Yesterday evening, the district court in the trade secret litigation Waymo v. Uber et al [3:17-cv-939-WHA] issued revised jury instructions on trade secret misappropriation and proposed special verdict form (Dkt. #2499). The revised instructions retain the requirement in earlier drafts of the instructions that Waymo must show Uber actually used the improperly acquired trade secrets in order to recover unjust enrichment damages.

With due respect to the very hard work of the court and the parties, and recognizing full well that the district court has the final say on such matters, the current draft instructions do not incorporate — perhaps intentionally, perhaps not — the lessons learned by the Western District of Wisconsin in Epic Systems v. Tata Consultancy Services [3:14-cv-748-WMC] in the course of instructing a jury on awarding unjust enrichment damages on an acquisition-based misappropriation theory.

Epic Systems and its relevance to the “use” issues in the Waymo litigation is the subject of my earlier post Acquisition-based misappropriation depends upon how “use” is “used” (LinkedIn Dec. 22, 2017). The key rulings in Epic Systems:

Of particular relevance to the Waymo litigation is that the district court in Epic Systems initially instructed the jury that recovery of unjust enrichment damages is contingent upon showing actual use of the trade secrets. There was little or no explanation in these initial instructions of what is meant by “use.”  Upon listening to testimony on damages, however, the district court in Epic Systems decided it needed to issue a supplemental damage instruction to clarify that “use” does not require showing the trade secret was used to develop a successful competing product. (Dkt. #898 at 92:18-93:1)

The point is that the law makes clear that you don’t necessarily have to be successful in order to have used and be entitled to — and to be deemed to have been benefited by the development, market or sale of a competitive product. You don’t have to be successful if you’ve used it to develop, market or sell a competitive product. That’s enough. You don’t have to be — you don’t have to prove that it was successfully developed, marketed or sold.

This important clarification is missing from the current Waymo instructions. Without it, a defendant could avoid unjust enrichment damages on the grounds that there is no evidence that it “used” the trade secret to successfully develop, market or sell a competing product.

True enough, the district court in Waymo added new instruction XVI (Dkt. #2449 at 8), which cautions that “use” is not limited to “direct copying but can include studying and consulting” and “studying may constitute use even though the two designs differed.”  The underlying intent may have been the same as that which motivated the district court in Epic Systems to issue a supplemental instruction.  However motivated, the Waymo instruction falls  short of sufficiently warding off argument or evidence designed to narrow “use” to successful competition.

It may help to break down in chronological fashion how the district court in Epic Systems came to believe further explanation was necessary.

The district court started out by rejecting the plaintiff’s offer of proof of compensatory damages as not sufficiently anchored in evidence of use by defendant, stating in Epic Systems, Order on Offer of Proof Damages, at *5:

In other words, while the court is open to a “use” theory which is broader than specific evidence that Epic’s “confidential and trade secret information was incorporated into TCS’s Med Mantra product” [], plaintiff must tie its damages theory to that use. Otherwise, all the jury has is Britven’s assessment of the total value to TCS of Epic’ confidential information without any way to discount that total value to reflect TCS’s actual benefit.

The district court also described to counsel what it wanted to see in a sidebar outside the presence of the jury:

The jury was then instructed about the evidence of “use” required to award unjust enrichment damages:

In the course of introducing their evidence and testimony on damages, counsel advanced different interpretations of “use,” compelling the court to issue a supplemental instruction:

The jury then received (and ultimately rendered) a special verdict on damages that called out specific benefits anchored in use by the defendant:

In post-trial motions, defendant challenged the verdict as lacking sufficient evidence, but plaintiff successfully characterized the challenge as erroneously trying read back into “use” the requirement “that Epic had to prove that TCS then ‘used’ the comparative analysis either to improve or market its medical software products. But that is not the standard required under the law, and it is not the standard on which the jury was instructed.” (Pl. Opp. to Post-Trial Mot., Dkt. #926 at 56.)  The district court agreed (but did reduce the compensatory award by $100 million on other grounds), see Epic Systems, Order on Post-Trial Motions, at *4-5.

Bringing this back to Waymo litigation, Epic Systems is on point in that it awarded significant unjust enrichment damages on what for all practical purposes was an acquisition-based theory of misappropriation.  It rejected the argument by the plaintiff that “use” should not be a required to show unjust enrichment damages — which may be the approach Waymo is taking in its litigation.  It also rejects the idea that “use’ requires a showing that the trade secret or confidential information was used by defendant to develop a successful competitive product — which may be the approach Uber is taking in its defense of Waymo’s unjust enrichment claims. It therefore might be worth it for the parties and the court in Waymo to borrow the “use” instructions ultimately issued in Epic Systems.

 

The Defend Trade Secrets Act (“DTSA”), on its face, creates a private action in district court for misappropriation occurring abroad.  Filing a DTSA claim in district court may in certain circumstances provide the best remedy for foreign trade secret theft over other alternatives such as filing a complaint with the International Trade Commission.  But over a year-and-a- half after the enactment of the DTSA, are there any decisions applying the DTSA to foreign trade secret theft? Not so much.

The relevant hypothetical is one where a U.S. company’s business partner in China has stolen the U.S. company’s trade secrets, as shown in this animated video:

(This video was first presented at “Trade Secret Theft Occurring Overseas: The Long(er) Reach of the ITC,” Computer History Museum, Mountain View, CA, Oct. 10, 2017, a joint CLE by Merchant & Gould and Adduci, Mastriani and Schaumberg (hereafter referred to as  “Foreign Trade Secret Theft CLE”).

As proposed in the animation, bringing a claim in the International Trade Commission (“ITC”) to block imports that use the trade secrets is a viable and in some instances the best solution.  However, there are factors that favor bringing a misappropriation claim in district court.

An ITC remedy may not be available because, notwithstanding a bona fide threat that misappropriation will occur, misappropriation has not yet happened – it is threatened as opposed to actual, or, because the misappropriated  trade secret is source code or other intangible digital media that does not qualify as a “good” within the meaning of ITC rules.  Even if the ITC remedy is available, it does not allow recovery of money damages, requires intense and expensive factual development prior to filing the complaint, and imposes potentially difficult to prove domestic industry and injury requirements.

Foreign Trade Secret Theft CLE

Whether a district court action asserting the DTSA is a viable alternative hinges on the whether the DTSA has extraterritorial reach. There is a presumption that U.S. laws do not apply outside the U.S. unless Congress expresses a clear intent otherwise.  The language of the DTSA and its related legislative history manifest the requisite Congressional intent and therefore overcome the presumption.

Foreign Trade Secret Theft CLE

But so far there is little if any evidence in reported decisions of courts extending the DTSA to cover foreign conduct in reliance on the statute’s extraterritoriality provisions.

The DTSA was applied to extraterritorial conduct in T&S Brass and Bronze Works Inc v Slanina (D.S.C. 2017) because the defendants were citizens or permanent resident aliens of the U.S., thus satisfying section 1837 subpart (1).  Research has not disclosed any other case applying DTSA extraterritorially based upon the U.S. citizenship of the defendants.

Likewise, research has not disclosed any decision applying DTSA to conduct outside the U.S. because “an act in furtherance of the offense was committed in the United States” within the meaning of section 1837 subpart (2).  Nonetheless, there is compelling basis for arguing that where, as in the hypothetical, the misappropriation includes importing, marketing or selling in the U.S. goods made overseas using the stolen trade secrets, there is an “act in furtherance” justifying extension of the DTSA to reach the overseas theft and use of the trade secrets.  In VIA Technologies Inc v ASUS Computer International (N.D. Cal. 2015), the district court interpreted California’s version of the Uniform Trade Secret Act (“UTSA”) as allowing a claim for misappropriation based upon marketing in the U.S. goods made overseas that embody the trade secret.  Since the DTSA and state court statutes based on the UTSA are deemed coextensive, it is therefore highly likely that a district court would similarly interpret what is meant my misappropriation under the DTSA.

Foreign Trade Secret Theft CLE

(It is important to note that California’s version of the UTSA (“CUTSA”) was not given extraterritorial application in Cave Consulting Group Inc v Truven Health Analytics Inc, such that the actionable misappropriation under CUTSA like that alleged in VIA Techs. is limited to the misappropriation occurring in the U.S. (the marketing and selling of the goods in the U.S.) and excludes the misappropriation occurring outside the U.S. (the improper acquisition and use of the trade secrets by a foreign competitor). In comparison, under the DTSA, not just the misappropriation committed in the U.S. (importing and marketing of LETSA cars) but also the misappropriation occurring in China (the acquisition and exploitation of the ALSET trade secrets by LETSA), is actionable.  The U.S.-based misappropriation is “an act in furtherance” of LETSA’s overall misappropriation that supports the extraterritorial reach of the DTSA to the conduct occurring in China.)

There are instances where the comparative benefits of bringing a DTSA claim to address foreign trade secret theft in a district court as compared to the ITC favor bringing a DTSA claim – assuming a DTSA claim can overcome the presumption against extraterritorial application.  The language and legislative history of the DTSA are sufficient to overcome the presumption in certain instances (where the defendant is a U.S. citizen or where an act in furtherance of the offense has been committed in the U.S.).  Yet well over a year-and-a-half after enactment of the DTSA, there are few if any reported decisions recognizing the DTSA as a viable theory of recovery for foreign trade secret theft.

Dave Bohrer’s recent post Extending US Trade Secret Law to Reach IP Theft in China discusses what to do when your company’s Chinese joint venture makes off with your trade secrets in China.  The post suggests it may be possible to bring an action in US court extending either federal or state trade secret law extraterritorially to reach the misconduct in China.

In response to Dave’s post, I suggest that there is another, complementary alternative to a US-based civil action: bring a complaint asserting trade secret theft and unfair competition to the U.S. International Trade Commission (“ITC”) under Section 337 of the Tariff Act.

The ITC, despite its name, is a U.S. federal agency that operates as U.S. district court with a twist – extraterritorial reach to address unfair acts that take place entirely oversees, and in rem jurisdiction over Chinese respondents based on the importation of goods into the United States.   The ITC cannot award damages but it can close the borders to goods from Chinese entities that steal trade secrets, effectively a national injunction.  Your aggrieved U.S. client at least won’t find itself competing with its own purloined knowhow in the U.S. market.   ITC cases are fast (18 months or less, soup to nuts) and furious (offering remedies with teeth that not only exclude unfairly traded goods, but which can bind U.S. distributors and retailers with cease and desist orders).

The ITC came into its own as a forum for litigating trade secrets with the TianRui case in 2008.  In that case, employees from a Chinese-U.S. railway equipment joint venture departed and started a new Chinese company, using the stolen trade secrets.  Soon the U.S. partner was facing U.S. imports of Chinese railways using the stolen technology.  The ITC found, and the Federal Circuit affirmed, that the Commission had authority under Section 337 of the Tariff Act to apply U.S. trade secret law to bad actors and unfair acts that took place entirely in China.  The Federal Circuit expressly held that “section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.   In reaching this decision, the Federal Circuit effectively treated the Uniform Trade Secrets Act as federal common law and found the Commission’s determination to comply with basic trade secret principles.  ITC findings of fact and law in “unfair acts” cases are preclusive and bind the district court, giving Complainants the option of a rapid one-two punch of an ITC exclusion order sealing the U.S. border from infringing goods, and then the possibility of walking into the district court for damages without relitigating the merits of the case.

Of particular note is the ITC’s determination in TianRui that “[t]he presumption against extraterritoriality does not govern this case.”   In other words, a trade secret complaint investigated by the ITC avoids entirely what my colleague described in his earlier post as one of the more significant legal hurdles to extending US trade secret law to reach extraterritorial conduct. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China: An ITC Lawyer’s Reply

Hidden Memory Card  (inspired by ABC's Designated Survivor, 1:9, "The Blueprint," aired Dec. 7, 2016)
Hidden Memory Card (inspired by ABC’s Designated Survivor, 1:9, “The Blueprint,” aired Dec. 7, 2016)

Engineers from your China subsidiary just joined a competing company which has begun using your trade secrets.  Can you sue in the US and avoid the uncertainty and expense of seeking relief in a Chinese court?  The answer is that both federal Defend Trade Secrets Act (DTSA) of 2016 and California’s version of the Uniform Trade Secrets Act (CUTSA), under the right circumstances, may be extended extraterritorially to reach misappropriation outside of the US.

Perhaps surprisingly, it may be harder to do this under the federal law, which expressly provides that it applies to conduct outside the US, than under the California law, which is silent on the subject.  Let’s break this down.

Extraterritorial theft of trade secrets by insider employees or business partners in China is a significant problem as evidenced by the investigation in International Trade Commission cases Amsted v. TianRui (disclosure and use of US company’s trade secrets in China) [the 2011 Federal Circuit decision on appeal] and In re Certain Rubber Resins (same) [the 2014 ITC determination].  The problem reflects the reality of the current business environment, which is global and digital; technology owned by US-based companies is often shared with employees or business partners located outside of the US and it is not unusual for them to move between competitors. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China

Although many may be asserted, quite often far less warrant protection
Although many may be asserted, quite often far less warrant protection

The question is whether it is possible to get a court to enter partial summary judgment before trial on some but not all of the trade secrets that the defendant is accused of stealing.

As discussed in the Sept 28 post, the answer is that this may not be possible if the lawsuit is filed in California state court.

But if the trade secret lawsuit is filed in federal court, the answer is yes.  In federal court, it is easier to weed out before trial alleged trade secrets that do not satisfy the legal requirements for protection.

Why should we care?  For each allegedly misappropriated trade secret that is allowed to be argued at trial, the costs incurred in either proving up or rebutting the claim run in the tens if not the hundreds of thousands of dollars spent on attorneys, experts and discovery, not to mention the significant time the court and the jury must devote to determining liability on each such claim.  In other words, the potential savings of time and money to all concerned (court, jurors, and parties) from taking fewer trade secrets to trial are huge. Also, settlement before trial is much more likely if the parties know in advance which trade secret claims will or will not be tried. Continue Reading You Can Get Partial SJ on Some But Not All Trade Secrets . . . In Federal Court

Not necessarily in California. The answer depends upon the unsettled issue whether California summary adjudication rules allow courts to dismiss some but not all of the asserted trade secrets before trial.

Trade secret claims brought by a technology company typically allege theft of not one but many trade secrets.  The law recognizes as separate and specific trade secrets not just a particular technology, but also the underlying research, study, tests or investigation relating to this technology.  For example, in Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333, 1345 n.10 (2009), the court found that “Perlan’s eight purported trade secrets are: ‘(1) the Charles Invention, (2) Perlan’s Protein Multimerization Process, (3) Perlan’s novel idea [involving sialidase to] create a drug to combat the flu, and (4) all related research, (5) development, (6) advancements, (7) improvements and (8) processes related thereto.’”

Each of the numerous alleged trade secrets must satisfy certain requirements before they are deemed protectable in the eyes of the law.  A trade secret must be described with sufficient particularity and have independent economic value derived from having been kept secret.  And even if a particular trade secret is deemed legally protectable, there is no actionable theft (misappropriation) unless the trade secret has been improperly acquired, used or disclosed.

It is very rare that all trade secrets asserted at the beginning of a case satisfy all the requirements.   There often are many clunkers among the asserted secrets and this is sussed out through the development of the case leading up to the trial.   Furthermore, the identity of the bad trade secrets is or at least should be quite clear to the parties and the court following expert discovery, and in some cases even earlier in discovery.  Limiting trial to those trade secrets that have some basis in law or fact can save the parties hundreds of thousands of dollars in attorney and expert fees and costs otherwise incurred to prosecute or defend the bad trade secrets on top those that might have some merit.  Precious and scarce court resources are saved for resolving legitimately asserted trade secrets (and are not diluted or wasted on resolving the bad ones).

In California, it may not be possible to obtain partial judgment on some but not all asserted trade secrets.  Lawsuits brought in California court for misappropriation of trade secrets under California law (California Uniform Trade Secrets Act, Civ. Code, § 3426 et seq.) are governed by state procedural rules for summary judgement and summary adjudication.  Code Civ. Proc., § 437c subd. (a) (summary judgment) and (f) (summary adjudication).  Summary judgement terminates the entire action.  Summary adjudication is directed to some but not all “causes of action,” such that following entry of summary adjudication the case proceeds to trial on the remaining causes of action.  You therefore can’t get summary judgment on some but not all trade secret claims, but you might get summary adjudication if the challenged trade secret claim is deemed a “cause of action” within the meaning of the rule. Continue Reading Can You Get Partial SJ on Some But Not All Trade Secrets?

DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)
DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)

Proposed legislation creating a federal cause of action for trade secret misappropriation is on the fast track to becoming law, as described in James Pooley’s excellent post What You Need to Know About the Amended Defend Trade Secrets Act [link], January 31, 2016 Guest Post, Patently-O.  Referred to as the Defend Trade Secrets Act (“DTSA”), the legislation was favorably reported out of the Senate Judiciary Committee on January 28, 2016.

For those seeking to catch up on these developments, the recent posts and articles by Mr. Pooley and his colleagues are a great place to start learning the salient characteristics of the new law, including the rejection of the idea that an employee should be blocked from taking a new job based on the doctrine known as “inevitable disclosure.”  The DTSA’s rejection of “inevitable disclosure” warrants a closer look; it means the DTSA embraces California’s robust policy favoring free mobility of employees between jobs.  Let’s break this down. Continue Reading New Federal Trade Secret Law is Pro Employee Mobility and Rejects Inevitable Disclosure

negativespace-15

Image from NegativeSpace

For the last few decades, corporations ranging from startups to large multinationals first turned to utility patents to protect their innovative software. These patents protected everything from the minute details of microprocessor operation (e.g., Intel’s microprocessor power consumption patent) to algorithms for a search engine (e.g.Google/Stanford’s page rank patent) to innovative user interfaces (e.g.,Amazon’s “one-click” patent). In fact, by 2011, patents on software made up more than half of all patents being issued.

See the August 2013 report from the Government Accountability Office on Intellectual Property here.

The Supreme Court’s June 2014 ruling in Alice v. CLS Bank calls into question the eligibility for patent protection of these issued utility patents on computer software, and is a barrier to future applications on computer software.  Alice and its progeny compel software developers to look beyond patents to protect their intellectual property.  What are these alternatives?  When and how can they be used? Continue Reading Courts Everywhere are Finding Software Patents Invalid, So What Next?