Departing Employee imageAlarms sounded when John Absmeier, technical director of Delphi Automotive’s Silicon Valley autonomous vehicle project, announced he was leaving to join Samsung’s Silicon Valley innovation center where he would lead a self-driving car technology team.  They grew louder upon Delphi’s determination that Absmeier downloaded hundreds of thousands of company files and folders onto personal devices prior to giving notice, deleted tens of thousands of files of unknown subject matter on or before giving notice, and retained possession of tens if not hundreds of thousands of company files (contained on personal external hard drives or personal cloud accounts) after having left Delphi.

Delphi has thus far been able to identify some of what Absmeier downloaded—including over 100 gigabytes of data that appears to be the contents of his “My Documents” folder and his Outlook e-mail folder. These documents consist of many, if not all, of the work emails that Absmeier sent and received while a global executive. Those emails include confidential and sensitive information, and confidential and sensitive documents in the form of e-mail attachments. There was no legitimate reason for Absmeier to be downloading work-related documents and emails in the days and weeks before his resignation— and, in fact, there is no evidence that he had ever downloaded documents from his work computer onto external hard drives before October 15, 2015.

Delphi v Absmeier Am Cmplt

This conduct appeared to give Delphi a strong basis for asserting wrongful acquisition of its trade secrets and actionable trade secret misappropriation.  Delphi filed a lawsuit and moved for a preliminary injunction in federal court under the court’s diversity jurisdiction, but the court found that Delphi was unlikely to succeed on its trade secret misappropriation claims and denied injunctive relief on these grounds.

Luckily for Delphi, in addition to being able to assert trade secret misappropriation, it also had a signed non-compete agreement.  Doubly lucky for Delphi, choice-of-law rules dictated the application of Michigan law, which favored enforcement of the agreement over the competing policy favoring freedom of employees to seek new employment (recognized in other states like California).  Delphi was able to obtain an injunction enforcing the non-compete.

The game-changing combination of choice-of-law rules pointing to the law of jurisdictions enforcing non-competes is a subject for another day (and hopefully a separate post!).

For now, the interesting question is what was done by the departing Delphi engineer Absmeier and his counsel (no doubt in close coordination with new employer Samsung) to avoid trade secret misappropriation liability?  The answers provide something of a checklist for departing engineers and new employers on what they can do to mitigate the risk of liability for trade secret misappropriation.  In particular, in the Delphi case, the defense was able show:

#1 Departing employee was forthcoming about taking new job with potential competitor.

#2 Departing employee offered explanation for the challenged pre-departure downloads and  deletions, e.g., done as part of routine company file back-up, or to remove personal  documents and photos.

#3 Departing employee within approximately two weeks of notice returned all remaining  company devices (e.g., thumb drives) and company-related documents

#4 Departing employee and counsel retained a third-party forensic consultant to:

quarantine all personal storage devices that contained a mixture of company and personal information

sequester any personal cloud-based storage accounts (e.g. Dropbox) containing folders holding company information

sequester personal email (e.g., Gmail) and delete all emails relating to company as opposed to personal information

#5 Departing employee swore on oath that A) he no longer had any company information in  his possession and B) that he had not disclosed or used any Delphi data or documents in  course of his employment with Samsung.

#6 Defense counsel made available for inspection the data and devices sequestered with  third-party consultant.

These actions were described in detail in sworn declarations provided by the departing engineer, Absmeier (attached- Departing Enginner Absmeier Declaration), along with supporting declarations of his counsel and the forensic consultant.  Based on this evidence, Delphi was unable to meet its burden of showing “a significant lack of candor or willingness to misuse trade secrets,” and therefore Delphi was not entitled to enjoin Absmeier’s employment with Samsung based on alleged threatened misappropriation of Delphi trade secrets. (Preliminary Inj. Order attached-Delphi Automotive PLC v Absmeier)

The Delphi litigation falls within the category of cases holding that mere possession of company data subsequent to departure (absent additional evidence such as prior bad behavior, that the data was improperly acquired prior to departure, intent to disclose or use the data in the future, or refusal to return the data) will not be sufficient to establish liability for threatened trade secret misappropriation.  See, e.g., FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1279 (2009); Cent. Valley Gen. Hosp. v. Smith, 162 Cal. App. 4th 501, 528 (2008).

 

 

U.S. District Judge Lucy Koh recently ruled that Apple did not meet its burden of proof to permanently enjoin Samsung from continuing to make and sell the twenty-six (26) products that a San Jose jury found infringed six Apple patents and Apple’s trade dress, to the tune of $1.05 billion.  “[T]o the limited extent that Apple has been able to show that any of its harms were caused by Samsung’s illegal conduct (in this case, only trade dress dilution), Apple has not established that the equities support an injunction,” Judge Koh wrote. This result, if affirmed, unduly limits the scope of one of patent law’s fundamental principles – “the right to exclude” – with respect to all complex, high-tech, multi-feature devices. 

The foundation of this longstanding principle of patent law is expressed in Article I, Section 8, Clause 8 of the U.S. Constitution

The Congress shall have the power . . . to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their writings and discoveries.

(emphasis added).

In fairness to the District Court, the U.S. Supreme Court arguably laid the groundwork for this divergence six years ago by striking down the “general rule” that once patent infringement and validity were established, an injunction would necessarily follow.  See eBay v. MercExchange, L.L.C., 547 U.S., 388 (2006). Indeed, an argument can be made that the Federal Circuit has further eroded that general rule since the eBay decision, ultimately culminating in the recent Apple II decision that reversed the court’s earlier ruling granting Apple preliminary injunctive relief against Samsung’s Galaxy Nexus phone.  See Apple, Inc. v. Samsung Electronics Co., Ltd., 695 F.3d 1370 (Fed. Cir. 2012). However, neither eBay nor Apple II require the District Court to go as far as it did in its recent analysis.

 

The District Court cited to eBay in laying out the standards for issuing a permanent injunction:

(1) That [the patentee] has suffered an irreparable injury;(2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;(3) that, considering the balance of hardships between the plaintiff and defendant, remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

(citing eBay at 391.) In applying those broad standards, however, the court proceeded to demonstrate why the devil is often found in the details. In attempting to show that certain infringed elements of its asserted ’381 utility patent were the features consumers most desired in purchasing the smartphones at issue, Apple presented a report produced by a consulting firm hired by Samsung that identified features that Apple customers like about their phones. Among those desired features expressed by customers were the iPhone’s ability to enlarge pictures, as well as the “two finger pinch and flick” feature. Rejecting such evidence as unpersuasive to meet Apple’s burden, the District Court wrote:Apple must show that "the infringing feature drives consumerdemand for the accused product." (quoting Apple II, 695 F.3dat 1375).  

Apple did not establish [that] the ‘381 patent was central enough to Samsung’s products to drive sales. . . .  Without a causal nexus, this Court cannot conclude that the irreparable harm supports entry of an injunction.  See Apple II,695 F.3d at 1377.

To reach this conclusion, the court relied heavily on language from Apple II:

[A] showing that a patentee has suffered harm is insufficient. Rather, "to satisfy the irreparable harm factor in a patent infringement suit, a patentee must establish . . . 1) that absent an injunction, it will suffer irreparable harm, and 2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement." 

(quoting Apple II) (emphasis added). 

 

The District Court’s application of Apple II’s “sufficiently strong causal nexus” language was too far-reaching. For example, the court’s rationale suggests that unless the infringing feature is so influential in the purchasing decision that it warrants the application of the Entire Market Value Rule (allows use of the total revenue earned on sale of the product – as opposed to using as the royalty basis the lesser revenue apportioned to the patented feature’s contribution to revenue – as the basis for applying the reasonable royalty), there is not a sufficient basis for enjoining infringing conduct. The major problem with the court’s analysis is that it would establish a virtually impossible standard for patentees claiming technology found in high-tech devices that embody hundreds of complex features – some of which infringe and some of which do not – to permanently enjoin infringers. In other words, for such patentees to successfully exclude those found to have violated their intellectual property, it might be easier to crack the DeVinci code than to demonstrate that the specific infringing features are what primarily drove consumers’ buying decisions.     

  

Maybe the court was taking another bite at the apple (no pun intended) to force Apple to craft a licensing arrangement permitting Samsung to keep many of its accused products in the U.S. marketplace. Or maybe it was simply overly cautious about being reversed again, in light of Apple II. Whatever the case, I must agree with the question posed by my law partner upon his reading of the court’s decision: “If you can’t get an injunction where the jury found infringement and a billion dollars in damages, when can you get an injunction?” 

 

The Federal Circuit likely will have to answer that question soon.