October 12, 2003

P---d Off

Natural Biologics LLC really knows how to p--s off a federal judge (bad pun intended). Earlier this month, the judge seriously hammered Natural Biologics for misappropriating trade secrets relating to the processing of horse urine. She hit Natural Biologics even harder than usual, essentially putting them out of the business – and for somewhat unusual reasons.

Concealing Evidence, Giving False Testimony

Natural Biologics was -- note the past tense -- in the business of making a generic version of Premarin, a hormone replacement therapy drug of Wyeth (formerly American Home Products Corporation). Both drugs are made using estrogens extracted from pregnant mare urine.

Federal Judge Joan Ericksen found that Natural Biologics knowingly misappropriated Wyeth's trade-secret information about its estrogen-extraction process by getting the information from a former Wyeth employee. She also found that the former Wyeth employee knew he had no right to provide the information to Natural Biologics.

As if that weren't enough, the judge found that the president of Natural Biologics destroyed documents, concealed other evidence, and gave false testimony in deposition and at trial (!). He did so, she said, in an effort to conceal the misappropriation.

The Hammer Drops

If you're found liable for misappropriation of a trade secret, normally you'll be enjoined from continuing to use the secret and ordered to pay damages. Even so, you'll usually be allowed to stay in business, as long as you don't use the secret in doing so.

But it's never a good idea to let a judge think that you've destroyed evidence or given false testimony. This principle was driven home for Natural Biologics when the judge concluded that:

Because Natural Biologics attempted to conceal its misappropriation of the Brandon Process by destroying evidence, giving false testimony, and improperly redacting evidence, the Court concludes that Natural Biologics cannot be trusted to avoid using the misappropriated process and cannot be trusted to obey an Order that permits them to exercise any discretion..

Consequently, the judge did not merely enjoin Natural Biologics from using the misappropriate trade secrets. She went even further – she ordered them, among other things:

  • to stop “producing, manufacturing, selling, offering for sale, distributing, importing or exporting any material or product consisting in whole or in part of estrogens from urine”;
  • to destroy all of its documents concerning its estrogen-extraction processes; and
  • to destroy "any material or product consisting in whole or in part of estrogens from urine resulting from any Natural Biologics Process."

In effect, the judge put Natural Biologics out of the generic-Premarin business entirely. And it sounds like conceivably the president of Natural Biologics may be facing still more legal troubles of his own. (Wyeth v. Natural Biologics, Inc., No. 98-2469 (D.Minn. 10/02/2003), available at CourtWeb)

Possible Lessons

1. Be careful in talking to a competitor's former employees. It won't look good if it even appears that you were trying to learn about the competitor's trade secrets.

2. In litigation, don't play hide the ball. If the judge or jury concludes that you were trying to conceal evidence, or that you otherwise can't be trusted, you're likely to be in big trouble. (This is a variation of the aphorism that the cover-up is often worse than the crime, a lesson that Arthur Andersen, Richard Nixon, and a host of others have learned the hard way.)

3. Never, ever, give false testimony in a court proceeding. If the judge or jury decide you're a liar, it may well be game over.

October 12, 2003 in Intellectual Property, Litigation, R&D; | Permalink | Comments (0) | TrackBack

October 01, 2003

Will Your PPT Slides' Footer Help Lose a Lawsuit Too?

Last week a court poured out * Storage Technology's corporate-raiding lawsuit against Cisco. One of the nails in the coffin was the way that Storage Tech had protected -- or more accurately, failed to protect -- the alleged trade secrets that Cisco had supposedly misappropriated. While that alone didn't lose the case for Storage Tech, it didn't help, and it likely has triggered some internal recriminations at Storage Tech.

* When a lawsuit is "poured out," it generally means the lawsuit was dismissed, in this case, by the granting of summary judgment.

Here's the story:

The Lawsuit

The parties to the lawsuit are well-known players in the tech sector. Storage Technology makes various disk- and tape storage devices, as well as equipment for storage networking and management. Cisco is "the worldwide leader in networking for the Internet," according to its Web site. In late 1999 and into 2000, several of Storage Tech's employees left to join NuSpeed, Inc., a start-up company that opened in January 2000. In September 2000, Cisco bought out NuSpeed for some $450 million in Cisco stock.

(Wait a minute -- in September 2000, long after the tech bubble had burst, the NuSpeed guys got $450 million in stock for their nine-month old company? Wow. Don't be too envious, though. As this chart shows, Cisco's stock price joined the plunge in the months following the acquisition. Depending on how long the lock-up was for -- I couldn't seem to find the acquisition agreement in Cisco's SEC filings -- the NuSpeed people probably didn't net nearly as much as they had hoped.)

Anyway, Storage Tech sued Cisco shortly after the acquisition closed. The gravamen of the lawsuit was that Cisco allegedly had interfered with the noncompete, nonsolicitation, and nondisclosure provisions in the employment contracts of the former Storage employees who had gone to NuSpeed. Three years later (viz., last week), the judge granted summary judgment for Cisco on all counts, largely because Storage Tech had failed to come forward with evidence of actual damages.

Storage Tech's Secrecy Problems

At one point, the judge zeroed in on Storage Tech's supposedly-cavalier treatment of what it was claiming to be trade-secret information:

As to the requirement of reasonable efforts to maintain the secrecy of the information, the [Minnesota Uniform Trade Secrets Act] requires neither the maintenance of absolute confidentiality nor the implementation of specific measures to maintain the secrecy of a trade secret. A plaintiff asserting a misappropriation claim must demonstrate that it undertook some effort to keep the information secret.

Here, Storage used general employee-confidentiality agreements, but such agreements are insufficient to satisfy the statutory requirement. [Editorial comment: That doesn't seem like a correct statement of the law, but maybe the judge was making a specific statement about these particular circumstances.]

Given its rejection early in the product development process, very little information about the SAN Appliance exists. What little information does exist was not the subject of reasonable efforts to maintain its secrecy. For example,

  • the author of the slide presentation did not mark it as confidential because he did not believe the design of the SAN Appliance was confidential, proprietary, or a trade secret. None of the limited documentation of the SAN Appliance was marked confidential.
  • Nor did Storage secure the documentation related to the SAN Appliance. Storage admits that it found the documentation on back-up disks left behind by departing employees. [Editorial comment: It's hard to see how this one example weighs against secrecy.]
  • Moreover, upon the resignation of the slide presentation's author, Storage did not inform him of the secrecy of the SAN Appliance. [Editorial comment: This doesn't sound right at all. It doesn't seem reasonable to expect that an employer, in every exit interview, must go through and list every trade secret that the departing employee is expected to keep secret. But again, maybe the judge was referring to the specific facts and circumstances of this case.]

In short, viewed in the light most favorable to Storage, the record reveals that Storage did not subject information about the SAN Appliance to reasonable efforts to maintain its secrecy.

(Emphasis, paragraphing, and bullets added, citations omitted.)

As you can tell from the editorial comments above, I think the judge probably goofed here. It could be that the judge didn't have sufficient evidence presented about Storage Tech's security system. From the discussion in the judge's opinion, it seems to me that if Storage Tech had the usual corporate security systems in place -- locks on the doors, passwords to access the network, etc. -- the judge should have let the secrecy claim go to the jury. But then I have yet to be appointed and confirmed as a federal judge, so my opinion counts for exactly zero.

The overall tone of the opinion suggests that the judge didn't think much of Storage Tech's trade-secret claim concerning a product proposal that it apparently had never even tried to develop. In all likelihood, he was going to pour out Storage Tech in any case.

Possible Lessons

There are several lessons to be had in this case, but here's a big one: Make an effort to label your confidential documents as "Confidential" or "Proprietary." If you don't, a judge might later use that as an excuse to deny your claim that the documents contain trade secrets -- if you didn't treat the documents like trade secrets, why should the court?

(On the other hand, don't go overboard with your confidentiality stamp -- the credibility of your secrecy assertions may well be diluted if you unthinkingly label the menu in the company cafeteria as confidential.)

October 1, 2003 in Embarrassments / Bad Career Moves, Intellectual Property, Marketing, R&D;, Record-keeping | Permalink | Comments (1) | TrackBack

September 15, 2003

Taco Bell Learns $42MM Lesson That Idea Sources Can Haunt You

The New York Lawyer reports that Taco Bell was hit with a $41.9 million jury verdict for allegedly stealing the idea for the talking-Chihuahua advertising campaign. Thanks to Martin Schwimmer's Trademark Blog for the pointer to this story.

The Taco Bell case illustrates a harsh fact of life for established companies: If you enter into discussions to use a smaller company's ideas or concepts, you'd better be really, really careful if you subsequently decide to go it alone -- you may find it very difficult to convince a jury that you (re-)developed the ideas or concepts on your own.

For another example of how juries can react in situations like this, see Celeritas Technologies vs. Rockwell International. In that case, Rockwell had engaged in preliminary discussions with Celeritas about some ideas for improving wireless modems that Celeritas's technology guy had developed. Rockwell decided to go it alone, and Celeritas sued. At trial, the jury simply did not believe that Rockwell had independently created the technology after its discussions with Celeritas. Nor did the jury believe that Celeritas's technology could not be a trade secret because it was already in the public domain (although the appeals court later held that Celeritas's patent was invalid because of a prior published article that described similar technology). In all, Rockwell was hit with a damages verdict totalling over $58 million. (Disclosure: I was one of the members of Rockwell's trial team.)

September 15, 2003 in Marketing, R&D; | Permalink | Comments (0) | TrackBack

August 18, 2003

Deliberate Copying of Patented Technology
Leads to Doubling of Damage Award

Last Friday, chipmaker Microtune announced that "On August 12, 2003, a federal judge awarded Microtune double its compensatory damages and all of its attorney's fees against Broadcom Corporation in Microtune's patent infringement lawsuit against Broadcom. Microtune estimates that the total judgment against Broadcom will be between $7 and $10 million." See also CNET news story.

Quotable quote from Microtune press release:

In issuing the order, the Court cited "the existence of a substantial amount of circumstantial evidence that Broadcom deliberately copied Microtune's technology" in Broadcom's BCM3415 tuner chipset. Because of the "jury's unanimous finding by clear and convincing evidence that Broadcom's infringement of the '035 patent was willful," the Court also took the exceptional step of awarding attorney's fees to the Company.

A doubling or even trebling of the damage award is not particularly unusual for patent-infringement cases if the judge and jury are persuaded that the defendant intentionally copied the patented technology.

In fact, a defendant can be found to be a "willful" infringer, and subject to an increased damage award, even if all it did was to go about its business after learning of the potential relevance of the patent. The way the courts have interpreted the law, once a company learns about a patent that might affect its business, it has an affirmative duty to use due care -- which usually means getting advice from a patent attorney -- to make sure it is not infringing. (I'll save my editorial comment on that interpretation of the law for another day.)

August 18, 2003 in R&D; | Permalink | Comments (1)