performance.”

On Friday (probably the last day of the CEO’s “vacay . . . up in the Adirondacks”), defendant sent a letter to plaintiff terminating the agreement. Defendant cited to a provision of the agreement enabling it to terminate immediately upon breach of the agreement’s confidentiality provision. The letter explained that plaintiff had issued the press release without defendant’s consent and that the press release included confidential information.

And then the lawsuit

Plaintiff sued, asserting breach of contract, namely, that defendant improperly declared the agreement terminated, and improperly ceased fulfilling its obligations under the agreement. Defendant moved to dismiss the claims. The court granted the motion.

Court: defendant had the right to terminate

The court found that it was “express and plain” that the definition of confidential information included the terms of the agreement. And when plaintiffs disclosed language from the agreement discussing the exclusive license, plaintiffs breached the agreement, giving defendant a right to terminate, which it exercised.

The court also rejected plaintiff’s argument that defendant’s CEO’s Sunday pre-vacation quick response email gave consent for the press release. The court found that rather than serving as approval of the press release that was issued, the consent the CEO provided was for the continued development of a press release and qualified permission to make up a quote for him as part of the development process. Moreover, the harms to defendant arising from plaintiff’s mischaracterization of the parties’ relationship were “precisely the effects that are avoided by requiring ‘prior written consent’ before publication of Confidential Information in a press release.”

Red Cat Holdings, Inc. v. Autonodyne LLC, 2024 WL 342515 (Del. Ch., January 30, 2024)

Why parties should enter into nondisclosure agreements

Nondisclosure agreements (or NDAs) are important contracts. There are a number of reasons why parties may want to enter into them.

The first reason is probably the most obvious reason. Parties have proprietary or sensitive information that they don’t want to become publicly known, or known to a competitor. So they enter into nondisclosure agreements to put restrictions on how the parties use or disclose confidential information The agreement contains provisions that give remedies such as injunctive relief if there is a breach or a threatened breach of the nondisclosure agreement. This is an important tool.

A second reason for entering into a nondisclosure agreement is related to the first one. Having a nondisclosure agreement gives the parties the confidence to meaningfully collaborate. If there is a nondisclosure agreement in place, the parties can freely exchange information, and that makes the potential innovation from their collaboration much more robust.

And a third third reason for entering into a nondisclosure agreement relates to the law of trade secrets. The parties may trust one another completely, and may not even think for a moment that the other side would misuse its confidential information or disclose it in a way that is harmful. But it is important to enter into nondisclosure agreements to protect the trade secret status of information. The law of trade secrets only protects information that has been the subject of efforts to keep secret. So the nondisclosure agreement can be important evidence that the party has taken the right steps to protect its trade secrets.

Let’s talk

Nondisclosure agreements can be complex. There are a number of issues to consider and appropriate strategies to take. If you have questions about a nondisclosure agreement, give me a call at (630) 362-7237, or send me an email at ebrown@internetcases.com.

About the author:

Evan Brown, nondisclosure agreements Evan Brown is a technology and intellectual property attorney in Chicago. This content originally appeared on evan.law.

Independent contractor agreements: common mistakes to avoid

A lot of companies bring on independent contractors to develop content. They may be photographers, designers, writers, consultants, etc. who sign independent contractor agreements. Here are three common mistakes that you should not make if you are hiring an independent contractor.

Intellectual property ownership mistakes in independent contractor agreements

The first common mistake is to leave out language that ensures you as the hiring party own the intellectual property in the deliverables. Did you know that unless the contract specifically says otherwise, the independent contractor will retain ownership of the copyright in the deliverables? Many companies have been surprised to learn, after spending a lot of money on an independent contractor, that they do not own the rights in the content they thought they had paid for.

The agreement should have a work made for hire provision. And since the definition of work made for hire is specific, some things that the contractor may do will not qualify as work made for hire. So the agreement should also say that to the extent the deliverables are not work made for hire, the independent contractor assigns the intellectual property to the party that hired it.

Confidential information mistakes

The second common mistake that you should avoid in engaging with an independent contractor is being vague or loose when it comes to confidentiality. The independent contractor could learn a lot about your business – its vendors, its customers, its plans, and how the company operates. The confidentiality provision should adequately restrict how the independent contractor discloses that information or uses it outside of the engagement with the company. If not, that information may lose its trade secret protection. Or the contractor could take the information it learns about your company and use it while working for one of your competitors.

Indemnification mistakes

A third common mistake that you should avoid in independent contractor agreements is being silent on defense and indemnification. If a third party sues you over something that the independent contractor has done, you would likely want to look to the independent contractor to pick up the costs of defense and pay the amount of any judgment that results. Say, for example, the independent contractor copies a photograph from somewhere else and then provides that to you as his or her original work. If the true owner of the copyright in that work sues you for using the photo, it is only fair that you can turn to the contractor for relief. The agreement should say that.

About the author: Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter and Instagram. Subscribe to his YouTube channel.

May 7, 2020 Copyright, Trade Secrets

Three ways trade secrets can be more powerful than copyright

Copyrights and patents and trademarks usually come to mind when thinking about intellectual property. But trade secrets are a critically important and very useful form of intellectual property and are often overlooked. Here are three ways that trade secrets can be more powerful than copyright.

1 – Trade secrets protect ideas and facts (while copyright does not).

Something qualifies as a trade secret if it (1) has economic value because it is secret, and (2) has been the subject of efforts to keep it secret. So a trade secret can be an intangible idea – like the knowledge of how to do something. Or it can be a set of facts, like a list of customers. Copyright wouldn’t protect either of these things – ideas or facts – because copyright covers creative expression. You can’t look to copyright to stop others from using ideas you have or lists of facts you compile. But trade secrets, on the other hand, might cover you.

2 – You don’t have to register trade secrets.

Let me try to clarify one thing really quickly – you don’t have to register copyrights either to own them. But you do have to register that copyright if you need to sue anyone for infringement. With trade secrets, there’s not even any such thing as registration. You have trade secrets from possessing valuable information that you have actually kept secret. That’s it.

3 – Trade secrets can last forever.

Copyright lasts a long time, but trade secrets can last even longer. When an employee of a company creates a copyrighted work, the rights last for 95 years. But there is no expiration date for trade secrets. For as long as a company keeps its valuable trade secret information secret, it’s protected by trade secrets law.

Other ways?

There are other ways trade secrets are more powerful than copyright. Can you think of any? Leave a comment here or take to Twitter (I’m @internetcases there).

Question of who owns source code proceeds to trial in trade secrets case

Plaintiff sued its competitor in the mobile payment space for, among other things, trade secret misappropriation. Plaintiff claimed that defendant created its products using source code copied from plaintiff by two of plaintiff’s former employees who now work for defendant.

Defendant moved for summary judgment, arguing that plaintiff did not own the source code (and the trade secrets in it), because an independent contractor created the source code.

The court denied the motion for summary judgment. Plaintiff had provided evidence that the source code was written by a number of parties (including its own employees) and not just the independent contractor that defendant claimed owned the source code. The court held that plaintiff had presented evidence to raise genuine issues for trial as to who wrote what code.

Citcon, USA, LLC v. RiverPay Inc., 2019 WL 2327885 (N.D. Cal., May 31, 2019)

May 21, 2018 Litigation, Trade Secrets

Online marketer’s misappropriation claims against publicly traded former suitor move forward

Plaintiff – a small online marketing company – sued a large, publicly-traded competitor for copyright infringement, misappropriation of trade secrets, deceptive and unfair practices, and breach of contract. The parties had previously signed a nondisclosure agreement and an agreement whereby plaintiff would provide defendant with access to plaintiff’s technology used to monitor the scope of companies’ online presence and the accuracy of information appearing in search engines. The parties had also engaged in discussions about defendant acquiring plaintiff. But after the negotiations broke off, plaintiff discovered that it appeared defendant had appropriated plaintiff’s technology (including copyright-protected materials) into defendant’s own product offerings.

The lower court entered a preliminary injunction against defendant, barring it from offering the allegedly infringing and misappropriating technology. Defendant sought review of the entry of preliminary injunction with the U.S. Court of Appeals for the Eleventh Circuit. The appellate court affirmed the order.

The appellate court rejected defendant’s argument that the lower court had not described specifically enough those trade secrets of plaintiff that defendant had allegedly misappropriated. It also rejected defendant’s arguments that plaintiff’s delay in bringing suit undermined its argument of irreparable harm, that plaintiff failed to show that it was likely to succeed on the merits of its underlying claims, and that the district court erred in weighing the balance of harm and in considering the impact on the public interest.

Advice Interactive Group, LLC v. Web.com Group, Inc., 2018 WL 2246603 (11th Cir., May 16, 2018)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

January 13, 2013 Trade Secrets, Unfair Competition

When do you need a nondisclosure agreement?

I wrote a blog post for Tech Cocktail called 5 Reasons You May Need an NDA. I hope you’ll click on over and give it a read.

Here are the 5 reasons I came up with. Can you think of others?:

Your discussions turn from “what” to “how.”
You are dealing with someone other than an investor.
You have made substantial investment in your innovation.
You will be sharing documents or data.
You want to save on legal fees.

Leave your comments below. I know there are many other reasons — pro and con — concerning NDAs.

May 23, 2012 Trade Secrets

IBM’s Siri ban underscores important business concern over trade secrets

IBM doesn’t let its employees use Siri, out of concern Apple may store and use sensitive IBM data. This decision on IBM’s part underscores an important business concern that companies of all sizes — not just behemoths like IBM — either have or should have.

internet anonymity

Apple’s data usage policy that governs how it treats Siri inquiries says that Apple can use the information it collects to, among other things, improve the service. That’s a pretty broad grant of authority. Because the system that makes Siri available is so complex and multifaceted, Apple could reasonably justify extracting and using the information contained in just about any question people ask Siri. When that information comes from another major player in the competitive space, the implications of the appropriation of proprietary information become obvious.

IBM’s big concern is likely focused squarely on the protection of its trade secrets. State law provides the contours of trade secrets law, so the elements vary from state to state. But in general, a company can enforce its exclusive rights to possess and use information that (1) gives that company a competitive advantage, and (2) which is subject to efforts to keep secret. That latter part — keeping the information secret — is a big reason for nondisclosure agreements, password protected servers, and sensible restrictions on employee use of third party technologies (like social media and search tools like Siri).

Evan Brown is a Chicago technology and intellectual property attorney, representing businesses and individuals in a variety of situations, including matters dealing with the identification and protection of confidential business information.

Photo credit: Spec-ta-cles under this license.

September 12, 2011 Employment, Trade Secrets

Former employer’s trade secret claim under inevitable disclosure doctrine moves forward

Copying of employer computer files central to trade secrets claim

Mobile Mark, Inc. v. Pakosz, 2011 WL 3898032 (N.D.Ill. September 6, 2011)

Defendant used to work for plaintiff. Before he left that organization to work for a competitor, he allegedly accessed plaintiff’s computer system and copied proprietary information to a laptop that plaintiff had loaned him. He then allegedly transferred the proprietary data to a number of external storage devices, and then installed and repeatedly ran a “Window Washer” program on the laptop to delete files and other data in order to conceal his activities.

Plaintiff sued, putting forth several claims, including a claim of misappropriation of trade secrets under the Illinois Trade Secrets Act, 765 ILCS 1065/2. Defendant moved to dismiss. The court denied the motion.

One of the bases for plaintiff’s trade secret misappropriation claim was that defendant, by going to work for a competitor, would inevitably disclose the proprietary information he had obtained while working for plaintiff. Looking to Illinois law, the court noted that “[i]nevitable disclosure is not assumed when an employee has general information in his head as a result of working for a company.” But “where evidence exists that the employee copied the employer’s confidential information, it leads to the conclusion of inevitable disclosure.”