Texas Court Overturns Record $706 Million Verdict

In early June of 2020, a Texas appellate court overturned a record $706 million verdict rendered by a San Antonio jury more than two years ago, and, in doing so, it ordered a new trial.

The case centered on real estate analytic firm HouseCanary Inc.’s fraud and misappropriation of trade secret claims against Amrock Inc., a Detroit home appraisal company related to Quicken Loans Inc.

In 2015, Amrock entered into an agreement to license HouseCanary’s proprietary home appraisal software. Amrock later filed a lawsuit alleging HouseCanary failed to deliver functioning software for valuing residential properties.

HouseCanary, on the other hand, asserted its own claims, accusing Amrock of fraudulently misappropriating technology “even after purporting to terminate” their agreement. At issue was HouseCanary’s purported revoluationary app that would allow appraisers to submit appraisals in the field.

Following a seven-week trial, a 12-person jury found in favor of HouseCanary. Amrock was ordered to pay $235.4 million in compensatory damages, $470.8 million in punitive damages, $29 million in prejudgment interest, and $4.5 million in attorneys’ fees.

Ultimately, the appellate court reversed the jury’s verdict because of flaws with the jury charges, including a problem with the definition of trade secrets theft, which the appellate court found tainted the verdict.

Food Fight Breaks Out In Trade Secret Aisle

A trade secret fight has broken out among rival food companies. Mars, Inc. contends that a former executive downloaded several thousand files containing trade secrets and confidential business information shortly before switching sides to work for JAB Holding Company, LLC and its subsidiary Pret Panera Holding Company, Inc.

The former executive is not Mars’s only target. It also squarely points the finger at JAB and Pret Panera. Mars alleges that JAB and Pret Panera tried to conceal the former executives misdeeds and that it “is disturbing that no one at JAB or Pret Panera sounded the alarm when presented with stolen Mars documents.” Mars goes on to allege that the former executive’s “new colleagues instead appear to have accepted the stolen confidential Mars materials without question.”

In recent public statements, JAB and Pret Panera have denied any wrongdoing, contending that the lawsuit is “completely without merit” and pointing to an internal investigation conducted by outside counsel.

The lawsuit, which is pending in federal district court in Washington, DC., will likely be contentious and generate potentially significant rulings. We will continue monitor the case and provide timely updates.

DOJ and FTC Signal Crackdown on Anticompetitive Behavior in light of COVID-19

The COVID-19 pandemic has brought unprecedented changes to seemingly all aspects of modern life and the American economy, some of which may last for years to come. The response to the pandemic has shown similarly unprecedented levels of cooperation between governmental and corporate entities, many of whom are direct competitors, particularly in the pharmaceutical, healthcare, and manufacturing industries. This cooperation has raised concerns about potential anticompetitive behavior.

Continue Reading

Protecting Trade Secrets and Confidential Information from the Side Effects of the Coronavirus

The coronavirus has had an incredible negative impact across the globe. Besides the obvious medical issues, the virus has multiple side effects: closed schools, devastated the economy, multiple “stay at home” orders across the country, etc. In order to continue to do business and comply with the stay at home orders, many employers are allowing employees to work from home. While this is likely a necessary move for many companies to continue to operate, it does raise added concerns for protecting trade secrets and other confidential information.

Continue Reading

Defining Business in Louisiana Non-Competition Agreements is Essential, Appeals Court Holds

A Louisiana appeals court in New Orleans recently overturned a trial court’s refusal to enforce a non-competition agreement. The appellate court’s decision instructs employers on the need to define the scope of their businesses for an enforceable agreement. Environmental Safety & Health Consulting Services, Inc. v. Fowler, 2019-CA-813 (La. 4 Cir. 3/11/20).

Continue Reading

Beware: COVID-19 Cybersecurity Scams Are on the Rise

The FBI and other government agencies are reporting a significant increase in COVID-19-specific cyberfraud schemes. According to reports, hackers have impersonated the World Health Organization, the Centers for Disease Control and Prevention, NATO, and even UNICEF and other charitable organizations. These bad actors have used phishing emails intended to spread malware and ransomware and have targeted multiple industries, including hospitality, government, education and research, transportation, and healthcare.

This month’s cyberfraud activity increase has been reported as four- to sevenfold over February. Among other scams, the emails purport to ask for charitable contributions and offer fake stimulus checks, testing kits, cures, and vaccines, and general information about the impact of the pandemic.

College students have also been victimized, as hackers have targeted them with faux administration announcements — ostensibly about campus closings and “virtual” class arrangements.

Especially since “work from home” is becoming the norm, organizations should warn their employees about such scams and follow standard cyber hygiene and cybersecurity precautions. Such measures include safeguarding login credentials and other sensitive information — especially in response to an email, verifying links to web addresses (by manually typing them in a web browser if at all suspicious), and looking closely for mis- or deceptive spellings and incorrect domains.

Certain telltale indicators signal an email’s lack of authenticity: It originates from an unusual sender and the link in the email looks suspicious (try hovering over the link to see whether it is familiar).

For further information, review this March 20 public service announcement from the FBI’s Internet Crime Complaint Center.

*This post was originally published on Jones Walker’s Disaster Prep & Recovery blog, www.disasterprepandrecovery.com

Federal Court Rules Damages under Trade Secret Act Can Extend beyond United States Borders

After a trial that lasted more than three months, the eight-person jury empaneled by the Chicago-based court took only two and a half hours to deliberate, siding with Motorola and awarding them everything their attorneys had asked for in damages. The verdict came out to a shocking $764.6 million, or just under $350 million in compensatory damages, representing all of Hytera’s worldwide profits from selling the radios, and over $400 million in punitive damages, designed to deter trade secret misappropriation in the future. The verdict was one of the largest awarded under the relatively new Defend Trade Secrets Act, signed into law by President Obama in 2016. One particular aspect of the decision may prove very significant for employers striving to protect their confidential information.

The Defend Trade Secrets Act was passed by Congress with overwhelming bipartisan support. The intent behind the Act was to provide uniform federal protections for companies’ confidential information. The Defend Trade Secrets Act directly adopts much of its language from the Uniform Trade Secrets Act, a model statute adopted in some form by most states including Louisiana and Texas. While it is clear that the Defend Trade Secrets Act was designed to protect confidential information and contemplated businesses whose dealings occur across state lines, no federal courts had yet given a detailed look at whether companies can sue competitors and be awarded damages for misappropriation of trade secrets that occur outside the United States.

Continue Reading

Federal Court Rules Trade Secret Damages Can Extend beyond the U.S. border

In a high-profile trade secret case, a federal court in Chicago ruled that the federal Defend Trade Secrets Act (DTSA) extends beyond the U.S. and covers actions and damages that occur in other countries.

Background. Back in 2017, telecommunications and technology conglomerate Motorola Solutions, Inc. brought a lawsuit against rival radio manufacturer Hytera Communicatoins Corporation, Ltd. in the federal district court for the Northern District of Illinois. Motorola claimed that Hytera hired three of Motorola’s former engineers who brought thousands of Motorola’s confidential documents and trade secrets with them to Hytera, which used those documents to make a digital radio that was an exact copy of Motorola’s digital radio.

After a trial that lasted more than three months, an eight-person jury took only two and a half hours to award Motorolla $764.6 million in damages. It compromised just under $350 million in compensatory damages, representing all of Hytera’s worldwide profits from selling the radios, and over $400 million in punitive damages, designed to deter trade secret misappropriation in the future. The verdict was one of the largest awarded under the relatively new Defend Trade Secrets Act (DTSA), signed into law by President Obama in 2016.

One particular aspect of the decision may prove very significant for employers striving to protect their confidential information. While it was clear that the DTSA applies across state lines, no federal courts had yet given a detailed look at whether companies can sue competitors and be awarded damages for trade secret theft that occurs outside the U.S.

Before the Motorola and Hytera jury began deliberations, the court had to answer that exact question. The engineers Motorola accused of stealing its trade secrets were all based in Motorola’s Malaysia offices. Because Motorola sued in the U.S. seeking worldwide damages, Hytera filed a motion to exclude damages other than U.S.-based profits from the jury’s damages calculation.

Ruling. The court initially noted that most federal civil statutes are not extraterritorial in their reach, that is, they don’t extend to allow damages for actions that occur outside the U.S. But the court reasoned that Congress clearly intended the language of the DTSA to allow lawsuits against companies who have stolen trade secrets in a foreign jurisdiction. Given a verdict of this size, Hytera will likely appeal, but the court’s reasoning seems sound and extraterritorial application of the DTSA is likely here to stay.

Take Away. This ruling is important for companies who seek to protect their trade secrets beyond the U.S. If your company does business in a foreign jurisdiction, particularly one that does not have the U.S.’s robust intellectual property protections, the DTSA may provide a remedy in the event of foreign trade secret theft. Likewise, it is important to ensure that your company has strong policies in place against trade secret theft among your own employees, as well as onboarding requirements designed to prevent theft of confidential information from competitors. Even if your company is doing business in jurisdictions without significant trade secret protections, this ruling may open it up to liability here in the U.S.

Jury Finds Uber Must Face $1B Trade Secrets Suit

A California jury recently concluded that an inventor timely filed a trade secret lawsuit against Uber seeking $1 billion in damages. The inventor’s lawsuit claims that Uber and its founder stole his business concept, which the inventor alleges he shared sometime in 2006 under a promise that Uber’s founder would keep the concept confidential. Around four years later, Uber launched its now popular ride-sharing application, yet the inventor claimed he did not learn about the Uber founder’s involvement with it until several years later.

The California trial addressed only the discrete issue of the timeliness of the inventor’s lawsuit. Uber and its founder argued that had the inventor engaged in a reasonable investigation into Uber in 2010, he would have learned about its founder’s involvement. In contrast, the inventor claimed, among other things, that when he researched Uber—then known as UberCab—online in 2010, its website did not list the founder as a team member.

This case illustrates the importance of timely investigating potential misconduct related to the theft of information, i.e. misconduct which perpetrators often go to great lengths to hide. The period to bring a misappropriation claim can—at least under some circumstances—be lengthened when a victim is unaware of misconduct and that ignorance is excusable. In short, at the very least, trade secret plaintiffs must engage is a “reasonable inquiry” to determine whether wrongful conduct has taken place. What is “reasonable” under the circumstances is a fact-intensive inquiry that—as the Uber case demonstrates—might even require its own trial.

Judge allows Chinese Company to view American Company’s Trade Secrets in Hong Kong as Part of Groundbreaking DOJ Litigation

A federal judge in the Northern District of California ruled that Chinese state-owned Fujian Jinhua Integrated Circuit Co. and their Taiwanese partners United Microelectronics Corp. were legally entitled to review trade secret information they allegedly misappropriated from Idaho-based Micron Technology Inc. U.S. v. United Microelectronics Corp., No. 18-CR-465 (N.D. Cal.).  The ruling came as part of a DOJ criminal prosecution of Fujian and UMC alleging that the companies stole the technology they have been using to manufacture dynamic random access memory chips from Micron.

Prosecutors and Micron stringently objected that review of the information in Hong Kong, even by Fujian and UMC’s attorneys, would lead to a significant risk of the technology falling directly into the hands of the Chinese government. Despite these concerns, Judge Maxine Chesney ruled on Wednesday that reviewing the information they are accused of stealing is essential to the companies’ legal defense. She also noted that security concerns from reviewing the information in Hong Kong do not match those from reviewing the information on the Chinese mainland.

Against the backdrop of an ongoing trade war between the United States and China, the Department of Justice announced its “China Initiative” in late 2018. A main goal of the initiative is to “[i]dentify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law[.]” The program has been presented by the DOJ as a crucial part of President Trump’s national security plan as it relates to China and, in particular, Chinese theft of American information.

The ongoing case against Fujian and UMC is the first criminal prosecution under the China Initiative  and could be a benchmark for the continuing success of the DOJ’s attempt to rein in Chinese intellectual property theft. In announcing the Initiative, then-Attorney General Jeff Sessions stated, “Chinese economic espionage against the United States has been increasing—and it has been increasing rapidly…. This Initiative will identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively.” FBI Director Christopher Wray went on to contextualize the effects of China’s actions on American businesses: “If China acquires an American company’s most important technology – the very technology that makes it the leader in a field – that company will suffer severe loses, and our national security could even be impacted.”

It remains to see what effect, if any, the District Court’s ruling this week will have on Chinese government access to American companies’ trade secrets. If though, as Micron worried, their trade secrets fall into the hands to the Chinese government during this court-ordered inspection, it could spell disaster for future criminal prosecutions under the China Initiative. Assuming future judges faced with this question agree that defendants have a legal right to review this evidence against them, these prosecutions may ultimately backfire.